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<TITLE>NAM TAI ELECTRONICS, INC.</TITLE>
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<DIV align="center" style="font-size: 14pt; margin-top: 12pt"><B>UNITED STATES SECURITIES AND EXCHANGE COMMISSION</B>
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<DIV align="center" style="font-size: 12pt"><B>Washington, D.C. 20549</B>
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<DIV align="center" style="font-size: 18pt; margin-top: 12pt"><B>Form&nbsp;20-F</B>
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    <TD><B>REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)&nbsp;OF THE SECURITIES EXCHANGE ACT OF
1934</B></TD>
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<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>or</B></DIV>

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    <TD><B>ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the Fiscal Year Ended December&nbsp;31, 2005</B>
</B>
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<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>or</B></DIV>

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    <TD><B>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 12%"><B><B>For the transition period from </B><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U><U>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</U> <B>to</B>
</B>
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<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>or</B></DIV>

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    <TD><B>SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934</B></TD>
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</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Commission File Number: 0-16673</B></DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt"><B>Nam Tai Electronics, Inc.</B>
</DIV>
<DIV align="center" style="font-size: 10pt; margin-top: 3pt"><I>(Exact name of registrant as specified in its charter)</I></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>British Virgin Islands</B><BR>
<I>(Jurisdiction of incorporation or organization)</I></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>116 Main Street<BR>
3rd Floor<BR>
Road Town, Tortola<BR>
British Virgin Islands</B><BR>
<I>(Address of principal executive offices)</I></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Securities registered or to be registered pursuant to Section&nbsp;12(b) of the Act:<BR>
Common Shares, $0.01 par value per share</B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Securities registered pursuant to Section&nbsp;12(g) of the Act: NONE</B></DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt"><B>Securities for which there is a reporting obligation pursuant to Section&nbsp;15(d) of the Act: NONE</B></DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, there were 43,505,586 common shares of the registrant outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 0pt"><FONT face="Wingdings">&#111;</FONT> Yes &nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT> No&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of
1934.
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 0pt"><FONT face="Wingdings">&#111;</FONT> Yes &nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT> No&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Note &#150; Checking the box above will not relieve any registrant required to file reports
pursuant to Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under
those Sections.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant: (i)&nbsp;has filed all reports required to be filed
by Section&nbsp;13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12&nbsp;months (or
for such shorter period that the registrant was required to file such reports), and (ii)&nbsp;has been
subject to such filing requirements for the past 90&nbsp;days. Yes <FONT face="Wingdings">&#254;</FONT> No <FONT face="Wingdings">&#111;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of &#147;accelerated filer and large accelerated
filer&#148; in Rule&nbsp;12b-2 of the Exchange Act. (Check one):
</DIV>
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    <TD align="left" valign="top">Large accelerated filer <FONT face="Wingdings">&#111;</FONT>
</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">Accelerated filer <FONT face="Wingdings">&#254;</FONT>
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    <TD>&nbsp;</TD>
    <TD align="right" valign="top">None-accelerated filer <FONT face="Wingdings">&#111;</FONT></TD>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Indicate by check mark which financial statement item the registrant has elected to follow:
Item&nbsp;17. <FONT face="Wingdings">&#111;</FONT> Item&nbsp;18. <FONT face="Wingdings">&#254;</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule&nbsp;12b-2 of the Exchange Act).
</DIV>

<DIV align="right" style="font-size: 10pt; margin-top: 0pt"><FONT face="Wingdings">&#111;</FONT> Yes &nbsp;&nbsp;&nbsp;<FONT face="Wingdings">&#254;</FONT> No&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
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<A name="tocpage"></A>
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<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>TABLE OF CONTENTS</B>
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<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#101">PART I</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#102">Item&nbsp;1. Identity of Directors, Senior Management and Advisors &#151; Not applicable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#103">Item&nbsp;2. Offer Statistics and Expected Timetable &#151; Not applicable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#104">Item&nbsp;3. Key Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#105">Item&nbsp;4. Information on the Company</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#106">Item&nbsp;4 A. Unresolved Staff Comments</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">35</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#107">Item&nbsp;5. Operating and Financial Review and Prospects</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#108">Item&nbsp;6. Directors, Senior Management and Employees</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#109">Item&nbsp;7. Major Shareholders and Related Party Transactions</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#110">Item&nbsp;8. Financial Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#111">Item&nbsp;9. The Listing</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#112">Item&nbsp;10. Additional Information</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#113">Item&nbsp;11. Quantitative and Qualitative Disclosure about Market Risk</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#114">Item&nbsp;12. Description of Securities Other than Equity Securities &#151; Not applicable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#115">PART II</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#116">Item&nbsp;13. Defaults, Dividend Arrearages and Delinquencies &#151; Not applicable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#117">Item&nbsp;14. Material Modifications to the Rights of Security Holders and Use of Proceeds &#151; Not applicable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#118">Item&nbsp;15. Controls and Procedures</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#119">Item&nbsp;16. <B><I>&#091;Reserved&#093;</I></B></A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#120">Item&nbsp;16 A. Audit Committee Financial Expert</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">75</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#121">Item&nbsp;16 B. Code of Ethics</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#122">Item&nbsp;16 C. Principal Accountant Fees and Services</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">76</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#123">Item&nbsp;16 D. Exemptions from the Listing Standards For Audit Committees &#151; Not applicable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#124">Item&nbsp;16 E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers &#151; Not applicable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#125">PART III</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#126">Item&nbsp;17. Financial Statements &#151; Not applicable</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#127">Item&nbsp;18. Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">77</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#128">Item&nbsp;19. Exhibits</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
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<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv4w17.txt">EX-4.17 LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv4w18.txt">EX-4.18 AGREEMENT IN RELATION TO SALE AND PURCHASE</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv4w19.txt">EX-4.19 SUPPLEMENTAL LOAN AGREEMENT</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv4w20.txt">EX-4.20 SUPPLEMENT LETTER DATED MAY 12, 2005</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv4w21.txt">EX-4.21 BANKING FACILITIES LETTER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv4w22.txt">EX-4.22 BANKING FACILITIES LETTER</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv12w1.txt">EX-12.1 SECTION 302 CEO CERTIFICATION</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv12w2.txt">EX-12.2 SECTION 302 CFO CERTIFICATION</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv23w1.txt">EX-23.1 CONSENT OF DELOITTE</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv99w1.txt">EX-99.1 SECTION 906 CEO CERTIFICATION</A></FONT></TD></TR>
<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="h00389exv99w2.txt">EX-99.2 SECTION 906 CFO CERTIFICATION</A></FONT></TD></TR>
</TABLE>
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>SIGNATURES AND CERTIFICATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Consents
of Independent Registered Public Accounting Firm (for incorporation of their report on Financial Statements
into the Company&#146;s Registration Statements on Form S-8)
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>This Annual Report on </I><I>Form 20-F</I><I> contains forward-looking statements. These statements are
subject to certain risks and uncertainties that could cause actual results to differ materially
from those anticipated in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section entitled &#147;Risk Factors&#148;
under Item&nbsp;3. Key Information.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Readers should not place undue reliance on forward-looking statements, which reflect
management&#146;s view only as of the date of this Report. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect subsequent events or circumstances.
Readers should also carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission.</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>FINANCIAL STATEMENTS AND CURRENCY PRESENTATION</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company prepares its consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America and publishes its financial
statements in United States dollars.
</DIV>

<P align="center" style="font-size: 10pt">2
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="101"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART I</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Unless the context otherwise requires, all references in this annual report, or Report, to
&#147;Nam Tai&#148;, or &#147;we&#148;, or &#147;our&#148;, or &#147;us&#148;, and the &#147;Company&#148; refer to Nam Tai Electronics, Inc. and its
consolidated subsidiaries and their respective predecessors. References to &#147;U.S. dollars&#148;,
&#147;dollars&#148; or $ are to United States dollars.
</DIV>
<DIV align="left">
<A name="102"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;1. </B><B><I>Identity of Directors, Senior Management and Advisors</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="103"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;2. </B><B><I>Offer Statistics and Expected Timetable</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable.
</DIV>
<DIV align="left">
<A name="104"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;3. </B><B><I>Key Information</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Selected Financial Data</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our historical consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States, or U.S. GAAP, and are presented in United
States dollars. The following selected statements of income data for each of the three years in the
period ended December&nbsp;31, 2005 and the balance sheet data as of December&nbsp;31, 2004 and 2005 are
derived from our consolidated financial statements and notes thereto included in this Report. The
selected statements of income data for each of the two year periods ended December&nbsp;31, 2001 and
2002 and the balance sheet data as of December&nbsp;31, 2001, 2002 and 2003 were derived from our
audited financial statements, which are not included in this Report. The following data should be
read in conjunction with the Section of the Report entitled Item&nbsp;5, Operating and Financial Review
and Prospects, and our consolidated financial statements including the related footnotes. All
reference to numbers of common shares, per share data and stock option data have been adjusted to
give effect to a three-for-one stock split effective on June&nbsp;30, 2003 on a retroactive basis and
for the purposes of earnings per share calculation, all references to numbers of common shares, and
per share data have been adjusted to reflect an issuance of a stock dividend to shareholders at a
ratio of one dividend share for every ten shares, or a ten-for-one stock dividend, effective on
November&nbsp;7, 2003.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #ffffff"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated statements of income data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; third parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">212,934</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">228,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">385,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">499,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">791,042</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,072</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,849</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">236,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">533,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">797,237</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">203,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">197,956</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">340,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">457,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">704,314</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,032</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38,060</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,923</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating costs and expenses:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Selling, general and administrative</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,983</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,866</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,057</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Research and development</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,037</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,210</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment of goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">339</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,008</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,267</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,104</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,052</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,656</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expenses) &#151; net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,418</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(815</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,012</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(125</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend income received from marketable
securities and investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">917</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on sale of subsidiaries&#146; shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,095</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on disposal of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,631</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain (Loss) on disposal of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">642</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,686</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment loss on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(58,316</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,525</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">799</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,948</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(178</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(790</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(121</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(195</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(438</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,219</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,135</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #ffffff"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands, except per share data)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(227</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(773</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(399</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(879</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(651</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before minority interests and equity in
income (loss)&nbsp;of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,408</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,446</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,484</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(230</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(164</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,067</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,010</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,992</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income after minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,282</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,492</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in income (loss)&nbsp;of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,867</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,806</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(186</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discontinued operation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">9,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Earnings per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from continuing operations per share:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.04</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.26</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.02</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Weighted average shares:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Basic</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,905</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,945</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Diluted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,430</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,548</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,169</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 1px solid #ffffff"><B>At December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19"><B>(in thousands, except per share data)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Consolidated balance sheet data:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">58,676</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">82,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">61,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">160,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">213,843</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Working capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">83,525</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">87,184</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">93,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">218,243</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">234,674</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Land use
right and property, plant and equipment &#151; net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">70,414</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,914</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,741</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">224,573</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">275,086</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">297,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">460,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">520,011</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short-term debt, including current portion of long-term debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,687</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,955</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term debt, less current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,860</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,812</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,688</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,850</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total debt</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,692</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">202,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">305,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310,391</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Common shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">312</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">435</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total dividend per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total number of common shares issued</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,326</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,665</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,506</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 10%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 1pt">Note:
Working Capital represents the excess of current assets over current
liabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Risk Factors</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>We may from time to time make written or oral forward-looking statements. Written
forward-looking statements may appear in this document and other documents filed with the
Securities and Exchange Commission, in press releases, in reports to shareholders, on our website,
and other documents. The Private Securities Reform Act of 1995 contains a safe harbor for
forward-looking statements on which the Company relies in making such disclosures. In connection
with this &#147;safe harbor&#148;, we are hereby identifying important factors that could cause actual
results to differ materially from those contained in any forward-looking statements made by us or
on our behalf. Any such statements are qualified by reference to the following cautionary
statements:</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Risks Related to Our Business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>We are dependent on a few large customers, the loss of any of which could substantially harm our
business and operating results.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, a substantial percentage of our sales have been to a small number of customers.
During the years ended December&nbsp;31, 2003, 2004 and 2005, sales to our customers accounting for 10%
or more of our net sales aggregated approximately 46.7%, 47.9%, and 57.7%, respectively, of our net
sales. The loss of Sanyo Epson Imaging Devices (HK) Limited (formerly
known as Epson Precision (HK)&nbsp;Ltd.), Sharp Corporation or Wuxi Sharp Electronic Components
Co., Ltd., each of which accounted for more than 10% of our net sales during 2005, or a substantial
reduction in orders from any of them, would materially and adversely impact our business and
operating results.
</DIV>

<P align="center" style="font-size: 10pt">4
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Our quarterly and annual operating results are subject to significant fluctuations due to a wide
variety of factors.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our quarterly and annual operating results are affected by a wide variety of factors that
could materially and adversely affect our business and operating results during any period. This
could result from any one or a combination of factors, such as:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the timing, cancellation or postponement of orders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the type of product and related margins;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our customers&#146; announcement and introduction of new products or new generations of products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the life cycles of our customers&#146; products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our timing of expenditures in anticipation of future orders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>our effectiveness in managing manufacturing processes, including, interruptions
or slowdowns in production and changes in cost and availability of components; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the mix of orders filled.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The volume and timing of orders received during a quarter are difficult to forecast. From time
to time, our customers encounter uncertain and changing demand for their products. Customers
generally order based on their forecasts. If demand falls below such forecasts or if customers do
not control inventories effectively, they may reduce, cancel or postpone shipments of orders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a consequence of any of the above factors, our results of operations in any period should
not be considered indicative of results to be expected in any future period, and fluctuations in
operating results may also result in fluctuations in the market price of our common shares. Our
results of operations in future periods may fall below the expectations of public market analysts
and investors or projections provided by the Company. This failure to meet expectations could cause
the trading price of our common shares to decline substantially.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Cancellations or delays in orders could materially and adversely affect our gross margins and
operating income.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales to our original equipment manufacturer, or OEM, customers are primarily based on
purchase orders we receive from time to time rather than firm, long-term purchase commitments.
Although it is our general practice to purchase raw materials only upon receiving a purchase order,
for certain customers we will occasionally purchase raw materials based on such customers&#146; rolling
forecasts. Further, during times of potential component shortages, we have purchased, and may
continue to purchase, raw materials and component parts in the expectation of receiving purchase
orders for products that use these components. In the event actual purchase orders are delayed, are
not received or are cancelled, we would experience increased inventory levels or possible
write-down of raw material inventory that could materially and adversely affect our business and
operating results.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We do not have long-term purchase commitments from our customers and the life cycles of their
products (and therefore ours) may be short, so our future revenues are difficult to predict.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As our customers do not have long-term purchase commitments with us and our sales are made on
individual purchase orders, our customers may cancel or defer purchase orders. In addition, the
life cycles of our customers&#146; products (and therefore ours) may be insufficient to ensure that
these increased costs can be offset. Our customers&#146; purchase orders may vary significantly from
period to period, and it is difficult to forecast future order quantities. Further, we do not
typically operate with any significant backlog in orders, and this makes it difficult for us to
forecast our revenues, plan our production and allocate resources for future periods (including our
capital expenditures). There can be no assurance that the volume of our customers&#146; orders will be
consistent with prior periods or with our expectations. Accordingly, our results of operations may
fluctuate significantly in the future. Such fluctuations may adversely affect our liquidity,
profitability, results of operations and financial condition.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our
business has been characterized by a rapidly changing mix of products and customers.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our business has been characterized by a rapidly changing mix of products and customers,
driven in significant part by changes in demand for consumer electronics as well as technological
innovation. We are engaged in the production of
Bluetooth<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> wireless headsets,
</DIV>

<P align="center" style="font-size: 10pt">5
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> printed circuit board assembly, or PCBA, for Bluetooth<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> headsets, radio
frequency, or RF, modules, thin film transistor liquid crystal display, or TFT LCD, modules, color
LCD modules and complementary metal oxide semiconductor, or CMOS, sensor modules, flexible printed
circuit, or FPC, sub-assemblies and digital audio broadcast, or DAB, modules. We expect that a
substantial portion of our growth will come from the manufacturing of these products. Certain
products have become less economically significant to us over time, such as monochrome LCD modules
for mobile phone headsets, which sales have dropped significantly in each of the past three years
since 2002 as end use customers are increasingly choosing color LCD panels instead. We expect that
our current mix of customers and products will continue to change rapidly, and we believe this to
be relatively common in the electronics manufacturing services, or EMS, industry. If the products
that we or our customers manufacture become obsolete or otherwise less profitable and we are not
able to diversify our current product offerings or customer base in a timely manner, our business
would be materially and adversely affected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>There may not be a sufficient market for new products that our customers or we develop.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our customers may not develop new products in a timely and cost-effective manner, or the
market for products they choose to develop may not grow or be sustained in line with their
expectations. This would reduce the overall businesses they outsource, which would seriously affect
our business and operating results. Even if we develop capabilities to manufacture new products,
there can be no guarantee that a market exists or will develop for such products or that such
products will adequately respond to market trends. If we invest resources to develop capabilities
to manufacture new products, like the investment in our new factory, for which a market does not
develop, our business and operating results would be seriously harmed. Even if the market for our
services grows, it may not grow at an adequate pace.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our inability to utilize capacity at our new factory could materially and adversely affect our
business and operating results.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to expand our production capacity, we have built a new factory consisting of
approximately 265,000 square feet adjacent to our principal manufacturing facilities in Shenzhen,
the People&#146;s Republic of China, or China or the PRC. The construction was completed in December
2004 and we commenced full operations at the new manufacturing site in April&nbsp;2005. As of December
31, 2005, we had incurred approximately $25.8&nbsp;million to cover the cost of construction and
fixtures and equipment for the new factory. The financing for these improvements to our
manufacturing facilities was obtained from our internal resources. We have committed substantial
expenditures and resources constructing and equipping this factory but cannot guarantee that we
will be able to fully utilize such additional capacity. Our factory utilization is dependent on our
success in providing manufacturing services for new or other products that we intend to produce at
that factory, such as mobile phone accessories, CMOS sensor modules for cellular phones and
entertainment devices at a price and volume sufficient to absorb our increased overhead expenses.
Demand for contract manufacturing of these products may not be as high as we expect, and we may
fail to realize the expected benefit from our investment in our new factory.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We face increasing competition, which has had and could continue to have an adverse effect on our
margins.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although certain barriers to entry exist in the EMS industry, including technical expertise,
substantial capital requirements, difficulties relating to building customer relationships and a
large customer base, the barriers to entry are comparatively low and we are aware that
manufacturers in Hong Kong and China may be developing or have developed the required technical
capability and customer base to compete with our existing business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Competition in the EMS industry is intense and is characterized by price erosion, rapid
technological change, and competition from major international companies. This intense competition
has resulted in pricing pressures, lower sales and reduced margins. Continuing competitive
pressures could materially and adversely affect our business and operating results. Over the last
several years our margins have declined substantially, from 12.8% in 2001 to approximately 11.7% in
2005. Continuing competitive pressures could materially and adversely affect our business and
operating results.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We may not be able to compete successfully with our competitors, many of which have substantially
greater resources than we do.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The EMS we provide are available from many independent sources as well as from our current and
potential customers with in-house manufacturing capabilities. We believe our EMS competitors
include Celestica, Inc., Flextronics International Ltd., Hon Hai Precision Industry Co., Ltd.,
Jabil Circuit, Inc., Sanmina-SCI Corporation and Solectron Corporation. We believe our principal
competitors in the manufacturing of our traditional product lines of calculators, personal
organizers and linguistic products include Kinpo Electronics, Inc. and Inventec Co. Ltd. We believe
our competitors in the manufacturing of image capturing devices and
their modules include Lite-On Technology Corporation,
</DIV>

<P align="center" style="font-size: 10pt">6
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> The Primax Group and Logitech International
S.A. We believe our principal competitors in the manufacturing of mobile phone accessories include
Elcoteq Network Corp, Balda-Thong Fook Solutions Sdn. Bhd. and WKK International (Holdings) Ltd.
We believe our competitors in the manufacturing of RF modules include Wavecom and WKK International
(Holdings) Ltd. We believe our competitors in the manufacturing of LCD panels include Truly
International Holdings Ltd., Elec &#038; Eltek International Holdings Limited and Varitronix
International Ltd. We believe we also have numerous competitors in the telecommunication,
sub-assemblies and components product lines, including Philips, Samsung, Solectron and Varitronix
International Ltd. Many of our competitors have greater financial, technical, marketing,
manufacturing, regional shipping capabilities and logistics support and personnel resources than we
do. As a result, we may be unable to compete successfully with these organizations in the future.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We must spend substantial amounts to maintain and develop advanced manufacturing processes and
engage additional engineering personnel in order to attract new customers and business.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We operate in rapidly changing industries. Technological advances, the introduction of new
products and new manufacturing and design techniques could materially and adversely affect our
business unless we are able to adapt to those changing conditions. As a result, we are continually
required to commit substantial funds for, and significant resources to, engaging additional
engineering and other technical personnel and to purchase advanced design, production and test
equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our future operating results will depend to a significant extent on our ability to continue to
provide new manufacturing solutions that compare favorably on the basis of time to introduction,
cost, and performance with the manufacturing capabilities of OEMs and competitive third-party
suppliers. Our success in attracting new customers and developing new business depends on various
factors, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>utilization of advances in technology;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>development of new or improved manufacturing processes for our customer&#146;s products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>delivery of efficient and cost-effective services; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>timely completion of the manufacture of new products.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We generally have no written agreements with suppliers to obtain components and our margins and
operating results could suffer from increases in component prices.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are sometimes responsible for purchasing components used in manufacturing products for our
customers. We do not have written agreements with some of our suppliers of components. This
typically results in our bearing the risk of component price increases because we may be unable to
procure the required materials at a price level necessary to generate anticipated margins from the
orders of our customers. Accordingly, increases in component prices could materially and adversely
affect our gross margins and operating results.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our business and operating results would be materially and adversely affected if our suppliers of
needed components fail to meet our needs.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At various times, we have experienced and expect to continue to experience shortages of some
of the electronic components that we use, and suppliers of some components lack sufficient capacity
to meet the demand for these components. In some cases, supply shortages and delays in deliveries
of particular components have resulted in curtailed production, or delays in production, of
assemblies using that component, which contributed to an increase in our inventory levels and
reduction in our gross margins. We expect that shortages and delays in deliveries of some
components will continue. If we are unable to obtain sufficient components on a timely basis, we
may experience manufacturing delays, which could harm our relationships with current or prospective
customers and reduce our sales. We also depend on a small number of suppliers for certain of the
components that we use in our business. For example, we purchase most of our integrated circuits
from Cambridge Silicon Radio Plc, Toshiba Corporation and Sharp Corporation and certain of their
affiliates. If we were to be unable to continue to purchase components from these limited source
suppliers, our business and operating results would be materially and adversely affected.
</DIV>


<P align="center" style="font-size: 10pt">7
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Factors affecting the electronics industry in general and our customers in particular could harm
our operations.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Most of our sales are to customers in the electronics industry, which is subject to rapid
technological change, product obsolescence and short product life cycles. The factors affecting the
electronics industry in general, or any of our major customers or competitors in particular, could
have a material adverse effect on our business and operating results. Our success will depend to a
significant extent on the success achieved by our customers in developing and marketing their
products, including their products that use RF modules, color straight-twisted nematic, or STN, LCD
modules, TFT LCD modules, CMOS sensor modules, FPC sub-assemblies and DAB modules, some of which
may be new and untested. If our customers&#146; products become obsolete, fail to gain widespread
commercial acceptance or become the subject of intellectual property disputes, our business and
operating results could be materially and adversely affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>As we currently only operate one production facility for each of our subsidiaries, our business may
be materially and adversely affected if the facility of any of our major subsidiaries were to be
shut down.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our turnover has been substantially obtained from manufacturing completed at the production
facilities of our subsidiaries, located in Baoan, Shenzhen. If any of the production facilities of
our subsidiaries were to be shut down for any reason, our business may be materially and adversely
affected.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Future acquisitions or strategic investments may not be successful and may harm our operating
results.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An important element of our strategy is to review prospects for acquisition or strategic
investments that would complement our existing companies and products, augment our market coverage
and distribution ability or enhance our technological capabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Future acquisitions or strategic investments could have a material adverse effect on our
business and operating results because of:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>possible charges to operating results for purchased technology, restructuring or
impairment charges related to goodwill or amortization expenses associated with intangible
assets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potential increase in our expenses and working capital requirements and the
incurrence of debt and contingent liabilities;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulties in successfully integrating any acquired operations, technologies,
customers products and businesses with our operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>diversion of our capital and management&#146;s attention to other business concerns;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>risks of entering markets or geographic areas in which we have limited prior experience; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>potential loss of key employees of acquired organizations or inability to hire key employees necessary for expansion.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For example, in September&nbsp;2004, we made an impairment to write down our $10.0&nbsp;million
investment in Alpha Star Investments Ltd., or Alpha Star, to its fair value of approximately $3.0
million, based on a valuation report from an external valuation firm. During 2005, this affiliated
company continued to be loss making. In August&nbsp;2005, we disposed of our entire stake in Alpha Star
to the majority shareholders of Alpha Star with sales proceeds of $6.5&nbsp;million, resulting in an
accumulated net realized loss of $3.5&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, we also disposed of our entire stake in TCL Communication Technology Holdings
Limited, or TCL Communication, during the period from August&nbsp;2005 to December&nbsp;2005 for total sales
proceeds of approximately of $11.0&nbsp;million, which resulted in a net realized loss of $68.5&nbsp;million
as compared to the cost of investment of $79.5&nbsp;million. Losses include $58.3&nbsp;million impairment
loss made in December&nbsp;2004, $6.5&nbsp;million impairment loss made in June&nbsp;2005 and $3.5&nbsp;million
realized loss recorded in the second half of 2005.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our customers are dependent on shipping companies for delivery of our products and interruptions to
shipping could materially and adversely affect our business and operating results.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our customers rely on a variety of carriers for product transportation through various world
ports. A work stoppage, strike or shutdown of one or more major ports or airports could result in
shipping delays materially and adversely affecting our customers, which in turn could have a
material adverse effect on our business and operating results. Similarly, an increase in freight
surcharges due to rising fuel costs or general price increases could materially and adversely
affect our business and operating results.
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Because our operations are international, we are subject to significant worldwide political,
economic, legal and other uncertainties.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are incorporated in the British Virgin Islands and have subsidiaries incorporated in the
Cayman Islands, Hong Kong, Macao, Japan and China. We have administrative offices in Hong Kong and
Macao. We manufacture all of our products in China. As of December&nbsp;31, 2005, approximately 99.6% of
the net book value of our total property, plant and equipment is located in China. We sell our
products to customers in Hong Kong, North America, Europe, Japan, China and Southeast Asia. Our
international operations may be subject to significant political and economic risks and legal
uncertainties, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in economic and political conditions and in governmental policies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in international and domestic customs regulations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>wars, civil unrest, acts of terrorism and other conflicts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>changes in tariffs, trade restrictions, trade agreements and taxation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>difficulties in managing or overseeing foreign operations; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>limitations on the repatriation of funds because of foreign exchange controls.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The occurrence or consequences of any of these factors may restrict our ability to operate in
the affected region and decrease the profitability of our operations in that region.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our operating results could be negatively impacted by seasonality.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, our sales and operating results have been affected by seasonality. Sales of
calculators, personal organizers and linguistic products are typically higher during the second and
third quarters in anticipation of the start of the school year and the Christmas buying season.
Similarly, our consumers&#146; orders for electronics products have historically been lower in the first
quarter from both the closing of our factories in China for the Chinese New Year holidays and the
general reduction in sales following the holiday season. These sales patterns may not be indicative
of future sales performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our results could be adversely affected if we have to comply with new environmental regulations.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operations create some environmentally sensitive waste that may increase in the future
depending on the nature of our manufacturing operations. The general issue of the disposal of
hazardous waste has received increasing attention from Chinese national and local governments and
foreign governments and agencies and has been subject to increasing regulation. Currently, relevant
Chinese environmental protection laws and regulations impose fines on discharge of waste materials
and empower certain environmental authorities to close any facility which causes serious
environmental problems. Although it has not been alleged that we have violated any current
environmental regulations by China government officials, there is no assurance that the Chinese
government will not amend its current environmental protection laws and regulations. Our business
and operating results could be materially and adversely affected if we were to increase
expenditures to comply with environmental regulations affecting our operations.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our insurance coverage may not be sufficient to cover the risks related to our operations and
losses.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have not experienced any major accidents in the course of our operations which have caused
significant property damage or personal injuries. However, there is no assurance that we will not
experience major accidents in the future. Although we have purchased the necessary insurances,
including a business interruption policy, a fidelity guarantee policy and policies covering losses
or damages in respect of buildings&#146; machinery, equipment and inventories, the occurrence of certain
incidents such as earthquake, war, pandemics, and flood, and the consequences resulting from them,
may not be covered adequately, or at all, by the insurance policies under which we are protected.
We also face exposure to product liability claims in the event that any of our products is alleged
to have resulted in property damage, bodily injury or other adverse effects. We only have product
liability insurance for some of our products. Losses incurred or payments we may be required to
make, may have a material adverse effect on our results of operations if such losses or payments
are not fully insured.
</DIV>


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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We are a defendant in putative class action lawsuits and this litigation could adversely
affect our business regardless of the final outcome.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;11, 2003, we were served with a complaint in an action captioned Michael Rocco v. Nam
Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain
directors are named as defendants. On or about April&nbsp;9, 2003, a second complaint was filed in an
action captioned A.J. &#038; Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the
Steigler Action, and together with the Rocco Action, the Actions. The Actions have been
consolidated since July&nbsp;2003 and purport to represent a putative class of persons who purchased the
common stock of Nam Tai from July&nbsp;29, 2002 through February&nbsp;18, 2003. Plaintiffs in the Actions
assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and allege that
misrepresentations and/or omissions were made during the alleged class period concerning the
partial reversal of an inventory provision and a charge to goodwill related to Nam Tai&#146;s LPT
segment. Our motion to dismiss the Actions was denied on September&nbsp;27, 2004. On May&nbsp;27, 2005, the
plaintiffs moved to certify the Actions as a class action with an individual, Douglas Ward, as the
named class representative. We filed our opposition to the motion on June&nbsp;20, 2005. The court
heard oral argument on the motion on July&nbsp;26, 2005, and has not yet ruled on the motions. On
October&nbsp;7, 2005, the plaintiffs filed a Second Amended Consolidated Class&nbsp;Action Complaint which
contained substantive allegations that did not vary from the previously filed Actions and added an
additional individual, Michael Rocco, as a named class
representative. After class representative discovery on February&nbsp;10, 2006, plaintiffs filed their motion for class
certification with Michael Rocco as an added class representative. Nam Tai filed its opposition
papers on March&nbsp;3, 2006. The motion is scheduled for oral
argument on April&nbsp;17, 2006. Nam Tai believes it has meritorious defenses and it intends to defend the case
vigorously. Nam Tai is aware of no other actions that have been filed which relate to these
matters. The ultimate outcome of this litigation cannot be presently determined. However, this
litigation could be very costly and divert our management&#146;s attention and resources. In addition,
we have no insurance covering our liability, if any, or that of our officers and directors, for
this lawsuit and we will have to pay the costs of the defense. Any adverse determination in this
litigation could also subject us to significant liabilities, any or all of which could materially
and adversely affect our business and operating results. Please see Item&nbsp;8. &#147;Financial Information
<FONT style="font-family: Symbol">&#190;</FONT> Legal Proceedings <FONT style="font-family: Symbol">&#190;</FONT> Putative Class&nbsp;Actions&#148; for more information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We may be unable to succeed in recovering on our judgment debts against Tele-Art, Inc.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have two judgments in our favor against Tele-Art, Inc. awarded by The High Court of Justice
in the British Virgin Islands for approximately $38.0&nbsp;million (including interest, costs, and
related expenses). Because Tele-Art, Inc. is in liquidation, we may not realize the entire amount
of our judgments, and the actual amount of the recovery, if any, is uncertain and dependent on a
number of factors. We may incur substantial additional costs in pursuing our recovery, and such
costs may not be recoverable. Please see Item&nbsp;8. &#147;Financial Information <FONT style="font-family: Symbol">&#190;</FONT> Legal Proceedings
<FONT style="font-family: Symbol">&#190;</FONT> Tele-Art Litigation&#148; for more information.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We could become involved in intellectual property disputes.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not have any patents, licenses, or trademarks material to our business. Instead, we rely
on trade secrets, industry expertise and our customers sharing of intellectual property with us.
However, there can be no assurance that such intellectual property is not in violation of that
belonging to other parties. We may be notified that we are infringing patents, copyrights or other
intellectual property rights owned by other parties. In the event of an infringement claim, we may
be required to spend a significant amount of money to develop a non-infringing alternative or to
obtain licenses. We may not be successful in developing such an alternative or obtaining a license
on reasonable terms, if at all. Any litigation, even without merit, could result in substantial
costs and diversion of resources and could materially and adversely affect our business and
operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We depend on our executive officers and skilled management personnel.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our success depends to a large extent upon the continued services of our executive officers.
Generally, our employees are bound by employment or non-competition agreements. However, we cannot
assure you that we will retain our executive officers and other key employees. We could be
seriously harmed by the loss of any of our executive officers. In order to manage our growth, we
will need to recruit and retain additional skilled management personnel and if we are not able to
do so our business and our ability to continue to grow could be harmed. We maintain no key person
insurance on these individuals. The loss of service of any of these officers or key management
personnel could have a material adverse effect on our business growth and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We may not pay dividends in the future.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Although we have declared dividends during each of the last twelve years, we may not be able
to declare them or may decide not to declare them in the future. Our China subsidiaries are
required to reserve 11% of their profits for future development and
staff welfare, which may
</DIV>

<P align="center" style="font-size: 10pt">10
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> affect our ability to declare dividends. We will determine the amounts of the dividends when they are
declared and even if dividends are declared in the future, we may not continue them in any future
period.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We are subject to the risk of increased taxes.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We base our tax position upon the anticipated nature and conduct of our business and upon our
understanding of the tax laws of the various countries in which we have assets or conduct
activities. Our tax position, however, is subject to review and possible challenge by taxing
authorities and to possible changes in law. We cannot determine in advance the extent to which some
jurisdictions may assess additional tax or interest and penalties on such additional taxes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Several places in which we are located allow for tax holidays or provide other tax incentive
to attract and retain business. We have obtained holidays or other incentives where available. Our
taxes could increase if certain tax holidays or incentives are retracted, or if they are not
renewed upon expiration, or tax rates applicable to us in such jurisdictions are otherwise
increased.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recently enacted changes in the securities laws and regulations are likely to increase our costs.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Sarbanes-Oxley Act of 2002 that became law in July&nbsp;2002 has required changes in some of
our corporate governance, securities disclosure and compliance practices. In response to the
requirements of that act, the Securities and Exchange Commission, or SEC, and the New York Stock
Exchange, or NYSE, have promulgated new rules on a variety of subjects. Compliance with these new
rules as well as the Sarbanes-Oxley Act of 2002 has increased our legal, financial and accounting
costs, and we expect these increased costs to continue indefinitely, particularly as new rules and
regulations, including Section&nbsp;404 of the Sarbanes-Oxley Act of 2002, come into effect. We also
expect these developments to make it more difficult and more expensive for us to obtain director
and officer liability insurance, and we may be forced to accept reduced coverage or incur
substantially higher costs to obtain coverage. Likewise, these developments may make it more
difficult for us to attract and retain qualified members of our board of directors or qualified
executive officers.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Risks Related to Our Operations in China, Hong Kong, Macao and Japan</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our manufacturing facilities are located in China and several of our customers and suppliers
are located in Hong Kong and China. Our subsidiaries are located in China, Hong Kong, Macao and
Japan. As a result, our operations and assets are subject to significant political, economic, legal
and other uncertainties associated with doing business in China, Hong Kong, Macao and Japan, which
are discussed in more detail below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We are exposed to risks associated with doing business in China.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal manufacturing operations are located in Shenzhen, China. These operations could
be severely impacted by evolving interpretation and enforcement of legal standards, by strains on
Chinese energy, transportation, communications, trade and other infrastructures, by conflicts,
embargoes, increased tensions or escalation of hostilities between China and Taiwan, and by other
trade customs and practices that are dissimilar to those in the United States and Europe.
Interpretation and enforcement of China&#146;s laws and regulations continue to evolve and we expect
differences in interpretation and enforcement to continue in the foreseeable future. Further, we
may be exposed to fluctuations in the value of the renminbi yuan, or RMB, the local currency of
China. Under international pressure, the Chinese government in July&nbsp;2005 allowed the RMB to
appreciate and our operating cost has increased accordingly. Should the Chinese government allow a
further and significant RMB appreciation, our operating costs could further increase and could
adversely affect our financial results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Changes in the economic and political environment in China and policies adopted by the Chinese
government to regulate its economy and toward, or even nationalize, private enterprise, may
adversely affect our business, operating results and financial condition.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our production facilities are located in China. China&#146;s economy differs from the economies of
most countries belonging to the Organization for Economic Cooperation and Development in respect of
various areas such as structure, government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and balance of payments position. Prior
to 1978, China&#146;s economy was a planned economy. Subsequently, increasing emphasis has been placed
on the utilization of market forces in the development of China&#146;s economy, including the
encouragement of private economic activities and decentralization of economic regulation with a
move towards a market economy. However, the Chinese government still retains a large role in
industrial output (which is majority state-owned), the allocation of resources, production, pricing
and management, and there can be no assurance that the Chinese government will continue to pursue a
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">
policy of economic reform and they may significantly alter them to our detriment from time to time
without notice. Furthermore, we may not in all cases be able to capitalize on the economic reform
measures adopted by the Chinese government. Our operations and financial results could be
adversely affected by changes in political, economic and social conditions or the relevant policies
of the Chinese government, such as changes in laws and regulations (or the interpretations
thereof), measures which might be introduced to control inflation, changes in the rate or method of
taxation, imposition of additional restrictions on currency conversion and the imposition of
additional import restrictions. The nationalization or other expropriation of private enterprises
by the Chinese government could result in the total loss of our investment in China. Furthermore, a
significant portion of economic activities in China are export-driven at present and, therefore,
are affected by development in the economies of the China&#146;s principal trading partners and other
export-driven economies.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>The Chinese legal system has inherent uncertainties that could materially and adversely impact our
ability to enforce the agreements governing our factories and to do business.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not own, on a freehold basis, the land on which our factories in China are located, but
instead, on a leasehold basis. We occupy our principal manufacturing facilities under land use
agreements with agencies of the Chinese government and we occupy other facilities under lease
agreements with the relevant lessor. The performance of these agreements and the operations of our
factories are dependent on our relationship with the local government. Our operations and prospects
would be materially and adversely affected by the failure of the local government to honor these
agreements or an adverse change in the law governing them. In the event of a dispute, enforcement
of these agreements could be difficult in China. Unlike the United States, China has a civil law
system based on written statutes in which judicial decisions have limited precedential value. The
Chinese government has enacted laws and regulations dealing with economic matters such as corporate
organization and governance, foreign investment, commerce, taxation and trade. However, its
experience in implementing, interpreting and enforcing these laws and regulations is limited, and
our ability to enforce commercial claims or to resolve commercial disputes in China is
unpredictable. These matters may be subject to the exercise of considerable discretion by agencies
of the Chinese government, and forces and factors unrelated to the legal merits of a particular
matter or dispute may influence their determination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Fire, severe weather, flood or earthquake could cause significant damage to our facilities in China
and disrupt our business operations.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our products are manufactured exclusively at our factories located in China. Fire fighting and
disaster relief or assistance in China is not well developed. Material damage to, or the loss of,
our factories due to fire, severe weather, flood, earthquake or other acts of God or cause may not
be adequately covered by proceeds of our insurance coverage and could materially and adversely
affect our business and operating results. In addition, any interruptions to our business caused by
such disasters could harm our business and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Controversies affecting China&#146;s trade with the United States could harm our results of operations
or depress our stock price.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While China has been granted permanent most favored nation trade status in the United States
through its entry into the World Trade Organization, controversies between the United States and
China may arise that threaten the status quo involving trade between the United States and China.
These controversies could materially and adversely affect our business by, among other things,
causing our products in the United States to become more expensive resulting in a reduction in the
demand for our products by customers in the United States. Political or trade friction between the
United States and China, whether or not actually affecting our business, could also materially and
adversely affect the prevailing market price of our common shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>A deterioration of relations between China and Japan may harm our business.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;While our production base is located in China, we derive a substantial amount of our sales
from Japanese customers. With respect to our major customers accounting for 10% or more of our net
sales, our Japanese customers represented approximately 46.7%, 37.7% and 57.7% of our net sales for
each of the years ended December&nbsp;31, 2003, 2004 and 2005, respectively. Our business is therefore
vulnerable to any deterioration of relations or disruption of trade between China and Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning in the spring of 2005, relations between China and Japan grew increasingly strained.
This culminated in a week of anti-Japan protests throughout China which included attacks on
Japanese citizens and property and a boycott on Japanese imports. Should this situation continue
or worsen, our Japanese customers may be less willing or otherwise less able to purchase our
products. More broadly, companies based in Japan may become reluctant to outsource manufacturing
to us and other EMS providers based in China. This could materially and adversely affect our
business and operating results. There can also be no assurance that
our operations in China will not be targeted
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> by anti-Japan protestors or boycotts due to the presence of our Japanese managers
and employees and our relationships with Japanese customers. Any harm caused to our facilities or
personnel, or any boycott targeting us, could materially and adversely affect our business and
operating results.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Payment of dividends by our subsidiaries in China to us are subject to restrictions under Chinese
law.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under Chinese law, dividends may be paid only out of distributable profits. Distributable
profits with respect to our subsidiaries in China refers to after-tax profits as determined in
accordance with accounting principles and financial regulations applicable to Chinese enterprises,
or China GAAP, less any recovery of accumulated losses and allocations to statutory funds that it
is required to make. Any distributable profits that are not distributed in a given year are
retained and available for distribution in subsequent years. The calculation of distributable
profits under China GAAP differs in many respects from the calculation under U.S. GAAP. As a
result, our subsidiaries in China may not be able to pay any dividend in a given year as determined
under U.S. GAAP. Accordingly, since we derive a majority of our profits from our subsidiaries in
China, we may not have sufficient distributable profits to pay dividends to our shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Changes to Chinese tax laws and heightened efforts by the Chinese tax authorities to increase
revenues could subject us to greater taxes.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under applicable Chinese law, we have been afforded a number of tax concessions by, and tax
refunds from, the Chinese tax authorities on a substantial portion of our operations in China by
reinvesting all or part of the profits attributable to our Chinese manufacturing operations.
However, the Chinese tax system is subject to substantial uncertainties with respect to its
interpretation and enforcement. Following the Chinese government&#146;s program of privatizing many
state-owned enterprises, the Chinese government has attempted to augment its revenues through
heightened tax collection efforts. Continued efforts by the Chinese government to increase tax
revenues could result in decisions or interpretations of the tax laws by the Chinese tax
authorities that would increase our future tax liabilities or deny us expected concessions or
refunds. For example, the tax reform of reducing the VAT tax refund from 17% to 13%, with effect
from January&nbsp;1, 2004, has adversely affected our margins.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our results could be affected by changes in foreign exchange regulations of China.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of our earnings are denominated in RMB. The People&#146;s Bank of China, or PBOC, and the
State Administration of Foreign Exchange, or SAFE, regulate the conversion of RMB into foreign
currencies. Under the current unified floating exchange rate system, the PBOC publishes a daily
exchange rate for RMB based on the previous day&#146;s dealings in the inter-bank foreign exchange
market. Financial institutions may enter into foreign exchange transactions at exchange rates
within an authorized range above or below the PBOC exchange rate according to the market
conditions. Since 1996, a number of rules, regulations and notices regarding foreign exchange
control have been issued by the Chinese government which are designed to provide for greater
convertibility of RMB. Under such regulations, any foreign investment enterprise, or FIE, must
establish a &#147;current account&#148; and a &#147;capital account&#148; with a bank authorized to deal in foreign
exchange. Currently, FIEs are able to exchange RMB into foreign exchange currencies at designated
foreign exchange banks for settlement of current account transactions, which include payment of
dividends on the basis of the board resolutions authorizing the distribution of profits or
dividends of the company concerned, without the approval of SAFE. Conversion of RMB into foreign
currencies for capital account transactions, which include the receipt and payment of foreign
exchange for loans, capital contributions and the purchase of fixed assets, continues to be subject
to limitations and requires the approval of SAFE. Our subsidiaries in China are all FIEs and under
the relevant laws of China to which such regulations apply. However, there can be no assurance
that we will be able to obtain sufficient foreign exchange to make relevant payments or satisfy
other foreign exchange requirements in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our results have been affected by changes in currency exchange rates. Changes in currency rates
involving the Japanese yen, Hong Kong dollar or Chinese renminbi could increase our expenses.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our financial results have been affected by currency fluctuations, resulting in total foreign
exchange gains of approximately $2.5&nbsp;million during the year ended December&nbsp;31, 2005, total foreign
exchange gains of $189,000 during the year ended December&nbsp;31, 2004 and total foreign exchange
losses of $62,000 during the year ended December&nbsp;31, 2003. We sell most of our products in United
States dollars and pay our expenses in United States dollars, Japanese yen, Hong Kong dollars, and
RMB. While we face a variety of risks associated with changes among the relative value of these
currencies, we believe the most significant exchange risk presently results from material purchases
we make in Japanese yen and RMB. Approximately 16%, 6% and 3% of our material costs have been in
Japanese yen during the years ended December&nbsp;31, 2003, 2004 and 2005, respectively, but sales made
in Japanese yen only accounted for 11%, 4% and 2%, respectively, of our sales for each of the last
three years. Approximately 4%, 4% and 3%, respectively, of our material costs have been in RMB during the years
</DIV>

<P align="center" style="font-size: 10pt">13
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">ended December&nbsp;31, 2003, 2004 and 2005, respectively. However, sales in RMB
accounted for 0%, 8% and 3%, respectively, of our sales for each of the last three years. An
appreciation of the Japanese yen or RMB against United States dollars would increase our costs when
translated into United States dollars and would materially and adversely affect our margins unless
we made sufficient sales in Japanese yen to offset against material purchases made in the
corresponding currency.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximately 3% and 4% of our revenues and 10% and 9% of our total costs and expenses were in
RMB and Hong Kong dollars, respectively, during the year ended December&nbsp;31, 2005. An appreciation
of the RMB or Hong Kong dollars against United States dollars would increase our expenses when
translated into United States dollars and could materially and adversely affect our margins. In
addition, a significant devaluation in the RMB or Hong Kong dollars could harm our business if it
destabilizes the economy of China or Hong Kong, creates serious domestic problems or increases our
borrowing costs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We have suffered losses from hedging against our currency exchange risk.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;From time to time, we have attempted to hedge our currency exchange risk. We did not engage in
currency hedging transactions for fiscal year 2003, 2004 and 2005. We have experienced in the past
and may experience in the future losses as a result of currency hedging.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Political and economic instability in Hong Kong could harm our operations.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Some of our subsidiaries&#146; offices and several of our customers and suppliers are located in
Hong Kong, formerly a British Crown Colony. Sovereignty over Hong Kong was resumed by China
effective July&nbsp;1, 1997. Since then, Hong Kong has become a Special Administrative Region of China,
enjoying a high degree of autonomy except for foreign and defense affairs. Moreover, China&#146;s
political system and policies are not practiced in Hong Kong. Under the principle of &#147;one country,
two systems&#148;, Hong Kong maintains a legal system that is based on the common law and is different
from that of China. It is generally acknowledged as an open question whether Hong Kong&#146;s future
prosperity in its role as a hub and gateway to China after China&#146;s accession to the World Trade
Organization (introducing a market liberalization in China) will be diminished. The continued
stability of political, economic or commercial conditions in Hong Kong remains uncertain, and any
instability could materially and adversely impact our business and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Power shortages in China could affect our business.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We consume substantial amounts of electricity in our manufacturing processes at our production
facilities in China. Certain parts of China have been subject to power shortages in recent years.
We have experienced a number of power shortages at our production facilities in China to date. We
are sometimes given advance notice of power shortages and in relation to this we currently have a
backup power system. However, there can be no assurance that in the future our backup power system
will be completely effective in the event of a power shortage, particularly if that power shortage
is over a sustained period of time and/or we are not given advance notice thereof. Any power
shortage, brownout or blackout for a significant period of time may disrupt our manufacturing, and
as a result, may have an adverse impact on our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>The spread of severe acute respiratory syndrome, avian influenza or similar illnesses may have a
negative impact on our business and operating results.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2003, several economies in Asia, including Hong Kong and southern China, where our
operations are located, were affected by the outbreak of severe acute respiratory syndrome, or
SARS. If there is a recurrence of a serious outbreak of SARS, it may adversely affect our business
and operating results. For example, the future SARS outbreak could result in quarantines or
closures to some of our factories if our employees are infected with SARS and ongoing concerns
regarding SARS, particularly its effect on travel, could negatively impact our China-based
customers and suppliers and our business and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, there has recently been an outbreak of avian influenza in humans and has proven
to be fatal in Asian countries, including China, Cambodia, Indonesia, Thailand, and Vietnam. Since
then, avian influenza has spread to other parts of the world, including Europe, Africa and the
Middle East. As the human death toll continues to grow, many are concerned that the virus will
mutate and trigger a human pandemic. If such an outbreak were to spread to southern China, where
our operation facilities are located, it may adversely affect our business operating results.
</DIV>

<P align="center" style="font-size: 10pt">14
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We conduct operations in a number of countries and the effect of business, legal and political
risks associated with international operations could significantly harm us.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We conduct operations in number of countries. There are risks inherent in doing business in
international markets, including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Difficulties in staffing and managing international operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Compliance with laws and regulations, including environmental laws, which vary
from country to country and over time, increasing the costs of compliance and potential
risks of non-compliance;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exposure to political and financial instability, leading to currency exchange losses, collection difficulties or other losses;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Exposure to fluctuations in the value of local currencies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Changes in value-added tax or VAT reimbursement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Imposition of currency exchange controls; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Delays from customs brokers or government agencies.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Any of these risks could significantly harm our business, financial condition and operating
results.
</DIV>


<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Risks Related to Our Industry</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>We are exposed to general economic conditions. Any slowdown in the technology products industry may
affect our business and operating results adversely.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the economic downturn in the United States and internationally, and reduced
capital spending, sales to OEMs in the electronics industry declined beginning in the second
quarter of fiscal year 2001 and continuing through 2002. Lower consumer demand and high customer
inventory levels have resulted in the delay and cancellation of orders for nearly all types of
electronic products. As a result of order cancellations in 2001, we were required to write down
slow-moving inventory, which materially and adversely impacted our net income in 2001. Although the
industry experienced a recovery since 2003, we cannot assure you that this recovery is sustainable
or that the industry will not further decline. If the economic conditions in the United States or
the other markets we serve worsen, particularly in the electronics and contract manufacturing
businesses particularly, or if a wider or global economic slowdown occurs, this could materially
and adversely impact our business and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our business and operating results are dependent on growing global outsourcing trends.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Over the last two decades, the EMS industry experienced rapid change and growth as the
capabilities of EMS companies continued to expand and consumer electronic product manufacturers
adopted, and became increasingly reliant on, manufacturing outsourcing strategies to remain
competitive. Despite the slow down of the EMS industry in 2001 and 2002 as a result of consumer
electronic product manufacturers&#146; decreasing production requirement, growth has been renewed since
2003 and we believe that the EMS industry has the potential for further growth as many consumer
electronic product manufacturers continue to favor outsourcing over internal manufacturing, and the
market for outsourcing, as a whole, continues to flourish. However, there can be no assurance that
the trends of adopting manufacturing outsourcing strategies by consumer electronic product
manufacturers will continue to grow. If the growing outsourcing trends discontinue, this could
materially and adversely impact our business and operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Actual or perceived health risks associated with the use of mobile phone handsets or other
communications equipment could negatively affect our business.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been public concerns about health risks arising from electromagnetic fields
generated by mobile phone handsets. Any perceived risks or new findings, regardless or their
scientific basis, concerning the potential adverse health effects of communications equipment could
negatively affect our reputation and brand value, or that of our direct or indirect customers, and
could result in a reduction in sales. We cannot assure you that we will not become the subject of
product liability claims or be held liable for such claims or be required to comply with future
regulatory changes that may have an adverse effect on our business.
</DIV>

<P align="center" style="font-size: 10pt">15
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Risks Related to Ownership of Our Common Shares</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>The market price of our shares will likely be subject to substantial price and volume fluctuations.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The markets for equity securities have been volatile and the price of our common shares has
been and could continue to be subject to wide fluctuations in response to variations in operating
results, news announcements, trading volume, sales of common shares by our officers, directors and
our principal shareholders, customers, suppliers or other publicly traded companies, general market
trends both domestically and internationally, currency movements and interest rate fluctuations.
Certain events, such as the issuance of common shares upon the exercise of our outstanding stock
options could also materially and adversely affect the prevailing market price of our common
shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Further, the stock markets have recently experienced extreme price and volume fluctuations
that have affected the market prices of equity securities of many companies and that have been
unrelated or disproportionate to the operating performance of such companies. These fluctuations
may materially and adversely affect the market price of our common shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>The concentration of share ownership in our senior management allows them to control or
substantially influence the outcome of matters requiring shareholder approval.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;1, 2006, members of our senior management and Board of Directors as a group
beneficially owned approximately 29.1% of our common shares. As a result, acting together, they may
be able to control and substantially influence the outcome of all matters requiring approval by our
shareholders, including the election of directors and approval of significant corporate
transactions. This ability may have the effect of delaying or preventing a change in control of Nam
Tai, or causing a change in control of Nam Tai that may not be favored by our other shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>If we do not receive an unqualified opinion on the adequacy of our internal control over financial
reporting as of December&nbsp;31, 2006 and future year-ends as required by Section&nbsp;404 of the
Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability of our financial
statements, which could result in a decrease in the value of our shares.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As directed by Section&nbsp;404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring
public companies to include a report of management on the company&#146;s internal control structure and
procedures over financial reporting in their annual reports on Form 20-F that contains an
assessment by management of the effectiveness of the company&#146;s internal control structure and
procedures over financial reporting. In addition, the public accounting firm auditing the company&#146;s
financial statements must attest to and report on management&#146;s assessment of the effectiveness of
the company&#146;s internal control structure and procedures over financial reporting. While we intend
to conduct a rigorous review of our internal control structure and procedures over financial
reporting in order to assure compliance with Section&nbsp;404 requirements, if our independent public
accountants interpret Section&nbsp;404 requirements and the related rules and regulations differently
from us or if our independent public accountants are not satisfied with our internal control
structure and procedures over financial reporting or with the level at which it is documented,
operated or reviewed, they may decline to attest to management&#146;s assessment or issue a qualified
report. This could result in an adverse reaction in the financial markets due to a loss of
confidence in the reliability of our financial statements, which could cause the market price of
our shares to decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Changes to financial accounting standards may affect our reported results of operations and could
result in a decrease in the value of our shares.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Financial Accounting Standards Board published amendments to Statement of Financial
Accounting Standards No.&nbsp;123 (revised)&nbsp;in December&nbsp;2004 with effect from the beginning of the first
interim or annual reporting period that begins after June&nbsp;15, 2005. Upon adoption, the Company is
required to, among other things, recognize compensation costs for share-based awards to employees
after December&nbsp;31, 2005 based on their grant-date fair value, in which the recognition provisions
are first applied, as well as compensation costs for awards that were granted prior to, but not
vested as, of the date of adoption, or restate prior periods by recognizing compensation cost in
the amounts previously reported in the pro forma footnote disclosure under SFAS No.&nbsp;123. For a
detailed discussion of application methods, see Note 2(u) &#150; &#147;Summary of Significant Accounting
Policies &#150; Recent changes in accounting standards&#148;. Although our current practice is only to grant
15,000 stock options to each non-employee director with an exercise price equal to the fair market
value of our common share upon their election in each annual shareholders&#146; meeting, if we were to
grant a large amount share-based compensation awards to our employee in future, our results or
operations could be adversely affected. For discussion of our employee stock option and employee
stock purchase plans, see Note 2(p) &#150; &#147;Summary of Significant Accounting Policies &#150; Stock Options&#148;
and Note 12 &#150; &#147;Shareholders&#146; Equity&#148; to the Consolidated Financial Statements.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May
2005, the FASB issued SFAS No. 154, &#147;Accounting Changes And
Error Corrections&#148;. This statement supercedes APB Opinion No. 20,
&#147;Accounting changes&#148;  and SFAS No. 3, &#147;Reporting
Accounting changes in Interim Financial Statements&#148;. SFAS No. 154
requires retrospective application to prior periods&#146;
financial statements of changes in accounting principles, unless it is
impracticable to determine the period-specific effects or the
cumulative effect of the change. APB Opinion No. 20 &#147;Accounting Changes,&#148;
previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period  of
the change the cumulative effect of changing to the new accounting
principle. SFAS No. 154 will be effective for accounting changes and
corrections of errors made in fiscal years beginning after December
15, 2005.</DIV>

<P align="center" style="font-size: 10pt">16
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Risks Related to Our Foreign Private Issuer Status</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>It may be difficult to serve us with legal process or enforce judgments against our management or
us.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a British Virgin Islands holding corporation with subsidiaries in Hong Kong, Macao,
Japan and China. We have appointed Stephen Seung, 2 Mott Street, Suite&nbsp;601, New York, New York
10013 as our agent upon whom process may be served in any action brought against us under the
securities laws of the United States. However, outside the United States, it may be difficult for
investors to enforce judgments against us obtained in the United States in any of these actions,
including actions based upon civil liability provisions of the Federal securities laws. In
addition, all of our officers and most of our directors reside outside the United States, and all
of our assets, and the assets of those persons who reside outside of the United States, are located
outside of the United States. As a result, it may not be possible for investors to effect service
of process within the United States upon those persons, or to enforce against those persons or use
judgments obtained in United States courts grounded upon the liability provisions of the United
States securities laws. There is substantial doubt as to the enforceability against us or any of
our directors and officers located outside of the United States in original actions or in actions
for enforcement of judgments of United States courts of liabilities based solely on the civil
liability provisions of the securities laws of the United States.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No treaty exists between Hong Kong or the British Virgin Islands and the United States
providing for the reciprocal enforcement of foreign judgments. However, the courts of Hong Kong and
the British Virgin Islands are generally prepared to accept a foreign judgment as evidence of a
debt due. An action may then be commenced in Hong Kong or the British Virgin Islands for recovery
of this debt. A Hong Kong or British Virgin Islands court will only accept a foreign judgment as
evidence of a debt due if:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the judgment is for a liquidated amount in a civil matter;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the judgment is final and conclusive and has not been stayed or satisfied in full;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the judgment is not, directly or indirectly, for the payment of foreign taxes,
penalties, fines or charges of a like nature (in this regard, a Hong Kong or British Virgin
Islands court is unlikely to accept a judgment for an amount obtained by doubling, trebling
or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by
the person in whose favor the judgment was given);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the judgment was not obtained by actual or constructive fraud or duress;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the foreign court has taken jurisdiction on grounds that are recognized by the
common law rules as to conflict of laws in Hong Kong or the British Virgin Islands;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the proceedings in which the judgment was obtained were not contrary to natural
justice (i.e., the concept of fair adjudication);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the proceedings in which the judgment was obtained, the judgment itself and the
enforcement of the judgment are not contrary to the public policy of Hong Kong or the
British Virgin Islands;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the person against whom the judgment is given is subject to the jurisdiction of
the Hong Kong or the British Virgin Islands court; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the judgment is not on a claim for contribution in respect of damages awarded by
a judgment, which does not satisfy the criteria stated previously.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may also be
limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement and moratorium,
or similar laws relating to or affecting creditors&#146; rights generally, and will be subject to a
statutory limitation of time within which proceedings may be brought.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No treaty exists between Macao and the United States providing for the reciprocal enforcement
of foreign judgments. However, the courts of Macao are generally prepared to accept a foreign
judgment as evidence of a debt due. An action may then be commenced in Macao for recovery of this
debt. A Macao court will only accept a foreign judgment as evidence of a debt due if:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>there is no doubt to the authenticity of the judgment documents and the understanding of the judgment;</TD>
</TR>



</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">17
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pursuant to the law of the place of judgment, the judgment is final and conclusive;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the judgment was not obtained by fraud or the matter in relation to the judgment
is not within the exclusive jurisdiction of Macao courts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the judgment will not be challenged on the ground that the relevant matter has
been adjudicated by the Macao court, except matters which have first been adjudicated by
courts outside Macao;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>pursuant to the law of the place of the judgment, the defendant has been
summoned and the proceedings in which the judgment was obtained were not contrary to natural
justice; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the enforcement of the judgment will not cause any orders that may result in
apparent public disorder.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Enforcement of a foreign judgment in Macao may also be limited or affected by applicable
bankruptcy, insolvency, liquidation, arrangement and moratorium, or similar laws relating to or
affecting creditors&#146; rights generally, and will be subject to a statutory limitation of time within
which proceedings may be brought.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Future issuances of preference shares could materially and adversely affect the holders of our
common shares or delay or prevent a change of control.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Board of Directors may amend our Memorandum and Articles of Association without
shareholder approval to create from time to time and issue one or more classes of preference shares
(which are analogous to preferred stock of corporations organized in the United States). While
currently no preference shares are issued or outstanding, we may issue preference shares in the
future. Future issuance of preference shares could materially and adversely affect the rights of
the holders of our common shares, or delay or prevent a change of control.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our status as a foreign private issuer exempts us from certain of the reporting requirements under
the Securities Exchange Act of 1934 and corporate governance standards of the NYSE, limiting the
protections and information afforded to investors.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a foreign private issuer within the meaning of rules promulgated under the Securities
Exchange Act of 1934. As such, we are exempt from certain provisions applicable to United States
public companies including:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the rules under the Securities Exchange Act of 1934 requiring the filing with
the SEC of quarterly reports on Form 10-Q, current reports on Form 8-K or annual reports on
Form 10-K;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the sections of the Securities Exchange Act of 1934 regulating the solicitation
of proxies, consents or authorizations in respect of a security registered under the
Securities Exchange Act of 1934;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the provisions of Regulation&nbsp;FD aimed at preventing issuers from making
selective disclosures of material information; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the sections of the Securities Exchange Act of 1934 requiring insiders to file
public reports of their stock ownership and trading activities and establishing insider
liability for profits realized from any &#147;short-swing&#148; trading transaction (i.e., a purchase
and sale, or sale and purchase, of the issuer&#146;s equity securities within less than six
months).</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In addition, because the Company is a foreign private issuer, certain corporate governance
standards of the NYSE that are applied to domestic companies listed on that exchange may not be
applicable to us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Because of these exemptions, investors are not afforded the same protections or information
generally available to investors holding shares in public companies organized in the United States
or traded on the NYSE.
</DIV>
<DIV align="left">
<A name="105"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;4. </B><B><I>Information on the Company</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>History and Development of Nam Tai</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nam Tai Electronics, Inc. was founded in 1975 and moved its manufacturing facilities to China
in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates
available and subsequently relocated to Shenzhen, China in order to capitalize on
</DIV>

<P align="center" style="font-size: 10pt">18
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> opportunities offered in southern China. We were reincorporated as a limited liability International Business
Company under the laws of the British Virgin Islands in August&nbsp;1987. Our principal manufacturing
and design operations are based in Shenzhen, China, approximately 30 miles from Hong Kong. Our PRC
headquarters is at Macao, China. Some of our subsidiaries&#146; offices are located in Hong Kong and
Macao, which provides us access to Hong Kong&#146;s and Macao&#146;s infrastructure of communication and
banking and facilitates management of our China operations. One of our subsidiaries also has an
office in Japan.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our corporate administrative matters are conducted in the British Virgin Islands through our
registered agent, McNamara Corporate Services Limited, McNamara Chambers, P.O. Box 3342, Road Town,
Tortola, British Virgin Islands. Our agent for service of process in the United States is Stephen
Seung, 2 Mott Street, Suite&nbsp;601, New York, New York 10013. Our principal executive offices are
located in the British Virgin Islands at 116 Main Street, 3rd Floor, Road Town, Tortola, British
Virgin Islands, and the telephone number is (284)&nbsp;494-7752.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In 1978, Mr.&nbsp;Koo, the founder of the Company, began recruiting operating executives from the
Japanese electronics industry. These executives brought years of experience in Japanese
manufacturing methods, which emphasize quality, precision, and efficiency in manufacturing. Senior
management currently includes Japanese professionals who provide technical expertise and work
closely with both our Japanese component suppliers and customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For a number of years, we specialized in manufacturing large-volume, hand-held digital
consumer electronic products and established a leading position in electronic calculators and
handheld organizers for OEMs such as Texas Instruments Incorporated and Sharp Corporation. Over the
years, we have broadened our product mix to include a range of digital products for business and
personal use, as well as key components and sub-assemblies for telecommunications and consumer
electronic products. In August&nbsp;1999, we established Nam Tai Telecom (Hong Kong) Company Limited,
which targeted the expanding market for telecommunications components including LCD modules as well
as end products, including cordless phones and family radio systems. Since December&nbsp;2002, we have
also produced RF modules for integration into cellular phones and other hand-held consumer
electronic products, such as personal digital assistants, or PDAs, laptop computers and other
products with wireless connectivity. In 2003, we further diversified our product mix by
manufacturing CMOS sensor modules for integration into various image capturing devices such as
digital cameras for cellular phones and entertainment devices, FPC sub-assemblies for integration
into various LCD modules and front light panels for handheld video game devices. In 2004, we
expanded our business on CMOS sensor modules and FPC sub-assemblies. We also further broadened our
product line by manufacturing back light panels for handheld video game devices and
Bluetooth<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> wireless headsets for cellular phones. In 2005, we further diversified our
business, and commenced production of DAB modules, further expanding our line of educational
products and entertainment devices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2000, we acquired for $2.0&nbsp;million a 5% indirect shareholding in both TCL Mobile
Communication (HK)&nbsp;Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together known as TCL
Mobile, through the acquisition of 25% of the outstanding shares of Mate Fair Group Limited, or
Mate Fair, a privately held investment holding company incorporated in the British Virgin Islands
with a 20% shareholding interest in TCL Mobile. TCL Mobile is engaged in manufacturing,
distributing and trading of digital mobile phones and accessories in China as well as in overseas
markets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2000, we completed the acquisition of J.I.C. Group (BVI)&nbsp;Limited. The J.I.C. Group
(BVI)&nbsp;Limited and its subsidiaries, or the J.I.C. group, who at the relevant time was principally
engaged in the manufacture and marketing of transformers and LCD panels, a key component for a
variety of consumer electronic products. Of the purchase price of $32.8&nbsp;million, we paid $11.0
million in cash and issued 3.48&nbsp;million of our common shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2002, Mate Fair sold a portion of its equity interest in Huizhou TCL Mobile
Communication Co., Ltd. for which we received proceeds of approximately $10.4&nbsp;million, reducing our
direct equity interest (held through Mate Fair) in TCL Mobile to approximately 3%. In November
2002, we invested $5.1&nbsp;million of the proceeds in TCL International Holdings Limited&#146;s 3%
convertible notes that are due in November&nbsp;2005. In August&nbsp;2003, we disposed of those convertible
notes to independent third parties and received proceeds of approximately $5.03&nbsp;million in cash.
TCL International Holdings Limited is another company in the TCL group, which consists of the TCL
Corporation and its subsidiaries, and is publicly listed on The Stock Exchange of Hong Kong
Limited, or the Hong Kong Stock Exchange.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2002, we acquired a 6% equity interest in TCL Corporation (formerly known as TCL
Holdings Corporation Ltd.) for a consideration of approximately $12.0&nbsp;million. TCL Corporation, an
enterprise established in China, is the parent company of the TCL group of companies. TCL
Corporation changed its status from a limited liability company to a company limited by shares in
April&nbsp;2002, or the Establishment Date. In January&nbsp;2004, TCL Corporation listed its A-shares on the
Shenzhen Stock Exchange at RMB 4.26 (equivalent to $0.52) per A-share. The Company&#146;s interest in
TCL Corporation has since been diluted to 3.69% and represents 95.52 million promoter&#146;s shares of
</DIV>

<P align="center" style="font-size: 10pt">19
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> TCL Corporation after its initial public offering. Pursuant to Article&nbsp;147 of the Company Law of
China, the Company is restricted from transferring its promoter&#146;s shares within three years from
the Establishment Date. The Company is, however, entitled to receive dividends and other rights
similar to holders of A-shares. In December&nbsp;2005, shareholders of TCL Corporation approved a split
share structure reform. Pursuant to this reform, the Company will give away 15.62% of its total
shares in TCL Corporation to public shareholders as consideration and thereafter, all restricted
shares held by the Company will become floating shares, subject to the regulations of the China
Securities Regulation&nbsp;Commission, and can be tradable in the market 12&nbsp;months from the first
trading day after the reform is formally in effect, which will depend on the approval of the
Ministry of Commerce of China. The Company&#146;s interest in TCL Corporation has been reduced from
3.69% to 3.12% and represents 80.60&nbsp;million shares. However, the financial impact on the Company&#146;s
interest in TCL Corporation cannot be ascertained at the moment because of the unforeseeable impact
of the reform on TCL Corporation&#146;s A-share price. As of December&nbsp;31, 2005, the Company&#146;s
investment in TCL Corporation was stated at fair value based on traded market price of TCL
Corporation&#146;s shares. For the year ended December&nbsp;31, 2005, the Company recognized an unrealized
gain of $1.36&nbsp;million based on the Company&#146;s cost of $11.97&nbsp;million and a fair value of $13.33
million, based on a valuation report issued by an external valuation firm.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2002, we entered into a transaction which resulted in the listing of a company
holding J.I.C. group&#146;s business on the Hong Kong Stock Exchange. To effect the transaction, we
entered into an agreement with the liquidators of Albatronics (Far East) Company Limited, or
Albatronics, whose shares had been listed on the Hong Kong Stock Exchange and which was placed into
voluntary liquidation in August&nbsp;1999. Under the agreement, we agreed to transfer the J.I.C. group
into J.I.C. Technology Company Limited, or J.I.C., a new company, for a controlling interest in
J.I.C. Albatronics&#146; listing status on the Hong Kong Stock Exchange was withdrawn and J.I.C. was
listed on the Hong Kong Stock Exchange free from the liabilities of Albatronics. This arrangement
was more cost effective than using an initial public offering. For our contribution to J.I.C., we
received a combination of ordinary and preference shares, which are analogous to common stock and
convertible preferred stock, respectively, of companies organized under the laws of the United
States and which upon their full conversion, could result in us, the creditors and the Hong Kong
public owning approximately 92.9%, 5.8% and 1.3%, respectively, of the outstanding ordinary shares
of J.I.C. On June&nbsp;4, 2002, the reverse merger was completed and all the shares of Albatronics were
transferred to the liquidators for a nominal consideration. The preference shares are
non-redeemable, non-voting shares that rank <I>pari passu </I>with ordinary shares of J.I.C. on the
payment of dividends or other distribution other than on a winding-up. No holder of preference
shares (including Nam Tai) may convert them if such conversion would result in the minimum public
float of 25% (required under the Hong Kong Stock Exchange Listing Rules) not being met. In August
2002, we acquired an additional 7,984,000 ordinary shares of J.I.C. for a cash consideration of
$437,000. During the period from June to November&nbsp;2003, we disposed of a total of 42,600,000
ordinary shares for cash consideration of $4.0&nbsp;million. In November&nbsp;2003, we converted 175,100,000
preference shares into 170,000,000 ordinary shares of J.I.C. During the period from November to
December&nbsp;2004, we further disposed of a total of 128,000,000 ordinary shares of J.I.C. for cash
consideration of $12.90&nbsp;million. The disposal resulted in a net gain on partial disposal of a
subsidiary of $6.25&nbsp;million and the release of goodwill of $3.52&nbsp;million. During the same period,
we converted all 423,320,000 preference shares into 410,990,290 ordinary shares. As of December&nbsp;31,
2005, we held 546,890,978 ordinary shares of J.I.C., equivalent to 71.63% of J.I.C.&#146;s issued
ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2003, we invested $10.0&nbsp;million for a 25% equity interest in Alpha Star, the
ultimate holding company of JCT Wireless Technology Limited, or JCT. JCT is engaged in the design,
development and marketing of wireless communication terminals and wireless application software and
is using us to manufacture wireless communication terminals and their related modules. As of
December&nbsp;31, 2004, we recognized net sales of $34.2&nbsp;million to JCT for the year. However, in
September&nbsp;2004, we made an other-than-temporary impairment to write down our $10.0&nbsp;million
investment in Alpha Star to a fair value of approximately $3.0&nbsp;million as based on the valuation
report issued by an external valuation firm. As of December&nbsp;31, 2004, another analysis had been
conducted by an independent valuer, who determined that no further impairment to the carrying value
of the investment was required. From January to August&nbsp;2005, this affiliated company continued to
be loss making. We disposed of our entire stake in Alpha Star in August&nbsp;2005 to the majority
shareholders of Alpha Star with sales proceeds of $6.5&nbsp;million (as mutually agreed between the
parties), resulting in a gain of $3.6&nbsp;million in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2003, we disposed of 20% of our equity interest in Namtek Software Development
Company Limited, or Namtek Software, to a company that is owned by the management of Namtek
Software for a cash consideration of $160,000. As of the date of disposal, Namtek Software had a
fair value of $3.3&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On January&nbsp;23, 2003, the listing of our shares was transferred to the NYSE from the NASDAQ
National Market with the symbol of &#147;NTE&#148;. On June&nbsp;30, 2003, we implemented a three-for-one stock
split with both the stock size and market price to be divided by three. As of December&nbsp;31, 2005,
there were 43,505,586 common shares outstanding.
</DIV>

<P align="center" style="font-size: 10pt">20
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2003, one of our subsidiaries, J.I.C., disposed of its transformers operation to a
third party for a cash consideration of $2.4&nbsp;million. The gain from disposal of this discontinued
operation amounted to $2.0&nbsp;million, net of $0.1&nbsp;million shared by minority interest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2003, we set up our first subsidiary, Nam Tai Investments Consultant (Macao
Commercial Offshore) Company Limited, or Nam Tai Macao, in Macao as our PRC headquarters. Macao,
like Hong Kong, is a special administrative region of the China and has recently introduced an
incentive program to attract investment to Macao. In March and November&nbsp;2004, we further
established Zastron (Macao Commercial Offshore) Company Limited, or Zastron Macao, and J.I.C.
(Macao Commercial Offshore) Company Limited, or J.I.C. Macao, in Macao, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2003, our common shares were listed in the Regulated Unofficial Market
(Freiverkehr) on the Frankfurt Stock Exchange, in Germany. The stocks are being traded on Xetra,
the Deutsche Borse AG electronic trading system under the stock symbol &#147;884852&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2003, we placed approximately $5.3&nbsp;million into an escrow account for an
investment in Stepmind. The investment was to occur in two phases. For the first phase,
approximately $2.64&nbsp;million, representing 7.66% of the equity interest in Stepmind, was released to
Stepmind in January&nbsp;2004. The second phase amounting to approximately $2.65&nbsp;million was released to
Stepmind in August&nbsp;2004 subject to fulfillment of certain conditions. In August&nbsp;2004, we disposed
of our entire interest in Stepmind to one of the shareholders of Stepmind at the original
subscription price for those shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2004, we increased our shareholding in TCL Mobile from approximately 3% to 9% through
the acquisition of Jasper Ace Limited, or Jasper Ace, which directly holds a 9% equity interest in
TCL Mobile, for a consideration of approximately $102.2&nbsp;million. The consideration was satisfied by
the exchange of our 72.2% equity interest in Mate Fair, plus cash of $25&nbsp;million in cash, and the
issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5&nbsp;million. In
July&nbsp;2004, Nam Tai transferred all its shares in TCL Mobile to TCL Communication in exchange for 90
shares of TCL Communication. In August&nbsp;2004, we further subscribed for 254,474,910 shares in TCL
Communication at a consideration of approximately $16&nbsp;million. The consideration was satisfied by
the dividend receivable from TCL Communication. Together with the 90 shares it received in July
2004, Nam Tai in total holds 254,475,000 shares in TCL Communication, representing 9% of the
shareholding of TCL Communication. In September&nbsp;2004, shares of TCL Communication were listed on
the Hong Kong Stock Exchange by way of introduction. There were no new shares issued or sold in
connection with the listing, and therefore no dilution to Nam Tai&#146;s original stake in TCL
Communication. As of December&nbsp;31, 2004, the Company&#146;s investment in TCL Communication was stated
at fair value based on the traded market price of TCL Communication&#146;s shares. The Company
recognized an impairment loss of $58.3&nbsp;million in its consolidated statement of income based on the
Company&#146;s cost of $79.5&nbsp;million and a fair value of $21.2&nbsp;million. In the second quarter of 2005,
the Company further recognized an impairment loss of $6.5&nbsp;million in its consolidated statements of
income based on a market value of $14.7&nbsp;million. Due to a share swap between TCL Communication and
Alcatel on July&nbsp;18, 2005, our shareholding in TCL Communication decreased from 9% to 8.57%. During
the period from August to December&nbsp;2005, we have disposed of our entire stake in TCL Communication,
receiving proceeds from the sale of $11.0&nbsp;million and recorded a realized loss of $3.7&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In April&nbsp;2004, shares of Nam Tai Electronic &#038; Electrical Products Limited, or NTEEP, a wholly
owned subsidiary of the Company, were listed on the Hong Kong Stock Exchange. Since all of the
shares of NTEEP involved in the initial public offering, or IPO, were existing shares of NTEEP
owned by Nam Tai, all of the proceeds raised in the IPO went to Nam Tai instead of NTEEP. The offer
price of NTEEP&#146;s share was $0.497, which resulted in net proceeds of approximately $92.8&nbsp;million
and a gain of approximately $71.1&nbsp;million to the Company. In May&nbsp;2005, NTEEP completed an
agreement with Nam Tai and Asano Company Limited, or Asano Company, for the acquisition of 80% and
20% interests in Namtek Software, respectively. The total consideration for the acquisition,
amounted to approximately $26.7&nbsp;million, and was satisfied by issuance of 81,670,588 new shares of
NTEEP to Nam Tai and Asano Company (65,336,470 new shares to Nam Tai and 16,334,118 new shares to
Asano Company) at approximately $0.327, or HK$2.55, per share. At various times in 2005, Nam Tai
disposed of a total of 52,574,000 shares of NTEEP, resulting in net proceeds of approximately $15.0
million and a gain of approximately $8.2&nbsp;million to the Company. As of December&nbsp;31, 2005 we held
612,762,470 shares of NTEEP, representing 69.5% of the total issued capital of NTEEP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, Jetup Electronic (Shenzhen) Co., Ltd., or Jetup, relocated to the new factory
premises and full operation has commenced in early 2005. The new factory premises are about twice
the size of the former factory premises with approximately 670,000 square feet. This new factory
provides room for the future expansion of production capacity. As of December&nbsp;31, 2004, we had
spent $7.7&nbsp;million for this relocation. A further $5.4&nbsp;million was spent in 2005 to cover the cost
of fixtures and equipment for the new factory and was financed through a combination of internal
resources and bank financing.
</DIV>


<P align="center" style="font-size: 10pt">21
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the construction of a new five-story factory building for a subsidiary
was completed and full operation commenced in April&nbsp;2005. The new factory premises are adjacent to
Nam Tai&#146;s existing main manufacturing campus in Shenzhen, PRC, and added approximately 265,000
square feet of manufacturing space. During 2005, the Company has also built two additional blocks
of dormitories with approximately 76,216 square feet. With this new addition, as of December&nbsp;31,
2005, our principal manufacturing facilities consists of
approximately 557,835 square feet of manufacturing space
and 266,168 square feet of dormitories. As of December&nbsp;31, 2005, we had incurred $25.8&nbsp;million to
cover the cost of construction, fixtures and equipment for the new factory.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2005, the Company undertook two conditional general cash offers to privatize two of
its Hong Kong listed subsidiaries, NTEEP and J.I.C. As part of the conditions precedent to closing
for both offers, the Company needed to acquire at least 90% of the public float shares of each of
NTEEP and J.I.C., failing which, the offers would terminate. However, as of the closing date of the
respective offers, the Company had not been able to acquire 90% of the public float shares of NTEEP
and J.I.C., respectively. As a result, both offers were terminated and the proposed privatizations
of both NTEEP and J.I.C. were not successful. Both companies retain their listing status on the
Hong Kong Stock Exchange.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Also refer to the section of this Report entitled Item&nbsp;5. Operating and Financial Review and
Prospects for a further discussion of our investments and acquisitions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An important element of our strategy is to acquire companies that would complement our
existing products and services, augment our market coverage and sales ability or enhance our
technological capabilities. Accordingly, we may acquire additional businesses, products or
technologies in the future or make investments in related businesses for strategic business
purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Capital Expenditures</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal capital expenditures and divestitures over the last three years include the
following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment (net)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,053,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">38,611,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">32,166,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our major capital expenditures in 2005 included:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$10.8&nbsp;million for new factory expansion;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$5.4&nbsp;million for expansion of a LCD factory;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$3.3&nbsp;million for machinery used mainly for COG products;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$4.9&nbsp;million for machinery used mainly for FPC sub-assemblies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$7.8&nbsp;million for other capital equipment.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our major capital expenditures in 2004 included:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$13.8&nbsp;million for new factory expansion;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$7.7&nbsp;million for the expansion of LCD factory (which included $5.8&nbsp;million paid
as a deposit for property, plant and equipment);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$0.7&nbsp;million for the expansion of our high-resolution color LCD module production capacity;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$14.5&nbsp;million for machinery used mainly for FPC sub-assemblies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$5.6&nbsp;million for other capital equipment; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$2.1&nbsp;million for construction work in relation to the electricity supply for
Namtai Electronic (Shenzhen) Co., Ltd.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">22
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Our major capital expenditures in 2003 included:
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$6.0&nbsp;million for machinery for manufacturing RF modules;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$1.2&nbsp;million for new factory expansion;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$0.4&nbsp;million for machinery on FPC sub-assemblies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$1.7&nbsp;million for expansion of our high-resolution color LCD module production capacity;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$6.7&nbsp;million for other capital equipment; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$1.1&nbsp;million for construction of a new trade union building for our workers in China.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to expand production capacity, we have built a new factory consisting of
approximately 265,000 square feet adjacent to our existing principal manufacturing facilities in
Shenzhen, China. The construction was completed in December&nbsp;2004 and in use since April&nbsp;2005. As of
December&nbsp;31, 2005, we had incurred $25.8&nbsp;million to cover the cost of construction, fixtures and
equipment for the new factory. The financing for these improvements to our manufacturing facilities
were obtained from internal resources. In October&nbsp;2004, our existing production facility for the
LCD panels segment also relocated to new factory premises which are approximately 670,000 square
feet and twice the size of the former factory premises. This new factory provides room for the
future expansion of production capacity. As of December&nbsp;31, 2004, we had spent $7.7&nbsp;million for
this relocation and financed this amount with a combination of internal resources and bank
financing. A further $5.4&nbsp;million was spent in 2005 to cover the cost of fixtures and equipment for
the new factory and financed with a combination of internal resources and bank financing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other capital expenditures we have planned for 2006 include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$3.7&nbsp;million for the purchase of land for the construction of a new factory by a subsidiary;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$15.8&nbsp;million for machinery and equipment;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$2.6&nbsp;million for other capital equipment.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>$20.9&nbsp;million for FPC board project (including $18.5&nbsp;million for machinery,
$1.4&nbsp;million for factory improvement and $1.0&nbsp;million consultancy fee)</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our plans for capital expenditures are subject to change from time to time and could result
from, among other things, our consummation of any significant amount of additional acquisition or
strategic investment opportunities, which we regularly explore.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Business Overview</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are an electronics manufacturing and design services provider to a select group of the
world&#146;s leading OEMs of telecommunications and consumer electronic products. Through our
electronics manufacturing services operations, we manufacture electronic components and
sub-assemblies, including LCD panels, LCD modules, RF modules, DAB modules, FPC sub-assemblies and
image sensors modules and PCBA for Bluetooth<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> headsets. These components are used in
numerous electronic products, including cellular phones, laptop computers, digital cameras,
electronic toys, handheld video game devices, entertainment devices and microwave ovens. We also
manufacture finished products, including cellular phones in
semi-knocked down, or SKD, form, mobile
phone accessories and educational products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We assist our OEM customers in the design and development of their products and furnish full
turnkey manufacturing services that utilize advanced manufacturing processes and production
technologies. Our services include hardware and software design, component purchasing, assembly
into finished products or electronic sub-assemblies and post-assembly testing. These services are
value-added and assist us in obtaining new business but do not represent a material component of
our revenue. We also provide original design manufacturing, or ODM,
services, in which we design and develop proprietary products that are sold by our OEM
customers using their brand name.
</DIV>

<P align="center" style="font-size: 10pt">23
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We were founded in 1975 as an electronic products trading company based in Hong Kong and
shifted our focus to manufacturing of electronic products in 1978. We moved our manufacturing
facilities to China in 1980 to take advantage of lower overhead costs, lower material costs and
competitive labor rates, subsequently relocating to Shenzhen, China in order to capitalize on
opportunities offered in southern China. We were reincorporated as a limited liability
International Business Company under the laws of the British Virgin Islands in August&nbsp;1987. Our
principal manufacturing and design operations are based in Shenzhen, China, approximately 30 miles
from Hong Kong. Some of our subsidiaries&#146; offices are located in Hong Kong and Macao, which
provides us access to Hong Kong&#146;s and Macao&#146;s infrastructure of communication and banking and
facilitates management of our China operations. One of our subsidiaries also has an office in
Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Customers</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, we have had substantial recurring sales from existing customers. Approximately
95.8% of our 2005 net sales came from customers that also used our services in 2004. While we seek
to diversify our customer base, a small number of customers currently generate a significant
portion of our sales. Sales to our 10 largest customers accounted for 84.9%, 82.5% and 86.6% of our
net sales during the years ended December&nbsp;31, 2003, 2004 and 2005, respectively. Sales to customers
accounting for 10% or more of our net sales in the year ended December&nbsp;31, 2003, 2004 or 2005 were
as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sanyo Epson Imaging Devices (HK) Limited (formerly
known as Epson Precision (HK)&nbsp;Ltd.)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">24.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">14.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sony Ericsson Mobile Communications AB</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">11.3</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Toshiba Matsushita Display Technology Co. Ltd</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10.6</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Motorola Inc.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10.2</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sharp Corporation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">13.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">32.3</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wuxi Sharp Electronic Components Co., Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10.1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">10.1</TD>
    <TD nowrap>%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Less than 10% of our total net sales.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our 10 largest OEM customers based on net sales during 2005 include the following (listed
alphabetically):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="54%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center"><B>Customer</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Products</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Hikari Alphax Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">LCD modules</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Motorola Inc.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">CMOS sensor modules</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sanyo Epson Imaging Devices (HK) Limited (formerly

</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">LCD modules for cellular phones and FPC sub-assemblies</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:30px; text-indent:-15px">
known as Epson Precision (HK)&nbsp;Ltd.)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top"></TD>
</TR>


<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sharp Corporation
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FPC sub-assemblies, calculators, PDAs and dictionaries</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sony Computer Entertainment Europe Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Home entertainment products</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sony Ericsson Mobile Communications AB
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Mobile phone digital camera accessories,
Bluetooth<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> wireless headset accessory and
flashlight for mobile phone</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Sumitronics Hong Kong Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">FPC sub-assemblies</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Texas Instruments Incorporated
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Calculators</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Uniden HK Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">LCD panels</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Wuxi Sharp Electronic Components Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Telecom printed circuit board, or PCB, modules and
FPC sub-assemblies</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;At any given time, different customers account for a significant portion of our business.
Percentages of net sales to customers vary from quarter to quarter and year to year and fluctuate
depending on the timing of production cycles for particular products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales to our OEM customers are primarily based on purchase orders we receive from time to time
rather than firm, long-term purchase commitments from our customers. Although it is our general
practice to purchase raw materials only upon receiving a purchase order, for certain customers we
will occasionally purchase raw materials based on such customers&#146; rolling forecasts. Uncertain
economic conditions and our general lack of long-term
purchase commitments with our customers make it difficult for us to accurately predict revenue
over the longer term. Even in those cases where customers are contractually obligated to purchase
products from us or repurchase unused inventory from us, we may elect not to immediately enforce
our contractual rights because of the long-term nature of our customer relationships and for other
business reasons, and instead may negotiate accommodations with customers regarding particular
situations.
</DIV>

<P align="center" style="font-size: 10pt">24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Products</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2003, our operations were generally organized in two segments, Consumer Electronics
Products, or CEP, and LCD panels and transformers, or LPT. The activities of our LPT segment relate
primarily to our J.I.C. subsidiary that we acquired in October&nbsp;2000. In 2004, our operations were
re-organized into three reportable segments consisting of consumer electronics and communication
products, or CECP, telecommunication components assembly, or TCA and LCD panels, or LCDP. In 2003,
CECP and TCA were classified as a single reportable segment as CEP while LCDP also comprised the
transformers operations and collectively referred to as LPT as a result of the disposal of
transformer business in 2003. In 2005, software development services were included in the product
segment of CECP (previously in TCA) due to a re-organization and the comparison figures have been
restated accordingly.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The dollar amount (in thousands) and percentage of our net sales by business segment and
product category for the years ended December&nbsp;31, 2003, 2004 and 2005 were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="28%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6" style="border-bottom: 0px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Dollars</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Percent</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Dollars</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Percent</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Dollars</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Percent</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-30px">Consumer Electronics and
Communication Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consumer Electronics and
Communication Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">128,779</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">32</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">163,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">31</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">163,645</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">20</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Software Development Services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,872</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Telecommunication, components assembly</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">232,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">570,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LCD Panels
and Transformers<BR>LCD panels</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,040</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Transformers<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,284</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">406,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">533,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">797,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:60px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">(1)</TD>
    <TD>&nbsp;</TD>
    <TD>We sold our transformers operation to a third party in June&nbsp;2003.</TD>
</TR>

</TABLE>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Please
refer to Note 19 &#147;Segment Information&#148; of the Consolidated Financial Statements and
Item&nbsp;8 Financial Information &#151; Export Sales which sets forth the information of net sales to
customers by geographical area.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Consumer Electronic and Communication Products, or CECP</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The consumer electronic and communication products we manufacture are primarily finished
products and include:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Optical devices such as CMOS sensor modules.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Entertainment devices such as USB camera accessory, USB microphone and
converter box, controller for a music quiz game and a gaming device
for mobile phones.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Mobile phone accessories such as Bluetooth<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> wireless headsets, a
snap-on speaker, a snap-on card holder and snap-on flash lights.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Educational products such as digital pens, calculators and electronic
dictionaries.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left=2%"><I>Software Development Services</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left=2%">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We also offer software development services principally for electronic dictionary products for
major Japanese customers. In addition, we focus on research and development for car navigation
products for which we aim to provide license and/or manufacturing services to the OEM customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Telecommunication Component Assembly, or TCA</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We manufacture the following sub-assemblies and components:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Color and monochrome LCD modules to display information as part of
telecommunication products such as cellular phones and telephone systems and appliances
such as micro-wave ovens. Our LCD modules could be manufactured for use in most other
hand-held consumer electronic devices, such as electronic games and digital cameras.</TD>
</TR>


</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">25
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>RF modules, which we began manufacturing in December&nbsp;2002, for integration into
cellular phones. These modules could be manufactured for use in most other hand-held
consumer electronic products, such as PDAs, laptop computers and other products with
wireless connectivity.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>DAB modules, which we began manufacturing in 2005 are designed into digital
radio products such as home tuners, kitchen radios, in-car receivers, CD players, clock
radios, boomboxes, midi-systems and handheld portable devices.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Cellular phones in SKD form.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>FPC sub-assemblies which we began manufacturing in March&nbsp;2003 for integration
into various LCD modules.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Front light panels for handheld video game devices.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Back light panels for handheld video game devices, which we began manufacturing in October&nbsp;2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>1.9 high frequency cordless telephones and home feature phones.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>LCD Panels, or LCDP</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LCD panels are found in numerous applications in electronics products, such as watches,
clocks, calculators, pocket games, PDAs and mobile and cordless telephones, and car audio systems.
We are a customized LCD panel manufacturer, and we develop each product from design concept all the
way to a high quality mass producible product. Since 2003, we have also begun manufacturing
customized LCD modules that include components such as backlights, FPC and Chip on Class, or COG.
In 2005, J.I.C. began developing LCD modules for cordless and Voice-Over-Internet Protocol, or
VoIP, phones.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Manufacturing and Assembly Capabilities</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We utilize the following production techniques:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Chip on Film, </B>or COF, is an assembly method for bonding integrated circuit
chips and other components onto a flexible printed circuit. This process allows for greater
compression of the size of a product when assembled enabling the production and
miniaturization of small form factor devices like cellular phones, PDAs, digital cameras
and notebook PCs. As of December&nbsp;31, 2005, we had 16 COF machines. These machines connect
the bump of large scale integrated, or LSI, driver onto FPC pattern with anisotropic
conductive film, or ACF, is available. These COF machines have the ability to pitch fine to
38 micrometers and a total production capacity of up to 4,000,000 chips per month.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Chip On Glass, </B>or COG, is a process that connects integrated circuits directly
to LCD panels without the need for wire bonding. We apply this technology to produce
advanced LCD modules for high-end electronic products, such as cellular phones and PDAs. As
of December&nbsp;31, 2005, we had 23 COG lines in our principal manufacturing facilities. These
machines provide an LCD of dimension of up to 200 millimeters (length)&nbsp;x 150 (width)&nbsp;x 2.2
(height), a process time of five seconds per chip, a pin pitch fine to 38 micrometers and a
total production capacity of up to 4,300,000 chips per month. During 2005, our subsidiary,
Jetup Electronic (Shenzhen) Co. Ltd., or Jetup, also started manufacturing COG LCD modules.
As of December&nbsp;31, 2005, Jetup had nine COG lines and is capable of bonding 2,500,000
pieces of COG LCD modules a month. They are able to bond LCD panels up to sizes of 200
millimeters x 200 millimeters
x 2.2 millimeters thick, with an accuracy of five microns&#146; tolerence, in a cycle time of
12-15 seconds per piece</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Chip On Board, </B>or COB, is a technology that utilizes wire bonding to connect
large-scale integrated circuits directly to printed circuit boards. As of December&nbsp;31,
2005, we had 51 COB aluminum bonding machines which provide a high speed chip mounting time
of 0.25 second per 2 millimeters wire, a bond pad fine to 75 micrometers and a total
production capacity of up to 3,000,000 per month. We use COB aluminum bonding in the
assembly of consumer products such as calculators, personal organizers, linguistic
products, meters and car audio products. We also had two COB gold bonding machines which
provide a high speed chip mounting time of 0.072 second per 2 millimeters wire, a bond pad
fine to 50 micrometers and a total production capacity of up to 300,000 per month. We use
COB gold bonding in the assembly for digital still camera, mobile phone and digital pen
products.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">26
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Outer Lead Bonding, </B>or OLB, is an advanced technology used to connect PCBs and
large-scale integrated circuits with a large number of connectors. We use this technology
to manufacture complex miniaturized products, such as high-memory PDAs. As of December&nbsp;31,
2005, we had three OLB machines. The machines include multi-pinned tape carrier packaged
large scale integrated circuit, or TCP LSIC, bonding which is up to 280 pins, which also
provide ultra thin assembly with module thickness to around one millimeter and high
accuracy bonding with pin pitch to 100 micrometers. The total production capacity is 12,000
units per month.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Tape Automated Bonding with Anisotropic Conductive Film, </B>or TAB with ACF, is an
advanced heat sealing technology that connects a liquid crystal display component with an
integrated circuit in very small LCD modules, such as those used in cellular phones and
pagers. As of December&nbsp;31, 2005, we had 19 systems of TAB with ACF machines. The machines
provide process time of 10 to 25 seconds per component, a pin pitch fine to 200 micrometers
and a total production capacity of up to 4,020,000 components per month. During 2005, Jetup
also started manufacturing TAB LCD modules. As of December&nbsp;31, 2005, Jetup had four TAB
lines and is capable of bonding 500,000 pieces of TAB LCD modules a month. They are able to
bond LCD panels up to sizes of 120 millimeters x 120 millimeters x 2.2 millimeters thick,
with an accuracy of 10 microns&#146; tolerence in a cycle time of 20-25 seconds per piece.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Fine Pitch Heat Seal Technology, </B>or FPHS technology, allows us to connect LCD
displays to PCBs produced by COB and outer lead bonding that enables very thin connections.
This method is highly specialized and is used in the production of finished products such
as PDAs. As of December&nbsp;31, 2005, we had eight machines utilizing FPHS technology. The
machines provide a pin pitch fine to 260 micrometers and a total production capacity of up
to 268,000 units per month.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Surface Mount Technology, </B>or SMT, is a process by which electronic components
are mounted directly on both sides of a printed circuit board, increasing board capacity,
facilitating product miniaturization and enabling advanced automation of production. We use
SMT for products such as electronic linguistic devices. As of December&nbsp;31, 2005, we had 33
SMT productions lines. The production time per chip ranges from 0.06 second per chip to 0.8
second per chip and high precision ranging from &#043;/-0.05 millimeter to &#043;/-0.1 millimeter.
The components size ranges from 0.6 millimeter (length)&nbsp;x 0.3 millimeter (width)&nbsp;to 55
millimeters (length)&nbsp;x 55 millimeters (width). Ball grid array, or BGA, ball pitch is 0.5
millimeter and ball diameter is 0.2 millimeter. Flip Chip, our smallest lead/bump pitch, is
250/240UM. The total production capacity is 910,000,000 resistor capacitor chips per month.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Super-Twisted Nematic LCDs, </B>or STN, type LCDs capable of providing higher
information content display systems are found in applications such as cordless phones,
mobile phones, MP3 players, pocket games and PDAs. J.I.C. group started producing STN LCDs
in 2002. During 2005, J.I.C. group update its two existing twisted nematic, or TN type,
LCD lines to STN LCD lines. As of December&nbsp;31 2005, J.I.C. group was equipped with three
automated STN lines capable of producing both TN and STN type LCDs with capacity of 150,000
pairs of glass (each sheet of glass of 360 millimeters x 400 millimeters size) panels per
month.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had six clean rooms at our principal manufacturing facilities,
which housed COB, COF and COG capabilities for CMOS sensor modules, electronic calculators, LCD
module and front light or back light panel manufacturing. We also have four clean rooms at another
of our factories, which are used to manufacture
LCD panels and modules. Of our ten clean rooms as of December&nbsp;31, 2005, five were class ten
thousand, four were class thousand and one was class one hundred.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Quality Control</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We maintain strict quality control programs for our products, including the use of total
quality management, systems and advanced testing and calibration equipment. Our quality control
personnel test the quality of incoming raw materials and components. During the production stage,
our quality control personnel also test the quality of work-in-progress at several points in the
production process. Finally, after the assembly stage, we conduct testing of finished products. In
addition, we provide office space at our principal manufacturing facilities for representatives of
our major customers to permit them to monitor production of their products and we provide them with
direct access to our manufacturing personnel.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of our manufacturing facilities are certified under ISO 9001 quality standards, the
International Organization for Standardization&#146;s, or ISO&#146;s, highest standards. The ISO is a
Geneva-based organization dedicated to the development of worldwide standards for quality
management guidelines and quality assurance. ISO 9000, which was the first quality system standard
to gain worldwide recognition, requires a company to gather, analyze, document, monitor and make
improvements where needed. Our certification under an ISO 9001 quality standard demonstrates that
our manufacturing operations meet the most demanding of the established world standards. All of our
manufacturing
</DIV>

<P align="center" style="font-size: 10pt">27
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> facilities are also certified under an ISO 14001 quality standard, which was
published in 1996 to provide a structured basis for environmental management control.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We started the implementation of the Six Sigma approach. In 2004, our principal manufacturing
facilities were recognized by the China Association for Quality of the Chinese Government as a
&#147;National Advanced Enterprise for the Promotion of Six Sigma&#148;. Six Sigma is an internationally
recognized approach that uses facts and data to develop better solutions, thereby reducing defects
and production times, and improving customer satisfaction. This approach allows the Company to
lower its costs due to the minimization of manufacturing defects. This results in improved profit
margins and higher competitiveness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Our Suppliers</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We purchase thousands of different component parts from numerous suppliers. For some
components, we may rely on a single supplier. We purchase components from suppliers in Japan, China
and elsewhere. We generally place component orders upon received purchase orders from customers and
under customer&#146;s authorization with agreed liability so as to minimize our inventory risk by
ordering components and products only to the extent necessary although for certain customers we may
occasionally purchase raw materials based on such customer&#146;s rolling forecasts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The major component parts we purchase include the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>off-the-shelf and custom integrated circuits or &#147;chips&#148;, most of which we
purchase presently from Cambridge Silico Radio Plc, Toshiba Corporation, Sharp Corporation
and certain of their affiliates;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>LCD panels, which are available from many manufacturers. In 2005, we purchased
LCD panels from Epson Hong Kong Ltd., Toshiba Matsushita Display Technology Co. Ltd.,
Optrex Corporation, Sharp Corporation, Nanya Plastic Corporation and Safaring Technology
Co. Ltd. One of our subsidiary groups, J.I.C. group, also produces LCD panels for the
NTEEP group;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>CMOS sensors, which we purchase mainly from Omnivision Technologies Inc.;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>solar cells and batteries, which are standard &#147;off-the-shelf&#148; items that we
generally purchase in Hong Kong from agents of Japanese manufacturers or directly from
companies in China;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>various mechanical components such as plastic parts, rubber keypads, PCBs,
indium tin oxide, or ITO, glass used in the production of LCD panels, and packaging
materials from various local suppliers in China; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>various acoustic components, which we mainly sourced from KSY Technology
Limited and Ole Wolf (Asia) Limited.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Whenever practical, we use domestic China suppliers who are often able to provide items at low
costs and with short lead times.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Certain components may be subject to limited allocation by certain of our suppliers. From time
to time, there have been industry-wide shortages of components in the electronics industry as
supply was unable to satisfy growing world demand. In some cases, supply shortages and delays in
deliveries of particular components have resulted in curtailed production, or delays in production
of assemblies using scarce components. These supply shortages have contributed to an increase in
our inventory levels and reduction in our margins. We expect that shortages and delays in
deliveries of some components will continue. If we are unable to obtain sufficient components on a
timely basis, we may experience manufacturing delays, which could harm our relationships with
current or prospective customers and reduce our sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The principal raw materials used by the Company are large scale integrated, or LSI, circuits
(CMOS), semiconductors, LCD panels and batteries. At times, the pricing and availability of these
raw materials can be volatile, due to numerous factors beyond the Company&#146;s control, including
general economic conditions, currency exchange rates, industry cycles, production levels or a
supplier&#146;s tight supply. In the past, we have asked our customers to share in the increased costs
of raw materials where such increased costs would adversely affect the Company&#146;s business, results
of operations and financial condition. Our customers have generally agreed when so requested in the
past. We cannot assure you, however, that our customers will agree to share costs in the future and
that our business, results of operations and financial condition would not be adversely affected by
increased volatility of raw materials.
</DIV>

<P align="center" style="font-size: 10pt">28
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Production Scheduling</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The typical cycle for a product to be designed, manufactured and sold to an OEM customer is
one to two years, which includes the production period, the development period and the period for
market research and data collection (which is undertaken primarily by our OEM customers). Initially
an OEM customer gathers data from its sales personnel on products for which there is market
interest, including features and unit costs. The OEM customer then contacts us, and possibly other
prospective manufacturers, with forecasted total production quantities and design specifications or
renderings. From that information, we in turn contact our suppliers and determine estimated
component and material costs. We later advise our OEM customer of the development costs, charges
(including molds, tooling and software design, if applicable) and unit cost based on the forecasted
production quantities desired during the expected production cycle.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Once we and the OEM customer agree to the quotation for the development costs and the unit
cost, we begin the product development if we are engaged to do so. This development period
typically lasts less than six months, but may be longer if software design is included. During this
time we complete all molds, tooling and software required to manufacture the product with the
development costs generally borne by our customer. Upon completion of the molds, tooling and
software, we produce samples of the product for the customer&#146;s quality testing, and, once approved,
commence mass production of the product. We recover the development costs in relation to molds,
tooling and software from our customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The production period usually lasts approximately six to twelve months. In some cases, our OEM
customer handles all product design and development and engages us only at the point of initial
production. Typically, more advanced products have shorter production runs. If total production
quantities change, the OEM customer often provides only limited notice before discontinuing orders
for a product. At any point in time we may be in different stages of the development and production
periods for the various models under development or in production for our OEM customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Generally, our production is based on purchase orders received from OEM customers. Purchase
orders are often supported by letters of credit or written confirmation from the OEM customer and
generally may not be cancelled once confirmed without the mutual consent of the parties. Even in
those cases where customers are contractually obligated to purchase products from us or repurchase
unused inventory from us, we may elect not to immediately enforce our contractual rights because of
the long-term nature of our customer relationships and for other business reasons, and instead may
negotiate accommodations with customers regarding particular situations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We did not suffer a material loss resulting from the cancellation of OEM customer orders for
the years ended December&nbsp;31, 2003, 2004 and 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sales and Marketing</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We focus on developing close relationships with our customers at the development and design
phases and continuing throughout all stages of production. We identify, develop and market new
technologies that benefit our customers and position us well as an EMS provider.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales and marketing operations are integrated processes involving direct salespersons, project
managers and senior executives. We direct our sales resources and activities at several management
and staff levels within our customers and prospective customers. We receive unsolicited inquiries
resulting from word of mouth, from public relations activities, and through referrals from current
customers. We evaluate these opportunities against our customer selection criteria and assign
direct salespersons.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Seasonality</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Historically, our sales and operating results are often affected by seasonality. Sales of
calculators, personal organizers and linguistic products are often higher during the second and
third quarters in anticipation of the start of the school year and the Christmas buying season.
Similarly, our consumer services for electronics products have historically been lower in the first
quarter resulting from both the closing of our factories in China for the Chinese New Year holidays
and the general reduction in sales following the holiday season. As we have diversified our
services for complex components, we expect that seasonality may be less of a factor affecting our
business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Transportation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Transportation of components and finished products to and from Shenzhen is by truck. Component
parts purchased from Japan are generally shipped by air. To date, we have not been materially
affected by any transportation problems. However, transportation difficulties affecting
</DIV>


<P align="center" style="font-size: 10pt">29
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">air cargo or shipping, such as an extended closure of ports that
materially disrupts the flow of our customers&#146; products into the United States, could materially
and adversely affect our sales and margins if, as a result, our customers delay or cancel orders or
seek concessions to offset expediting charges they incurred pending resolution of the problems
causing the port closures.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Competition</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General competition in the contract EMS industry is intense and characterized by price
erosion, rapid technological change and competition from major international companies. This
intense competition has resulted in pricing pressures, lower sales and reduced margins. We believe
that the principal competitive factors in our targeted markets are product quality, pricing,
flexibility and timeliness in responding to design and schedule changes, reliability in meeting
product delivery schedules, technological sophistication and geographic location. Many of our
competitors have greater financial, technical, marketing, manufacturing, regional shipping
capabilities and logistics support and personnel resources than we do and we may not be able to
continue to compete successfully.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The EMS services we provide are available from many independent sources as well as from
current and potential customers with in-house manufacturing capabilities. We believe our EMS
competitors include Celestica, Inc., Flextronics International Ltd., Hon Hai Precision Industry
Co., Ltd., Jabil Circuit, Inc., Sanmina-SCI Corporation and Solectron Corporation. We believe our
principal competitors in the manufacture of our traditional product lines of calculators, personal
organizers and linguistic products include Kinpo Electronics, Inc. and Inventec Co. Ltd. We believe
our competitors in the manufacturing of image capturing devices and their modules include Lite-On
Technology Corporation, The Primax Group and Logitech International S.A. We believe our principal
competitors in the manufacture of mobile phone accessories include Elcoteq Network Corp,
Balda-Thong Fook Solutions Sdn. Bhd. and WKK International (Holdings) Ltd. We believe our
competitors in the manufacturing of RF modules include Wavecom and WKK International (Holdings)
Ltd. We believe our competitors in the manufacturing of LCD panels include Truly International
Holdings Ltd., Elec &#038; Eltek International Holdings Limited and, Varitronix International Ltd. We
also believe that we have numerous competitors in the telecommunication, sub-assemblies and
components product lines, including Philips, Samsung and Varitronix International Ltd. Our
competitors in our FPC sub-assemblies business include Solectron Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Research and Development</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We invest in research and development for manufacturing and assembly technology that provide
us with the potential to offer better and more technologically advanced services to our OEM
customers or assist us in working with our OEM customers in the design and development of future
products. We plan to continue acquiring advanced design equipment and to enhance our technological
expertise through continued training of our engineers and further hiring of qualified system
engineers. These investments are intended to improve the speed, efficiency and quality of our
assembly processes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In our ODM business, we are responsible for the design and development of new products, the
rights to which we own. We sell these products to OEM customers to be marketed to end users under
the customers&#146; brand names. To date, we have successfully developed a number of electronic
dictionaries, cordless telephones, calculator products and game accessories. Our efforts to expand
or maintain the ODM business may not be successful and we may not achieve material revenues or
profits from our efforts. To date, our ODM design activities have not been a material portion of
our research and development budget.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Patents, Licenses and Trademarks</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not have any patents, licenses or trademarks on which our business is substantially
dependent. Instead, we rely on our trade secrets, industry expertise and long-term relationships
with our customers and suppliers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Organizational Structure</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are a holding company for Nam Tai Electronic &#038; Electrical Products Limited, Zastron
Precision-Tech Limited, and J.I.C. Technology Company Limited and their subsidiaries. The chart
below illustrates the organizational structure of the Company and our principal operating
subsidiaries as of December&nbsp;31, 2005.
</DIV>

<P align="center" style="font-size: 10pt">30
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><IMG src="h00389h0038901.gif" alt="(ORGANISATION CHART)">
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="1%"></TD>
    <TD width="95%"></TD>
</TR>

<TR style="font-size: 10pt"><TD><SUP>Note:</SUP></TD></TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Namtai Electronic (Shenzhen) Co. Ltd. currently holds 3.69%
interest in TCL Corporation and will be changed to 3.12% upon
completion of the split share structure reform of TCL Corporation</TD>
</TR>


</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Our significant operating entities are described below:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Nam Tai Electronic &#038; Electrical Products Limited</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nam Tai Electronic &#038; Electrical Products Limited was incorporated in June&nbsp;2003 in the Cayman
Islands, and is the holding company for Namtai Electronic (Shenzhen) Co., Ltd., or Namtai Shenzhen,
Nam Tai Macao, Shenzhen Namtek Co., Ltd., or Shenzhen Namtek, and Namtek Japan Company Limited, or
Namtek Japan. Shares of NTEEP were listed on the Hong Kong Stock
Exchange on April&nbsp;28, 2004 and as of December&nbsp;31, 2005, the
Company held 69.5% of the issued ordinary shares of NTEEP.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Namtai Electronic (Shenzhen) Co., Ltd.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Namtai Electronic (Shenzhen) Co., Ltd. was established as Baoan (Nam Tai) Electronic Co. Ltd.
in June&nbsp;1989 as a contractual joint venture company with limited liability pursuant to the relevant
laws of China. The equity of Baoan (Nam Tai) Electronic Co. Ltd. was 70% owned by Nam Tai
Electronic &#038; Electrical Products Limited, a Hong Kong subsidiary of Nam Tai, and 30% owned by a
Chinese company. In 1992, the Chinese company transferred all of its equity interest in the
contractual joint venture to Nam Tai Electronic &#038; Electrical Products Limited, which name was
subsequently changed to Nam Tai Trading Company Limited, and Baoan (Nam Tai) Electronic Co. Ltd.
changed its name to Namtai Electronic (Shenzhen) Co., Ltd. In December&nbsp;2003, the equity interest
in Namtai Shenzhen was transferred from Nam Tai Electronic &#038; Electrical Products Limited (Hong
Kong) to NTEEP and became its wholly owned subsidiary. It is currently the principal operating arm
of the NTEEP group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited was established in
August&nbsp;2003 in Macao, China. In March&nbsp;2004, the equity interest in Nam Tai Macao was transferred
from the Company to NTEEP and became its wholly owned subsidiary. Its principal business is the
provision of consultancy, administrative and data processing services to other companies within the
NTEEP group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Shenzhen Namtek Co., Ltd.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shenzhen Namtek Co., Ltd. was organized in December&nbsp;1995 as a limited liability company
pursuant to the relevant laws of China. Shenzhen Namtek commenced operations in early 1996
developing and commercializing software for the consumer electronics
</DIV>

<P align="center" style="font-size: 10pt">31
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">industry, particularly for our customers and for products we manufacture or we will
manufacture in the future. On December&nbsp;30, 2005, the equity interest in Shenzhen Namtek was
transferred from Namtek Software to NTEEP and became its wholly owned subsidiary. At December&nbsp;31,
2005, Shenzhen Namtek employed approximately 98 software engineers and provides the facilities and
expertise to assist in new product development and research, enabling us to offer our customers
program design for microprocessors, enhanced software design and development services, and
strengthening our ODM capabilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Namtek Japan Company Limited</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Namtek Japan Company Limited, or Namtek Japan, was incorporated in June&nbsp;2003 in Tokyo, Japan.
On December&nbsp;23, 2005, the equity interest in Namtek Japan was transferred from Namtek Software to
NTEEP. Namtek Japan functions as a representative office of Shenzhen Namtek in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Zastron Precision-Tech Limited</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Zastron Precision-Tech Limited, or Zastron, was incorporated in June&nbsp;2003 in the Cayman
Islands, and is the holding company for Zastron Electronic (Shenzhen) Co. Ltd., or Zastron
Shenzhen, and Zastron Macao.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Zastron Electronic (Shenzhen) Co. Ltd.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Zastron Electronic (Shenzhen) Co. Ltd., was organized as Zastron Plastic &#038; Metal Products
(Shenzhen) Ltd. in March&nbsp;1992 as a limited liability company pursuant to the relevant laws of
China. Zastron Plastic &#038; Metal Products (Shenzhen) Ltd. was engaged in the production of metallic
parts and PVC plastic products, much of which is used in the products manufactured in our principal
manufacturing facilities. In August&nbsp;2002, Zastron Plastic &#038; Metal Products (Shenzhen) Ltd. changed
its name to Zastron Electronic (Shenzhen) Co. Ltd. and expanded the nature of its business to
include manufacturing of telecommunication products, LCD modules, TFT LCD modules and others. It
also became one of our principal manufacturing arms. Zastron Shenzhen is currently a wholly-owned
subsidiary of Zastron.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Zastron (Macao Commercial Offshore) Company Limited</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Zastron (Macao Commercial Offshore) Company Limited was established in March&nbsp;2004 in Macao,
China and is a wholly owned subsidiary of Zastron. Its principal business is the provision of
consultancy, administrative and data processing services to other companies within the Zastron
group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>J.I.C. Technology Company Limited</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;J.I.C. Technology Company Limited was formed in the Cayman Islands in January&nbsp;2002 in
connection with a reverse merger with Albatronics, of which we owned slightly more than 50% of the
outstanding capital stock. J.I.C. was listed on the Hong Kong Stock
Exchange in June&nbsp;2002. As of December&nbsp;31, 2005, the Company
held 71.63% of the issued ordinary shares of J.I.C.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Jetup Electronic (Shenzhen) Co., Ltd.</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jetup Electronic (Shenzhen) Co. Ltd. was incorporated in 1993 in China and handles the
manufacturing and processing works of LCD panels and modules through its factory plants in Baoan
County, Shenzhen. It is the principal operating arm of the J.I.C. group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>J.I.C. (Macao Commercial Offshore) Company Limited</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;J.I.C. (Macao Commercial Offshore) Company Limited was incorporated in November&nbsp;2004 in Macao,
China and is a wholly-owned subsidiary of J.I.C. Its principal business is the provision of
consultancy, administrative and data processing services to other companies within the J.I.C.
group.
</DIV>

<P align="center" style="font-size: 10pt">32
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Property, Plant and Equipment</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our registered office in the British Virgin Islands is located at McNamara Chambers, P.O. Box
3342, Road Town, Tortola. Our principal executive office in the British Virgin Islands is located
at 116 Main Street, 3rd Floor, Road Town, Tortola. Corporate administrative matters are conducted
at this office through our registered agent, McNamara Corporate Services Limited. We do not own any
property in the British Virgin Islands. The table below lists the locations, square footage,
principal use and lease expiration dates of the facilities used in our principal operations as of
December&nbsp;31, 2005.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="44%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Owned or lease</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Location</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Square Footage</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>Principal Use</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center"><B>expiration date</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hong Kong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">24,200</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Offices</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Owned<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3,482</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Offices</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2008</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Macao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">2,479</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Offices</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2007</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">British Virgin Islands</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">300</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Offices</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2006</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Principal Manufacturing Facilities</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">557,835</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manufacturing</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2043/2049 <SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shenzhen, China</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">87,462</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Offices</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2043/2049 <SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">266,168</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dormitories</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2043/2049<SUP style="font-size: 85%; vertical-align: text-top"> (3)</SUP></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">26,939</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cafeteria</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top">2043 <SUP style="font-size: 85%; vertical-align: text-top">(3)(4)</SUP></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">33,826</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Recreational</TD>
    <TD>&nbsp;</TD>

<TD align="left" valign="top">2049 <SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><I>Other Facilities</I></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shenzhen, China</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">383,547</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manufacturing LCD</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">panels and modules</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2012</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">32,005</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Offices</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2012</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">221,666</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Dormitories</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2012</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22,259</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cafeteria</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2012</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">14,548</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Recreational</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2012</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shekou, Shenzhen, China</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">15,602</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Software development</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2007</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tokyo, Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">904</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Software development</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">2007</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Only the Chinese government and peasant collectives may own land in China. Our
principal manufacturing facilities are located on land in which we have entered into a land
lease agreement with the Chinese government that gives us the right to use the land for 50
years. Based on our understanding of the practice as it exists today, at the expiration of the
land lease we may be given the right to renew the lease. However, at the end of the lease
term, all improvements we have made will revert to the government. For our other facilities,
we have entered into factory building lease agreements with peasant collectives or other
companies for 10&nbsp;years or less.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Although we own the office space, the land on which the building is located is
subject to a 75-year lease with the government that expires in 2055, with a right to renew for
75 more years. This office was sold in February&nbsp;2006. See &#147; &#151; Hong Kong&#148; below for more
details of this transaction.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Our principal manufacturing facilities occupy two pieces of land with 50-year leases
which we acquired in 1993 and 1999, respectively.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>In January&nbsp;2006, the construction of another cafeteria
of approximately 14,589 square feet was also completed.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In order to expand our production capacity, we have built a new factory consisting of
approximately 265,000 square feet adjacent to our existing principal manufacturing facilities in
Shenzhen, China. The construction was completed in December&nbsp;2004. We commenced full operations in
the new manufacturing facilities in April&nbsp;2005. As of December&nbsp;31, 2005, we had incurred $25.8
million to cover the cost of construction and fixtures and equipment for the new factory. The
financing of these improvements to our manufacturing facilities were obtained from internal
resources.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2004, our existing production facility for the LCD panels segment also relocated to
new factory premises which are approximately 670,000 square feet and twice the size of the former
factory premises. This new factory provides room for future expansion of production capacity. As of
December&nbsp;31, 2004, we had spent $7.7&nbsp;million for this relocation and financed this amount with a
combination of internal resources and bank financing. During 2005, a further of $5.4&nbsp;million was
spent for fixtures and equipment.
</DIV>

<P align="center" style="font-size: 10pt">33
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Hong Kong</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2005, to align with the Company&#146;s China-focused operations, Nam Tai restructured
its subsidiaries to keep a minimal workforce in Hong Kong in order to support those subsidiaries
which are listed on Hong Kong Stock Exchange, and to resolve outstanding legal proceedings and tax
matters in Hong Kong. To achieve a more favorable and competitive cost structure, the Company
relocated from the approximately 24,200 square feet of office space at Shun Tak Centre, or Shun Tak
office, to the approximately 3,400 square feet office space at Suites 1506-1508, One Exchange
Square, 8 Connaught Place, in the Central district in Hong Kong. In February&nbsp;2006, the Company
entered into a provisional agreement to sell the Shun Tak office with gross sales proceeds of
approximately $20.6&nbsp;million, resulting in an expected gain of approximately $9.3&nbsp;million, which
will be recognized in 2006. A formal sales and purchase agreement was signed on March&nbsp;9, 2006 and
the Company has received 10% of the sales proceeds as a deposit. This transaction will be
completed before April&nbsp;20, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Until 1996, we owned approximately ten acres of land in Hong Kong carried on our books at a
cost of approximately $523,000. Between 1997 and 2005, we sold approximately 8.2 acres of land for
net proceeds of $7.77&nbsp;million; realizing a gain of $7.51&nbsp;million. We plan to sell the remaining
land and, pending the sale, to continue to carry the land at a carrying value of approximately
$108,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Macao</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2003, we established our PRC headquarters in Macao, China and set up Nam Tai Macao
in Macao, China. Macao, like Hong Kong, is a special administrative region of China and has
recently introduced an incentive program to attract investments to Macao. In March and November
2004, we further established Zastron Macao and J.I.C. Macao in Macao, China, respectively. We
currently lease three offices and all of them under two-year leases expiring in July&nbsp;2007. The
monthly rental costs are approximately $865.0, $1,076.0 and $760.0, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Shenzhen, China</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Principal Manufacturing Facilities</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our principal manufacturing facilities are located in Baoan County, Shenzhen, China. In
December&nbsp;1993, we acquired a 50-year lease for the first piece of land for approximately $2.45
million. The first phase facility consisted of 160,000 square feet of manufacturing space, 39,000
square feet of offices, 212,000 square feet of new dormitories, 26,000 square feet of full service
cafeteria, recreation facilities and a swimming pool. The total cost of this addition to our
complex, excluding land, was approximately $21.8&nbsp;million. In November&nbsp;2000, we began construction
of another addition to our factory complex. We completed construction in October&nbsp;2002, adding a new
five-story factory with 138,000 square feet of production facilities, including one floor for
assembling, one floor of office space, one floor for warehouse use and two floors of class thousand
clean room facilities. Prior to this addition, we had only one floor of class ten thousand clean
room facilities at our factory complex. As of December&nbsp;31, 2002, we had spent $9.1&nbsp;million to
complete the construction of the new facility. With this new addition, we had approximately 626,000
square feet of manufacturing space at our manufacturing facilities as of December&nbsp;31, 2002, with
only minimal additions in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;1999, we purchased another vacant lot of approximately 280,000 square feet
(approximately 6.5 acres) bordering our manufacturing complex located in Shenzhen, China at the
relevant time at a cost of approximately $1.2&nbsp;million. We have built another factory consisting of
approximately 265,000 square feet of space. Construction started in September&nbsp;2003 and completed in
December&nbsp;2004. We commenced full operations in April&nbsp;2005. During 2005, we built two additional
blocks of dormitories. With this new addition, our principal manufacturing facilities then
consisted of approximately 557,835 square feet of manufacturing space, 87,462
square feet of offices, 266,168
square feet of dormitories and 60,765 square feet of cafeteria space and a full services
recreational building. In January&nbsp;2006, the construction of another cafeteria of approximately
14,589 square feet was also completed. As of December&nbsp;31, 2005, we had incurred $25.8&nbsp;million to
cover the cost of construction and fixtures and equipment for the new factory. The financing for
these improvements to our manufacturing facilities was obtained from internal resources.
</DIV>

<P align="center" style="font-size: 10pt">34
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>LCD Factory</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In October&nbsp;2003, Jetup Electronic (Shenzhen) Co., Ltd. entered into a tenancy agreement for
new factory premises, which is also located in Baoan County, Shenzhen, China, and relocated to the
new factory premises in October&nbsp;2004. The new factory premises are about twice the size of the
former factory premises and consist of 383,547 square feet of manufacturing space, 32,005 square
feet of offices, 221,666 square feet of dormitories, and 36,807 square feets of cafeteria and
recreational spaces. This new factory provides room for the future expansion of production
capacity. As of December&nbsp;31, 2004, we had spent $7.7&nbsp;million for this relocation and financed this
amount with a combination of internal resources and bank financing. During fiscal year 2005, a
further $5.4&nbsp;million was spent for fixtures and equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Software Development</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently lease two offices in which we conduct software development. Our Shekou, Shenzhen,
China office is approximately 15,602 square feet, which we lease under two one-year leases expiring
in July&nbsp;2007. The monthly rental is approximately $9,882.3. In July&nbsp;2003, we opened an office in
Tokyo, Japan to further expand our sales and marketing team in Japan for our software development
business. The Tokyo office has approximately 904 square feet, which we lease under a two-year lease
expiring in June&nbsp;2007. The monthly rental for the Tokyo office is approximately $1,694.7.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Future Expansion</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September, 2005, we signed a letter of intent with The People&#146;s Government of Baoan
District, Shenzhen, PRC, to purchase approximately 1.3&nbsp;million square feet of land for future
expansion, more than double the space of the land of the existing facilities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The land is located in the Guangming Hi-Tech Industrial Park, approximately 20 minutes driving
distance from the existing facilities of the Company. It is anticipated that the government will
deliver the land to the Company by the summer of 2006, after completing its development of the
park. The Company plans to commence construction of a new facility on the site before the end of
2006 with the first phase to be completed in the summer of 2008, followed by a second phase to be
completed in the summer of 2010. The Company intends to use the new facility as its PRC
headquarters and also for increased manufacturing capacity. The additional space is expected to
meet the Company&#146;s growth needs up to 2015.
</DIV>
<DIV align="left">
<A name="106"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;4A. </B><B><I>Unresolved Staff Comments</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We do not have any unresolved Staff comments.
</DIV>

<P align="center" style="font-size: 10pt">35
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="107"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;5. </B><B><I>Operating and Financial Review and Prospects</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Except for statements of historical facts, this section contains forward-looking statements
involving risks and uncertainties. You can identify these statements by forward-looking words
including &#147;expect&#148;, &#147;anticipate&#148;, &#147;believe&#148;, &#147;seek&#148;, &#147;estimate&#148;, &#147;intends&#148;, &#147;should&#148;, or &#147;may&#148;.
Forward-looking statements are not guarantees of our future performance or results and our actual
results could differ materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under the section of this Report entitled Item
3. Key Information &#151; &#147;Risk Factors&#148;. This section should be read in conjunction with our
Consolidated Financial Statements included as Item&nbsp;18 of this Report.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Operating Results</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Overview</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are an electronics manufacturing and design services provider to a select group of the
world&#146;s leading OEMs of telecommunications and consumer electronic products. Through our
electronics manufacturing services operations, we manufacture electronic components and
sub-assemblies, including LCD panels, LCD modules, RF modules, DAB modules, FPC sub-assemblies,
image sensors modules and PCBA for Bluetooth<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> headsets. These components are used in
numerous electronic products, including cellular phones, laptop computers, digital cameras,
electronic toys, handheld video game devices and microwave ovens. We also manufacture finished
products, including cellular phones in SKD form, entertainment devices, mobile phone accessories
and educational products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We assist our OEM customers in the design and development of their products and furnish full
turnkey manufacturing services that utilize advanced manufacturing processes and production
technologies. Our services include hardware and software design, component purchasing, assembly
into finished products, or electronic sub-assemblies and post-assembly testing. These services are
value-added and assist us in obtaining new business but do not represent a material component of
our revenue. We also provide ODM services, in which we design and develop proprietary products that
are sold by our OEM customers using their brand name.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Net Sales and Cost of Sales</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We derive our net sales principally from manufacturing services that we provide to OEMs of
telecommunications and consumer electronic products. The market for the products we manufacture is
generally characterized by declining unit prices and short product life cycles. Sales to our OEM
customers are primarily based on purchase orders we receive from time to time rather than firm,
long-term purchase commitments from our customers. We recognize sales, net of product returns and
warranty costs, typically at the time of product shipment or, in some cases, as services are
rendered.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our production is typically based on purchase orders received from OEM customers. However, for
certain customers, we will occasionally purchase raw materials based on such customers&#146; rolling
forecasts. Purchase orders are often supported by letters of credit or written confirmation from
our OEM customers. We generally do not obtain firm, long-term commitments from our customers.
Uncertain economic conditions and our general lack of long-term purchase commitments with our
customers make it difficult for us to accurately predict our revenue over the longer term. Even in
those cases where customers are contractually obligated to purchase products from us or to
repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights
because of the long-term nature of our customer relationships and for other business reasons, and
instead may negotiate accommodations with customers regarding particular situations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Gross Margins</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Complex products generally have relatively high material costs as a percentage of total unit
costs and accordingly our strategic shift to produce more of such products has historically been a
factor that has adversely affected our gross margins. This is the primary reason for the decline in
our gross margins between 2001 and 2005. During this period, we diversified our product mix from
predominantly low complexity electronic products, including calculators and electronic
dictionaries, to include more complex components and sub-assemblies, like LCD modules, RF modules
and FPC sub-assemblies. Despite the lower gross margin on more complex products, we believe that
the opportunity for growth in the demand for these complex products justifies the shift in our
strategic focus. In dollar value, our gross profit indeed increased from $30.0&nbsp;million in 2001 to
$92.9&nbsp;million in 2005. Furthermore, we believe that the experience in manufacturing processes and
know-how that we have developed from producing more complex products are a competitive advantage
for us relative to many of our competitors.
</DIV>

<P align="center" style="font-size: 10pt">36
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The increased costs associated with developing advanced manufacturing techniques to produce
complex products on a mass scale and at a low cost have also negatively impacted our gross margins.
For example, in our initial production runs of LCD modules and RF modules, we experienced low
production yields and other inefficiencies that caused our gross margin to decrease. Although we
believe we have improved the efficiency and quality of our manufacturing processes relating to LCD
modules and RF modules, we may not be able to improve or maintain our gross margin for these
products. Furthermore, in January&nbsp;2003, we began to produce color and TFT LCD modules, each a
complex component used in a variety of devices. The increased costs associated with manufacturing
these products and other new complex products could have a negative impact on our future gross
margins. The complex manufacturing processes involved in the production of complex products is also
capital intensive, thereby increasing our fixed overhead costs. It has been our strategy to shift
our focus more to the business of key components sub-assembly. The key components sub-assembly
business generally accounts for relatively lower gross profit margin business. Nam Tai has been
very successful in shifting its focus to the business of key components sub-assembly, which
accounted for 72% of our sales in 2005. We believe that the strong growth of this business will
offset the impact of lower gross profit margins and we can continue to achieve strong growth in our
overall profits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Income Taxes</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under current BVI law, our income is not subject to taxation. Subsidiaries operating in Hong
Kong and China are subject to income taxes as described below, and our subsidiary operating in
Macao is exempted from income taxes. This would be valid unless the Macao government changes its
policy towards offshore companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under current Cayman Islands law, NTEEP, Zastron and J.I.C. are not subject to profit tax in
the Cayman Islands as they have no business operations in the Cayman Islands. However, they may be
subject to Hong Kong income taxes as described below since they are registered in Hong Kong.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The provision for current income taxes of the subsidiaries operating in Hong Kong has been
calculated by applying the current rate of taxation of 17.5% for 2003, 2004 and 2005 to the
estimated taxable income earned in or derived from Hong Kong during the applicable period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The basic corporate tax rate for FIEs in China, such as our Chinese subsidiaries, is currently
33% (30% state tax and 3% local tax). However, because all of our Chinese subsidiaries are located
in Shenzhen and are involved in production operations, they qualify for a special reduced state tax
rate of 15%. In addition, the local tax authorities in the regions in which our subsidiaries
operate in Shenzhen are not currently assessing any local tax, though that could change at any
time. Moreover, several of our subsidiaries in China are entitled to certain tax benefits and
certain of our subsidiaries in China have qualified for tax refunds as a result of reinvesting
their profits earned in previous years in China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Efforts by the Chinese government to increase tax revenues could result in decisions or
interpretations of the tax laws by the Chinese tax authorities that are unfavorable to us and which
increase our future tax liabilities, or deny us expected refunds. Changes in Chinese tax laws or
their interpretation or application may subject us to additional Chinese taxation in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our
effective tax rates were 1% for each of the three years ended 2003, 2004 and 2005, respectively. The
significant factors that caused our effective tax rates to differ from the applicable statutory
rates of 15% were as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="82%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Applicable statutory tax rates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of loss / income for which no income tax benefit/expense is receivable/payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax losses not recognised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax holidays and incentives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of China tax concessions, giving rise to no China tax liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3</TD>
    <TD nowrap>%)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>%)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other items which are not assessable (deductible)&nbsp;for tax purposes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effective tax rates</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Strategic Investments</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;An important element of our strategy is to make investments in companies that provide the
potential to complement our existing products and services, become new customers, augment our
market coverage and sales ability, enhance our technological capabilities and expand our service
offerings. We account for investments of less than 20% at fair value and we account for investments
between 20% and 50% under the equity method. Our material investments over the last five years
include:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Stepmind</I>. In December&nbsp;2003, we placed approximately $5.3&nbsp;million into an escrow account for an
investment in Stepmind. The investment was to occur in two phases. For the first phase,
approximately $2.64&nbsp;million, representing 7.66% of the equity interest in
</DIV>


<P align="center" style="font-size: 10pt">37
</DIV>


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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Stepmind, was released to Stepmind in January&nbsp;2004. The second phase amounting to $2.65
million was released to Stepmind in August&nbsp;2004 subject to fulfillment of certain conditions. In
August&nbsp;2004, we disposed of our entire interest in Stepmind to one of the shareholders of Stepmind
at the original subscription price for those shares.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Alpha Star/JCT. </I>In January&nbsp;2003, we invested $10.0&nbsp;million for a 25% equity interest in Alpha
Star, the ultimate holding company of JCT. JCT is engaged in the design, development and marketing
of wireless communication terminals and wireless application software and is using us to
manufacture wireless communication terminals and their related modules. In September&nbsp;2004, we made
an impairment to write down our $10.0&nbsp;million investment in Alpha Star to a fair value of
approximately $3.0&nbsp;million based on the valuation report issued by an external valuation firm. As
of December&nbsp;31, 2004, another analysis had been conducted by an independent valuer, who determined
that no further impairment to the carrying value of the investment was required. From January to
August&nbsp;2005, this affiliated company continued to be loss making. We disposed of our
entire stake in Alpha Star in August&nbsp;2005 to the majority shareholders of Alpha Star with sales
proceeds of $6.5&nbsp;million resulting in a gain of $3.6&nbsp;million in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>TCL group. </I>Over the period from September&nbsp;2000 through November&nbsp;2002, we made three
investments in the TCL group of companies and disposed of a portion of the investment in 2002 and
2003. The TCL group of companies is a leading OEM for numerous consumer electronic and
telecommunications products in the domestic Chinese market.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In September&nbsp;2000, we made a strategic investment of $2.0&nbsp;million to acquire a
5% indirect equity interest (through a 25% direct equity interest in Mate Fair) in both TCL
Mobile Communication (HK)&nbsp;Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together
known as TCL Mobile. TCL Mobile is engaged in manufacturing, distributing and trading of
digital mobile phones and accessories in China and overseas markets. In October&nbsp;2002, we
began to provide TCL Mobile with LCD modules used in its mobile phones.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2002, we acquired a 6% equity interest in TCL Corporation (formerly
known as TCL Holdings Corporation Ltd.), the parent of the TCL group of companies, for
approximately $12.0&nbsp;million. In January&nbsp;2004, TCL Corporation listed its A-shares on the
Shenzhen Stock Exchange at $0.52, or RMB4.26, per A-share. The Company&#146;s interest in TCL
Corporation has then been diluted to 3.69%, represented by 95.52&nbsp;million promoter&#146;s shares
of TCL Corporation after its initial public offering. However, in December&nbsp;2005,
shareholders of TCL Corporation approved a split share structure reform. Pursuant to this
reform, the Company will give away 15.62% of its total shares to floating shareholders as
consideration and thereafter all its restricted shares will become floating shares subject
to the regulations of China Securities Regulation&nbsp;Commission and can become tradable 12
months from the first trading day after the reform is formally in effect, which will depend
on the approval of the Ministry of Commerce of China. The Company&#146;s interest in TCL
Corporation has been reduced from 3.69% to 3.12%, representing 80.60&nbsp;million shares.
However, the financial impact on the Company&#146;s interest in TCL Corporation cannot be
ascertained at the moment because of the unforeseeable impact of the reform on TCL
Corporation A-share price. As of December&nbsp;31, 2005, the Company recognized an unrealized
gain of $1.36&nbsp;million, based on the Company&#146;s cost of $11.97&nbsp;million. The Company&#146;s
interest in TCL Corporation was recorded at fair value of $13.33&nbsp;million, based on a
valuation report from an external valuation firm.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2002, one of our subsidiaries sold a portion of its equity interest in Huizhou TCL
Mobile Communication Co., Ltd. for which we received proceeds of approximately $10.4
million, reducing our direct equity interest (held through Mate Fair) in TCL Mobile to
approximately 3%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2002, we invested $5.1&nbsp;million in the 3% convertible notes of TCL
International Holdings Limited that are due in November&nbsp;2005. TCL International Holdings
Limited is another company in the TCL group and is publicly listed on the Hong Kong Stock
Exchange. Those convertible notes of TCL International Holdings Limited were disposed of in
August&nbsp;2003 for approximately $5.03&nbsp;million.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In April&nbsp;2004, we increased our shareholding in TCL Mobile from approximately 3%
to 9% through acquiring Jasper Ace, which directly holds 9% equity interest in TCL Mobile,
at a consideration of approximately $102.2&nbsp;million. The consideration was satisfied, by the
exchange of our 72.2% equity interest in Mate Fair, plus cash of $25&nbsp;million and the
issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5
million. We recognized an impairment loss of $58.3&nbsp;million as at December&nbsp;31, 2004. In the
second quarter of 2005, a further $6.5&nbsp;million impairment loss was recognized. Due to a
share swap between TCL Communication and Alcatel on July&nbsp;18, 2005, our shareholding in TCL
Communication decreased from 9% to 8.57%. During the period from August to December&nbsp;2005,
we disposed of our entire stake in TCL Communication realizing proceeds of $11.0&nbsp;million
which resulted in a net realized and accumulated losses of $68.5&nbsp;million.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">


</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">38
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following details the impact of our strategic investments on our consolidated statements
of income for each of the years ended 2003, 2004 and 2005:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10"><B>(in thousands)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Income
from Investments Stated at Fair Value:</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend
income received from marketable securities and investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">TCL Corporation&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,696</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Huizhou
TCL&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss on
Disposal of Marketable Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,686</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment Loss on Marketable Securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(58,316</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,525</TD>
    <TD nowrap>)</TD>
</TR>
<TR>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>Equity Investments</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Alpha Star Investments Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-30px">Gain on
Disposal of an Affiliated Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,631</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-30px">Equity in
Income (Loss) of an Affiliated Company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(6,806</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(186</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>J.I.C. Group</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We acquired the J.I.C. group in October&nbsp;2000 for $32.8&nbsp;million. We paid a portion of the
purchase price to the seller by issuing approximately 3.48&nbsp;million of our common shares and paid
$11.0&nbsp;million in cash. The J.I.C. group at the relevant time was principally engaged in the
manufacture and marketing of transformers and LCD panels, a key component for a variety of consumer
electronic products. We accounted for the acquisition of the J.I.C. group under the purchase method
of accounting and the results of the J.I.C. group&#146;s operations have been consolidated with our
results since the date of its acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2002, through a reverse merger, we arranged for the listing of the J.I.C. group on the
Hong Kong Stock Exchange. To effect the listing, we entered into an agreement with the liquidators
of Albatronics to effect the restructuring proposal of Albatronics and the listing of J.I.C. as
this arrangement was more cost effective than using an initial public offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Due to the reverse merger, our effective interest in the J.I.C. group was reduced from 100% to
92.9%. As a result of this reduction in interest during 2002, we have released goodwill of $1.5
million, representing 7.1% of the goodwill that had previously been recorded upon purchasing the
J.I.C. group in October&nbsp;2000. The release of goodwill is included as part of the loss on the
reverse merger of the J.I.C. group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2002, we acquired an additional 7,984,000 ordinary shares of J.I.C. for a cash
consideration of $437,000, resulting in additional goodwill of $253,000. As of December&nbsp;31, 2002,
we held 93.97% of effective interest in J.I.C. group, which represented 74.78% of the existing
ordinary shares and 93.97% of the outstanding ordinary shares upon full conversion of the
598,420,000 preference shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the period from June to November&nbsp;2003, we disposed of a total of 42,600,000 ordinary
shares of J.I.C. for cash consideration of $4.0&nbsp;million. The disposal resulted in a net gain on
partial disposal of a subsidiary of $1.8&nbsp;million and the releasing of goodwill of $1.2&nbsp;million. The
release of goodwill is netted off with the gain on the partial disposal of a subsidiary. In
November&nbsp;2003, we converted 175,100,000 preference shares into 170,000,000 ordinary shares of
J.I.C.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;2003, in order to concentrate its effort on its LCD panels reporting unit, J.I.C.
disposed of its transformers reporting unit to a third party for a cash consideration of $2.4
million. Sales of the transformers reporting unit for the years ended December&nbsp;31, 2002 and 2003
were $11.3&nbsp;million and $6.3&nbsp;million, respectively, and were insignificant compared to the sales of
the Company as a whole. The net income from this discontinued operation for the years ended
December&nbsp;31, 2002 were also immaterial. In 2003, the net income from discontinued operation
represented a gain of $2.0&nbsp;million, being the proceeds from the disposal less the carrying value of
the net assets of the transformers reporting unit, and minority interests. Excluding this gain, the
basic and diluted earnings per share for continuing operations for the year ended December&nbsp;31, 2003
was $1.04 and $1.02, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During the period from November to December&nbsp;2004, we further disposed of a total of
128,000,000 ordinary shares of J.I.C. for cash consideration of $12.90&nbsp;million. The disposal
resulted in a net gain on partial disposal of a subsidiary of $6.25&nbsp;million. During
</DIV>

<P align="center" style="font-size: 10pt">39
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">the same period, we converted all 423,320,000 preference shares into 410,990,290 ordinary
shares. As of December&nbsp;31, 2005, we held 546,890,978 ordinary shares of J.I.C., equivalent to
71.63% of issued ordinary shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Critical Accounting Policies and Estimates</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The preparation of our financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of America requires management to
make estimates and judgments that affect our reported amounts of assets and liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates and assumptions based upon historical experience and various other
factors and circumstances. Management believes that our estimates and assumptions are reasonable
under the circumstances; however, actual results may vary from these estimates and
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">assumptions under different future circumstances. We have identified the following critical
accounting policies that affect the more significant judgments and estimates used in the
preparation of our consolidated financial statements. For further discussion of our significant
accounting policies, refer to Note 2 &#151; &#147;Summary of Significant Accounting Policies&#148; to the
Consolidated Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Marketable securities</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Marketable securities at December&nbsp;31, 2005 are principally equity securities and are
classified as available-for-sale securities. Securities classified as available-for-sale are stated
at fair value with unrealized gains and losses recorded as a separate component of accumulated
other comprehensive income (loss). Fair value is determined by reference to market price or
analysis conducted by independent valuer. In the event where the fair value of the securities has
been below the carrying value for a period of time, we will assess whether this decline in value is
other-than-temporary.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our assessment includes the consideration of the duration and severity of the decline in
values and our ability and intent to hold the investments for a reasonable period of time
sufficient for a forecasted recovery of the fair value up to or beyond the cost of the investment,
and an assessment of the evidence indicating that the cost of the investment is recoverable within
a reasonable period of time which outweighs the evidence to the contrary. If it is determined that
the decline is other-than-temporary, an impairment charge to the income statement will be made.
</DIV>


<P align="center" style="font-size: 10pt">40
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Valuation of long-lived assets, including purchased intangible assets and valuation of goodwill</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company reviews the carrying value of its long-lived assets, including purchased
intangible assets, for impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. The Company assesses the recoverability of the carrying
value of long-lived assets, including purchased intangible assets by first grouping its long-lived
assets with other assets and liabilities at the lowest level for which identifiable cash flows
largely independent of the cash flows of other assets and liabilities (the asset group) and,
secondly, estimating the undiscounted future cash flows that are directly associated with and
expected to arise from the use of and eventual disposition of such asset group. The Company
estimates the undiscounted cash flows over the remaining useful life of the primary asset within
the asset group. If the carrying value of the asset group exceeds the estimated undiscounted cash
flows, the Company records an impairment charge to the extent the carrying value of the long-lived
asset exceeds its fair value. The Company determines fair value through quoted market prices in
active markets or, if quoted market prices are unavailable, through the performance of internal
analysis of discounted cash flows or obtains external appraisals from independent valuation firms.
The undiscounted and discounted cash flow analyses are based on a number of estimates and
assumptions, including the expected period over which the asset will be utilized, projected future
operating results of the asset group, discount rate and long-term growth rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;To assess goodwill for impairment, the Company performs an assessment of the carrying value of
its reporting units at least on an annual basis or when events and changes in circumstances occur
that would more likely than not reduce the fair value of the Company&#146;s reporting units below their
carrying value. If the carrying value of a reporting unit exceeds its fair value, the Company would
perform the second step in its assessment process and would record an impairment charge to earnings
to the extent the carrying amount of the reporting unit goodwill exceeds its implied fair value.
The Company estimates the fair value of its reporting units through internal analysis and external
independent valuations, which utilize income and market valuation approaches through the
application of capitalized earnings, discounted cash flow and market comparable methods. These
valuation techniques are based on a number of estimates and assumptions, including the projected
future operating results of the reporting unit, discount rate, long-term growth rate and
appropriate market comparables.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s assessments of impairment of long-lived assets and goodwill, and its periodic
review of the remaining useful lives of its long-lived assets are an integral part of the Company&#146;s
ongoing strategic review of its business and operations. Therefore, future changes in the Company&#146;s
strategy and other changes in the operations of the Company could impact the projected future
operating results that are inherent in the Company&#146;s estimates of fair value, resulting in
impairments in the future. Additionally, other changes in the estimates and assumptions, including
the discount rate and expected long-term growth rate, which drive the valuation techniques employed
to estimate the fair value of long-lived assets and goodwill could change and, therefore, impact
the assessments of impairment in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In performing the annual assessment of goodwill for impairment for the years ended December
31, 2004 and 2005, the Company determined that none of the reporting units&#146; carrying values were
close to exceeding their respective fair values.
</DIV>

<P align="center" style="font-size: 10pt">41
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Deferred income taxes</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We provide deferred income taxes using the asset and liability method. Under this method, we
recognize deferred income taxes for all significant temporary differences and classified as current
or non-current based upon the classification of the related asset or liability in the financial
statements. We provide a valuation allowance to reduce the amount of deferred tax assets if it is
considered more likely than not that some portion, or all, of the deferred tax asset will not be
realized.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;When considering whether a valuation allowance is necessary, we will assess the history of
operating losses and unexpired tax credit, losses expected in the future and any unsettled
circumstances that, if unfavorably resolved, would adversely affect future operations and profit
levels on a continuing basis in future years. Therefore, any changes in our assessment of the above
would impact our estimation of the amount of valuation allowance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Accruals and provisions for loss contingencies</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We make provisions for all loss contingencies when information available to us prior to the
issuance of the financial statements indicates that it is probable that an asset had been impaired
or a liability had been incurred at the date of the financial statements and the amount of loss can
be reasonably estimated.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For provisions or accruals related to litigations, we make provisions based on information
from legal counsels and the best estimation of management. As discussed in Note (18b) to our
consolidated financial statements, we are involved in various legal proceedings and contingencies.
We have recorded a liability for the Tele-Art matter in accordance with Statement of Financial
Accounting Standards No.&nbsp;5, &#147;Accounting for Contingencies&#148;, or SFAS 5. SFAS 5 requires a liability
to be recorded based on our estimate of the probable cost of the resolution of a contingency. The
actual resolution of this contingency may differ from our estimates. If the contingency were
settled for an amount greater than our estimate, a future charge to income would result. Likewise,
if the contingency were settled for an amount that is less than our estimate, a future credit to
income would result.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Summary of Results</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
increase in sales was primarily due to strong growth in demand for LCD modules and FPC
sub-assemblies. The increase in our net sales base year-over-year represents stronger demand from
existing customers, as well as organic growth from new and existing customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth key operating results (in thousands, except per share data) for
the years ended December&nbsp;31, 2003, 2004 and 2005:
</DIV>
<DIV align="center">


<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0">

<TR>
    <TD width="36%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="4%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="3%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="6%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="1%"><FONT size="2">&nbsp;</FONT></TD>
    <TD width="5%"><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11"></TD>
    <TD></TD>
    <TD colspan="7"></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="11" align="center" nowrap><B><FONT size="2">Year Ended December 31,</FONT></B></TD>
    <TD></TD>
    <TD colspan="7" align="center" nowrap><B><FONT size="2">% increase/(decrease)</FONT></B></TD>
</TR>

<TR>
    <TD></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2004</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2005</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2004 vs 2003</FONT></B></TD>
    <TD></TD>
    <TD colspan="3" align="center" nowrap><B><FONT size="2">2005 vs 2004</FONT></B></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Net sales</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">406,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">533,861</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">$</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">797,237</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">31%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">49%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Gross profit
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,290</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">76,476</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">92,923</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">15%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">22%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Operating income</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">37,387</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,378</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">52,656</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">16%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">21%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Net income
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">43,802</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">66,885</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">51,306</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">53%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(23%</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR><TD><TR><TD><TR><TD><TR><TD>

<TR valign="bottom" style="background: #cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Basic earnings per share</FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.09</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">44%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24%</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

<TR valign="bottom">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <FONT size="2">Diluted earnings per share
    </FONT></DIV>
    </TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.07</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.57</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">1.19</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">47%</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom"><FONT size="2">&nbsp;</FONT></TD>
    <TD align="right" valign="bottom" nowrap><FONT size="2">(24%</FONT></TD>
    <TD align="left" valign="bottom" nowrap><FONT size="2">)</FONT></TD>
</TR>

</TABLE>
<!-- End Table Body -->


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Key Performance Indicators</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth, for the quarterly periods indicated, certain of management&#146;s
key financial performance indicators that management utilizes to assess the Company&#146;s operating
results:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #ffffff"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales cycle <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">8 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">29 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">41 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">29 days</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventory turnover <SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">18 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">24 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">34 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">37 days</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Days in accounts receivable <SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">62 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">54 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">86 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">56 days</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Days in accounts payable <SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">72 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">49 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">79 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">64 days</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="52%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="15" style="border-bottom: 1px solid #ffffff"><B>Three Months Ended</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>September 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>June 30,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Sales cycle <SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">11 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">19 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">22 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">18 days</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Inventory turnover <SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">16 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">20 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">16 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">14 days</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Days in accounts receivable <SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">58 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">60 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">50 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">56 days</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Days in accounts payable <SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">63 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">61 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">44 days</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center">52 days</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>The sales cycle is calculated as the sum of days in accounts receivable and days
in inventory, less the days in accounts payable.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Inventory turnover are calculated as the ratio of inventory, net, at period
end divided by year to date of cost of sales.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Days in accounts receivable is calculated as the ratio of accounts
receivable, net, at period end divided by year to date average daily net sales.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Days in accounts payable is calculated as the ratio of accounts payable,
net, at period end divided by year to date average daily net cost of sales.</TD>
</TR>

</TABLE>








<P align="center" style="font-size: 10pt">42
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following table presents selected consolidated financial information stated as a percentage of
net sales for the years ended December&nbsp;31, 2003, 2004 and 2005 (certain amounts may not calculate
due to rounding and amounts may not add due to rounding).
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #ffffff"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #ffffff"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100.0</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(83.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(85.7</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(88.3</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4.2</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.0</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.9</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other expenses, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend income from marketable securities and investments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on sale of subsidiaries&#146; shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on disposal of investment in an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment loss on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10.9</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.8</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Realized loss on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.5</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.1</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before minority interests and equity in income (loss)&nbsp;of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(0.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.0</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in income (loss)&nbsp;of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1.3</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income after minority interests and equity in income (loss)&nbsp;of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discontinued operation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">0.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10.8</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">12.5</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">6.4</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Year Ended December&nbsp;31, 2005 Compared to Year Ended December&nbsp;31, 2004</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Sales. </I>Our net sales increased 49% to $797.2&nbsp;million for 2005, up from $533.9&nbsp;million in
2004. The increase was due to increased sales levels across various business segments. Sales of
telecommunication components assembly substantially increased 80.0%, sales of LCD panels increased
19.3% and sales of software development services increased 11.1%. Sales of consumer electronics
and communication products remained at 2004 levels. The increased sales levels were due to the
addition of new customers, and organic growth in these business segments. Specifically, the
increase in telecommunications, components assembly was primarily attributable to the increase in
sales of FPC sub-assemblies, LCD modules and RF modules.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth, for the periods indicated, revenue by business segments
expressed as a percentage of net sales. The distribution of revenue across our business segments
has fluctuated, and will continue to fluctuate, as a result of numerous factors, including but not
limited to the following: increased business from new and existing customers, fluctuations in
customer demand and seasonality.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 1px solid #ffffff"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>Percent</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>Percent</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center"><B>Percent</B></TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Consumer
Electronics and Communication Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>
</TR>



<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Consumer Electronics and Communication Products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">32</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">31</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">20</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Software Development Services<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Telecommunication components assembly</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LCD Panels
and Transformers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">LCD panels</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Transformers<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>We sold our transformers operation to a third party in June&nbsp;2003.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Software Development Services was reclassified from
Telecommunication Components Assembly
segment to Consumer Electronics and Communication Products segment in 2005. Comparative
figures for year 2003 and 2004 have been restated accordingly.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross Profit. </I> In terms of dollar value, gross profit for
2005 increased by $16.4&nbsp;million from 2004, due to the increased
revenue base. However, gross margin decreased to 11.7% of net sales in 2005 from 14.3% in 2004.
Generally, the gross margin for box-built products is higher than key components assembly. Our
target was to shift our business to the high-growth and high-technology key components assemblies
sector, and we succeeded in increasing net sales in the TCA segment. In 2004, we were impacted by
the reduction of input credit with respect to value-added tax related to domestic purchase
materials by the PRC government. In 2005, the percentage decrease was primarily due to strong
growth and a higher proportion of TCA segment revenue.
</DIV>

<P align="center" style="font-size: 10pt">43
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling, General and Administrative Expenses. </I>Selling, general and administrative expenses
increased to $33.1&nbsp;million, or 4.2% of net sales in 2005 from
$28.1&nbsp;million, or 5.2% of net sales
in 2004. The $5.0&nbsp;million increase was primarily attributable to the increase in salaries and
benefits, audit, legal and professional fee, depreciation and amortization and restructuring
expenses in relation to Hong Kong office. The decrease as a percentage of net sales was due
primarily to the increased revenue base in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research and Development Expenses. </I>Research and development expenses in 2005 increased to $7.2
million from $5.0&nbsp;million in 2004 accounting for 0.9% of net sales for 2005 compared to 1.0% of
net sales for 2004. The absolute dollar increase was primarily attributable to the recruitment of
more engineers to support our R&#038;D activities, including design of production process, development
of new products and products associated with customer design-related programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Expenses &#151; Net. </I>During 2005, other expenses were $0.1&nbsp;million which mainly include gain
on disposal of land, exchange gain and was partially offset by other non-operating charges. During
2004, other expenses was $1.0&nbsp;million which mainly represented by other non-operating charges.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividend Income Received From Marketable Securities and Investment. </I>We received $0.6&nbsp;million
dividend income from our investment in TCL Corporation during the year of 2005. In 2004, we
received $17.4&nbsp;million and $0.9&nbsp;million dividend income from our investment in TCL Communication
and TCL Corporation, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gain on Sale of Subsidiaries&#146; Shares</I>. In May&nbsp;2005, NTEEP acquired 100% interest in Namtek
Software from the Company and Asano Company Limited, and as a result of this series of linked
transactions, the Company effectively disposed of 7.94% interest in Namtek Software, resulting in a
gain of $1.9&nbsp;million. During 2005, the Company disposed 52,574,000&nbsp;million shares of NTEEP, one
of the previously wholly-owned subsidiaries of the Company, resulting in a gain of $8.2&nbsp;million. In April&nbsp;2004, NTEEP, completed a public offering of its common stock on the Hong
Kong Stock Exchange. As a result, the Company disposed of a 25% interest in this subsidiary,
resulting in a gain on sale of NTEEP&#146;s shares of $71.1&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November and December&nbsp;2004, the Company disposed of 128&nbsp;million ordinary shares of J.I.C.
for cash consideration of $12.9&nbsp;million. The disposal resulted
in a net gain on sale of J.I.C.&#146;s shares of $6.3&nbsp;million after
deducting the release of goodwill of $3.5&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gain on Disposal of Investment in an Affiliated Company. </I>In the third quarter of 2005, we
sold of our entire stake in Alpha Star to the majority shareholders of Alpha Star. The
proceeds from disposal were $6.5&nbsp;million, resulting in a gain of $3.6&nbsp;million<B><I>.</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Impairment Loss of Marketable Securities and Realized Loss in Marketable Securities</I>. At
December&nbsp;31, 2004, the Company&#146;s investment in TCL Communication was stated at fair value based on
the traded market price of TCL Communication&#146;s shares and the Company recognized an impairment loss
of $58.3&nbsp;million, based on the Company&#146;s cost of $79.5&nbsp;million and a fair value of $21.2&nbsp;million.
As the loss is considered to be other-than-temporary, it has been recorded in the consolidated
statements of income. In June&nbsp;2005, a further $6.5&nbsp;million impairment loss was made. For the
period from August to December&nbsp;2005, the Company disposed its entire stake in TCL Communication for
sales proceeds of $11.0&nbsp;million and recorded a realized loss of $3.7&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest Income</I>. Interest income was as $3.9&nbsp;million which increased $2.8&nbsp;million from $1.1
million in 2004. The increase was primarily due to higher average cash balances and increase of
interest rate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest Expense. </I>Interest expense increased to $438,000 in 2005 from $195,000 in 2004. This
increase was primarily a result of increase in interest rates and the draw-down of short-term bank
loans by J.I.C.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income Taxes. </I>Pursuant to the strict enforcement of certain PRC regulations, tax paid on
statutory reserve of our PRC entities is not eligible for tax refund. In order to follow the strict
enforcement practice, extra tax expenses of $268,000 for previous years were charged to 2004. As a
result, income tax expenses for 2004 were $879,000 as compared to $651,000 for 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Minority Interests. </I>Minority interest increased to $8.0&nbsp;million in 2005 from $6.0&nbsp;million in
2004. The increase was primarily the result of the increase in minority shareholders&#146; share of
NTEEP&#146;s profit of approximately $6.7&nbsp;million during 2005. In addition, the minority shareholders&#146;
share of profits of the J.I.C. group for 2005 increased to $1.3&nbsp;million from $254,000 in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Equity in Loss of Affiliated Companies. </I>We recorded an equity in loss of $186,000 for 2005 and
$6.8&nbsp;million for 2004 in relation to Alpha Star. The amount in 2004 included an impairment charge
of approximately $5.6&nbsp;million upon its unsatisfactory operating results and the continued weakness
in markets operated by Alpha Star and $1.2&nbsp;million share of loss of Alpha Star. For additional

information, see Note 9 &#151; &#147;Investment in Affiliated Companies, Equity Method <FONT style="font-family: Symbol">&#190;</FONT> Alpha
Star&#148; to the Consolidated Statements of Income.
</DIV>

<P align="center" style="font-size: 10pt">44
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Year Ended December&nbsp;31, 2004 Compared to Year Ended December&nbsp;31, 2003</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Net Sales. </I>Our net sales increased 31.4% to $533.9&nbsp;million for 2004, up from $406.3&nbsp;million in
2003. The increase was due to increased sales levels across all business segments. Specific
increases include a 27.0% increase in the sales of consumer electronics and communication products,
a 36.4% increase in the sales of telecommunication components assembly, a 17.9% increase in the
sales of LCD panels and a 20.6% increase in the sales of software development services. The
increased sales levels were due to the addition of new customers, and organic growth in these
business segments. The increase in the consumer electronics and communication products was
primarily attributable to the increased sales levels in optical devices. The increase in
telecommunication, components assembly was primarily attributable to sales of FPC sub-assemblies in
2004 and the increase in sales of levels of mobile phone handsets in SKD forms and lighting panels
for hand-held devices.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gross Profit. </I>Gross profit decreased to 14.3% of net sales in 2004 from 16.3% in 2003.
Generally, the gross margin for box-built products is higher than key components assembly. Our
target was to shift our business to the high-growth and high-technology key components assemblies
sector, and we succeeded in increasing net sales in the TCA segment. The percentage decrease in
gross profit was primarily due to a higher proportion of TCA segment revenue. Additionally, we have
been impacted by the reduction of input credit in respect of value-added tax related to domestic
purchase materials by the PRC government during 2004. In terms of dollar value, gross profit for
2004 increased by $10.2&nbsp;million from 2003, due to the increased revenue base.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Selling, General and Administrative Expenses. </I>Selling, general and administrative expenses
increased to $28.1&nbsp;million, or 5.2% of net sales in 2004 from $24.9&nbsp;million, or 6.1% of net sales,
in 2003. The $3.2&nbsp;million increase was primarily attributable to the increase in sales commission
paid to marketing staff as a result of increased revenue, and the commission paid to external
agents for particular products during 2004. The decrease as a percentage of net sales was due
primarily to the increased revenue base in 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Research and development Expenses. </I>Research and development expenses in 2004 increased to $5.0
million from $4.0&nbsp;million in 2003 but remained at 1.0% of net sales for each of 2004 and 2003. The
absolute dollar increase was primarily attributable to the recruitment of more engineers to support
our research and development activities, including design of production process, development of new
products and products associated with customer design-related programs.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Other Expenses, Net. </I>During 2004, other expenses of $1.0&nbsp;million were mainly represented by
other non-operating charges. In 2003, other expense also represented by other non-operating
charges and was partially offset by a non-trade receivables which had been written off previously.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dividend Income Received From Marketable Securities and Investment. </I>In 2004, we received
$17.4&nbsp;million and $0.9&nbsp;million dividend income from our investment in TCL Communication and TCL
Corporation, respectively. This compared to $2.0&nbsp;million and $1.7&nbsp;million dividend income from our
investment in TCL Communication and TCL Corporation in 2003
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Gain on Sale of Subsidiaries&#146; Shares. </I>In April&nbsp;2004, one of the previously wholly-owned
subsidiaries of the Company, NTEEP, completed a public offering of its common stock on the Hong
Kong Stock Exchange. As a result, the Company disposed of a 25% interest in this subsidiary,
resulting in a gain on sale of NTEEP&#146;s shares of US$71.1&nbsp;million. In November and December&nbsp;2004, the
Company disposed of 128&nbsp;million ordinary shares of J.I.C. for cash consideration of $12.9&nbsp;million.
The disposal resulted in a net gain on sale of J.I.C.&#146;s shares of $6.3&nbsp;million after
deducting the release of goodwill of $3.5&nbsp;million. During 2003,
we recorded a $1.8&nbsp;million gain on sale of J.I.C.&#146;s shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Unrealized Loss of Marketable Securities</I>. At December&nbsp;31, 2004, the Company&#146;s investment in
TCL Communication was stated at fair value based on the traded market price of TCL Communication&#146;s
shares and the Company recognized an unrealized loss of $58.3&nbsp;million, based on the Company&#146;s cost
of $79.5&nbsp;million and a fair value of $21.2&nbsp;million. As the loss is considered to be
other-than-temporary, it has been recorded in the consolidated statements of income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest Income</I>. Interest income increased to $1.1&nbsp;million in 2004 from $0.8&nbsp;million in 2003.
The increase was primarily due to higher average cash balances, partially offset by lower interest
yields on cash deposits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Interest Expense. </I>Interest expense increased to $195,000 in 2004 from $121,000 in 2003. This
increase was primarily a result of the draw-down of a $7.0&nbsp;million fixed-term loan by J.I.C.
</DIV>


<P align="center" style="font-size: 10pt">45
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Income Taxes. </I>Income tax expenses of $879,000 for 2004 compares to $399,000 for 2003. The
increase was primarily the result of not receiving full tax refunds for several of our PRC entities
for taxes paid in previous years that we have normally been eligible to receive full tax refunds in
the past as a result of the strict enforcement of certain regulations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Minority Interests. </I>Minority interest increased to $6.0&nbsp;million in 2004 from $1.1&nbsp;million in
2003. The increase was primarily the result of the increase in minority shareholders&#146; share of
NTEEP&#146;s profit of approximately $4.9&nbsp;million since its listing in April&nbsp;2004. In addition, the
minority shareholders&#146; share of profits of the J.I.C. group for 2004 increased to $254,000 from
$211,000 in 2003, and the minority shareholders&#146; share of profits of Namtek Software for 2004
increased to $472,000 from $296,000 in 2003. The minority shareholders&#146; share of profits of Mate
Fair for 2004 decreased to $405,000 from $560,000.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Equity in Income (Loss) of Affiliated Companies. </I>We recorded an equity in loss of $6.8&nbsp;million
for 2004 of Alpha Star but recognized in equity in income of $0.5&nbsp;million for 2003. The amount in
2004 included an impairment charge of approximately $5.6&nbsp;million upon its unsatisfactory operating
results and the continued weakness in markets operated by Alpha Star and $1.2&nbsp;million share of loss
of Alpha Star. For additional information, see Note 9 &#151; &#147;Investment in Affiliated Companies, Equity
Method <FONT style="font-family: Symbol">&#190;</FONT> Alpha Star&#148; to the Consolidated Statements of Income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Liquidity and Capital Resources</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Liquidity</I>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have financed our growth and cash needs to date primarily from internally generated funds,
proceeds from the sale of our strategic investments, sales of our common stock and bank debt. We do
not use off-balance sheet financing arrangements, such as securitization of receivables or
obtaining access to assets through special purpose entities, as sources of liquidity. Our primary
uses of cash have been to fund expansions and upgrades of our manufacturing facilities, to make
strategic investments in potential customers and suppliers and to fund increases in inventory and
accounts receivable resulting from increased sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We had positive net working capital of $234.7&nbsp;million at December&nbsp;31, 2005 compared to
positive net working capital of $218.2&nbsp;million at December&nbsp;31, 2004. We expect our working capital
requirements and capital expenditures to increase in order to support future expansions of our
operations through acquisition of land, construction of a new factory on this land to be acquired
and machinery purchases. It is possible that future expansions may be significant and may require
the payment of cash. Future liquidity needs will also depend on fluctuations in levels of inventory
and shipments, changes in customer order volumes and timing of expenditures for new equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We currently believe that during the next twelve months, our capital expenditures will be in
the range of $30&nbsp;million to $50&nbsp;million, principally for land, machinery and equipment, and
expansion in China. We believe that our level of resources, which include cash and cash
equivalents, marketable securities, accounts receivable and available borrowings under our credit
facilities, will be adequate to fund these capital expenditures and our working capital
requirements for the next twelve months. Should we desire to consummate significant additional
acquisition opportunities or undertake significant expansion activities, our capital needs would
increase and could possibly result in our need to increase available borrowings under our revolving
credit facilities or access public or private debt and equity markets. There can be no assurance,
however, that we would be successful in raising additional debt or equity on terms that we would
consider acceptable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth, for the year ended December&nbsp;31, 2003, 2004 and 2005, selected
consolidated cash flow information (in thousands):
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 0px solid #000000"><B>Year Ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">44,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">75,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">70,825</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash (used in) provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,669</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,740</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43,253</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,117</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(36,165</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (decrease)&nbsp;increase in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(20,650</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">98,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">53,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities for 2005 was $70.8&nbsp;million. This consisted primarily
of $51.3&nbsp;million of net income, adjusted for $17.3&nbsp;million of depreciation and amortization, $6.5
million impairment loss on marketable securities, $3.7&nbsp;million realized loss on marketable
securities and $8.0&nbsp;million in minority interests, which were offset by $10.1&nbsp;million gain on
sales of subsidiaries&#146; shares and $3.6&nbsp;million
</DIV>

<P align="center" style="font-size: 10pt">46
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> gain on disposal of investment in an affiliated
company. Our working capital related to operating activities increased, driven by an increase of
$32.0&nbsp;million in accounts payable and $2.8&nbsp;million in accrued expenses and others payables, a
decrease of $3.9&nbsp;million in income taxes recoverable, an increase of $2.7&nbsp;million in notes payable
and decrease of $0.4&nbsp;million decrease in prepaid expenses and other receivables, partially offset
by increases in accounts receivable of $35.3&nbsp;million and $8.6&nbsp;million in inventories. The increase
in accounts receivable and accounts payable was due to increased levels of business during 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by investing activities of $18.7&nbsp;million for 2005 consisted primarily of
proceeds from partial disposal of subsidiaries of $25.2&nbsp;million, proceeds from disposal of
marketable securities of $11.0&nbsp;million, proceeds from disposal of an affiliated company of $6.5
million, proceeds from disposal of property, plant and equipment of $1.8&nbsp;million and decrease in
deposits for property, plant and equipment of $6.4&nbsp;million, partially offset by capital
expenditures of $32.2&nbsp;million. Capital expenditure in 2005 mainly consisted of the construction of
a new factory and purchases of machinery and equipment which were used to expand our manufacturing
capacity and to upgrade our equipment to produce increasingly complex products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities of $36.2&nbsp;million for 2005 resulted primarily from $52.0
million paid to shareholders as dividends, $5.4&nbsp;million in repayment of bank loans, partially
offset by proceeds of bank loans of $4.8&nbsp;million and proceeds from shares issued on exercise of
options and warrants of $16.4&nbsp;million.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities for 2004 was $75.2&nbsp;million. This consisted primarily
of $66.9&nbsp;million of net income, adjusted for $13.9&nbsp;million of depreciation and amortization, $58.3
million unrealized loss on marketable securities, $6.8&nbsp;million equity in loss of an affiliated
company and $6.0&nbsp;million in minority interests partially offset
by $6.2&nbsp;million in gain on sale of J.I.C.&#146;s shares,
$71.1&nbsp;million gain on sale of NTEEP&#146;s shares and $15.9&nbsp;million in dividend
income. Our working capital related to operating activities increased, driven by an increase of
$33.9&nbsp;million in accounts payable and $3.0&nbsp;million in accrued expenses and others payables, a
decrease of $2.6&nbsp;million in amount due from a related party, $3.9&nbsp;million in inventories and $2.6
million in prepaid expenses and other receivables, partially offset by increases in accounts
receivable of $28.3&nbsp;million. The increase in accounts receivable and accounts payable was due to
increased levels of business during 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by investing activities of $37.7&nbsp;million for 2004 consisted primarily of
proceeds from partial disposal of subsidiaries and investments of $95.4&nbsp;million and $5.6&nbsp;million,
respectively, proceeds from disposal of property, plant and equipment of $4.5&nbsp;million, partially
offset by capital expenditures of $38.6&nbsp;million and increase in deposits for property, plant and
equipment of $4.4&nbsp;million and acquisition of marketable securities of TCL Communication of $25.1
million. Capital expenditure in 2004 mainly consisted of the construction of a new factory and
purchases of machinery and equipment which were used to expand our manufacturing capacity and to
upgrade our equipment to produce increasingly complex products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities of $14.1&nbsp;million for 2004 resulted primarily from $19.4
million paid to shareholders as dividends, $5.4&nbsp;million in repayment of bank loans, partially
offset by proceeds of bank loans of $10.6&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Except as discussed above, there are no material transactions, arrangements and relationships
with unconsolidated affiliated entities that are reasonably likely to affect liquidity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For the years ended December&nbsp;31, 2004 and 2005, the Company has made guarantees for debt,
loans and credit facilities held by various wholly owned subsidiaries aggregating up to a maximum
guarantee of $49.2&nbsp;million and $19.0&nbsp;million, respectively. The terms of the guarantees correspond
with the terms of the underlying debt, loan and credit facility agreements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Capital Resources</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had $213.8&nbsp;million in cash and cash equivalents, consisting of
cash and short-term deposits, compared to $160.6&nbsp;million as of December&nbsp;31, 2004. Our short-term
bank loans were $2.3&nbsp;million and nil as of December&nbsp;31, 2005 and December&nbsp;31, 2004, respectively.
Our long-term bank borrowing was $5.2&nbsp;million and $8.1&nbsp;million as of December&nbsp;31, 2005 and December
31, 2004, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had in place general banking facilities with two financial
institutions aggregating $117.3&nbsp;million. The maturity of these facilities is generally up to 120
days. These banking facilities are guaranteed by us and there is an undertaking not to pledge any
assets to any other banks without the prior consent of our bankers. However, these covenants do not
have any impact on our ability to undertake additional debt or equity financing. Interest rates are
generally based on the banks&#146; reference lending rates. Our facilities permit us to obtain
overdrafts, lines of credit for forward exchange contracts, letters of credit, import facilities,
trust receipt financing, shipping guarantees,
</DIV>

<P align="center" style="font-size: 10pt">47
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> working capital and revolving loans. No significant
commitment fees are required to be paid for the banking facilities. These facilities are subject to
annual review and approval. As of December&nbsp;31, 2005, we had utilized approximately $7.1&nbsp;million
under such general credit facilities and had available unused credit facilities of $110.2&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had two four-year term loans. The outstanding balance amounted to
$5.2&nbsp;million as of December&nbsp;31, 2005 and $8.1&nbsp;million as of December&nbsp;31, 2004. Here is an analysis
of the term loans:
</DIV>
<DIV align="center">
<TABLE style="font-size: 8pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>Original</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>balance at</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>balance at</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>Date of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>per</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>Draw</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>drawn</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>No. of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>installment</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>Interest</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>First</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 0px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 6pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>Down</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>(in millions)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>installments</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>(in millions)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>rate</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>repayment</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="6"><B>(in millions)</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD nowrap><DIV style="margin-left:15px; text-indent:-15px">Term loan 1</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>May 2002</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap><B>1.5% over LIBOR,</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>August 2002</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap><B>changed to 0.75%</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap><B>over LIBOR in</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap><B>August 2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Term loan 2</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>April 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center"  >16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>0.75% over LIBOR</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>July 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>June 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" >16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>0.75% over LIBOR</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>September 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>December 2004</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>0.75% over LIBOR</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" nowrap>March 2005</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.8</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">8.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our contractual obligations, including long-term debt arrangements, capital expenditure,
purchase obligations and future minimum lease payments under non-cancelable operating lease
arrangements as of December&nbsp;31, 2005 are summarized below. We do not participate in, or secure
financing for, any unconsolidated limited purpose entities. Non-cancelable purchase commitments do
not typically extend beyond the normal lead-time of several weeks at most. Purchase orders beyond
this time frame are typically cancelable.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="CENTER" colspan="26" style="border-bottom: 0px solid #000000"><B>Payments due by period</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Contractual</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2"><B>2011 and</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 0px solid #000000"><B>obligation</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>2006</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>2007</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>2008</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>2009</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>2010</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" colspan="2" style="border-bottom: 0px solid #000000"><B>thereafter</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-term bank
borrowing</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,162,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,312,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,750,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,100,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Operating leases</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,332,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,703,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,662,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,476,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,242,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,314,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,935,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital
expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,758,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,758,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Purchase
obligations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,985,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,985,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">127,237,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">116,758,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">3,412,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,576,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,242,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,314,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,935,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no material restrictions (including foreign exchange controls) on the ability
of our non-China subsidiaries to transfer funds to us in the form of cash dividends, loans,
advances or product or material purchases. With respect to our China subsidiaries, with the
exception of a requirement that 11% of profits be reserved for future developments and staff
welfare, there are no restrictions on the payment of dividends and the removal of dividends from
China once all taxes are paid and assessed and losses, if any, from previous years have been made
good. In the event that dividends are paid by our China subsidiaries, such dividends will reduce
the amount of reinvested profits and, accordingly, the refund of taxes paid will be reduced to the
extent of tax applicable to profits not reinvested.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Impact of Inflation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inflation and deflation in China, Hong Kong and Macao has not had a material effect on our
past business. During times of inflation, we have generally been able to increase the price of its
products in order to keep pace with inflation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exchange Controls</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no exchange control restrictions on payments of dividends, interest, or other
payments to nonresident holders of our securities or on the conduct of our operations in Hong Kong
and Macao, where the offices of some of our subsidiaries are located, or in the British Virgin
Islands, where we are incorporated. Other jurisdictions in which we conduct operations may have
various exchange controls. With respect to our China subsidiaries, with the exception of a
requirement that 11% of profits be reserved for future developments and staff welfare, there are no
restrictions on the payment of dividends and the removal of dividends from China once all taxes are
paid and assessed and losses, if any, from previous years have been made good. We believe such
restrictions will not have a material effect on our liquidity or cash flows.
</DIV>

<P align="center" style="font-size: 10pt">48
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Recent Changes in Accounting Standards</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2004, the Financial Accounting Standard Board, or FASB, issued SFAS No.&nbsp;151,
&#147;<I>Inventory Costs &#150; an amendment of ARB No.&nbsp;43, Chapter&nbsp;4</I>&#148;. SFAS No.&nbsp;151 clarifies the accounting
that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage
costs to be recognized as current-period charges. It also requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the production
facilities. SFAS No.&nbsp;151 will be effective for inventory costs incurred on or after July&nbsp;1, 2005.
The adoption of this new standard did not have any material impact on the Company&#146;s financial
position, results of operations or cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the FASB issued SFAS No.&nbsp;153, &#147;Exchange of Nonmonetary Assets &#150; An Amendment
of APB Opinion No.&nbsp;29, Accounting for Nonmonetary Transactions&#148; which redefines the types of
non-monetary exchanges that require fair value measurement. The Company is required to adopt SFAS
No.&nbsp;153 for nonmonetary transactions entered into after June&nbsp;30, 2005. The adoption of this new
standard did not have a material impact on the Company&#146;s financial position, results of operations
or cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2004, the FASB issued SFAS No.&nbsp;123 (revised 2004), &#147;<I>Share-Based Payment</I>&#148;, or SFAS
No.&nbsp;123R. This statement is a revision to SFAS No.&nbsp;123 and supercedes APB Opinion No.&nbsp;25. This
statement establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services, primarily focusing on the accounting for transactions
in which an entity obtains employee services in share-based payment transactions. Entities are
required to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited exceptions). That cost
will be recognized over the period during which an employee is required to provide service, the
requisite service period (usually the vesting period), in exchange for the award. The grant-date
fair value of employee share options and similar instruments are to be estimated using
option-pricing models. If an equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the excess of the fair value of the
modified award over the fair value of the original award immediately before the modification. This
statement is effective as of the beginning of the first interim or annual reporting period that
begins after June&nbsp;15, 2005. In accordance with the standard, the Company is required to adopt SFAS
No.&nbsp;123R effective January&nbsp;1, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upon adoption, the Company has two application methods to choose from: the
modified-prospective transition approach or the modified-restrospective transition approach. Under
the modified-prospective transition method the Company would be required to recognize compensation
cost for share-based awards to employees based on their grant-date fair value from the beginning of
the fiscal period in which the recognition provisions are first applied as well as compensation
cost for awards that were granted prior to, but not vested as of the date of adoption. Prior
periods remain unchanged and pro forma disclosures previously required by SFAS No.&nbsp;123 continue to
be required. Under the modified-retrospective transition method, the Company would restate prior
periods by recognizing compensation cost in the amounts previously reported in the pro forma
footnote disclosure under SFAS No.&nbsp;123. Under this method, the Company is permitted to apply this
presentation to all periods presented or to the start of the fiscal year in which SFAS No.&nbsp;123R is
adopted. The Company would follow the same guidelines as in the modified-prospective transition
method for awards granted subsequent to adoption and those that were granted and not yet vested.
The Company believes that the impact that the adoption of SFAS No.&nbsp;123R will have on its financial
position or results of operations will approximate the magnitude of the stock-based employee
compensation cost disclosed in Note&nbsp;2&nbsp;(p) to the financial
statements pursuant to the disclosure requirements of SFAS No.&nbsp;148.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In March&nbsp;2005, the FASB issued FASB Interpretation No., or FIN, 47, &#147;<I>Accounting for
Conditional Asset Retirement Obligations, an interpretation of SFAS No.&nbsp;143</I>&#148;. FIN 47 clarifies
that an entity is required to recognize a liability for a legal obligation to perform an asset
retirement activity if the fair value can be reasonably estimated even though the timing and/or
method of settlement are conditional on a future event. FIN 47 is required to be adopted for
annual reporting periods ending after December&nbsp;15, 2005. The Company is evaluating the effect of
the adoption of FIN 47. It is not expected to have a material impact on the Company&#146;s financial
position, results of operations or cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2005, the FASB issued SFAS No.&nbsp;154, &#147;<I>Accounting Changes And Error Corrections &#150; a
replacement of APB Opinion No.&nbsp;20 and FASB Statement No.&nbsp;3</I>&#148;. This statement supercedes APB Opinion
No.&nbsp;20, &#147;<I>Accounting changes&#148; and SFAS No.&nbsp;3, &#147;Reporting Accounting changes in Interim Financial
Statements</I>&#148;. SFAS No.&nbsp;154 requires retrospective application to prior periods&#146; financial
statements of changes in accounting principles, unless it is impracticable to determine the
period-specific effects or the cumulative effect of the change. APB Opinion No.&nbsp;20 &#147;Accounting
Changes,&#148; previously required that most voluntary changes in accounting principle be recognized by
including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. SFAS No.&nbsp;154 will be effective for accounting changes and corrections
of errors made in fiscal years beginning after December&nbsp;15, 2005.

</DIV>

<P align="center" style="font-size: 10pt">49
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">





<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;2005, the FASB&#146;s Emerging Issues Task Force, or EITF, reached a final consensus
on Issue 04-13, &#147;<I>Accounting for Purchases and Sales of Inventory with the Same Counterparty</I>&#148;. EITF
04-13 requires that two or more legally separate exchange transactions with the same counterparty
be combined and considered a single arrangement for purposes of applying APB Opinion No.&nbsp;29,
&#147;<I>Accounting for Nonmonetary Transactions</I>&#148;, when the transactions are entered into in contemplation
of one another. EITF 04-13 is effective for new arrangements entered into, or modifications or
renewals of existing arrangements, in interim or annual periods beginning after March&nbsp;15, 2006. The
Company is evaluating the effect of the adoption of EITF 04-13. It is not expected to have a
material impact on the Company&#146;s financial position, results of operations or cash flows.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Research and Development</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our research and development expenditure mainly comprised of salaries and benefits paid to our
research and development personnel and is mainly for the development of advanced manufacturing
techniques to produce complex products on a mass scale and at a low cost. We expense our research
and development costs as incurred. For the years ended December&nbsp;31, 2003, 2004 and 2005, we
incurred research and development expenses of approximately $4.0&nbsp;million, $5.0&nbsp;million and $7.2
million, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Trend Information</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Currently, our operations consist of three reportable segments, Consumer Electronics and
Communication Products, Telecommunication Components Assembly and LCD panels.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We plan to continue to leverage on our solid customer relationships and to expand our
business. During 2005, we were able to expand our product line to higher growth products and we
were able to benefit from the increase in production capacity from the commencement of operation of
our new factory premises.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For Consumer Electronics and Communication Products, we will continue to focus on optical
devices, educational products, cellular phone accessories and entertainment devices. In 2005, we
produced more new products, such as Bluetooth&#153; wireless headset accessories for a new customer and
also new entertainment products, such as the game quiz controller and also new gaming devices for
mobile phones. We also added digital scanning pen to our educational products category. Since June
2003, we have been able to diversify our product range from finished products to component
assemblies and began manufacturing the high growth CMOS sensor modules for integration into various
image capturing devices such as cellular phones with built-in camera functions. In addition to our
core manufacturing business for consumer electronic and communication products, we are also
developing a car navigation system.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For Telecommunication Component Assembly, we will continue to focus on high-growth products
which require advance technological production know-how. In addition to high-end color LCD modules,
we began manufacturing FPC sub-assemblies in March&nbsp;2003 for integration into various LCD modules
and other products, like infotainment consumer electronic products which played a significant role
in increasing our total turnover in the past two years. In 2005, we further increased our product
line and broadened our customer base by producing DAB modules for a new European customer and PCBA
for Bluetooth<SUP style="font-size: 85%; vertical-align: text-top">TM</SUP> headsets. In order to enhance our vertical integration by moving
upstream to increase profitability and support our fast-growing FPC sub-assembly business, we plan
to begin FPC unit manufacturing in 2006. We believe that the combination of FPC unit manufacturing
and FPC sub-assembly capability will allow us to better serve our customers and give us synergy
benefits by improving our gross profit margins and broaden our product and service offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;LCD panels are found in numerous applications in electronics products, such as watches,
clocks, calculators, pocket games, PDAs and mobile and cordless telephones and car audio systems.
We are a customized LCD panel manufacturer, and we develop each product from design concept all the
way to a high quality mass producible product. Since 2003, we have also begun manufacturing
customized LCD modules that included components such as backlights, FPC and COG. In 2005, we began
developing LCD modules for cordless and VoIP phones. We intend to continue expanding our customized
passive LCD module products utilizing LCD panels that we have manufactured, and we expect this
strategy to provide us with higher value products, a wider customer base, higher revenues and
margins.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It has been our strategy to continue shifting our focus more to the business of key components
sub-assembly. The key components sub-assembly business generally accounts for relatively lower
gross profit margin. We have been very successful in shifting our focus
</DIV>

<P align="center" style="font-size: 10pt">50
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">to key components sub-assembly, which accounted for 72% of our sales in 2005. We believe that
the strong growth of this business will offset the impact of lower gross profit margins and we can
continue to achieve strong growth in our overall profits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Off-balance Sheet Arrangement</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For 2005, the Company did not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company&#146;s financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
</DIV>
<DIV align="left">
<A name="108"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;6. </B><B><I>Directors, Senior Management and Employees</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Directors and Senior Managers</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our current directors and senior management, and their ages as of March&nbsp;1, 2006, are as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="30%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="45%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Age</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left"><B>Position with Nam Tai</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">M. K. Koo
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">61</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board and member of the Board of Directors</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Patinda Lei
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">39</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer and Chief Financial Officer, Chairman
of the Board of Zastron group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Patrick Lee
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">41</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer of Zastron group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Lai Yick Fung
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">35</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer of Zastron group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Karene Wong
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">42</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board of NTEEP group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Kazuhiro Asano
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">54</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board of NTEEP</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Guy Bindels
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">45</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board and Chief Executive Officer of NTEEP group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Joseph Hsu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">41</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Financial Officer of NTEEP group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Seitaro Furukawa
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">64</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chairman of the Board of J.I.C. group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Ivan Chui
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">47</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board and Chief Executive Officer of J.I.C. group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Colin Yeoh
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">41</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board and Chief Financial Officer of J.I.C. group</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Peter R. Kellogg
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">63</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board of Directors</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Stephen Seung
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">59</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board of Directors and Corporate Secretary</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Dr. Wing Yan (William) Lo
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">45</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board of Directors</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Charles Chu
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">49</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board of Directors</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Mark Waslen
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">45</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Member of the Board of Directors</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>M.K. Koo. </I>Mr.&nbsp;Koo has served as Chairman of the Board of Nam Tai and its predecessor companies
from inception until September&nbsp;1998. He then became our Senior Executive Officer, responsible for
corporate strategy, finance and administration and also served as the Company&#146;s Chief Financial
Officer. Mr.&nbsp;Koo has resigned from the position of Chief Financial Officer on January&nbsp;1, 2005 but
maintained his role as a non-executive director of the Company. In July&nbsp;2005, Mr.&nbsp;Koo reassumed the
position as Chairman upon the resignation of Mr.&nbsp;Tadao Murakami but maintained his non-executive
status. Mr.&nbsp;Koo received his Bachelor&#146;s of Laws degree from National Taiwan University in 1970.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Patinda Lei. </I>Ms.&nbsp;Lei joined Nam Tai group in May&nbsp;1990. In June&nbsp;2002, she assumed the position
of Managing Director of our subsidiary Nam Tai Telecom (Hong Kong) Company Limited and in March
2004, became the Chairman of the Board of Zastron and responsible for the overall business of the
Zastron group. Ms.&nbsp;Lei has worked with Nam Tai group for more than fifteen years specializing in
promoting, generating and monitoring sales revenues on various high-end electronics products. With
effect from January&nbsp;1, 2006, Ms.&nbsp;Lei also assumed the position of Chief Executive Officer and Chief
Financial Officer of the Company. Ms.&nbsp;Lei graduated with a Bachelor of Sciences degree in
Management Science from the Faculty of Engineering of Tokyo University of Science in Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Patrick Lee. </I>Mr.&nbsp;Lee joined Nam Tai group in August&nbsp;2005 as Chief Executive Officer of Zastron
group. Before joining the Nam Tai group, he had thirteen years of experiences in mobile phone
business with Nokia Corporation and Philips Corporation and of which eight years were in senior
management positions. Mr.&nbsp;Lee has a Bachelor&#146;s degree in Electrical and Electronics Engineering
from University of Surrey, England in 1989 and a Master degree in Advanced Manufacturing Systems
from Brunel University, England in 1997.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Lai Yick Fung. </I>Mr.&nbsp;Lai joined Nam Tai group in May&nbsp;2005 as Financial Controller of
Zastron Shenzhen and was promoted to Chief Financial Officer of Zastron group with effect from
January&nbsp;1, 2006. Mr.&nbsp;Lai has worked for an international accounting firm
</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">and a number of listed companies in Hong Kong with over 10&nbsp;years&#146; experience in auditing,
accounting and financial management. He obtained a Bachelor of Arts degree in Accountancy from the
Hong Kong Polytechnic University and a Master degree of Science in Financial Management from the
University of London. Mr.&nbsp;Lai is an associate member of the Hong Kong Institute of Certified
Public Accountants, the Hong Kong Institute of Company Secretaries and the Institute of Chartered
Secretaries and Administrations.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Karene Wong. </I>Ms.&nbsp;Wong joined us in June&nbsp;1989. Before joining us, Ms.&nbsp;Wong was Assistant
to the Sales Manager at Wright Joint &#038; Co. Ltd. She was promoted to Managing Director of our
subsidiary, Nam Tai Electronic &#038; Electrical Products Limited. (Hong Kong), on January&nbsp;1, 2001 and
was further promoted to Chairman of NTEEP in June&nbsp;2003 responsible for overseeing the overall
business of NTEEP group, continue to maintain close contact with key customers and cultivate new
customer relationships for NTEEP group.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Kazuhiro Asano. </I>Mr.&nbsp;Asano joined the Nam Tai group in 1995 as a general manager and was
promoted to Managing Director of Shenzhen Namtek in 1997. In June&nbsp;2002, Mr.&nbsp;Asano was promoted as
the Chairman of the Board of our subsidiary Namtek Software and was responsible for the overall
corporate management and business development for our software business. Mr.&nbsp;Asano was appointed as
an executive director of NTEEP immediately upon the acquisition of Namtek Software by NTEEP in May
2005. Prior to joining Nam Tai group, Mr.&nbsp;Asano was the general manager of Seiko Instruments Inc.,
a private Japanese consumer electronics company, and was responsible for its electronic dictionary
division. Mr.&nbsp;Asano graduated from Tsuyama Government Industrial College, Japan with a degree in
Electrical Engineering in 1972.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Guy Bindels. </I>Mr.&nbsp;Bindels joined the Nam Tai group as Research and Development Director in
March&nbsp;2003 and became an executive director of NTEEP in March&nbsp;2004. He was promoted to Chief
Executive Officer of NTEEP in July&nbsp;2004 and responsible for overseeing the business and operation
of NTEEP group. Before joining Nam Tai group, he worked with the research and development unit of
Alcatel for 19&nbsp;years. He graduated from &#147;Ecole Nationale d&#146; Ingenieur de Brest&#148; (Engineering School
located in Brest) in France in 1983.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Joseph Hsu</I>. Mr.&nbsp;Hsu is the Chief Financial Officer of NTEEP group. He joined Nam Tai group in
February&nbsp;2004 and has nearly 11&nbsp;years of investment banking experience. Mr.&nbsp;Hsu worked in the
corporate finance division of the Hongkong and Shanghai Banking Corporation Limited from 1992 to
2003, and his last position was Corporate Finance Director. Mr.&nbsp;Hsu is a qualified accountant and
is an Associate Member of the Hong Kong Society of Accountants and an Associate Member of the
Institute of Chartered Accountants in England and Wales. Mr.&nbsp;Hsu graduated with a Bachelor&#146;s degree
in Economics and Accounting from Leeds University, UK and an MSc degree in Management Science from
the Imperial College of Science and Technology, University of London, UK.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Seitaro Furukawa. </I>Mr.&nbsp;Furukawa assumed the position of Chairman of the Board of our
subsidiary, J.I.C., in March&nbsp;2002. He has extensive experience in international operational
management. He held management positions in the Japan offices of General Electric, Admiral
International Company and Thompson CSF. After joining the J.I.C. group in 1992 as a Managing
Director, he assumed responsibility for production management and monitoring daily operations of
the LCD plant in Shenzhen. Mr.&nbsp;Furukawa received his Bachelor&#146;s of English Literature degree from
Aoyama University in 1965 and his Bachelor&#146;s of Technology and Metallurgy degree from Kogakuin
University in 1967.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Ivan Chui</I>. Mr.&nbsp;Chui is the co-founder and Chief Executive Officer of our subsidiary, J.I.C.
Mr.&nbsp;Chui has directed J.I.C. group&#146;s marketing activities since founding J.I.C. group in 1980. He
has over 20&nbsp;years of experience in the LCD business and has extensive experience in doing business
with Japanese companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Colin Yeoh. </I>Mr.&nbsp;Yeoh joined J.I.C. group in September&nbsp;2003 and assumed the post of Managing
Director of Jetup. in October&nbsp;2004. In January&nbsp;2005, he assumed the position of Chief Financial
Officer of the J.I.C. group. Before joining the J.I.C. group, he worked for Varitronix
International Limited, a customised LCD manufacturer, from 1994 to 2003, in the field of
operations. Prior to Varitronix International Limited, he worked in GEC Marconi Hirst Research (UK)
from 1990 to 1994, in the field of optical and display system research. Mr.&nbsp;Yeoh was awarded a PhD
in Liquid Crystal Devices in 1990 at Imperial College (London, UK), Master of Science in Microwaves
and Modern Optics in 1986 from University College London (UK)&nbsp;and Bachelor of Science in Electrical
and Electronic Engineering from University College London (UK).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Peter R. Kellogg. </I>Mr.&nbsp;Kellogg was elected to our Board of Directors in June&nbsp;2000. Mr.&nbsp;Kellogg
was a Senior Managing Director of Spear, Leeds &#038; Kellogg, a registered broker-dealer in the United
States and a specialist firm on the NYSE until the firm merged with Goldman Sachs in 2000. Mr.
Kellogg served on our Audit Committee until July&nbsp;8, 2003. He currently serves on our Compensation
Committee and Nominating / Corporate Governance Committee. Mr.&nbsp;Kellogg is also a member of the
Board of the Ziegler Companies.
</DIV>

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</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Stephen Seung. </I>Mr.&nbsp;Seung was appointed a director of Nam Tai in 1995. Mr.&nbsp;Seung is an attorney
and a C.P.A. and has been engaged in the private practice of law in New York since 1981. Mr.&nbsp;Seung
received a B.S. degree in Engineering from the University of Minnesota in 1969, an M.S. degree in
Engineering from the University of California at Berkeley in 1971, an MBA degree from New York
University in 1973 and a J.D. degree from New York Law School in 1979. Mr.&nbsp;Seung acts as our
authorized agent in the United States. He served on our Audit Committee until October&nbsp;2003. With
effect from October&nbsp;15, 2003, Mr.&nbsp;Seung also assumed the role of Corporate Secretary of the
Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Dr.&nbsp;Wing Yan (William) Lo</I>. Dr.&nbsp;Lo was elected to our Board of Directors at our annual meeting
of shareholders on July&nbsp;8, 2003. Dr.&nbsp;Lo is currently the Executive Director and Vice President of
China Unicom Ltd., a telecommunications operator in China that is listed on both the Hong Kong and
New York Stock Exchanges. From 1998 to 1999, Dr.&nbsp;Lo was the chief executive officer of Citibank&#146;s
Global Consumer Banking business for Hong Kong. Prior to joining Citibank, Dr.&nbsp;Lo was the founding
Managing Director of Hongkong Telecom IMS Ltd. Dr.&nbsp;Lo holds an M. Phil. degree in molecular
pharmacology and a Ph.D. degree in Genetic Engineering, both from Cambridge University, England. He
is also an Adjunct Professor of The School of Business, Hong Kong Baptist University as well as the
Faculty of Business, Hong Kong Polytechnic University. In 1998, Dr.&nbsp;Lo was appointed as a Justice
of the Peace of Hong Kong. In 2003, he was appointed as Committee Member of Shantou People&#146;s
Political Consultative Conference. Dr.&nbsp;Lo currently serves on the Nominating / Corporate Governance
Committee acting as the Chairman and also serves on our Audit Committee and Compensation Committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Charles Chu. </I>Mr.&nbsp;Chu originally served as a Director from November&nbsp;1987 to September&nbsp;1989. He
was reappointed as Director in November&nbsp;1992. Since July&nbsp;1988, Mr.&nbsp;Chu has been engaged in the
private practice of law in Hong Kong. Mr.&nbsp;Chu serves on the Compensation Committee acting as
Chairman. He also serves on our Audit Committee and Nominating / Corporate Governance Committee.
Mr.&nbsp;Chu received his Bachelor&#146;s of Laws degree and Post-Graduate Certificate of Law from the
University of Hong Kong in 1980 and 1981, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Mark Waslen</I>. Mr.&nbsp;Waslen was appointed a director of Nam Tai at our annual meeting of
shareholders on July&nbsp;8, 2003 and currently serves on the Audit Committee acting as Chairman. He
also serves on our Compensation Committee and Nominating / Corporate Governance Committee.
Previously, Mr.&nbsp;Waslen was employed with Nam Tai during the periods from 1990 to 1995 and from June
1998 to October&nbsp;1999 in various capacities, including Financial Controller, Secretary and
Treasurer. Mr.&nbsp;Waslen has been employed with various accounting firms, including Peat Marwick
Thorne, Deloitte Touche Tohmatsu and is currently employed with BME &#043; Partners Chartered
Accountants. Mr.&nbsp;Waslen is a CFA, CA and a CPA and received a Bachelor&#146;s of Commerce (Accounting
Major) from University of Saskatchewan in 1982.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;No family relationship exists among any of the named directors, executive officers or key
employees. No arrangement or understanding exists between any of our directors or executive
officers and any other person pursuant to which any director or executive officer was elected as a
director or executive officer of Nam Tai. Directors are elected each year at our annual meeting of
shareholders or serve until their respective successors take office or until their death,
resignation or removal. Executive officers serve at the pleasure of the Board of Directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Compensation of Directors and Senior Management</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The aggregate compensation we and our subsidiaries paid during the year ended December&nbsp;31,
2005 to all directors and senior management as a group for services in all capacities was
approximately $4.6&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Directors who are not employees of Nam Tai nor any of its subsidiaries are paid $3,000 per
month for services as a director, $750 per meeting attended in person and $500 per meeting attended
by telephone. In addition, they are reimbursed for all reasonable expenses incurred in connection
with their services as a director.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Members of our key staff are eligible for annual cash bonuses based on their performance and
that of the subsidiaries in which they are assigned for the relevant period. Key staff members will
be entitled to share up to 15% of the operating income from the respective subsidiary during the
year. Our executive officers in charge of the relevant subsidiaries recommend the participating
staff members and the amount, if any, to be allocated from the its respective profit pool to an
eligible individual.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;According to the relevant laws and regulations in China, we are required to contribute 8% to
9% of the stipulated salary to our local staff set by the local government of Shenzhen, China, to
the retirement benefit schemes to fund the retirement benefits of our employees. Our principal
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"> obligation with respect to these retirement benefit schemes is to
make the required contributions under the scheme. No forfeited contributions may be used by us to
reduce the existing level of contributions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prior to December&nbsp;2000, we maintained staff contributory retirement plans (defined
contribution pension plans), which covered certain of our employees in Hong Kong. From December
2000 onwards, we terminated our existing staff contributory retirement plans and enrolled all of
our eligible employees in Hong Kong into a Mandatory Provident Fund, or MPF, program. In August
2003, we set up our first subsidiary, Nam Tai Investments Consultant (Macao Commercial Offshore)
Company Limited, in Macao, China. We enrolled all of our eligible employees in Macao into a
retirement benefit scheme, or RBS. Both the MPF and RBS are available to all employees aged 18 to
64 and with at least 60&nbsp;days of service under the employment of Nam Tai in Hong Kong and Macao.
Contributions are made by us at 5% based on the staff&#146;s relevant income. The maximum relevant
income for contribution purpose per employee is $3,000 per month. Staff members are entitled to
100% of the Company&#146;s contributions, together with accrued returns, irrespective of their length of
service with us, but the benefits are required by law to be preserved until the retirement age of
65 for employees in Hong Kong while the benefit can be withdrawn by the employees in Macao at the
end of employment contracts.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The cost of our contribution to the staff retirement plans in Hong Kong, Macao and China
amounted to $982,000, $1,190,000 and $1,510,000, for the years ended December&nbsp;31, 2003, 2004 and
2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;1990, we fixed compensation for loss of office at $500,000 for Mr.&nbsp;M.K. Koo and
$300,000 for Mr.&nbsp;Tadao Murakami, formerly the Chairman of our Board of Directors. We also fixed the
age of retirement for directors, including Messrs.&nbsp;Koo and Murakami, at age 65&nbsp;years. We have
accrued the entire $800,000 on account of this compensation for loss of office, which was paid out
in 2005.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Board Practices</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All directors hold office until our next annual meeting of shareholders, which generally is in
June of each calendar year, or until their respective successors are duly elected and qualified or
their positions are earlier vacated by resignation or otherwise. All board committee members are
appointed by the Board and serve at the pleasure of the Board. There are no director service
contracts providing for benefits upon termination of employment. Our Board of Directors decided,
effective December&nbsp;31, 2002, to grant future options under our stock option plan only to our
non-employee directors. However, in July&nbsp;2004, our Board of Directors decided to resume granting
options to management and key staff members as incentive based on their performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Corporate Governance Guideline</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have adopted a set of corporate governance guidelines, which are available on our website
at http://www.namtai.com/ corpgov/corpgov.htm. The contents of this website address, other than the
corporate governance guidelines, the code of ethics and committee charters, are not a part of this
Form 20-F. Stockholders also may request a free copy of our corporate governance guidelines in
print form from:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pan Pacific I.R. Ltd.<BR>
Attention: Investor Relations Office<BR>
Suite&nbsp;1790 &#151; 999 W. Hastings Street<BR>
Vancouver, BC<BR>
Canada V6C 2W2<BR>
Toll Free Telephone: 1-800-661-8831

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Committee Charters</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The charters for our audit committee, compensation committee and nominating / corporate
governance committee are available on our website at http://www.namtai.com/corpgov/corpgov.htm. The
contents of this website address, other than the corporate governance guidelines, the code of
ethics and committee charters, are not a part of this Form 20-F. Stockholders may request a copy of
each of these charters from the address and phone number set forth above under &#147;&#151;Corporate
Governance Guideline&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Audit Committee</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nam Tai has established an audit committee whose primary duties consist of reviewing, acting
on and reporting to the Board of Directors with respect to various auditing and accounting matters,
including the selection of independent registered public accounting
</DIV>

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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">firm, the scope of the annual audits and the fees to be paid to the independent registered
public accounting firm and the performance of the independent registered public accounting firm and
accounting practices. The audit committee currently consists of three independent non-executive
directors, Messrs.&nbsp;Waslen, Chu and Lo. Mr.&nbsp;Waslen, who was elected by the full Board of Directors,
currently acts as the Chairman of the audit committee.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2003, the SEC approved the final NYSE corporate governance guidelines. Pursuant to
NYSE Section&nbsp;303A, three committees, namely the audit committee, nominating / corporate governance
committee and compensation committee, are to be set up by all domestic filers and should be
composed entirely of independent directors. For purposes of keeping with the best practice, Nam Tai
established the compensation committee and the nominating / corporate governance committee on July
30, 2004. The composition and primary duties of these committees are set forth as below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of NYSE Section&nbsp;303A.11, the Company has evaluated its corporate
governance standards in light of the corporate governance standards required of domestic companies
under NYSE standards. Based on this evaluation, the Company has determined that there are no
significant ways in which its corporate governance standards differ from those required of domestic
companies by the NYSE.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Compensation Committee</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Nam Tai has established a compensation committee whose primary duties consist of evaluating and
making recommendations to the Board of Directors of the Company regarding (i)&nbsp;compensation of the
Company&#146;s Board of Directors; (ii)&nbsp;compensation of the executive director and chief executive
officer with reference to achievement of corporate goals and objectives established in the previous
year; (iii)&nbsp;compensation of other senior management if required by the Board; and (iv)&nbsp;equity based
and incentive compensation programs of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The compensation committee currently consists of four independent non-executive directors,
Messrs.&nbsp;Chu, Lo, Waslen and Kellogg. Mr.&nbsp;Chu was appointed by the Board to be the Chairman of the
compensation committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Nominating / Corporate Governance Committee</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Nam Tai established a nominating / corporate governance committee on July&nbsp;30, 2004, whose primary
duties consist of (i)&nbsp;assisting the Board by actively identifying individuals qualified to become
Board members consistent with criteria approved by the Board; (ii)&nbsp;recommending to the Board the
director nominees for election at the next annual meeting of stockholders, the member nominees for
the audit committee, compensation committee and the nominating / corporate governance committee on
an annual basis; (iii)&nbsp;reviewing and recommending to the Board whether it is appropriate for such
director to continue to be a member of the Board in the event that there is a significant change in
the circumstance of any director that would be detrimental to the Company&#146;s business or his/her
ability to serve as a director or his/her independence; (iv)&nbsp;reviewing the composition of the Board
on an annual basis; (v)&nbsp;recommending to the Board a succession plan for the chief executive officer
and directors, if necessary; (vi)&nbsp;monitoring significant developments in the law and practice of
corporate governance and of the duties and responsibilities of directors of public companies; (vii)
establishing criteria to be used in connection with the annual self-evaluation of the
nominating / corporate governance committee; and (viii)&nbsp;developing and recommending to the Board and
administering the corporate governance guidelines of the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
nominating / corporate governance committee currently consists of four independent
non-executive directors, Messrs.&nbsp;Lo, Chu, Waslen and Kellogg. Dr.&nbsp;Lo was appointed by the Board to
be the Chairman of the nominating / corporate governance committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Options of Directors and Senior Management</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table provides information concerning the options owned by our current Directors
and Senior Management as of March&nbsp;1, 2006. All share numbers subject to options and exercise price
per share have been adjusted to give effect to a three-for-one stock split effective on June&nbsp;30,
2003 and a ten-for-one stock dividend effective on November&nbsp;7, 2003.
</DIV>


<P align="center" style="font-size: 10pt">55
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>common shares</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Exercise</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>subject to</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Price ($)</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Expiration</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>per share</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Date</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">M.K. Koo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patinda Lei</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patrick Lee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lai Yick Fung</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Karene Wong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Kazuhiro Asano</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guy Bindels</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Joseph Hsu</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Seitaro Furukawa</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ivan Chui</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Colin Yeoh</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Charles Chu</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7/8/2006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7/30/2006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6/6/2008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peter R. Kellogg</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6/6/2008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stephen Seung</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7/30/2006</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6/6/2008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wing Yan (William) Lo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.82</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7/8/2006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7/30/2006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6/6/2008</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mark Waslen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.40</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7/30/2006</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.62</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6/6/2008</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Please
see Item 7 &#147;Major Shareholders and Related Party
Transactions&#148; of this Report, which sets forth the shareholding information of each
of the director and senior management of the Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Employee Stock Option and Incentive Plan</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In July&nbsp;2004, our Board of Directors has decided to resume granting stock options under our
2001 stock option plan<B><I>, </I></B>which provides for the grant of stock options to directors, employees
(including officers), and consultants. Pursuant to the amended 2001 stock option plan, the terms
and conditions of individual grants may vary subject to the following: (i)&nbsp;the exercise price of
incentive stock options may not normally be less than market value on the date of grant; (ii)&nbsp;the
term of incentive stock options may not exceed ten years from the date of grant; (iii)&nbsp;the exercise
price of an option cannot be altered once granted unless such action is approved by shareholders in
a general meeting or results from adjustments pursuant to Section&nbsp;16 of the amended 2001 stock
option plan; and (iv)&nbsp;every non-employee director shall, on an annual basis upon their election to
the Board of Director at the annual shareholders&#146; meeting, be automatically granted 15,000 options,
with an exercise price equal to 100% of the fair market value of the common shares on the date of
grant. At March&nbsp;1, 2006, options to purchase 1,001,000 shares were outstanding under our amended
2001 stock option plan and 154,869 shares were available for future grant under them. The full text
of our amended 2001 stock option plan, amended on July&nbsp;30, 2004, was filed as Exhibit&nbsp;4.18 with our
Annual Report on Form 20-F for 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our Board of Directors decided, effective December&nbsp;31, 2002, to grant future options under our
stock option plans only to our non-employee directors. However, our Board of Directors decided to
resume granting options to management and key staff members as incentive based on their performance
in July&nbsp;2004. Thereafter, incentive compensation paid to management and other key employees was in
the form of either cash bonuses and/or stock options.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;10, 2006, a new stock option plan, or the New Plan, was approved by the Board with
a maximum number of 2,000,000 common shares which can be issued pursuant to the exercise of
options. Options can only be granted under this New Plan subject to the shareholders&#146; approval in
the 2006 annual shareholders&#146; meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Employees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we employed 6,818 persons on a full-time basis, of which 6,790 were
employed in China, 14 were employed in Hong Kong, 11 were employed in Macao, 2 were employed in
Japan and 1 was employed in the British Virgin Islands. Of these employees, approximately 5,003
were engaged in manufacturing, approximately 1,815 were engaged in administrative, research and
development, quality control, engineering and marketing positions, and the balance in supporting
jobs such as security, janitorial, food and medical services.
</DIV>


<P align="center" style="font-size: 10pt">56
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2004, we employed 5,636 persons on a full-time basis, of which 5,574 were
employed in China, 49 were employed in Hong Kong, 10 were employed in Macao, 2 were employed in
Japan and 1 was employed in the British Virgin Islands. Of these employees, approximately 4,131
were engaged in manufacturing, approximately 1,505 were engaged in administrative, research and
development, quality control, engineering and marketing positions, and the balance in supporting
jobs such as security, janitorial, food and medical services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2003, we employed 4,476 persons on a full-time basis, of which 4,385 were
employed in China, 62 were employed in Hong Kong, 24 were employed in Macao, 4 were employed in
Japan and 1 was employed in the British Virgin Islands. Of these employees, approximately 3,415
were engaged in manufacturing, approximately 1,061 were engaged in administrative, research and
development, quality control, engineering and marketing positions, and the balance in supporting
jobs such as security, janitorial, food and medical services.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have entered into labor contracts with each manufacturing employee which will be renewed on
an annual basis. The nature of our arrangement with our manufacturing employees is such that we can
increase or reduce staffing levels without significant difficulty, cost or penalty. Although we
have experienced no significant labor stoppages and believe relations with our employees are
satisfactory, this situation may not continue in the future, and any labor difficulties could lead
to increased costs and/or interruptions in our production.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Three of our subsidiaries in China have entered into collective agreements with their
respective trade unions. The collective agreements usually set out the minimum standard for the
wages, working hours and other benefits of the workers. The current collective agreements between
our subsidiaries and its trade union will expire on December&nbsp;31, 2006 and will be renewed on an
annual basis.
</DIV>
<DIV align="left">
<A name="109"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;7. </B><B><I>Major Shareholders and Related Party Transactions</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth certain information known to us regarding the beneficial
ownership of our common shares as of March&nbsp;1, 2006, by:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each person (or group within the meaning of Section&nbsp;13(d)(3) of the Securities
Exchange Act of 1934) known by us to own beneficially 5% or more of our common shares; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>each of our current directors and senior management.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not directly owned or controlled by another corporation or by any foreign government,
natural or legal person.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares beneficially</B><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP> <B>owned</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Name</B></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3"><B>Number</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(11)</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percent</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">M. K. Koo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5,690,786</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peter R. Kellogg</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5,694,680</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">I.A.T. Reinsurance Syndicate Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">5,108,300</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Li &#038; Chui Holdings (B.V.I.) Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Joseph Li</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2,158,870</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ivan Chui</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2,045,870</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patinda Lei</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Patrick Lee</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Lai Yick Fung</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Karene Wong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,100</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Kazuhiro Asano</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Guy Bindels</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Joseph Hsu</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Seitaro Furukawa</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Colin Yeoh</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Charles Chu</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">49,000</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Stephen Seung</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">92,800</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Wing Yan (William) Lo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">46,500</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(8)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Mark Waslen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">40,000</TD>
    <TD nowrap><SUP style="font-size: 85%; vertical-align: text-top">(9)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">*</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">57

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Less than 1%.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Pursuant to the rules of the Securities and Exchange Commission, shares of
common shares that an individual or group has a right to acquire within 60&nbsp;days pursuant to
the exercise of options are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in the table.
Percentage of ownership is based on 43,505,586 common shares outstanding as of March&nbsp;1, 2006.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Mr.&nbsp;Koo beneficially owned 5,690,786 common shares includes 1,000,000
common shares, which owned by Mr.&nbsp;Koo as sole holder and 4,690,786 common shares owned jointly
with Ms.&nbsp;Cho Siu Sin, Mr.&nbsp;Koo&#146;s wife.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Mr.&nbsp;Kellogg holds directly 571,380 common shares and options to purchase
15,000 common shares exercisable within 60&nbsp;days of March&nbsp;1, 2006. Indirectly, through I.A.T.
Reinsurance Syndicate Ltd., Mr.&nbsp;Kellogg holds 5,108,300 common shares. I.A.T. Reinsurance
Syndicate Ltd. is a Bermuda corporation of which Mr.&nbsp;Kellogg is the sole holder of voting
stock. Mr.&nbsp;Kellogg disclaims beneficial ownership of these shares.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Includes 2,000,000 common shares held of record by Li &#038; Chui Holdings (B.V.I.) Limited for
which Mr.&nbsp;Li shares investment and voting control equally with Mr.&nbsp;Chui. These are the same
shares shown in the table for Ivan Chui. Also, includes 78,870 common
shares and options to purchase 80,000 common
shares exercisable within 60&nbsp;days of March&nbsp;1, 2006, which
are held directly by Mr. Li.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(5)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Includes 2,000,000 common shares held of record by Li &#038; Chui Holdings (B.V.I.) Limited for
which Mr.&nbsp;Chui shares investment and voting control equally with Mr.&nbsp;Li. These are the same
shares shown in the table for Joseph Li. Also, includes 45,870 common shares held
directly by Mr. Chui</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(6)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Includes  2,500 common shares and options to purchase 46,500 common shares exercisable within 60
days of March&nbsp;1, 2006.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(7)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Includes 62,800 common shares and options to purchase 30,000 common shares exercisable within 60
days of March&nbsp;1, 2006, and 20,300 common shares that are registered to Violet Seung, Mr.
Seung&#146;s wife, as to which Mr.&nbsp;Seung disclaims beneficial ownership.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(8)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Consists of options to purchase common shares exercisable within 60&nbsp;days of
March&nbsp;1, 2006.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(9)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Includes 10,000 common shares and options to purchase 30,000 common shares exercisable within 60
days of March&nbsp;1, 2006.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(10)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>All the share numbers have been adjusted to give effect to a three-for-one
stock split effective on June&nbsp;30, 2003 and a ten-for-one stock dividend effective on November
7, 2003.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(11)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>These share numbers include options owned by these individuals and assume
that these options will be exercised.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All of the holders of our common shares have equal voting rights with respect to the
number of common shares held. As of March&nbsp;1, 2006, there were approximately 732 holders of record
of our common shares. According to information supplied by our transfer agent, 707 holders of
record with addresses in the United States held 34,182,902 of our outstanding common shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table reflects the percentage ownership of our common shares beneficially owned
by our major shareholders during the past three years:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Percentage Ownership</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 1,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>February 28,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>March 1,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2006</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">M. K. Koo</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Peter R. Kellogg</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">I.A.T. Reinsurance Syndicate Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11.7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Li &#038; Chui Holdings (B.V.I.) Ltd.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Joseph Li</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Ivan Chui</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4.7</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Based on 41,231,272, 42,664,536, and 43,505,586 common shares outstanding on
March&nbsp;1, 2004, February&nbsp;28, 2005 and March&nbsp;1, 2006 respectively.</TD>
</TR>
</TABLE>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">There are no arrangements that may, at a subsequent date, result in a change of control of the
Company.
</DIV>




<P align="center" style="font-size: 10pt">58
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Certain Relationships and Related Transactions</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In January&nbsp;2003, we invested $10.0&nbsp;million for a 25% equity interest in Alpha Star, the
ultimate parent of JCT. JCT is engaged in the design, development and marketing of wireless
communication terminals and wireless application software. In connection with our investment, Mr.
Koo was appointed as a director to Alpha Star&#146;s Board of Directors. Mr.&nbsp;Koo resigned from the Board
of Directors of Alpha Star on July&nbsp;12, 2004. We have manufactured wireless communication terminals
and related modules for JCT. As part of our investment, Alpha Star agreed to have us manufacture
the RF modules for at least 50&nbsp;percent of the orders it, or any of its subsidiaries, receives for
RF modules provided we perform such manufacturing services at a price comparable to the market. As
of December&nbsp;31, 2004, we were owed $66,000 from JCT. For the year ended December&nbsp;31, 2004 and 2005,
we recognized net sales of $34.2&nbsp;million and $6.2&nbsp;million, respectively, to JCT and purchased raw
materials of approximately $12.4&nbsp;million and $5.8&nbsp;million, respectively, from JCT and its related
companies. However, in August&nbsp;2005, we disposed of our entire stake in Alpha Star. The proceeds
from such disposition were $6.5&nbsp;million, resulting in a gain of $3.6&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On February&nbsp;16, 2004, by unanimous consent following resolutions without meeting, the Board of
Directors adopted a resolution for the sale of a residential property located in Hong Kong by a
wholly-owned subsidiary of the Company, Nam Tai Group Management Limited, or one of our wholly
owned subsidiaries, to Mr.&nbsp;Tadao Murakami, prior Chairman of the Board of Directors, for
consideration of approximately $1.8&nbsp;million, which is close to the original acquired cost and
appraised market value of the property as of January&nbsp;31, 2004. The agreement for the sale of the
property was entered into between such subsidiary and Mr.&nbsp;Murakami on March&nbsp;10, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On December&nbsp;10, 2004, by unanimous consent, the Board of Directors of one of our wholly owned
subsidiaries, adopted a resolution for assigning the beneficial interest in such subsidiary in 10
units of debentures of nominal value of approximately $1,603 each, issued by The Clearwater Bay
Golf &#038; Country Club to Mr.&nbsp;Koo at the consideration of approximately $231,000, which represented
the book value of the debentures in the financial statements of such subsidiary. An agreement was
entered between such subsidiary and Mr.&nbsp;Koo on December&nbsp;10, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2005, NTEEP purchased from Nam Tai and Asano Company 80% and 20% interests in Namtek
Software, respectively. The total consideration for the acquisition, which amounts to approximately
$26.7&nbsp;million, was satisfied by the issuance of 81,670,588 new shares of NTEEP to Nam Tai and Asano
Company (65,336,470 new shares to Nam Tai and 16,334,118 new shares to Asano Company) at
approximately $0.327, or HK$2.55, per share. Mr.&nbsp;Asano, a member of Nam Tai&#146;s senior management is
the controlling shareholder of Asano Company.
</DIV>
<DIV align="left">
<A name="110"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;8. </B><B><I>Financial Information</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Financial Statements</B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Consolidated Financial Statements have been appended to this Form 20-F (see pages F-1 to
F-38). From year-end dated December&nbsp;31, 2005 to our reporting
date of March&nbsp;9, 2006 there has been
no significant changes on our Consolidated Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Change in Public Accountants</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In May&nbsp;2002, upon consideration and to reduce our professional fees, our Board of Directors,
including our Audit Committee, recommended that HLB Hodgson Impey Cheng should replace Deloitte
Touche Tohmatsu as our independent registered public accounting firm. This change was included in our proxy
statement and approved by our shareholders at our annual meeting on June&nbsp;14, 2002. Deloitte Touche
Tohmatsu did not resign nor refuse to stand for re-election, and none of Deloitte Touche
Tohmatsu&#146;s reports on the financial statements for either of the two years prior to the change and
included in this Report contained an adverse opinion, disclaimer, modification or qualification.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In November&nbsp;2002, HLB advised us that they could not meet our audit requirements for the
agreed fees and on a cost-effective basis because the increasingly complex regulatory guidelines
for the auditing of public companies would require them to perform a
significant portion of the final audit work with personnel from a U.S. affiliate. HLB
submitted their resignation accordingly. There were no disagreements with HLB on any matter or
accounting principle, practice, financial statement disclosure, or auditing scope or procedure.
</DIV>

<P align="center" style="font-size: 10pt">59
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In December&nbsp;2002, in contemplation of our intention to list on the NYSE, we sought a
replacement firm with a strong U.S. and Asian presence and an ability to handle our audit
requirements. Accordingly, our Board of Directors appointed Grant Thornton as our independent
registered public accounting firm based on Grant Thornton&#146;s ranking among accounting firms in the U.S. and our
Board&#146;s belief that Grant Thornton would be acceptable to our shareholders. The appointment of
Grant Thornton was accepted by our shareholders at our annual meeting held on July&nbsp;8, 2003.
Accordingly, Grant Thornton issued the audited account for 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In August&nbsp;2003, we set up the PRC&#146;s headquarters in Macao, China, due to our continuous
increase in investment in PRC. Since Grant Thornton does not have an office in Macao and does not
have a licence to handle Macao statutory tax filings, Grant Thornton tendered its resignation as
our independent public accountants. Deloitte Touche Tohmatsu, who had
been our independent registered public accounting firm from 1998-2001, was hired to perform audit for both 2002 and 2003. Deloitte Touche
Tohmatsu has been appointed as our independent registered public
accounting firm on October&nbsp;24, 2003. Grant
Thornton will, however, continue to provide tax advisory services to us, other than with respect to
Macao.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Legal Proceedings</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We are not a party to any legal proceedings other than routine litigation incidental to our
business and there are no material legal proceedings pending with respect to our property, other
than as described below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Tele-Art Litigation</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In June&nbsp;1997, Nam Tai filed a petition in the British Virgin Islands for the winding up of
Tele-Art, Inc. on account of an unpaid judgment debt owed to Nam Tai by Tele-Art, Inc. The High
Court of Justice of the British Virgin Islands, or the High Court, granted an order to wind up
Tele-Art, Inc. in July&nbsp;1998. Tele-Art, Inc. appealed to the Court of Appeal of the British Virgin
Islands, or the Court of Appeal, against the winding up order. This appeal was heard on January&nbsp;13,
1999 by the Court of Appeal, which dismissed the appeal on January&nbsp;25, 1999. On January&nbsp;22, 1999,
pursuant to our Articles of Association, we redeemed and cancelled 415,500 (Note 1) shares of Nam
Tai registered in the name of Tele-Art, Inc. at a price of $3.73 per share to offset substantially
all of the judgment debt of $799,000 plus interest and legal costs totaling approximately $1.7
million. Nam Tai had also previously withheld dividends on shares beneficially owned by Tele-Art,
Inc., which were applied towards the partial satisfaction of the said judgment debts, costs and
interest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In September&nbsp;1999, the High Court heard the application by Nam Tai dated March&nbsp;22, 1994 for an
inquiry into damage suffered by Nam Tai, or the First Inquiry, as a result of the ex-part
injunction granted to Tele-Art, Inc. against Nam Tai on September&nbsp;29, 1993, which prohibited Nam
Tai from proceeding with a rights offering in September&nbsp;1993.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Following the completion of the first redemption on January&nbsp;22, 1999, Nam Tai received notice
that David Hague, then liquidator of Tele-Art, Inc., had obtained an ex-parte injunction from the
High Court preventing Nam Tai from redeeming 415,500 (Note 1) shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On July&nbsp;5, 2002, upon our application, the High Court ordered the removal of David Hague&#146;s
ex-parte injunction and ordered an inquiry into damages suffered by Nam Tai as a result of the
injunction, or the Second Inquiry.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;9, 2002, the High Court delivered its decision on the First Inquiry and awarded Nam
Tai damages of approximately $34.0&nbsp;million. On August&nbsp;12, 2002, we redeemed and cancelled, pursuant
to our Articles of Association, the remaining 509,181 (Note 2) shares beneficially owned by
Tele-Art, Inc. at a price of $6.14 per share. Including the dividends which we had withheld and
credited against the judgment, this offset a further approximately $3.5&nbsp;million in judgment debts
owed to us by Tele-Art, Inc. We recorded the $3.3&nbsp;million redemption net of expenses as other
income in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In accordance with the directions given by the High Court in respect of the Second Inquiry on
March&nbsp;28, 2003, Nam Tai filed its points of claim on April&nbsp;3, 2003 and subsequently filed amended
points of claim on April&nbsp;16, 2003. In breach of the said directions, David Hague failed to file his
points of defense on June&nbsp;20, 2003 as ordered by the court but instead, he filed an application in
the High Court, inter alia, to strike out Nam Tai&#146;s points of claim and for summary
judgment on the inquiry into damages on June&nbsp;20, 2003. Nam Tai thereupon applied to the High
Court on August&nbsp;19, 2003 for judgment against David Hague in default of defense on the basis that
David Hague had not complied with the directions of the court for the filing of his points of
defense to Nam Tai&#146;s points of claim.

</DIV>



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</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Both applications were heard by the High Court on May&nbsp;12, 2004. At that hearing, the court
allowed David Hague to file his points of defense at the hearing on May&nbsp;12, 2004. Nam Tai filed an
application for leave to appeal against this ruling on May&nbsp;24, 2004. The High Court dismissed
David Hague&#146;s strike-out application on December&nbsp;14, 2004 and David Hague applied for leave to
appeal against the order dismissing his application on December&nbsp;28, 2004. Nam Tai&#146;s appeal and
David Hague&#146;s appeal were heard by the Court of Appeal on September&nbsp;19 to 21, 2005 and that court
delivered its judgment on January&nbsp;16, 2006. In this judgment, the Court of Appeal reversed the High
Court&#146;s ruling on David Hague&#146;s application and struck out Nam Tai&#146;s points of claim on the inquiry
into damages on the ground that Nam Tai had no realistic chance of succeeding on the same. The
court also ordered costs against Nam Tai to be assessed on a prescribed costs basis. The court
further expressed the view that, in light of its dismissal of Nam Tai&#146;s points of claim, it was not
necessary to rule on Nam Tai&#146;s appeal against the dismissal of its application for judgment in
default since the point was now academic with the dismissal of Nam Tai&#146;s points of claim.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nam Tai filed an application for leave to appeal the decision of the Court of Appeal to the
Privy Council, the final court of appeal in the
British Virgin Islands on
February&nbsp;3, 2006. This application is expected to come on for hearing when the Court of Appeal next
sits in the British Virgin Islands in May&nbsp;2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Previously, on February&nbsp;4, 1999, David Hague, then liquidator of Tele-Art, Inc., filed a
summons, or the Priority Summons, in the British Virgin Islands on its behalf seeking, among other
matters:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A declaration as to the respective priorities of the debts of Tele-Art, Inc. to
the Bank of China, Nam Tai, and other creditors and their respective rights to have their
debts discharged out of the proceeds of the Tele-Art, Inc.&#146;s Nam Tai shares;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An order setting aside the redemption of 415,500 (Note 1) shares, and ordering
delivery of all shares in our possession or control of to the liquidator; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Payment of all dividends in respect of Tele-Art, Inc.&#146;s Nam Tai shares.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Priority Summons was heard by the High Court on July&nbsp;29 and 30, 2002 and the High Court
delivered its judgment on January&nbsp;21, 2003 declaring that the redemption and set-off of dividends
on the 415,500 (Note 1) shares be set aside and that all of Tele-Art, Inc.&#146;s property withheld by
Nam Tai be delivered to Tele-Art, Inc. in liquidation. On February&nbsp;4, 2003, Nam Tai filed an
application for a stay of execution and leave to appeal the decision. The appeal was heard on
January&nbsp;12, 2004 and judgment was delivered on April&nbsp;26, 2004. The Court of Appeal held that the
redemption by Nam Tai of 415,500 (Note 1) of Nam Tai&#146;s shares was proper and efficacious. However,
Nam Tai must return the redemption proceeds and dividends payable
prior to the redemption to the liquidator. David Hague obtained leave to appeal to the Privy
Council on September&nbsp;21, 2004 to appeal the finding by the Court of Appeal that the redemption by
Nam Tai was efficacious. It is not expected that this appeal will be
heard in 2006.

</DIV>








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<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bank of China, which had been involved in the proceedings in the High Court and Court of
Appeal with respect to the Priority Summons, applied on December&nbsp;12, 2005 for special leave to
intervene and to be joined as a respondent to the Privy Council appeal of David Hague, firstly so
as to be in a position to support David Hague&#146;s appeal and secondly, to appeal against that part of
the Court of Appeal order that declared that the redemption price for the sale of the Nam Tai
shares owned by Tele Art, Inc. and all withheld dividends to be paid
to the liquidator of Tele-Art,
Inc. and not the Bank of China despite finding that the Bank of China was a secured creditor. Bank
of China&#146;s application for special leave was heard by the Privy Council on February&nbsp;6, 2006 which
granted the Bank of China special leave to intervene on the ground that the matter raised important
points of law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In their judgments on the Priority Summons, both the High Court and the Court of Appeal held
that Bank of China was a secured creditor pursuant to its share charge dated November&nbsp;10, 1993 over
the shares of Nam Tai held beneficially by Tele-Art, Inc. Neither court determined the amount owned
by Tele-Art, Inc. to Bank of China.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bank of China has submitted that it is a secured creditor. In this respect, its position is
that as of December&nbsp;6, 2004, the secured debt, which was from advances made to Tele-Art, Inc.&#146;s
subsidiary, Tele-Art Limited, was HK$21,985,970.16 (approximately US$2.8&nbsp;million) with interest
accruing at HK$4,264.7 (or US$547) daily. The liquidator, however, took the view in his third
liquidator report which was submitted to the court on October&nbsp;13, 2004, that Bank of China&#146;s proof
of debt was incomplete. The liquidator has requested the court&#146;s approval to take further action
and demand that Bank of China provide further information for his consideration. According to the
said report, the amount of debt owed by Tele-Art Limited to Bank of China may not exceed $1.4
million. It should further be noted that, apart from Nam Tai, the liquidator admitted the proof of
debts of two other unsecured creditors which together amounted to approximately $33,000. David
Hague, the former liquidator, has submitted a claim for $381,860 in respect of costs for work as
liquidator of Tele-Art, Inc. These costs, however, are subject to the approval of the court and as
such are still pending, as they have not yet been approved. The liquidator filed a summons for the
approval of his third report on October&nbsp;13, 2004 and this was heard on December&nbsp;14, 2004. The
court, inter alia, ordered that the liquidator continue the administration of the liquidation of
Tele-Art, Inc. substantially in accordance with his proposals contained in said report as well as
the second report.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On August&nbsp;25, 2005, the liquidator filed his summons in the High Court for the approval of his
fourth liquidator report. The report sought the court&#146;s approval of his recommendation to the
amount of debt owed by Tele-Art Inc. to Nam Tai of approximately $38.0&nbsp;million, two other unsecured
creditors of approximately $221,127 and the fee to David Hague of approximately $381,860. The
report also sought the court&#146;s approval of Nam Tai&#146;s proposal on the distribution of the redemption
proceeds among the unsecured creditors and direction of the court on whether Bank of China is
eligible to claim any debts as against Tele-Art, Inc. and, if eligible, the quantum of such debt.
This liquidator&#146;s summons was due to be heard on February&nbsp;20, 2006 but had to be
adjourned to a date to be fixed by the Registrar of the High Court because the liquidator
failed to serve a copy of the summons on Bank of China.

</DIV>


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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On April&nbsp;11, 2005, Bank of China also filed a summons to the British Virgin Islands court to
seek orders to force Nam Tai to pay redemption price and dividends
ordered by the Court of Appeal on
the appeal of the Priority Summons to Bank of China. Nam Tai filed an affidavit of evidence in
response on July&nbsp;19, 2005. The hearing date of this summons has not yet been fixed and Nam Tai will
continue to contest the summons vigorously. We dispute that finding, and among other matters,
believe that the proof of debt submitted by Bank of China to the liquidator was incomplete and
invalid.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2002, due to the uncertainty of the final outcome of the litigation as a
result of the January&nbsp;21, 2003 judgment, and in accordance with SFAS No.&nbsp;5, <I>&#147;Accounting for
Contingencies&#148;, </I>we recorded a provision for $5.2&nbsp;million as a component of accrued expenses,
pending a final determination of this matter by the courts, representing the then-best estimate of
the net monetary expense we would incur if our appeal to the judgment in relation to the Priority
Summons on January&nbsp;21, 2003 was unsuccessful and the two judgment debts in the total amount of
$38.0&nbsp;million (including interest, costs, and related expenses) was determined as having the lowest
priorities in recovering from the estate of Tele-Art, Inc. According to the information provided by
the liquidator on November&nbsp;7, 2003, apart from Nam Tai, a total of three other creditors of
Tele-Art, Inc., including Bank of China, had submitted their proof of debt to the liquidator. These
claims, together with the claim by David Hague, the former liquidator
of Tele-Art, Inc. and other estimated outstanding fees and expenses
amounted to approximately $3.9&nbsp;million. As a result, the 2002
provision for $5.2&nbsp;million was reduced to $3.9&nbsp;million in the fourth quarter of 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;With the two judgment debts as well as the several costs orders in favor of Nam Tai, Nam Tai
is the major unsecured creditor of Tele-Art, Inc., holding approximately 99.9% of the outstanding
debts of Tele-Art, Inc. Pursuant to the judgment of April&nbsp;26 2004, we negotiated with the
liquidator on the distribution of the redemption proceeds among the unsecured creditors and have
reached a proposal for court approval. If the said proposal is approved by the court, as well as
all the legal matters related to Tele-Art, Inc. finalized, including the final determination of the
creditor&#146;s position of Bank of China, then the remaining portion of $3.9&nbsp;million provision will
also be reversed into income for the related period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;However, the actual amount of the recovery, if any, is uncertain, and is dependent on a number
of factors including the final determination of Bank of China&#146;s position. We plan to continue to
pursue vigorously all legal alternatives available to seek to recover the maximum amount of the
outstanding debt from Tele-Art, Inc. as well as to pursue other parties that may have assisted in
any transfers of the assets from Tele-Art, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In furtherance of this objective, Nam Tai commenced proceedings in September&nbsp;2002 against
David Hague and PriceWaterhouseCoopers for, inter alia, negligence and breach of statutory duty in
their conduct of the liquidation. David Hague had submitted a letter of resignation for the post of
liquidator of Tele-Art, Inc. on September&nbsp;3, 2002, to the High Court and his resignation was
approved by the High Court on December&nbsp;17, 2002. A new liquidator, Mr.&nbsp;Glenn Harrigan, was then
appointed by the British Virgin Islands, court on July&nbsp;11, 2003.
</DIV>



<P align="center" style="font-size: 10pt">63
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;David Hague and PriceWaterhouseCooper applied to the High Court on December&nbsp;24, 2002,
challenging the service of these proceedings on them in Hong Kong and British Virgin Islands
court&#146;s jurisdiction to determine the claim applied by Nam Tai. The application was heard by the
High Court on May&nbsp;11 and 12, 2004 and dismissed in its judgment on October&nbsp;29, 2004. David Hague
and PriceWaterhouseCoopers obtained leave to appeal this judgment in March&nbsp;2005 and the appeal was
heard by the Court of Appeal on September&nbsp;19 to 21, 2005. The Court of Appeal delivered its
judgment dismissing the appeal and awarding costs to Nam Tai. David Hague and
PriceWaterhouseCoopers made an application on February&nbsp;6, 2006 for leave to appeal this judgment to
the Privy Council. Nam Tai has cross-applied for leave on February&nbsp;3, 2006 to appeal to the Privy
Council against the costs awarded to Nam Tai in the Court of Appeal on the basis that such costs
were determined by the application of incorrect legal principles and were in any event too low and
inconsistent with cost orders made against Nam Tai in other appeal proceedings involving David
Hague. It is expected that both the applications of Nam Tai and David Hague and
PricewaterhouseCoopers will come on for hearing in May&nbsp;2006 when the Court of Appeal next sits in
the British Virgin Islands.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nam Tai has also instituted proceedings in the British Virgin Islands against UBS Painewebber,
or UBS, on June&nbsp;20, 2005, for breach of trust with respect to UBS&#146;s role as brokers in carrying out
the terms of the September&nbsp;1997 British Virgin Islands court order for the sale of Tele Art Inc.&#146;s
Nam Tai shares in sufficient quantities to pay the debts of the Bank of China and Nam Tai. UBS has
filed an application challenging the jurisdiction of the court, which has not yet been formally
served on Nam Tai. The High Court has adjourned the hearing of this application to May&nbsp;22, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Note</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">1.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Subsequent to November&nbsp;7, 2003, the number of shares was adjusted to 457,050 to reflect the
ten-for-one stock dividend.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">2.</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Subsequent to November&nbsp;7, 2003, the number of shares was adjusted to 560,099 to reflect the
ten-for-one stock dividend.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B><I>Putative Class&nbsp;Actions</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;11, 2003, we were served with a complaint in an action captioned Michael Rocco v. Nam
Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain
directors are named as defendants. On or about April&nbsp;9, 2003, a second complaint was filed in an action captioned A.J. &#038; Celine Steigler v. Nam Tai, et al.,
03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco Action, the Actions.
The Actions have been consolidated since July&nbsp;2003 and purport to represent a putative class of
persons who purchased the common stock of Nam Tai from July&nbsp;29, 2002 through February&nbsp;18, 2003.
Plaintiffs in the Actions assert claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and allege that misrepresentations and/or omissions were made during the alleged class
period concerning the partial reversal of an inventory provision and a charge to goodwill related
to Nam Tai&#146;s LPT segment. Our motion to dismiss the Actions was denied on September&nbsp;27, 2004. On
May&nbsp;27, 2005, the plaintiffs moved to certify the Actions as a class action with an individual,
Douglas Ward, as the named class representative. We filed our opposition to the motion on June&nbsp;20,
2005. The court heard oral argument on the motion on July&nbsp;26, 2005, and has not yet ruled on the
motions. On October&nbsp;7, 2005, the plaintiffs filed a Second Amended Consolidated Class&nbsp;Action
Complaint which contained substantive allegations that did not vary from the previously filed
Actions and added an additional individual, Michael Rocco, as a named class representative. After
class representative discovery on February&nbsp;10, 2006, plaintiffs filed their motion for class
certification with Michael Rocco as an added class representative. Nam Tai filed its opposition
papers on March&nbsp;3, 2006. The motion is scheduled for oral argument on April&nbsp;17, 2006. Nam Tai
believes it has meritorious defenses and intends to defend the case vigorously.

</DIV>



<P align="center" style="font-size: 10pt">64
</DIV>
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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Export Sales</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>Geographic Markets</I></B>

</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Approximate percentages of net sales to customers by geographic area based upon location of
product delivery are set forth below for the periods indicated:.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="10" style="border-bottom: 0px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Geographic Areas</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">China (excluding Hong Kong)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">25</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">25</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">19</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Europe (excluding Estonia)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hong Kong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Estonia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">North America (excluding United States)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Korea</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Dividends</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have paid an annual dividend for the last twelve consecutive years. On February&nbsp;13, 2006,
we announced that we were increasing our regular annual dividend to $1.44 per share and declared a
special dividend of $0.08 per share to be paid in 2006. A total cash dividend of $1.52 per share was declared
and will be paid quarterly in 2006, commencing in the first quarter of $0.38 per share. The
following table sets forth the total cash dividends and dividends per share we have declared for
each of the five years in the period ended December&nbsp;31, 2005, adjusted to give effect to a
three-for-one stock split effective on June&nbsp;30, 2003.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="19" style="border-bottom: 0px solid #000000"><B>Year ended December 31,</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2001</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2002</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total dividends declared (in thousands)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,134</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,424</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">56,324</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Regular dividends per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.32</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Special dividends</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.33</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total dividends per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.32</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;It is our general policy to determine the actual annual amount of future dividends, if any,
based upon our growth during the preceding year. Future dividends, if any, will be in the form of
cash or stock or a combination of both. We may not be able to pay dividends in the future or may
decide not to declare them in any event. We will determine the amounts of the dividends when they
are declared and even if dividends are declared in the future we may not continue them in any
future period.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We declared special dividends in 2002, 2003 and 2006 for the reasons described below:
</DIV>

<P align="center" style="font-size: 10pt">65</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2002, primarily as a result of a realized gain we made from our sale of
approximately one-third of our direct investment in Huizhou TCL Mobile Communication Company
Ltd.; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2003, in celebration of our fifteenth anniversary since our listing and
initial public offering in 1988, our fifteenth consecutive year of profitability, and the
transfer of our shares from the NASDAQ National Market to the NYSE in January&nbsp;2003.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2006, in celebration of Company&#146;s thirtieth founding anniversary and its
fifth consecutive quarter of record-breaking sales.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="left">
<A name="111"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;9. </B><B><I>The Listing</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common shares are traded in the United States on the NYSE. On January&nbsp;23, 2003, our common
shares were listed on the NYSE under the symbol &#147;NTE&#148;. Prior to that, our common shares were quoted
on the Nasdaq National Market under the symbol &#147;NTAI&#148;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the high and low closing sales prices for our common shares for
the quarters in the three-year period ended December&nbsp;31, 2005, adjusted to give effect to a
three-for-one stock split effective on June&nbsp;30, 2003:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 0px solid #000000"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 0px solid #000000"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 0px solid #000000"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Average</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Daily</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Daily</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Daily</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Trading</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Trading</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Trading</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Volume</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Volume(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Volume</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">First Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">11.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7.92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">363,270</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">34.24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22.30</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">927,119</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">28.36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">376,920</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Second Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14.13</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">288,459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28.00</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.99</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">509,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">27.80</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19.70</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">302,367</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Third Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32.90</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.87</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">734,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.51</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16.10</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">412,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.65</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">219,858</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Fourth Quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,393,722</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">283,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25.88</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">238,459</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Determined by dividing the sum of the reported daily volume for the quarter by the
number of trading days in the quarter.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the high and low closing sale prices for each of the last five
years ended December&nbsp;31, adjusted to give effect to a three-for-one stock split effective on June
30, 2003:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Daily</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Trading</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Volume</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">December&nbsp;31, 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">28.36</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">$</TD>
    <TD align="right" valign="top">17.25</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">283,482</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">December&nbsp;31, 2004
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">34.24</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">13.99</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">532,568</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">December&nbsp;31, 2003
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">42.48</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.94</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">597,858</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">December&nbsp;31, 2002
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">9.07</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">5.15</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">164,011</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">December&nbsp;31, 2001
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">6.38</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">3.77</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">81,656</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Determined by dividing the sum of the reported daily volume for the year by the
number of trading days in the year.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table sets forth the high and low closing sale prices during each of the most
recent six months:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Daily</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Trading</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Month ended</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>High</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Low</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Volume</B><SUP style="font-size: 85%; vertical-align: text-top"><B>(1)</B></SUP></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">February&nbsp;28, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24.48</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">312,663</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">January&nbsp;31, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24.25</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.23</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">189,575</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22.94</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.86</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">152,357</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">November&nbsp;30, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23.08</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21.27</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">299,829</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">October&nbsp;31, 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">25.88</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">21.30</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">263,190</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">September&nbsp;30, 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">25.84</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">22.87</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">204,314</TD>
    <TD nowrap valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Determined by dividing the sum of the reported daily volume for the month by the
number of trading days in the month.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;On March&nbsp;10, 2006, the last reported sale price of our common shares on the NYSE was $21.35 per
share. As of March&nbsp;1, 2006 there were 732 holders of record of our common shares.
</DIV>

<!-- End Table Body -->


<P align="center" style="font-size: 10pt">66
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left">
<A name="112"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;10. </B><B><I>Additional Information</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Share Capital</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our authorized capital consists of 200,000,000 common shares, $0.01 par value per share. On
June&nbsp;20, 2003, we announced a three-for-one stock split effective on June&nbsp;30, 2003 and a
ten-for-one stock dividend effective November&nbsp;7, 2003. As of March&nbsp;1, 2006, 43,505,586 common
shares were outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Memorandum and Articles of Association</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Holders of our common shares are entitled to one vote for each whole share on all matters to
be voted upon by shareholders, including the election of directors. Holders of our common shares do
not have cumulative voting rights in the election of directors. All of our common shares are equal
to each other with respect to liquidation and dividend rights. Holders of our common shares are
entitled to receive dividends if and when declared by our Board of Directors out of funds legally
available under British Virgin Islands law. In the event of our liquidation, all assets available
for distribution to the holders of our common shares are distributable among them according to
their respective holdings. Holders of our common shares have no preemptive rights to purchase any
additional, unissued common shares. All of our outstanding common shares are duly authorized,
validly issued and nonassessable. All of our outstanding common shares are in registered form and
we do not have any outstanding bearer shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to our Memorandum and Articles of Association and pursuant to the laws of the British
Virgin Islands, our Board of Directors without shareholder approval may amend our Memorandum and
Articles of Association. This includes amendments to increase or reduce our authorized capital
stock. Our ability to amend our Memorandum and Articles of Association without shareholder approval
could have the effect of delaying, deterring or preventing a change in control of Nam Tai,
including a tender offer to purchase our common shares at a premium over the then-current market
price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We have never had any class of stock outstanding other than our common shares nor have we ever
changed the voting rights with respect to our common shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our registered office is at P.O. Box 3342, Road Town, Tortola, British Virgin Islands and we
have been assigned company number 3805. Our object or purpose is to engage in any act or activity
that is not prohibited under British Virgin Islands law as set forth in Clause 4 of our Memorandum
of Association. As an International Business Company, and as set forth in Clause 6, we are
prohibited from doing business with persons resident in the British Virgin Islands, owning real
estate in the British Virgin Islands, or accepting banking deposits or contracts of insurance. We
do not believe these restrictions materially affect our operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Paragraph&nbsp;60 of our Amended Articles of Association, or Articles, provides that a director may
be counted as one of a quorum in respect of any contract or arrangement in which the director is
materially interested or makes with the Company; however, if the agreement or transaction cannot be
approved by a resolution of directors without counting the vote or consent of any interested
director, the agreement or transaction may only be validated by approval or ratification by a
resolution of the shareholders, who are referred under the law of the British Virgin Islands as
&#147;members.&#148; Paragraph&nbsp;53 of the Articles allows the directors to vote compensation to themselves in
respect of services rendered to us. Paragraph&nbsp;69 of the Articles provides that the directors may by
resolution exercise all the powers on our behalf to borrow money and to mortgage or charge our
undertakings and property or any part thereof, to issue debentures, debenture stock and other
securities whenever we borrow money or as security for any of our debts, liabilities or obligations
or those of any third party. These borrowing powers can be altered by an amendment to the Articles.
There is no provision in the Articles for the mandatory retirement of directors; however, we have
fixed 65 as the mandatory age of retirement for our directors. Directors are not required to own
our shares in order to serve as directors.
</DIV>

<P align="center" style="font-size: 10pt">67
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Paragraph&nbsp;85 of the Articles allows us to deduct from any shareholder&#146;s dividends amounts
owing to us by that shareholder. Paragraph&nbsp;13.1 provides that we can redeem shares at fair market
value from any shareholder against whom we have a judgment debt.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Paragraph&nbsp;12 of the Articles provides that without prejudice to any special rights previously
conferred on the holders of any existing shares, any of our shares may be issued with such
preferred, deferred or other special rights or such restrictions, whether in regard to dividends,
voting, return of capital or otherwise as the directors may from time to time determine.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Paragraph&nbsp;14 of the Articles provides that if at any time the authorized share capital is
divided into different classes or series of shares, the rights attached to any class or series may
be varied with the consent in writing of the holders of not less than three-fourths of the issued
shares of any other class or series of shares which may be affected by such variation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provisions in respect of the holding of general meetings and extraordinary general meetings
are set out in Paragraphs 27 to 46 of the Articles and under the International Business Companies
Act. The directors may convene meetings of our shareholders at such times and in such manner and
places as the directors consider necessary or desirable, and they shall convene such a meeting upon
the written request of shareholders holding more than 30&nbsp;percent of the votes of our outstanding
voting shares. Other than providing, if requested, reasonable proof of a holder&#146;s status as a
holder of our shares as of the applicable record date, there is no condition to the admission of a
shareholder or his or her proxy holder to our meetings of shareholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;British Virgin Islands law and our Memorandum and Articles of Association impose no
limitations on the right of nonresident or foreign owners to hold or vote our securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no provisions in our Memorandum of Association or Articles of Association governing
the ownership threshold above which shareholder ownership must be disclosed.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As a result of the issuance of additional common shares in 2003 pursuant to the three-for-one
stock split and increase in the number of Common Shares reserved for issuance under the Company&#146;s
1993 Stock Option Plan and 2001 Stock Option Plan, the authorized share capital of the Company was
enlarged from $200,000 to $2,000,000 and number of shares was increased from 20,000,000 to
200,000,000. The full text of our Amended Articles and Memorandum, amended on June&nbsp;26, 2003, had
been filed as Exhibit&nbsp;1.1 with the Annual Report on Form 20-F for 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Transfer Agent</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Registrar and Transfer Agent Company, 10 Commerce Drive, Cranford, New Jersey 07016-3572,
U.S.A., is the United States transfer agent and registrar for our common shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Material Contracts</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following summarizes each material contract, other than contracts entered into in the
ordinary course of business, to which Nam Tai or any subsidiary of Nam Tai is a party, for the two
years immediately preceding the filing of this report:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On February&nbsp;3, 2005, a Loan Agreement was entered into
between Zastron Electronic (Shenzhen) Co. Ltd. and Zastron
Precision Tech-Limited for a loan of $36,000,000 granted from
Zastron Precision-Tech Limited to Zastron Electronic
(Shenzhen) Co. Ltd.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;8, 2005, an Agreement was entered into between
Nam Tai Electronics, Inc., Asano Company Limited and Nam Tai
Electronic &#038; Electrical Products Limited in relation to the
sale and purchase of the entire issued share capital of Namtek
Software Technology Limited regarding an allotment and
issuance of 65,336,470 and 16,334,118 of shares of Nam Tai
Electronic &#038; Electrical Products Limited to Nam Tai
Electronics, Inc. and Asano Company Limited respectively at an
issue price of HKD2.55 per share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;14, 2005, a Supplemental Loan Agreement between
Zastron Electronic (Shenzhen) Co. Ltd. and Zastron Precision
&#150;Tech Limited for extending the repayment term for a loan of
$18,660,000 granted from Zastron Precision-Tech Limited to
Zastron Electronic (Shenzhen) Co. Ltd. in accordance with the
an loan agreement dated March&nbsp;30, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On May&nbsp;12, 2005, a Supplement Letter was issued from
Kazuhiro Asano to Nam Tai Electronic &#038; Electrical Products
Limited to undertake certain conditions set out in the
attached Undertaking in relation to the sale and purchase of
the entire issued share</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">68
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">capital of Namtek Software Development Company Limited
from Nam Tai Electronics, Inc. and Asano Company Limited to
Nam Tai Electronic &#038; Electrical Products Limited.
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On September&nbsp;9, 2005, a Banking Facilities Letter from
The Hongkong and Shanghai Banking Corporation Limited was
accepted and confirmed by Nam Tai Electronics, Inc. for
granting of overdraft of HK$500,000, treasury facilities of
$30,000,000 and commercial card facility of HK$1,100,000.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On September&nbsp;9, 2005, a Banking Facilities Letter from
The Hongkong and Shanghai Banking Corporation Limited was
accepted and confirmed by Nam Tai Electronic &#038; Electrical
Products Limited for renewal of corporate card facility of
HK$700,000, the revolving loan of $30,000,000 and foreign
exchange line of $2,000,000.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;26, 2004, a Memorandum of Understanding was
signed by Namtai Electronic (Shenzhen) Co., Ltd. and Nam Tai
Electronic &#038; Electrical Products Limited (Hong Kong) to
confirm the respective rights and liabilities of Nam Tai
Electronic &#038; Electrical Products Limited (Hong Kong) and
Namtai Electronic (Shenzhen) Co., Ltd. under an internal
restructuring.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;31, 2004, a Sale and Purchase Agreement was
entered into between Nam Tai Electronics, Inc. and Mr.&nbsp;Wong
Toe Yeung regarding purchasing the entire issued share capital
of Jasper Ace Limited from Mr.&nbsp;Wong Toe Yeung with the
consideration of disposal of a 72.2% interest in Mate Fair
Group Limited, cash of $25&nbsp;million and 2,389,974 shares issued
by Nam Tai Electronics, Inc.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;8, 2004, a Trademark License Agreement was
entered into between Nam Tai Electronics, Inc. and Nam Tai
Electronic &#038; Electrical Products Limited for the use of
certain &#147;Namtai&#148; trademarks.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;15, 2004, a Deed of Indemnity was entered into
between Nam Tai Electronics, Inc., and Nam Tai Electronic &#038;
Electrical Products Limited in favour of Nam Tai Electronic &#038;
Electrical Products Limited regarding the Global Offering of
200,000,000 shares of HK$0.01 each of Nam Tai Electronic &#038;
Electrical Products Limited.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;15, 2004, an Underwriting Agreement was entered
into among Nam Tai Electronics, Inc. as the selling
shareholder and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura
International (Hong Kong) Limited, Cazenove Asia Limited, DBS
Asia Capital Limited and VC CEF Capital Limited as public
offer underwriters regarding the public offering of 20,000,000
shares of HK$0.01 each of Nam Tai Electronic &#038; Electrical
Products Limited.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;21, 2004, a Supplemental Agreement was entered
into between Nam Tai Electronics, Inc., and Mr.&nbsp;Wong Toe Yeung
regarding to adjust the consideration for purchasing entire
issued share capital of Jasper Ace Limited by canceling
973,210 common shares of Nam Tai Electronics, Inc., issued to
Top Scale Company Limited on April&nbsp;21, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;22, 2004, an Underwriting Agreement was entered
into among Nam Tai Electronics, Inc. as the selling
shareholder and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura
International (Hong Kong) Limited, Cazenove Asia Limited, DBS
Asia Capital Limited and VC CEF Capital Limited as
international placing underwriters regarding the international
placing of 180,000,000 shares of HK$0.01 each of Nam Tai
Electronic &#038; Electrical Products Limited.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;22, 2004, a Pricing Determination Agreement was
entered into among Nam Tai Electronics, Inc., Nam Tai
Electronic &#038; Electrical Products Limited and the Hongkong and
Shanghai Banking Corporation Limited for determining the
offering price of the shares of Nam Tai Electronic &#038;
Electrical Products Limited to be HK$3.88 per share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;22, 2004, a Stock Borrowing Agreement was
entered into between Nam Tai Electronics, Inc. and the
Hongkong and Shanghai Banking Corporation Limited regarding
the Global Offering of 200,000,000 shares of HK$0.01 each of
Nam Tai Electronic &#038; Electrical Products Limited.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;4, 2004, an Accession Agreement was entered
into between Welcome Success Technology Ltd. and Mr.&nbsp;Alain
Jolivet in relation to the transfer of entire interest in
Stepmind to Remote Reward SAS and became a party to the
Shareholders Agreement entered into among Nam Tai Electronics,
Inc., AGF Innovation 3, AGF Innovation 4, AGF Innovation 5,
Mighty Wealth Group Limited, Remote Reward SAS, Mr.&nbsp;Alain
Jolivet and Mr.&nbsp;Andre Jolivet executed on November&nbsp;28, 2003,
December&nbsp;9, 2003 and December&nbsp;10, 2003.
</TD>
</TR>
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">69
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;18, 2004, an Escrow Agreement was entered into
among Nam Tai Electronics, Inc., Welcome Success Technology
Ltd., Remote Reward SAS, Johnson Stokes &#038; Master, Mr.&nbsp;Andre
Jolivet and Mr.&nbsp;Alain Jolivet in relation to the disposal of
1,457,720 shares in Stepmind to Remote Reward SAS with a
consideration of Euros 4,253,301.98.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;19, 2004, a Subscription Agreement was entered
into among TCL Industries Holdings (HK)&nbsp;Limited, TCL
International Holdings Limited, Cheerful Asset Investments
Limited, Jasper Ace Limited, Mate Fair Group Limited, and TCL
Communication Technology Holdings Limited for subscribing
254,474,910 shares in TCL Communication Technology Holdings
Limited in a consideration of RMB131,283,020.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On September&nbsp;20, 2004, a Deed of Assignment of Trademarks
was entered into between Nam Tai Electronics, Inc. and Namtai
Electronic (Shenzhen) Co., Ltd. for assigning &#147;Namtai &#038;
device&#148; trademarks to Nam Tai Electronics, Inc.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Banking Facilities Letter from the Hongkong and Shanghai
Banking Corporation Limited to Nam Tai Group Management
Limited on September&nbsp;24, 2004 regarding the renewal of
Overdraft Facility of HK$500,000, Treasury Facilities of
US$30,000,000 and Corporate Card of HK$1,100,000.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;15, 2004, a Share Transfer Agreement was
entered into between J.I.C. Enterprises (Hong Kong) Limited
and J.I.C. Technology Company Limited for the disposal of the
entire issued share capital of Jetup Electronic (Shenzhen)
Co., Ltd. to J.I.C. Technology Company Limited for a
consideration of HK$105,878,396.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Exchange Controls</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There are no exchange control restrictions on payments of dividends, interest, or other
payments to nonresident holders of Nam Tai&#146;s securities or on the conduct of our operations in Hong
Kong and Macao or where our principal executive offices are located in the British Virgin Islands,
where Nam Tai is incorporated. Other jurisdictions in which we conduct operations may have various
exchange controls. With respect to our subsidiaries in China, with the exception of a requirement
that 11% of profits be reserved for future developments and staff welfare, there are no
restrictions on the payment of dividends and the removal of dividends from China once all taxes are
paid and assessed and losses, if any, from previous years have been made good. We believe such
restrictions will not have a material effect on our liquidity or cash flow.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Taxation</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B><I>United States Federal Income Tax Consequences</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The discussion below is for general information only and is not, and should not be interpreted
to be, tax advice to any holder of our common shares. Each holder or a prospective holder of our
common shares is urged to consult his, her or its own tax advisor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>General</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This section is a general summary of the material United States federal income tax
consequences to U.S. Holders, as defined below, of the ownership and disposition of our common
shares as of the date of this report. This summary is based on the provisions of the Internal
Revenue Code of 1986, as amended, or the Code, the applicable Treasury regulations promulgated and
proposed thereunder, judicial decisions and current administrative rulings and practice, all of
which are subject to change, possibly on a retroactive basis. The summary applies to you only if
you hold our common shares as a capital asset within the meaning of Section&nbsp;1221 of the Code. The
United States Internal Revenue Service, or the IRS, may challenge the tax consequences described
below, and we have not requested, nor will we request, a ruling from the IRS or an opinion of
counsel with respect to the United States federal income tax consequences of acquiring, holding or
disposing of our common shares. This summary does not purport to be a comprehensive description of
all the tax considerations that may be relevant to the ownership of our common shares. In
particular, the discussion below does not cover tax consequences that depend upon your particular
tax circumstances nor does it cover any state, local or foreign law, or the possible application of
United States federal estate or gift tax. You are urged to consult your own tax advisors regarding
the application of the United States federal income tax laws to your particular situation as well
as any state, local, foreign and United States federal estate and gift tax consequences of the
ownership and disposition of the common shares. In addition, this summary does not take into
account any special United States federal income tax rules that apply to a particular holder of our
common shares, including, without limitation, the following:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a dealer in securities or currencies;</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">70

</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a trader in securities that elects to use a market-to-market method of accounting for its securities holdings;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a financial institution or a bank;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an insurance company;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a tax-exempt organization;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a person that holds our common shares in a hedging transaction or as part of a straddle or a conversion transaction;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a person whose functional currency for United States federal income tax purposes is not the U.S. dollar;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a person liable for alternative minimum tax;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a person that owns, or is treated as owning, 10% or more, by voting power or value, of our common shares; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a person who receives our shares pursuant to the exercise of employee stock options or otherwise as compensation.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For purposes of the discussion below, you are a &#147;U.S. Holder&#148; if you are a beneficial owner of
our common shares who or which is:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an individual United States citizen or resident alien of the United States (as specifically defined for United
States federal income tax purposes);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a corporation, or other entity treated as a corporation for United States federal income tax purposes, created
or organized in or under the laws of the United States, any State or the District of Columbia;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>an estate whose income is subject to United States federal income tax regardless of its source; or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>a trust (x)&nbsp;if a United States court can exercise primary supervision over the trust&#146;s administration and one
or more United States persons are authorized to control all substantial decisions of the trust or (y)&nbsp;if it was in
existence on August&nbsp;20, 1996, was treated as a United States person prior to that date and has a valid election in
effect under applicable Treasury regulations to be treated as a United States person.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt">Distributions on Our Common Shares
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the passive foreign investment company, or PFIC, considerations discussed below,
the gross amount of any cash distribution or the fair market value of any property distributed that
you receive with respect to our common shares generally will be subject to tax as ordinary dividend
income to the extent such distribution does not exceed our current or accumulated earnings and
profits, or E&#038;P, as calculated for United States federal income tax purposes. Such income will be
includable in your gross income on the date of receipt. Subject to certain limitations, dividends
paid to noncorporate U.S. Holders, including individuals, may be eligible for a reduced rate of
taxation if we are a &#147;qualified foreign corporation&#148; for U.S. federal income tax purposes. A
qualified foreign corporation includes (i)&nbsp;a foreign corporation that is eligible for the benefits
of a comprehensive income tax treaty with the United States that includes an exchange of
information program, and (ii)&nbsp;a foreign corporation if its stock with respect to which a dividend
is paid is readily tradable on an established securities market within the United States, but does
not include an otherwise qualified corporation that is a PFIC. We believe that we will be a
qualified foreign corporation for so long as we are not a PFIC and our common shares are considered
to be readily tradable on an established securities market within the United States. No assurances
can be made that our Company&#146;s status as a qualified foreign corporation will not change. To the
extent any distribution exceeds our E&#038;P, such distribution will first be treated as a tax-free
return of capital to the extent of your adjusted tax basis in our common shares and will be applied
against and reduce such basis on a dollar-for-dollar basis (thereby increasing the amount of gain
and decreasing the amount of loss recognized on a subsequent disposition of such shares). To the
extent that such distribution exceeds your adjusted tax basis in our common shares, the
distribution will be treated as capital gain. Because we are not a United States corporation, no
dividends-received deduction will be allowed to corporations with respect to dividends paid by us.
</DIV>

<P align="center" style="font-size: 10pt">71

</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;For United States foreign tax credit limitation purposes, dividends received on our common
shares will be treated as foreign source income and for taxable years beginning on or before
December&nbsp;31, 2006 generally will be &#147;passive income&#148;, or in the case of certain holders, &#147;financial
services income&#148;. For taxable years beginning after December&nbsp;31, 2006, dividends generally will be
&#147;passive category income&#148;, or in the case of certain holders, &#147;general category income.&#148; You may be
eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of
foreign withholding taxes, if any, imposed on dividends received on our common shares. The rules
governing United States foreign tax credits are complex, and we recommend that you consult your tax
advisor regarding the applicability of such rules to you.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Sale, Exchange or Other Disposition of Our Common Shares</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subject to the PFIC considerations discussed below, generally, in connection with the sale,
exchange or other taxable disposition of our common shares:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>you will recognize capital gain or loss equal to the difference (if any) between:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#151;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>the amount realized on such sale, exchange or other taxable disposition and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#151;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>your adjusted tax basis in such common shares (your adjusted tax basis in the shares
you hold generally will equal your U.S. dollar cost of such shares);</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such gain or loss will be long-term capital gain or loss if your holding period for our common shares is more than
one year at the time of such sale or other disposition;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>such gain or loss will generally be treated as United States source for United States foreign tax credit purposes; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>your ability to deduct capital losses is subject to limitations.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>PFIC Considerations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A foreign corporation will be treated as a PFIC for United States federal income tax purposes
if, after applying relevant look-through rules with respect to the income and assets of
subsidiaries, 75% or more of its gross income consists of certain types of passive income or 50% or
more of the gross value of its assets is attributable to assets that produce passive income or are
held for the production of passive income. For this purpose, passive income generally includes
dividends, interest, royalties, rents (other that rents and royalties derived in the active conduct
of a trade or business), annuities and gains from assets that produce passive income. We presently
believe that we are not a PFIC and do not anticipate becoming a PFIC. This is, however, a factual
determination made on an annual basis and is subject to change. If we were to be classified as a
PFIC in any taxable year, (i)&nbsp;U.S. Holders would generally be required to treat any gain on sales
of our shares held by them as ordinary income and to pay an interest charge on the value of the
deferral of their United States federal income tax attributable to such gain and (ii)&nbsp;distributions
paid by us to our U.S. Holders could also be subject to an interest charge. In addition, we would
not provide information to our U.S. Holders that would enable them to make a &#147;qualified electing
fund&#148; election under which, generally, in lieu of the foregoing treatment, our earnings would be
currently included in their United States federal income.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Backup Withholding and Information Reporting</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payments, including dividends and proceeds of sales, in respect of our common shares that are
made in the United States or by a United States related financial intermediary will be subject to
United States information reporting rules. In addition, such payments may be subject to United
States federal backup withholding tax. You will not be subject to backup withholding provided that:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>you are a corporation or other exempt recipient, or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>you provide your correct United States federal taxpayer
identification number and certify, under penalties of perjury,
that you are not subject to backup withholding.</TD>
</TR>

</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amounts withheld under the backup withholding rules may be credited against your United States
federal income tax, and you may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS in a timely manner.
</DIV>

<P align="center" style="font-size: 10pt">72
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>BRITISH VIRGIN ISLANDS TAX CONSIDERATIONS</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the International Business Companies Act of the British Virgin Islands as currently in
effect, a holder of common equity, such as our common shares, who is not a resident of the British
Virgin Islands is exempt from British Virgin Islands income tax on dividends paid with respect to
the common equity and is not liable to the British Virgin Islands for income tax on gains realized
on sale or disposal of such shares. Furthermore, there are no capital gains, gift or inheritance
taxes levied by the British Virgin Islands on persons who are not residents of the British Virgin
Islands. The British Virgin Islands does not impose a withholding tax on dividends paid by a
company incorporated under the International Business Companies Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our common shares are not subject to transfer taxes, stamp duties or similar charges. There is
no income tax treaty or convention currently in effect between the United States and the British
Virgin Islands.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>Documents on Display</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nam Tai is subject to the information requirements of the Securities and Exchange Act of 1934,
and, in accordance with the Securities Exchange Act of 1934, Nam Tai. files annual reports on Form
20-F within six months of its fiscal year end, and submit other reports and information under cover
of Form 6-K with the SEC. You may read and copy this information at the SEC&#146;s public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Recent filings and reports are also available
free of charge though the EDGAR electronic filing system at www.sec.gov. You can also request
copies of the documents, upon payment of a duplicating fee, by writing to the public reference
section of the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference room or accessing documents through EDGAR. As a foreign private issuer, Nam
Tai. is exempt from the rules under the Securities Exchange Act of 1934 prescribing the furnishing
and content of proxy statements to shareholders.
</DIV>
<DIV align="left">
<A name="113"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;11. </B><B><I>Quantitative and Qualitative Disclosure About Market Risk</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Currency Fluctuations</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We
sell a majority of our products in U.S. dollars and pay for our material components in
Japanese yen, U.S. dollars, Hong Kong dollars, and RMB. We pay labor costs and
overhead expenses in RMB, the currency of China (the basic unit of which is the yuan),
Hong Kong dollars and Japanese yen. The exchange rate of the Hong
Kong dollars to the U.S. dollars
have been fixed by the Hong Kong government since 1983 at approximately HK$7.80 to US$1.00, through
the currency-issuing banks in Hong Kong and, accordingly, has not in the past presented a currency
exchange risk. This could change in the future if those in Hong Kong arguing for a floating
currency system prevail in the ongoing debate over whether to
continue to peg the Hong Kong dollars
to the U.S. dollars.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We believe our most significant foreign exchange risk results from material purchases made in
Japanese yen. Approximately 16%, 6%, and 3% respectively, of our material costs have been in
Japanese yen during the years ended December&nbsp;31, 2003, 2004 and 2005, respectively, sales made in
Japanese yen only accounted for 11%, 4% and 2%, respectively, of sales for each of the last three
years. Our business and operating results could be materially and adversely affected in the event
of a severe increase in the value of the Japanese yen to the U.S.
dollars at a time when our sales
made in Japanese yen are insufficient to cover our material purchases in Japanese yen.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Beginning
on December&nbsp;1, 1996, the RMB became fully convertible under the current
accounts. There are no restrictions on trade-related foreign exchange receipts and disbursements in
China. Capital account foreign exchange receipts and disbursements are subject to control, and
organizations in China are restricted in foreign currency transactions that must take place through
designated banks.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our operating expenses and a substantial portion of our assets are denominated in RMB. As a
result, we are exposed to foreign exchange risk, and our results of operations may be negatively
impacted by fluctuations in the exchange rate between the U.S. dollars and RMB. If the RMB
appreciates against the U.S. dollars, our operating expenses will increase and, as a consequence,
our operating margins and net income will likely decline.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the last three years, the exchange rate between the RMB and the U.S. dollars has varied by
less than one-tenth of one percent. However, on July&nbsp;21, 2005, the People&#146;s Bank of China adjusted
the exchange rate of U.S. dollars to RMB from 1:8:27 to 1:8:11, resulting in an approximately 2%
appreciation in the value of the RMB against the U.S. dollars. Fluctuations in the value of
the
</DIV>

<P align="center" style="font-size: 10pt">73
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 6pt">RMB could negatively impact our results of operations. If the RMB had been 1% and 5% less
valuable against the U.S. dollars than the actual rate as of December&nbsp;31, 2005, which was used in
preparing our audited financial statements as of and for the year ended December&nbsp;31, 2005, our net
asset value, as presented in U.S. dollars, would have been reduced by $367,000 and $1.8&nbsp;million,
respectively. Conversely, if the RMB had been 1% and 5% more valuable against the U.S. dollars as
of that date, then our net asset value would have increased by $367,000 and $1.8&nbsp;million,
respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We may elect to hedge our currency exchange risk when we judge that such action may be
required. In an attempt to lower the costs of expenditures in foreign currencies, we may enter into
forward contracts or option contracts to buy or sell foreign
currency(ies) against the U.S. dollars
through one of our banks. As a result, we may suffer losses resulting from the fluctuation between
the buy forward exchange rate and the sell forward exchange rate, or from the price of the option
premium.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we held no option or future contracts and during the year we did not
purchase or sell any commodity or currency options. We are continuing to review our hedging
strategy and there can be no assurance that we will not suffer losses in the future as a result of
hedging activities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Foreign Currency Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had no open forward contracts or option contracts to purchase or
sell foreign currencies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash on hand at December&nbsp;31, 2005 of $213,843,000 was held in the following currencies.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Equivalent</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>U.S. Dollar</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Holdings</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>December 31, 2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Japanese yen</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,532,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">United States dollars</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">153,604,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hong Kong dollar</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,422,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Chinese renminbi</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,257,000</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Macao Pataca</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,000</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Interest Rate Risk</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><I>Short-term interest rate risk</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our interest expenses and income are sensitive to changes in interest rates. All of our cash
reserves and short-term borrowings are subject to interest rate changes. Cash on hand of $213.8
million as of December&nbsp;31, 2005 was invested in short-term interest-bearing investments having a
maturity of three months or less. As such, interest income will fluctuate with changes in
short-term interest rates. In 2005, we had $3.9&nbsp;million in interest income and $438,000 in interest
expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had utilized approximately $7.1&nbsp;million of our credit facilities,
including $4.8&nbsp;million in short-term notes payable and $2.3&nbsp;million in short-term bank loans
resulting in minimal interest rate risk.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><I>Long-term interest rate risk</I>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As of December&nbsp;31, 2005, we had $5.2&nbsp;million in long-term bank borrowing, including the
current portion of $2.3&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Our long-term bank borrowing consisted of a $4.5&nbsp;million term loan obtained in May&nbsp;2002, has a
term of four years and bear interest at a rate of 1.5% and subsequently changed to 0.75% effective
August&nbsp;2004 over three months&#146; LIBOR repayable in 16 quarterly installments of $281,250 beginning
August&nbsp;2002. The outstanding balance as of December&nbsp;31, 2005 was $0.6&nbsp;million. A $1.6&nbsp;million term
loan obtained in April&nbsp;2004 has a term of four years and bears interest at a rate of 0.75% over
three months&#146; LIBOR repayable in 16 quarterly installments of $100,000 beginning July&nbsp;2004. The
outstanding balance as of December&nbsp;31, 2005 was $1.0&nbsp;million. A $3.6&nbsp;million term loan obtained in
June&nbsp;2004 has a term of four years and bears interest at a rate of 0.75% over three months&#146; LIBOR
repayable in 16 quarterly installments of $225,000 beginning September, 2004. The outstanding
balance as of December&nbsp;31, 2005 was $2.2&nbsp;million. A $1.8&nbsp;million term loan obtained in December
2004 has a term of four years and bears interest at a rate of 0.75% over three months&#146; LIBOR
repayable in 16 quarterly installments of $112,500 beginning March&nbsp;2005. The outstanding balance as
of December&nbsp;31, 2005 was $1.4&nbsp;million.
</DIV>

<P align="center" style="font-size: 10pt">74
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left">
<A name="114"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;12. </B><B><I>Description of Securities Other Than Equity Securities</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable
</DIV>


<DIV align="left">
<A name="115"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART II</B>
</DIV>



<DIV align="left">
<A name="116"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;13. </B><B><I>Defaults, Dividend Arrearages and Delinquencies</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable
</DIV>
<DIV align="left">
<A name="117"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;14. </B><B><I>Material Modifications to the Rights of Security Holders and Use of Proceeds</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable
</DIV>
<DIV align="left">
<A name="118"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;15. </B><B><I>Controls and Procedures</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>Evaluation of Disclosure Controls and Procedures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As required by Rule&nbsp;13a-14 under the Securities Exchange Act of 1934, as of December&nbsp;31, 2005,
the Company carried out an evaluation of the effectiveness of the design and operation of the
Company&#146;s disclosure controls and procedures (as defined in Rules&nbsp;13a-15(e) and 15(d)-15(e) of the
Securities Exchange Act of 1934). This evaluation was carried out under the supervision and with
the participation of the Company&#146;s management, including the Company&#146;s Chief Executive Officer and
Chief Financial Officer. Based upon that evaluation, the Company&#146;s controls and procedures were
designed which provided reasonable assurance of preventing errors and irregularities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Disclosure controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in the Company&#146;s reports filed or submitted under
the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission&#146;s rules and forms. Disclosure controls
and procedures include controls and procedures designed to ensure that information required to be
disclosed in Company reports filed under the Exchange Act is accumulated and communicated to
management, including the Company&#146;s Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding disclosures. The Company&#146;s management have
evaluated the effectiveness of the Company&#146;s disclosure controls and procedures as of the end of
the period covered by this report and have concluded that the Company&#146;s disclosure controls and
procedures were effective.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has confidence in its internal controls and procedures and has expanded its
efforts to develop and improve its controls. Nevertheless, the Company&#146;s management, including the
Chief Executive Officer and Chief Financial Officer, does not expect that the Company&#146;s disclosure
procedures and controls, or its internal controls, will necessarily prevent all error or
intentional fraud. An internal control system, no matter how well-conceived and operated, can
provide only reasonable, but not absolute, assurance that the objectives of such internal controls
are met. Further, the design of an internal control system must reflect the fact that the Company
is subject to resource constraints, and the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all internal control systems, no evaluation of
controls can provide absolute assurance that all internal control issues or instances of fraud, if
any, within the Company be detected.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Changes in Internal Controls</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;There have been no significant changes in the Company&#146;s internal controls or in other factors
that could significantly affect internal controls subsequent to the date the Company carried out
this evaluation.
</DIV>
<DIV align="left">
<A name="119"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16. </B><B><I>&#091;Reserved&#093;</I></B>
</DIV>

<DIV align="left">
<A name="120"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16 A. Audit Committee Financial Expert</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company&#146;s Board of Directors has determined that one member of the Audit Committee, Mark
Waslen, qualifies as an &#147;audit committee financial expert&#148; as defined by Item 401(h) of Regulation
S-K, adopted pursuant to the Securities Exchange Act of 1934 since Mr.&nbsp;Waslen has a degree in
Accounting and is a CFA, CA and a CPA. In addition to serving in various financial positions,
including Nam Tai Group Financial Controller from 1990 to 1995 and Treasurer from 1998 to 1999, at
Nam Tai, Mr.&nbsp;Waslen has worked at Peat Marwick Thorne, Deloitte Touche Tohmatsu and BME&#043; Partners
Chartered Accountants.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;All three members of the audit committee, Messrs.&nbsp;Waslen, Chu and Lo, are independent
non-executive directors.
</DIV>

<P align="center" style="font-size: 10pt">75
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="121"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16 B. Code of Ethics</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Company has adopted a Code of Ethics for the Chief Executive Officer and Chief Financial
Officer, which also applies to the Company&#146;s principal executive officers and to its principal
financial and accounting officers. In July&nbsp;2004, the Code of Ethics was revised to apply to all
employees as well. A copy of the revised Code of Ethics is attached as Exhibit&nbsp;14.1 to this Annual
Report on Form 20-F. This code has been posted on our website, which is located at
http://www.namtai.com/corpgov/corpgov.htm. The contents of this website address, other than the
corporate governance guidelines, the code of ethics and committee charters, are not a part of this
Form 20-F. Stockholders may request a free copy in print form from:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Pan Pacific I.R. Ltd.<BR>
Attention : Investor Relations Office<BR>
Suite&nbsp;1790 &#151; 999 W. Hastings Street<BR>
Vancouver, BC<BR>
Canada V6C 2W2<BR>
Toll Free Telephone : 1-800-661-8831

</DIV>
<DIV align="left">
<A name="122"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16 C. Principal Accountant Fees and Services</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deloitte Touche Tohmatsu has served as our independent registered public accounting firm for
each of the fiscal years for the three-year period ended December&nbsp;31, 2005, for which audited
financial statements appeared in this annual report on Form 20-F. The auditor is elected annually
at the Annual General Meeting. The Audit Committee will propose to the Annual General Meeting
convening on June&nbsp;9, 2006 that Deloitte Touche Tohmatsu be re-elected as independent registered
public accounting firm of the Company for 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The following table presents the aggregate fees for professional services and other services
rendered by Deloitte Touche Tohmatsu to us in 2005 and 2004.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>2005</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>US$&#146;000</B></TD>
    <TD>&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>US$&#146;000</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit Fees<SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">476</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Audit-related Fees<SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">541</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax Fees<SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">All Other Fees<SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">741</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,027</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(1)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Audit Fees consist of fees billed for the annual audit of our consolidated financial
statements and the statutory financial statements of our subsidiaries. They also include fees
billed for other audit services, which are those services that only
the independent registered public accounting firm reasonably can provide, and include the provision of comfort letters and consents, and
attestation services relating to the review of documents filed with the SEC. The fees for 2004
include US$159 of accrued audit fees for the 2004&nbsp;year-end audit that were not billed until 2005.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(2)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Audit-related Fees consist of fees billed for assurance and related services that
are reasonably related to the performance of the audit or review of our financial statements or
that are traditionally performed by the external auditor.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(3)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>Tax Fees include fees billed for tax compliance services, including the preparation
of original and amended tax returns and claims for refund; tax consultations, such as assistance
and representation in connection with tax audits and appeals, tax advice related to mergers and
acquisitions, transfer pricing, and requests for rulings or technical advice from tax authorities;
tax planning services; and expatriate tax compliance, consultation and planning services.</TD>
</TR>

<TR style="font-size: 3pt"><TD>&nbsp;</TD></TR>

<TR valign="top">
    <TD nowrap align="left"><SUP style="font-size: 85%; vertical-align: text-top">(4)</SUP></TD>
    <TD>&nbsp;</TD>
    <TD>All Other Fees includes business advisory service fee.</TD>
</TR>

</TABLE>



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Audit Committee Pre-approval Policies and Procedures</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Audit Committee of our Board of Directors is responsible, among other matters, for the
oversight of the independent registered public accounting firm subject to the relevant regulations
of the SEC and NYSE. The Audit Committee has adopted a policy, or the Policy,
</DIV>

<P align="center" style="font-size: 10pt">76
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left" style="font-size: 10pt; margin-top: 6pt">regarding pre-approval of audit and permissible non-audit services
provided by our independent registered public accounting firm.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Under the Policy, the Chairman of the Audit Committee is delegated with the authority to grant
pre-approvals in respect of all auditing services including non-audit service, but excluding those
services stipulated in Section&nbsp;201 &#147;Service Outsider the Scope of Practice of Auditors&#148;. Moreover,
if the Audit Committee approves an audit service within the scope of the engagement of the audit
service, such audit service shall be deemed to have been pre-approved. The decisions of the
Chairman of the Audit Committee made under delegated authority to pre-approve an activity shall be
presented to the Audit Committee at each of its scheduled meetings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Requests or applications to provide services that require specific approval by the Audit
Committee are submitted to the Audit Committee by both the external auditor and the Chief Financial
Officer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;During 2004 and 2005, approximately 49.6% and 93.5%, respectively, of the total audit-related
fees, tax fees and all other fees were approved by the Audit Committee pursuant to the pre-approval
requirement provided by paragraph (c)(7)(i)(C) of Rule&nbsp;2-01 of Regulation&nbsp;S-X.
</DIV>
<DIV align="left">
<A name="123"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16 D. Exemptions from the Listing Standards for Audit Committees</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable
</DIV>
<DIV align="left">
<A name="124"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;16 E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not applicable
</DIV>
<DIV align="left">
<A name="125"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>PART III</B>
</DIV>

<DIV align="left">
<A name="126"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;17. </B><B><I>Financial Statements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Not Applicable
</DIV>
<DIV align="left">
<A name="127"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;18. </B><B><I>Financial Statements</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="87%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Report of Independent Registered Public Accounting Firm
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">F-2</TD>
</TR>
<TR valign="bottom">

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Consolidated
Statements of Income for the years ended December&nbsp;31, 2003, 2004 and 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">F-3</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Consolidated Balance Sheets as of December&nbsp;31, 2004 and 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">F-4</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Consolidated Statements of Shareholders&#146; Equity and Comprehensive Income for the years
ended December&nbsp;31, 2003, 2004 <BR>&nbsp;&nbsp;&nbsp;&nbsp;
and 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">F-5</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Consolidated Statements of Cash Flows for the years ended December&nbsp;31, 2003, 2004 and 2005
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">F-6&nbsp;&#38;&nbsp;F-7</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Notes to Consolidated Financial Statements
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">F-8&#150;F-38</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The information required within the schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission is either not applicable or is
included in the notes to the Consolidated Financial Statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</I>
</DIV>

<P align="center" style="font-size: 10pt">77
</DIV>

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<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="128"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>Item&nbsp;19. </B><B><I>Exhibits</I></B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">The following exhibits are filed as part of this annual report:
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="3"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>DESCRIPTION</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.1*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Memorandum of Understanding signed by Namtai Electronic (Shenzhen) Co.,
Ltd. and Nam Tai Electronic &#038; Electrical Products Limited (Hong Kong) on
March&nbsp;26, 2004 to confirm the respective rights and liabilities of Nam Tai
Electronic &#038; Electrical Products Limited (Hong Kong) and Namtai Electronic
(Shenzhen) Co., Ltd. under an internal restructuring.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.2*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Sale and Purchaser Agreement entered into between Nam Tai Electronics,
Inc. and Mr.&nbsp;Wong Toe Yeung on March&nbsp;31, 2004 regarding purchasing the
entire issued share capital of Jasper Ace Limited from Mr.&nbsp;Wong Toe Yeung
with the consideration of disposal 72.2% interest in Mate Fair Group
Limited, cash of $25&nbsp;million and 2,389,974 shares issued by Nam Tai
Electronics, Inc.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.3*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Trademark License Agreement entered into between Nam Tai Electronics,
Inc. and Nam Tai Electronic &#038; Electrical Products Limited on April&nbsp;8, 2004
for the use of certain &#147;Namtai&#148; trademarks.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.4*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Deed of Indemnity entered into between Nam Tai Electronics, Inc, and Nam
Tai Electronic &#038; Electrical Products Limited on April&nbsp;15, 2004 in favour of
Nam Tai Electronic &#038; Electrical Products Limited regarding the Global
Offering of 200,000,000 shares of HK$0.01 each of Nam Tai Electronic &#038;
Electrical Products Limited.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.5*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as
the selling shareholders and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong
Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF
Capital Limited as public offer underwriters on April&nbsp;15, 2004 regarding
the public offering of 200,000,000 shares of HK$0.01 each of Nam Tai
Electronic &#038; Electrical Products Limited.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.6*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Supplemental Agreement entered into between Nam Tai Electronics, Inc, and
Mr.&nbsp;Wong Toe Yeung on July&nbsp;27, 2004 to adjust the consideration for
purchasing the entire issued share capital of Jasper Ace Limited by
canceling 973,210 common shares of Nam Tai Electronics, Inc, issued to Top
Scale Company Limited on April&nbsp;21, 2004.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.7*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as
the selling shareholders and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong
Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF
Capital Limited as international placement underwriters on April&nbsp;22, 2004
regarding the international placing of 180,000,000 shares of HK$0.01 each
of Nam Tai Electronic &#038; Electrical Products Limited.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.8*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Pricing Determination Agreement entered into among Nam Tai Electronics,
Inc., Nam Tai Electronic &#038; Electrical Products Limited and the Hongkong and
Shanghai Banking Corporation Limited on April&nbsp;22, 2004 for determining the
offering price of the shares of Nam Tai Electronic &#038; Electrical Products
Limited to be HK$3.88 per share.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.9*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Stock Borrowing Agreement entered into between Nam Tai Electronics, Inc.
and the Hongkong and Shanghai Banking Corporation Limited on April&nbsp;22, 2004
regarding the Global Offering of 200,000,000 shares of HK$0.01 each of Nam
Tai Electronic &#038; Electrical Products Limited.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.10*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Amended 2001 Option Plan dated July&nbsp;30, 2004.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.11*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">An Accession Agreement entered into between Welcome Success Technology Ltd. and Mr.&nbsp;Alain Jolivet on August
4, 2004 in relation to the transfer of entire interest in Stepmind to Remote Reward SAS and who became a
party to the Shareholders Agreement which entered into among Nam Tai Electronics, Inc., AGF Innovation 3,
AGF Innovation 4, AGF Innovation 5, Mighty Wealth Group Limited, Remote Reward SAS, Mr.&nbsp;Alain Jolivet and
Mr.&nbsp;Andre Jolivet executed on November 278, 2003, December&nbsp;9, 2003 and December&nbsp;10, 2003.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.12*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">An Escrow Agreement entered into among Nam Tai Electronics, Inc., Welcome Success Technology Limited, Remote
Reward SAS, Johnson Stokes &#038; Master, Mr.&nbsp;Andre Jolivet and
Mr.&nbsp;Alain Jolivet on August&nbsp;18, 2004 for the disposal of
Nam Tai&#146;s entire interest in Stepmind to Remote
Reward SAS with a consideration of Euros 4,253,301.98.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">78
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>


<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="3"><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>DESCRIPTION</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.13*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A subscription Agreement entered into among TCL Industries Holdings (HK)&nbsp;Limited, TCL International holdings
Limited, Cheerful Asset Investments Limited, Jasper Ace Limited, Mate Fair Group Limited, and TCL
Communication Technology Holdings Limited on August&nbsp;19, 2004 for subscribing 254,474,910 shares in TCL
Communication Technology Holdings Limited in a consideration of RMB131,283,020.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.14*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Deed of Assignment of Trademarks entered into between Nam Tai Electronics, Inc. and Namtai Electronic
(Shenzhen) Co. Ltd. on September&nbsp;20, 2004 for assigning &#147;Namtai &#038; device&#148; trademarks to Nam Tai Electronics,
Inc.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.15*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Banking Facilities Letter from the Hongkong and Shanghai Banking Corporation Limited to Nam Tai Group
Management Limited on September&nbsp;24, 2004 regarding the renewal of Overdraft Facility of
HK$500,000, Treasury Facilities of US$30,000,000 and Corporate Card of HK$1,100,000.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.16*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Share Transfer Agreement entered into between J.I.C. Enterprises (Hong Kong) Limited and J.I.C. Technology
Company Limited on October&nbsp;15, 2004 for the disposal of the entire issued share capital of Jetup Electronic
(Shenzhen) Co. Ltd. to J.I.C. Technology Company Limited for a consideration of HK$105,878,396.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.17</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Loan Agreement entered into between Zastron Electronic (Shenzhen) Co. Ltd. and Zastron Precision
Tech-Limited on February&nbsp;3, 2005 for a loan of $36,000,000 granted from Zastron Precision-Tech Limited to
Zastron Electronic (Shenzhen) Co. Ltd.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.18</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">An Agreement entered into between Nam Tai Electronics, Inc., Asano Company Limited and Nam Tai Electronic &#038;
Electrical Products Limited on April&nbsp;8, 2005 in relation to the sale and purchase of the entire issued share
capital of Namtek Software Technology Limited regarding an allotment and issuance of 65,336,470 and
16,334,118 of shares of Nam Tai Electronic &#038; Electrical Products Limited to Nam Tai Electronics, Inc. and
Asano Company Limited respectively at an issue price of HKD2.55 per share.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.19</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A
Supplemental Loan Agreement entered into between Zastron Electronic (Shenzhen) Co. Ltd. and Zastron
Precision &#150;Tech Limited on April&nbsp;14, 2005 for extending the repayment term for a loan of $18,660,000 granted from Zastron
Precision-Tech Limited to Zastron Electronic (Shenzhen) Co. Ltd. in accordance with the an loan agreement
dated March&nbsp;30, 2004.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.20</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Supplement Letter dated May&nbsp;12, 2005 issued from Kazuhiro Asano to Nam Tai Electronic &#038; Electrical
Products Limited to undertake certain conditions set out in the attached Undertaking in relation to the sale
and purchase of the entire issued share capital of Namtek Software Development Company Limited from Nam Tai
Electronics, Inc. and Asano Company Limited to Nam Tai Electronic &#038; Electrical Products Limited.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.21</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Banking Facilities Letter dated September&nbsp;9, 2005 from The Hongkong and Shanghai Banking Corporation Limited was accepted and
confirmed by Nam Tai Electronics, Inc. for granting of overdraft of HKD500,000, treasury facilities of
$30,000,000 and commercial card facility of HKD 1,100,000.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">4.22</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">A Banking Facilities Letter dated September&nbsp;9, 2005 from The Hongkong and Shanghai Banking Corporation Limited was accepted and
confirmed by Nam Tai Electronic &#038; Electrical Products Limited for renewal of corporate card facility of
HKD700,000, the revolving loan of $30,000,000 and foreign exchange line of $2,000,000.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">8.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>

<TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Diagram
of Company&#146;s subsidiaries. See the
Section headed &#147;Organization Structure&#148; under Item 4 of
this Report.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">12.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification pursuant to Section&nbsp;1350, as adopted pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">12.2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification pursuant to Section&nbsp;1350, as adopted pursuant to Section&nbsp;302 of the Sarbanes-Oxley Act of 2002.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">14.1*</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Code of Ethics.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">23.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Consent of Deloitte Touche Tohmatsu.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">99.1</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley
Act of 2002.</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
</TR>
<TR valign="bottom">
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">99.2</TD>
    <TD nowrap valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Certification pursuant to 18 U.S.C. Section&nbsp;1350, as adopted pursuant to Section&nbsp;906 of the Sarbanes-Oxley
Act of 2002.</DIV></TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Previously filed with the registrant&#146;s Form 20-F filed with the SEC on March&nbsp;15, 2005.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">79
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NAM TAI ELECTRONICS, INC.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>INDEX TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" style="border-bottom: 1px solid #000000"><B>Page(s)</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#300">Report of Independent Registered Public Accounting Firm</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">F-2</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#301">Consolidated Statements of Income for the years ended
December&nbsp;31, 2003, 2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">F-3</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#302">Consolidated Balance Sheets as of December&nbsp;31, 2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">F-4</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#303">Consolidated Statements of Shareholders&#146; Equity and Comprehensive
Income for the years ended December&nbsp;31, 2003, 2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">F-5</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#304">Consolidated Statements of Cash Flows for the years ended
December&nbsp;31, 2003, 2004 and 2005</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">F-6 &#038; F-7</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><A href="#305">Notes to Consolidated Financial Statements</A></DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">F-8 - F-38</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-1
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">
<DIV align="left">
<A name="300"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">To the Shareholders and the Board of Directors of Nam Tai Electronics, Inc.:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We have audited the accompanying consolidated balance sheets of Nam Tai Electronics, Inc.
and subsidiaries (the &#147;Company&#148;) as of December&nbsp;31, 2004 and 2005, and the related
consolidated statements of income, shareholders&#146; equity and comprehensive income, and cash
flows for each of the three years in the period ended December&nbsp;31, 2005. These financial
statements are the responsibility of the Company&#146;s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company&#146;s internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In our opinion, such consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Nam Tai Electronics, Inc. and
subsidiaries at December&nbsp;31, 2004 and 2005, and the results of their operations and their
cash flows for each of the three years in the period ended December&nbsp;31, 2005 in conformity
with accounting principles generally accepted in the United States of America.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">DELOITTE TOUCHE TOHMATSU<BR>
Certified Public Accountants<BR>
Hong Kong<BR>
March&nbsp;9, 2006

</DIV>

<P align="center" style="font-size: 10pt">F-2
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NAM TAI ELECTRONICS, INC.</B>
</DIV>

<DIV align="left">
<A name="301"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF INCOME</B>

</DIV>

<DIV align="left" style="font-size: 10pt"><B>(In thousands of US dollars, except per share data)</B></DIV>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; third parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">385,524</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">499,680</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">791,042</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">533,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">797,237</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">340,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">457,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">704,314</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,476</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,923</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,866</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,057</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,037</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,045</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,210</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total operating expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">28,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,267</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income from operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,387</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,378</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,656</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other expenses, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(815</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,012</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(125</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend income received from marketable securities and investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,714</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,295</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on sales of subsidiaries&#146; shares</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,095</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on disposal of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,631</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss on disposal of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,686</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment loss on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(58,316</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,525</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,110</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,948</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(121</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(195</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(438</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(399</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(879</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(651</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before minority interests and equity in income (loss)&nbsp;of an
affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,392</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,484</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,067</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,010</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,992</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in income (loss)&nbsp;of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,806</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(186</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income after minority interests and equity in income (loss)&nbsp;of an
affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discontinued operation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">See accompanying notes to consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F-3
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NAM TAI ELECTRONICS, INC.</B>
</DIV>

<DIV align="left">
<A name="302"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED BALANCE SHEETS</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 0pt"><B>(In thousands of US dollars, except share data)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>ASSETS</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current assets:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">160,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">213,843</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,906</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,330</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts receivable, less allowance for doubtful accounts of $157
and $494 at December&nbsp;31, 2004 and 2005, respectively</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,362</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">125,662</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amount due from a related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">31,744</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepaid expenses and other receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,087</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,490</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes recoverable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,566</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,671</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Asset held for sale</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,912</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">334,732</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">399,652</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Investment in an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,049</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">97,926</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Land use right</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,744</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,815</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deposits for property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,250</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,068</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Intangible assets, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,260</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,300</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">460,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">520,011</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><B>LIABILITIES AND SHAREHOLDERS&#146; EQUITY</B></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current liabilities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4,813</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Short term bank loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Long term bank loans &#151; current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,875</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,312</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">89,570</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,608</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accrued expenses and other payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,661</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,447</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividend payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,120</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,357</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">166</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total current liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">116,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164,978</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long term bank loans &#151; non-current portion</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,850</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,652</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,828</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,792</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Commitments and contingencies (Note 18)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shareholders&#146; equity:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Common shares ($0.01 par value &#151; authorized 200,000,000 shares)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">435</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Additional paid-in capital</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">241,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">258,167</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Retained earnings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,771</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Accumulated other comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,018</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">305,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310,391</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Total liabilities and shareholders&#146; equity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">460,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">520,011</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">See accompanying notes to consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F-4
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NAM TAI ELECTRONICS, INC.</B>
</DIV>

<DIV align="left">
<A name="303"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF SHAREHOLDERS&#146; EQUITY AND COMPREHENSIVE INCOME</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 0pt"><B>(In thousands of US dollars, except share and per share data)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Accumulated</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Common</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Additional</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Other</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Share-</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Shares</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Paid-in</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Retained</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Comprehensive</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>holders&#146;</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Comprehensive</B></TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Outstanding</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Amount</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Capital</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Earnings</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>(Loss) income</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Equity</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>Income</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at January&nbsp;1, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">36,059,004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">360</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">147,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">54,016</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">202,128</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued on exercise of options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,425,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,494</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Issue of stock dividend</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,746,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">38</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">50,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(50,371</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Compensation expense (note 3(b)(iii))</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">264</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends ($1.00 per share, including
special dividend of $0.80 per share)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(37,584</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(37,584</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,231,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">412</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">206,845</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">217,118</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued on exercise of options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued on acquisition of a subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,389,974</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,769</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,793</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cancellation of shares issued on acquisition
of a subsidiary</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(973,210</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23,930</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23,940</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized gain of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,549</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,549</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">73,434</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends ($0.48 per share)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(20,424</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,664,536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">241,756</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">56,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">305,053</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Shares issued on exercise of options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">841,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,420</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Unrealized loss of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,352</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,352</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,352</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Realization of loss upon disposals of
marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(250</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(250</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(250</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Foreign currency translation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">73</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Comprehensive income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">45,777</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash dividends ($1.32 per share)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56,859</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(56,859</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,505,586</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">435</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">258,167</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">50,771</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">310,391</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="23" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">See accompanying notes to consolidated financial statements.
</DIV>


<P align="center" style="font-size: 10pt">F-5
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NAM TAI ELECTRONICS, INC.</B>
</DIV>

<DIV align="left">
<A name="304"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS</B>

</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 0pt"><B>(In thousands of US dollars)</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Adjustments to reconcile net income to net cash provided
by operating activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Depreciation and amortization of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,172</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,824</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Amortization and impairment loss of intangible assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">459</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Gain) loss on disposal of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(563</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on disposal of other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on disposal of convertible notes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">102</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on disposal of investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">67</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Impairment loss on marketable securities &#151; TCL Communication
Technology Holdings Limited (&#147;TCL Communication&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,316</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,525</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Loss on disposal of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,686</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on disposal of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,631</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on disposal of a subsidiary &#151; Jieyao Electronics (Shenzhen) Co., Ltd.
(&#147;Jieyao&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,979</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on sale of a subsidiary&#146;s shares &#151; J.I.C. Technology Company
Limited (&#147;JIC Technology&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,838</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(6,249</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on sale of a subsidiary&#146;s shares &#151; Nam Tai Electronic &#038; Electrical
Products Limited (&#147;NTEEP&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(71,071</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,165</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Gain on sale of a subsidiary&#146;s shares &#151; Namtek Software Development
Company Limited (&#147;Namtek Software&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,930</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Compensation cost on transfer of interest in a subsidiary &#151; Namtek
Software</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">509</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Equity in (income)&nbsp;loss of an affiliated company less dividend received</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(498</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,806</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">186</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Others</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">206</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Dividend income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(15,913</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Deferred income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(34</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,067</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,010</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,992</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Changes in current assets and liabilities (net of effects of acquisitions
and disposals):</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase in accounts receivable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11,146</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(28,272</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(35,300</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Increase) decrease in amount due from a related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(2,707</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Increase) decrease in inventories</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,554</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(8,648</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Increase) decrease in prepaid expenses and other receivables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,027</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,654</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">377</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">(Increase) decrease in income taxes recoverable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,067</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,644</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,895</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase in notes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">894</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">201</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,733</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase in accounts payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,896</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">32,038</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase in accrued expenses and other payables</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,189</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,028</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,786</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Increase (decrease)&nbsp;in income taxes payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(347</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(17</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total adjustments</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,325</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,519</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash provided by operating activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">44,272</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">75,210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">70,825</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">F-6
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NAM TAI ELECTRONICS. INC.</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><B>CONSOLIDATED STATEMENTS OF CASH FLOWS<BR>
(In thousands of US dollars)</B>

</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="11" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>

</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from investing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Purchase of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(17,053</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(38,611</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">$</TD>
    <TD align="right">(32,166</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Increase) decrease in deposits for property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,103</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,374</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,451</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Prepayment for long term investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,277</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Increase in other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(24</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(40</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Acquisition) proceeds from disposal of an affiliated company &#151; Alpha Star
Investments Limited (&#147;Alpha Star&#148;)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(10,000</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,494</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Acquisition of long term investment &#151; iMagic Infomedia Technology
Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(384</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from disposal of convertible notes &#151; TCL
International Holdings Limited</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">(Acquisition) proceeds from disposal of marketable securities &#151; TCL
Communication</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(25,084</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,995</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from partial disposal of subsidiaries &#151; JIC Technology and
Namtek Software/JIC Technology and NTEEP/NTEEP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,165</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">95,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,218</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from disposal of property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,595</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,788</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from disposal of investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,609</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from disposal of other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from disposal of a subsidiary, net of cash disposed of &#151; Jieyao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,386</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash (used in) provided by investing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(21,669</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,729</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,740</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash flows from financing activities:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Cash dividends paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(37,777</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(19,414</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(51,984</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Repayment of bank loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(13,984</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,375</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(5,375</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from bank loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,600</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,774</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Proceeds from shares issued on exercise of options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16,420</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net cash used in financing activities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(43,253</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(14,117</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(36,165</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net (decrease)&nbsp;increase in cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(20,650</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">98,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,400</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at beginning of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82,477</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">61,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">160,649</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of exchange rate changes on cash and cash equivalents</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(206</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash and cash equivalents at end of year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">61,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">160,649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">213,843</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Supplemental schedule of cash flow information:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Interest paid</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">121</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">438</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Income taxes paid (received), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,183</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,335</TD>
    <TD nowrap>)</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">See accompanying notes to consolidated financial statements.
</DIV>



<P align="center" style="font-size: 10pt">F-7
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NAM TAI ELECTRONICS, INC.</B>
</DIV>

<DIV align="left">
<A name="305"></A>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B><BR>
<B>(In thousands of US dollars, except share and per share data)</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>1.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Company Information</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Nam Tai Electronics, Inc. and subsidiaries (the &#147;Company&#148; or &#147;Nam Tai&#148;) is an electronics
manufacturing and design services provider to a selected group of the world&#146;s leading
original equipment manufacturers, or OEMs, of telecommunication and consumer electronic
products. Through its electronics manufacturing services operations, the Company
manufactures electronic components and sub-assemblies, including liquid crystal display
(&#147;LCD&#148;) panels, LCD modules, radio frequency modules, thin film transistor LCD modules,
flexible printed circuit sub-assemblies, digital audio broadcast, modules and image sensors
modules. These components are used in numerous electronic products, including cellular
phones, laptop computers, digital cameras, electronic toys, handheld video game devices and
microwave ovens. The Company also manufactures finished products, including cellular phones
in semi-knock down form, entertainment devices, mobile phone accessories and educational
products.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company was founded in 1975 and moved its manufacturing facilities to the People&#146;s
Republic of China (the &#147;PRC&#148;) in 1980 to take advantage of lower overhead costs, lower
material costs and competitive labor rates available and subsequently relocated to Shenzhen,
the PRC in order to capitalize on opportunities offered in Southern China. The Company was
reincorporated as a limited liability International Business Company under the laws of the
British Virgin Islands (&#147;BVI&#148;) in August&nbsp;1987. The Company&#146;s principal manufacturing and
design operations are based in Shenzhen, approximately 30 miles from the Hong Kong Special
Administrative Region (&#147;Hong Kong&#148;). Its PRC headquarters are located in the Macao Special
Administrative Region (&#147;Macao&#148;). Some of the subsidiaries&#146; offices are located in Hong Kong
and Macao, which provide it access to Hong Kong&#146;s and Macao&#146;s infrastructure of
communication and banking and facilitates management of its PRC operations. The Company&#146;s
principal manufacturing operations are conducted in the PRC. The PRC resumed sovereignty
over Hong Kong and Macao effective July&nbsp;1, 1997 and December&nbsp;20, 1999, respectively, and
politically Hong Kong and Macao are integral parts of China. However, for simplicity and as
a matter of definition only, our references to PRC in these consolidated financial
statements means the PRC and all of its territories excluding Hong Kong and Macao.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2004, Nam Tai&#146;s operations were re-organized into three reportable segments consisting of
consumer electronics and communication products (&#147;CECP&#148;), telecommunication components
assembly (&#147;TCA&#148;) and LCD panels (&#147;LCDP&#148;). In 2003, CECP and TCA were classified as a single
reportable segment as consumer electronic products (&#147;CEP&#148;) while LCDP also comprised the
transformers operations and collectively referred to as LCD panels and transformers (&#147;LPT&#148;).
Through the disposal of a subsidiary in 2003, the Company discontinued its transformers
operations, details of which are set out in note 3(b)(ii).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of Significant Accounting Policies</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(a)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Principles of consolidation</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The consolidated financial statements include the financial statements of the Company
and all its subsidiaries. The Company consolidates companies in which it has
controlling interest of over 50%. All significant intercompany accounts,
transactions and cash flows have been eliminated on consolidation.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The equity method of accounting is used when the Company has the ability to exercise
significant influence over the operating and financial policies of an investee, which
is normally indicated by a 20% to 50% interest in other entities. Under the equity
method, original investments are recorded at cost and adjusted by the Company&#146;s share
of undistributed earnings or losses of these entities and distributions received, if
any.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Cash and cash equivalents</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Cash and cash equivalents include all cash balances and certificates of deposit
having a maturity date of three months or less upon acquisition.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-8
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of Significant Accounting Policies &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(c)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Marketable securities</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Marketable securities are principally equity securities and are classified as
available-for-sale. Securities classified as available-for-sale are stated at fair
value with unrealized gains and losses recorded as a separate component of
accumulated other comprehensive income (loss). Realized gains and losses on the sale
of the available-for-sale securities are determined using the specific-identification
method and are reflected in other income (expenses).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(d)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Inventories</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Inventories are stated at the lower of cost or market value. Cost is determined on
the first-in, first-out basis. Write down of potentially obsolete or slow-moving
inventory are recorded based on management&#146;s analysis of inventory levels.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For the Company&#146;s CECP and TCA reporting units, the Company orders inventory from its
suppliers based on firm customer orders for products that are unique to each
customer. The inventory is utilized in production as soon as all the necessary
components are received. The only reason that inventory would not be utilized within
six months is if a specific customer deferred or cancelled an order. As the
inventory is typically unique to each customer&#146;s products, it is unusual for the
Company to be able to utilize the inventory for other customers&#146; products.
Therefore, the Company&#146;s policy is to negotiate with the customer for the disposal of
such inventory that remained unused for six months. The Company does not generally
write down its inventories as usually, the customers are held to their purchase
commitments. However, there are cases where customers are contractually obligated to
purchase the unused inventory from the Company, but the Company may elect not to
immediately enforce such contractual right for business reasons. In this connection,
the Company will consider writing down these inventory items which remained unused
for over six months at the Company&#146;s own cost. Prior to writing down, management
would determine if the inventory can be utilized in other products.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>For the Company&#146;s LCDP segment, due to the nature of the business, LCDP customers do
not always place orders advance enough to enable the Company to order inventory from
suppliers based on firm customer orders. Nonetheless, management reviews its
inventory balance on a regular basis and writes down all inventory over six months
old if it is determined that the relevant inventory can not be utilized in the
foreseeable future.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(e)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Property, plant and equipment and land use right</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Property, plant and equipment and land use right are recorded at cost and include
interest on funds borrowed to finance construction. No interest was capitalized for
the years ended December&nbsp;31, 2003, 2004 and 2005. The cost of major improvements and
betterments is capitalized whereas the cost of maintenance and repairs is expensed in
the year incurred. Assets under construction are not depreciated until construction
is completed and the assets are ready for their intended use. Gains and losses for
the disposal property, plant and equipment and land use right are included in income.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The majority of the land in Hong Kong is owned by the government of Hong Kong which
leases the land at public auction to non-governmental entities. All of the Company&#146;s
leasehold land in Hong Kong have leases of not more than 50&nbsp;years from the respective
balance sheet dates. The cost of such leasehold land is amortized on a straight-line
basis over the respective terms of the leases.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All land in other regions of the PRC is owned by the PRC government. The government
in the PRC, according to PRC law, may sell the right to use the land for a specified
period of time. Thus, all of the Company&#146;s land purchases in the PRC are considered
to be leasehold land and classified as land use right. They are amortized on a
straight-line basis over the respective term of the right to use the land.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Depreciation rates computed using the straight-line method are as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left">Classification</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">Years</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Land use right
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">50 years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Leasehold land and buildings
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">20&nbsp;to&nbsp;50&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Machinery and equipment
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4&nbsp;to&nbsp;12&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Leasehold improvements
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">3&nbsp;to&nbsp;7&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Furniture and fixtures
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4&nbsp;to&nbsp;8&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Automobiles
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4&nbsp;to&nbsp;6&nbsp;years</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Tools and molds
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right" valign="top">4&nbsp;to&nbsp;6&nbsp;years</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-9
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of Significant Accounting Policies &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(f)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Goodwill and intangible assets</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The excess of the purchase price over the fair value of net assets acquired is
recorded on the consolidated balance sheet as goodwill.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Goodwill is not amortized, but is tested for impairment at the reporting unit level
on at least an annual basis at the balance sheet date. Prior to April&nbsp;2004, the
Company operated in two reporting units, CEP and LCD panels and transformers. In
June&nbsp;2003, the Company disposed of its transformers operation through the disposal of
a subsidiary, details of which are set out in note 3(b)(ii). Effective April&nbsp;2004,
the Company operated in three reporting units, which were its reportable segments of
CECP, TCA and LCDP.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The evaluation of goodwill for impairment involves two steps: (1)&nbsp;the identification
of potential impairment by comparing the fair value of a reporting unit with its
carrying amount, including goodwill and (2)&nbsp;the measurement of the amount of goodwill
loss by comparing the implied fair value of the reporting unit goodwill with the
carrying amount of that goodwill and recognizing a loss by the excess of the latter
over the former. For assessment of impairment loss, the Company will measure fair
value based either on internal models or independent valuations. No impairment loss
was identified in 2004 and 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Costs incurred in the acquisition of licenses are classified as intangible assets.
They are capitalized and amortized to expense on a straight-line basis over the
shorter of the license period or 5 to 7&nbsp;years.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(g)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Impairment or disposal of long-lived assets</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Long-lived assets are included in impairment evaluations when events and
circumstances exist that indicate the carrying amount of these assets may not be
recoverable. The Company reviews its long-lived assets for potential impairment
based on a review of projected undiscounted cash flows associated with these assets.
Measurement of impairment losses for long-lived assets that the Company expects to
hold and use is based on the estimated fair value of the assets.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Long-lived assets to be disposed of are stated at the lower of fair value or carrying
amount. Expected future operating losses from discontinued operations are recorded
in the periods in which the losses are incurred.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(h)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Revenue recognition</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company recognizes revenue when all of the following conditions are met:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Persuasive evidence of an arrangement exists,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Delivery has occurred or services have been rendered,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Price to the customer is fixed or determinable, and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="8%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Collectibility is reasonably assured.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 10%">Revenue from sales of products is recognized when the title is passed to customers
upon shipment and when collectibility is assured. The Company does not provide its
customers with the right of return (except for quality), price protection, rebates or
discounts. There are no customer acceptance provisions associated with the Company&#146;s
products, except for quality. All sales are based on firm customer orders with fixed
terms and conditions, which generally cannot be modified.
</DIV>

<P align="center" style="font-size: 10pt">F-10
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of Significant Accounting Policies &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(i)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Shipping and handling costs</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Shipping and handling costs are classified as to cost of sales for material purchased
and selling expenses for those costs incurred in the delivery of finished products.
During the years ended December&nbsp;31, 2003, 2004, and 2005, shipping and handling costs
classified as costs of sales were $466, $536 and $561, respectively. During the
years ended December&nbsp;31, 2003, 2004 and 2005, shipping and handing costs classified
as selling expenses were $870, $767 and $847, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(j)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Research and development costs</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Research and development costs are incurred in the development of new products and
processes, including significant improvements and refinements to existing products
and are expensed as incurred.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(k)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Advertising expenses</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company expenses advertising costs as incurred. Advertising expenses were $261,
$265 and $377 for the years ended December&nbsp;31, 2003, 2004 and 2005, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(l)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Staff retirement plan costs</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company&#146;s costs related to the staff retirement plans (see note 14) are charged
to the consolidated statement of income as incurred.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(m)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Income taxes</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>PRC tax paid by subsidiaries operating in the PRC during the year is recorded as an
amount recoverable at the balance sheet date when management has filed or has the
definite intention to file an application for reinvestment of profits and a refund is
expected unless there is an indication from the PRC tax authority that the refund, or
a portion of which, will be refused.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Deferred income taxes are provided using the asset and liability method. Under this
method, deferred income taxes are recognized for all significant temporary
differences and classified as current or non-current based upon the classification of
the related asset or liability in the financial statements. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is considered more likely
than not that some portion of, or all, the deferred tax asset will not be realized.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(n)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Foreign currency transactions and translations</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>All transactions in currencies other than functional currencies during the year are
translated at the exchange rates prevailing on the respective transaction dates.
Monetary assets and liabilities existing at the balance sheet date denominated in
currencies other than functional currencies are remeasured at the exchange rates
existing on that date. Exchange differences are recorded in the consolidated
statement of income.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The functional currencies of the Company and its subsidiaries include the U.S. dollar
or the Hong Kong dollar. The financial statements of all subsidiaries with
functional currencies other than the U.S. dollar, the reporting currency, are
translated in accordance with SFAS No.&nbsp;52, &#147;<I>Foreign Currency Translation</I>&#148;. All
assets and liabilities are translated at the rates of exchange ruling at the balance
sheet date and all income and expense items are translated at the average rates of
exchange over the year. All exchange differences arising from the translation of
subsidiaries&#146; financial statements are recorded as a component of comprehensive
income.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The exchange rates between the Hong Kong dollar and the U.S. dollar were
approximately 7.7643, 7.7732 and 7.7546 as of December&nbsp;31, 2003, 2004 and 2005,
respectively.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-11
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of Significant Accounting Policies &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(o)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Earnings per share</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On June&nbsp;20, 2003, the Company&#146;s board of directors
declared a 3 for 1 stock split of
its outstanding common shares. Each shareholder of record on June&nbsp;30, 2003 received
two additional shares for each common share held at that date. In addition, the
Company retained the current par value of $0.01 per share. Accordingly, all
references to numbers of common shares, per share data and stock option data in the
accompanying financial statements have been restated to reflect the stock split on a
retroactive basis.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On October&nbsp;24, 2003, the Company&#146;s board of directors declared an issuance of stock
dividend to shareholders at the ratio of one dividend share for every ten shares held
by the shareholders of record on November&nbsp;7, 2003. For the purposes of earnings per
share calculation, all references to numbers of common shares and per share data have
been restated to reflect this stock dividend.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Basic earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during the year.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Diluted earnings per share gives effect to all dilutive potential common shares
outstanding during the year. The weighted average number of common shares
outstanding is adjusted to include the number of additional common shares that would
have been outstanding if the dilutive potential common shares had been issued.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(p)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock options</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company does not recognize compensation expense for employee stock-based
compensation if the strike-price is equal to or greater than the market price of the
stock at the date of grant. The Company&#146;s policy is to generally grant stock-based
compensation to employees with a stock price equal to the market price of the stock
on the date of grant. The Company continues to account for stock-based compensation
arrangements under Accounting Principles Board (&#147;APB&#148;) Opinion No.&nbsp;25, <I>&#147;Accounting
for Stock Issued to Employees&#148; </I>and provides additional financial statement disclosure
in accordance with SFAS No.&nbsp;123, <I>&#147;Accounting for
Stock-Based Compensation&#148;</I>. The
Company recognizes compensation expense for all stock-based compensation granted to
non-employees by estimating the fair value of the stock-based compensation utilizing
the Black-Scholes option-pricing model. See note 12.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has a stock-based employee compensation plan, as more fully described
in note 12(b). Stock-based employee compensation costs are not reflected in net
income when options granted under the plan had an exercise price equal to the market
value of the underlying common stock on the date of grant.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following table illustrates the effect on net income and earnings per share as if
the Company had applied the fair value recognition.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"> <B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"> <B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"> <B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="1" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income, as reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Stock based compensation costs under
fair value based method for all awards</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(582</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,476</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(7,500</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income, pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">62,409</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,806</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.09</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:184px; text-indent:-15px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.02</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted
earnings per
share&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As reported</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.07</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:184px; text-indent:-15px">Pro forma</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.06</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.01</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 5%">In December&nbsp;2004, the Financial Accounting Standards Board (&#147;FASB&#148;) issued SFAS
No.123R, <I>&#147;Share-Based Payment&#148;</I>. This statement is a revision to SFAS No.&nbsp;123 and
supersedes APB Opinion No.&nbsp;25 (see note 2(u)). The Company will adopt SFAS No.&nbsp;123R
in the year ending December&nbsp;31, 2006.
</DIV>

<P align="center" style="font-size: 10pt">F-12
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of Significant Accounting Policies &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(q)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Use of estimates</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(r)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Comprehensive income</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Accumulated other comprehensive income (loss)&nbsp;represents unrealized gains on
marketable securities and foreign currency translation adjustments and is included in
the consolidated statement of shareholders&#146; equity.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(s)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Fair value disclosures</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The carrying amounts of cash and cash equivalents, accounts receivable, other
receivables, income taxes recoverable, notes payable, short-term bank loans, accounts
payable, accrued expenses and other payables approximate their fair values due to the
short term nature of these instruments. The carrying amount of long term debt also
approximates fair value due to the variable nature of the interest calculations.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(t)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Reclassification</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Certain prior year figures have been reclassified to conform with the current year&#146;s
presentation</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(u)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Recent changes in accounting standards</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2004, the Financial Accounting Standard Board (&#147;FASB&#148;) issued SFAS No.
151, &#147;<I>Inventory Costs &#151; an amendment of ARB No.&nbsp;43,
Chapter&nbsp;4&#148;</I>. SFAS No.&nbsp;151
clarifies the accounting that requires abnormal amounts of idle facility expenses,
freight, handling costs, and spoilage costs to be recognized as current-period
charges. It also requires that allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production facilities. SFAS No.
151 will be effective for inventory costs incurred on or after July&nbsp;1, 2005. The
adoption of this new standard did not have any material impact on the Company&#146;s
financial position, results of operations or cash flows.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In December&nbsp;2004, the FASB issued SFAS No.&nbsp;153, &#147;Exchanges of Nonmonetary Assets&#151;An
Amendment of APB Opinion No.&nbsp;29, Accounting for Nonmonetary Transactions&#148; which
redefines the types of non-monetary exchanges that require fair value measurement.
The Company is required to adopt SFAS No.&nbsp;153 for nonmonetary transactions entered
into after June&nbsp;30, 2005. The adoption of this new standard did not have a material
impact on the Company&#146;s financial position, results of operations or cash flows.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In December&nbsp;2004, the FASB issued SFAS No.&nbsp;123 (revised 2004), <I>&#147;Share-Based Payment&#148;</I>
(&#147;SFAS No.&nbsp;123R&#148;). This statement is a revision to SFAS No.&nbsp;123 and supercedes APB
Opinion No.&nbsp;25. This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services, primarily focusing on the accounting for transactions in which an entity
obtains employee services in share-based payment transactions. Entities are required
to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will be recognized over the period during which an employee
is required to provide service, the requisite service period (usually the vesting
period), in exchange for the award. The grant-date fair value of employee share
options and similar instruments are to be estimated using option-pricing models. If
an equity award is modified after the grant date, incremental compensation cost will
be recognized in an amount equal to the excess of the fair value of the modified
award over the fair value of the original award immediately before the modification.
This statement is effective as of the beginning of the first interim or annual
reporting period that begins after June&nbsp;15, 2005. In accordance with the standard,
the Company is required to adopt SFAS No.&nbsp;123R effective January&nbsp;1, 2006.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-13
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="3%" nowrap align="left"><B>2.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Summary of Significant Accounting Policies &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(u)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Recent changes in accounting standards &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Upon adoption, the Company has two application methods to choose from: the
modified-prospective transition approach or the modified-retrospective transition
approach. Under the modified-prospective transition method the Company would be
required to recognize compensation cost for share-based awards to employees based on
their grant-date fair value from the beginning of the fiscal period in which the
recognition provisions are first applied as well as compensation cost for awards that
were granted prior to, but not vested as of the date of adoption. Prior periods
remain unchanged and pro forma disclosures previously required by SFAS No.&nbsp;123
continue to be required. Under the modified-retrospective transition method, the
Company would restate prior periods by recognizing compensation cost in the amounts
previously reported in the pro forma footnote disclosure under SFAS No.&nbsp;123. Under
this method, the Company is permitted to apply this presentation to all periods
presented or to the start of the fiscal year in which SFAS No.&nbsp;123R is adopted. The
Company would follow the same guidelines as in the modified-prospective transition
method for awards granted subsequent to adoption and those that were granted and not
yet vested. The Company believes that the impact that the adoption of SFAS No.&nbsp;123R
will have on its financial position or results of operations will approximate the
magnitude of the stock-based employee compensation cost disclosed in Note 2 (p)
pursuant to the disclosure requirements of SFAS No.&nbsp;148.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In March&nbsp;2005, the FASB issued FASB Interpretation No. (&#147;FIN&#148;) 47, <I>&#147;Accounting for
Conditional Asset Retirement Obligations, an interpretation of SFAS No.&nbsp;143&#148;. </I>FIN 47
clarifies that an entity is required to recognize a liability for a legal obligation
to perform an asset retirement activity if the fair value can be reasonably estimated
even though the timing and/or method of settlement are conditional on a future event.
FIN 47 is required to be adopted for annual reporting periods ending after December
15, 2005. The Company is evaluating the effect of the adoption of FIN 47. It is not
expected to have a material impact on the Company&#146;s financial position, results of
operations or cash flows.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2005, the FASB issued SFAS No.&nbsp;154, &#147;<I>Accounting Changes And Error Corrections
- a replacement of APB Opinion No.&nbsp;20 and FASB Statement
No.&nbsp;3&#148;</I>. This statement
supercedes APB Opinion No.&nbsp;20, <I>&#147;Accounting changes&#148; </I>and SFAS No.&nbsp;3, <I>&#147;Reporting
Accounting changes in Interim Financial Statements&#148;</I>. SFAS No.&nbsp;154 requires
retrospective application to prior periods&#146; financial statements of changes in
accounting principles, unless it is impracticable to determine the period-specific
effects or the cumulative effect of the change. APB Opinion No.&nbsp;20 &#147;Accounting
Changes,&#148; previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. SFAS No.&nbsp;154 will be effective
for accounting changes and corrections of errors made in fiscal years beginning after
December&nbsp;15, 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="4%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In September&nbsp;2005, the FASB&#146;s Emerging Issues Task Force (&#147;EITF&#148;) reached a final
consensus on Issue 04-13, <I>&#147;Accounting for Purchases and Sales of Inventory with the
Same Counterparty&#148;</I>. EITF 04-13 requires that two or more legally separate exchange
transactions with the same counterparty be combined and considered a single
arrangement for purposes of applying APB Opinion No.&nbsp;29, <I>&#147;Accounting for Nonmonetary
Transactions&#148;</I>, when the transactions are entered into in contemplation of one
another. EITF 04-13 is effective for new arrangements entered into, or modifications
or renewals of existing arrangements, in interim or annual periods beginning after
March&nbsp;15, 2006. The Company is evaluating the effect of the adoption of EITF 04-13.
It is not expected to have a material impact on the Company&#146;s financial position,
results of operations or cash flows.</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-14
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investment in Subsidiaries</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(a)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Subsidiaries</B></TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="28%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7">Percentage of ownership</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Place of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">Principal</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="7" style="border-bottom: 0px solid #000000">as at December 31,</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">incorporation</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">activity</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="3">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="13" valign="top" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD colspan="13" valign="top" align="left"><B>Consolidated principal subsidiaries:</B></TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jasper Ace Limited (&#147;Jasper Ace&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">BVI
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment holding*
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">J.I.C. Technology Company
Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cayman Islands
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment holding
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.63</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.63</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">J.I.C Enterprises (Hong Kong)
Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hong Kong
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Inactive
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.63</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.63</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Jetup Electronic (Shenzhen)
Co., Limited (&#147;Jetup&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manufacturing and
trading
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.63</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.63</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD nowrap valign="top"><DIV style="margin-left:15px; text-indent:-15px">J.I.C. (Macao Commercial
Offshore) Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Macao
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Provision of
consultancy,
administrative and
data processing
services
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.63</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">71.63</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nam Tai Electronic &#038; Electrical
Products Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cayman Islands
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment holding
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">75</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">69.5</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nam Tai Group Management
Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hong Kong
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Provision of
administrative
services*
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:15px; text-indent:-15px">Nam Tai Investments Consultant
(Macao Commercial Offshore)
Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Macao
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Provision of
consultancy,
administrative and
data processing
services
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">75</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">69.5</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nam Tai Telecom (Hong Kong)
Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hong Kong
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Inactive
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Nam Tai Trading Company
Limited (&#147;NTTC&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Hong Kong
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Inactive
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Namtai Electronic (Shenzhen)
Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manufacturing and
trading
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">75</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">69.5</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Namtek Japan Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Japan
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Provision of sales
co-ordination and
marketing services
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">80</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">69.5</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Namtek Software Development
Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cayman Islands
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment holding
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">80</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">69.5</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Shenzhen Namtek Co., Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Software development
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">80</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">69.5</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zastron Electronic (Shenzhen)
Co. Ltd.
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">PRC
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Manufacturing and
trading
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zastron Precision-Tech
Limited (&#147;ZPTL&#148;)
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Cayman Islands
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Investment holding
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<TR valign="bottom">
    <TD nowrap valign="top"><DIV style="margin-left:0px; text-indent:-0px">Zastron (Macao Commercial
Offshore) Company Limited
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Macao
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Provision of
consultancy,
administrative and
data processing
services
</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">100</TD>
    <TD nowrap valign="top">%</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Became inactive subsequent to December&nbsp;31, 2005.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">F-15
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investment in Subsidiaries &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Significant transactions</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>During the period from June to November&nbsp;2003, the Company
disposed of a total of 42,600,000 ordinary shares of JIC Technology for cash
considerations of $4,005. The disposal resulted in a net gain on partial
disposal of a subsidiary of $1,838 after deducting the releasing of unamortized
goodwill of $1,171. In November&nbsp;2003, the Company converted 175,100,000
preference shares into 170,000,000 ordinary shares of JIC Technology. As at
December&nbsp;31, 2003, the Company held 263,900,688 ordinary shares of JIC
Technology, equivalent to 74.86% of issued ordinary shares, and 423,320,000
preference shares. Upon full conversion of the preference shares owned, the
Company would have held approximately 88.39% of JIC Technology as of December
31, 2003.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November and December&nbsp;2004, the Company disposed of a total of 128,000,000
ordinary shares of JIC Technology for cash considerations of $12,902. The
disposal resulted in a net gain on partial disposal of a subsidiary of $6,249
after deducting the releasing of goodwill of $3,518. The Company also
converted all outstanding preference shares into 410,990,290 ordinary shares
of JIC Technology resulting in 71.63% equity interest held in JIC Technology
as of December&nbsp;31, 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In order to concentrate its effort on its LCD panels reporting
unit, in June&nbsp;2003, JIC Technology disposed its transformers reporting unit to a
third party for a cash consideration of $2,426. Sales of the transformers
reporting unit for the year ended December&nbsp;31, 2003 was $6,284, and was
insignificant comparing to the sales of the Company as a whole. The income from
operations of the transformers reporting unit was less than 1% of the Company&#146;s
income from operations for the year ended December&nbsp;31, 2003. The transformers
reporting unit had no non-operating income or expenses for the year ended
December&nbsp;31, 2003.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The proceeds from the disposal exceeded the carrying value of the net assets
of the transformers reporting unit, resulting in a gain from discontinued
operation, net of minority interests, in 2003 of $1,979.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The carrying amounts of the assets and liabilities of the transformers
reporting unit at the date of disposal were as follows:</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Net assets disposed of:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Property, plant and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">559</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cash</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">870</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Liabilities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,176</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">293</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2003, the Company disposed of 20% of its equity
interest in Namtek Software to Asano Company Limited (&#147;Asano Company&#148;), a
company owned by the management of Namtek Software, for a cash consideration of
$160. As of the date of transfer, Namtek Software was fair valued at $3,347.
Accordingly, a charge to compensation expense of $509 and a credit to additional
paid-in capital of $264 (being the difference between the net asset value and
fair value of Namtek Software disposed) resulted.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2005, the Company and Asano Company transferred 80% and 20%,
respectively, of their interest in Namtek Software to NTEEP for a total
consideration of $26,700. Please also see note 3(b)(v) for further details.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-16
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investment in Subsidiaries &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Significant transactions &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iv)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As of January&nbsp;1, 2003, the Company had a 3.033% interest in
Huizhou TCL Mobile Communication Co., Ltd (&#147;Huizhou TCL&#148;) through a then 72.2%
owned subsidiary, Mate Fair Group Limited (&#147;Mate Fair&#148;).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In April&nbsp;2004, the Company increased its equity interest in Huizhou TCL to 9%
through exchange of its existing 72.2% interest in Mate Fair, which had a
3.033% equity interest in Huizhou TCL, and acquiring the entire issued share
capital of Jasper Ace, a holding company with no operations, which directly
holds 9% equity interest in Huizhou TCL. The acquisition was satisfied by the
exchange of the Company&#146;s 72.2% equity interest in Mate Fair, cash of $25,000,
and 1,416,764 new shares in the Company upon a pricing adjustment in July&nbsp;2004
resulting in the cancellation of 973,210 shares of the Company previously
issued as part of the purchase consideration.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(v)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In April&nbsp;2004, one of the then wholly owned subsidiaries of the
Company, NTEEP, completed public offering of its common stock on the Stock
Exchange of Hong Kong Limited (&#147;SEHK&#148;) in which the Company disposed of a 25%
interest in this subsidiary resulting in a gain on partial disposal of $71,071.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In March&nbsp;2005, the Company disposed of a total of 30,000,000 ordinary shares
of NTEEP for cash considerations of approximately $9,836, resulting in a gain
on partial disposal of a subsidiary of approximately $5,870.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2005, through a series of linked transactions, the Company&#146;s
shareholding in NTEEP increased from 71.25% to 72.06% while the effective
shareholding in Namtek Software decreased from 80% to 72.06% upon completion
of the partial disposal of Namtek Software when the Company and Asano Company
transferred 80% and 20%, respectively, of their interest in Namtek Software to
NTEEP for a total consideration of $26,700. The consideration was satisfied
by the issuance of 81,670,588 new shares of NTEEP to the Company and Asano
Company at approximately $0.327 per share. These transactions resulted in a
goodwill of $1,278 arising from the additional interest in NTEEP exchanged and
a net gain on partial disposal of interest in Namtek Software of $1,930.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In August&nbsp;2005, the Company further disposed of a total of 22,574,000 ordinary&nbsp;shares of NTEEP for cash considerations of approximately $5,163. The disposal
resulted in a net gain on partial disposal of a subsidiary of approximately
$2,295 after deducting the releasing of goodwill of $45.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(c)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Establishment of subsidiaries</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(i)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In June&nbsp;2003, Namtek Software established Namtek Japan Company
Limited, a subsidiary incorporated in Japan, at an investment cost of $85. Its
principal activity is sales co-ordination and marketing of software.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(ii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In June&nbsp;2003, the Company established two wholly-owned
subsidiaries, namely ZPTL and NTEEP, incorporated in the Cayman Islands. Their
principal activity is to act as investment holding companies.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iii)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In August&nbsp;2003, the Company established Nam Tai Investments
Consultant (Macao Commercial Offshore) Company Limited, at an investment cost of
$13. Its principal activity is provision of consultancy, administrative and
data processing services to other group companies, and to act as the Company&#146;s
PRC headquarters due to the continuous increase in investment in China.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(iv)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In March&nbsp;2004, the ZPTL established Zastron (Macao Commercial
Offshore) Company Limited, a subsidiary incorporated in Macao, at an investment
cost of $13. Its principal activity is provision of consultancy, administrative
and data processing to group companies.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">(v)</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In November&nbsp;2004, JIC Technology established J.I.C. (Macao
Commercial Offshore) Company Limited, a wholly owned subsidiary incorporated in
Macao, at an investment cost of $13. Its principal activity was trading of
electronic components, and the provision of consultancy, administrative and data
processing. In 2005, it ceased to carry out the trading of electronic
components and focused on the administrative and data processing services only.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-17
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>3.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investment in Subsidiaries &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(d)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Retained earnings</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company&#146;s retained earnings are not restricted as to the payment of dividends
except to the extent dictated by prudent business practices. The Company believes
that there are no material restrictions, including foreign exchange controls, on the
ability of its non-PRC subsidiaries to transfer surplus funds to the Company in the
form of cash dividends, loans, advances or purchases. With respect to the Company&#146;s
PRC subsidiaries, there are restrictions on the payment of dividends and the removal
of dividends from the PRC. In the event that dividends are paid by the Company&#146;s PRC
subsidiaries, such dividends will reduce the amount of reinvested profits and
accordingly, the refund of taxes paid will be reduced to the extent of tax applicable
to profits not reinvested. In addition, pursuant to the relevant PRC regulations, a
certain portion of the profits made by these subsidiaries must be set aside for
future capital investment and are not distributable, and amounted to $6,164 and
$7,489 as of December&nbsp;31, 2004 and 2005 respectively. However, the Company believes
that such restrictions will not have a material effect on the Company&#146;s liquidity or
cash flows.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>4.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Inventories</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Inventories consist of the following:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>At December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Raw materials</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,815</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">24,023</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Work-in-progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,578</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,003</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Finished goods</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,718</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">23,096</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,744</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>5. Property, Plant and Equipment, net</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment, net consist of the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>At December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">At cost:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasehold land and buildings</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">41,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">46,393</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Machinery and equipment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,479</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">94,952</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Leasehold improvements</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,226</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">22,215</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Furniture and fixtures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,026</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,907</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Automobiles</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,766</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tools and molds</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">279</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">141,315</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">167,512</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: accumulated depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(59,912</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(72,619</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Construction in progress</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,033</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net book value</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">94,697</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,926</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">As at December&nbsp;31, 2005, the Company has entered into commitments for capital expenditure
for property, plant and equipment of approximately $10,758, which are expected to be
disbursed during the year ending December&nbsp;31, 2006.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">In 2005, the Company reclassified certain of the leasehold land and building located in Hong
Kong as asset held for sale (note 8).
</DIV>


<P align="center" style="font-size: 10pt">F-18
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>6.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Goodwill</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Goodwill consists of the following:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>CECP</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>LCDP</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>reporting</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>reporting</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>unit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>unit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>Total</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at January&nbsp;1, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">788</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">19,349</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">20,137</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill release related to disposition of 16.76%
interest in JIC Technology</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,518</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,518</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill release related to disposition of 72.22%
interest in Mate Fair</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(788</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(788</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,831</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Exchange difference</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill upon acquisition of additional 0.81% interest
in NTEEP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,277</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,277</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Goodwill release related to disposition of 2.56% interest
in NTEEP</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(45</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(45</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Balance at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,232</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">15,836</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">17,068</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">No impairment loss was identified in 2004 and 2005.</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>7.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Intangible Assets, net</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Intangible assets, net consist of the following:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>At December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Licenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">643</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">643</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Accumulated amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(184</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(245</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment loss recognized (Note 9)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(398</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net carrying amount</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">459</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Amortization expense charged to income from operations for the year ended December&nbsp;31, 2003,
2004 and 2005 was $92, $92 and $61, respectively.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>8.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Asset held for sale</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2005, the management of the Company has committed to a plan to sell certain of its
leasehold land and buildings located in Hong Kong. Accordingly, the leasehold land and
building has been reclassified as &#147;asset held for sale&#148; and ceased to record depreciation
expense since then. On March&nbsp;9, 2006, the Company entered into an agreement to sell this
leasehold land and building for a gross consideration of approximately $20,645.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-19
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>9.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investment in Affiliated Companies, Equity Method</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Alpha Star</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2003, the Company further expanded its business to include wireless communication
technology and related products. The Company made a strategic investment of $10,000 by
subscribing for a 25% shareholding in Alpha Star, a BVI company, which is the ultimate
holding company of Jiang Cheug Tang Wireless Technology Limited (&#147;JCT&#148;), a company engaged
in the design, development and marketing of wireless communication terminals and wireless
application software. The Company also manufactures wireless communication terminals and
related modules for JCT. As part of the agreement, Alpha Star agreed to purchase from the
Company at least 50&nbsp;percent of the orders it, or any of its subsidiaries, receives for RF
modules provided the Company performs such manufacturing services at a price comparable to
the market. The fair value of this arrangement was estimated to be $643 and is included in
the consolidated balance sheet as an intangible asset (note 7). The Company had one
representative on Alpha Star&#146;s board of directors until his resignation in July&nbsp;2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company initially recorded goodwill of approximately $5,596 as a result of the
acquisition of Alpha Star. The Company recorded an equity in earning of Alpha Star of $498
for 2003 but recognized an equity in loss of $1,210 and $186 for 2004 and 2005,
respectively. In the third quarter of 2004, based on the advise from an independent
external valuer, the Company recorded an other-than-temporary impairment charge of
approximately $5,596 to write down its investment in Alpha Star upon its unsatisfactory
operating results and the continued weakness in market operated by Alpha Star.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In August&nbsp;2005, the Company disposed of its entire interest in Alpha Star to the majority
shareholders of Alpha Star for a cash consideration of $6,500. As a result, a gain of
$3,631 was recorded. Due to the cessation of relationship with Alpha Star, the Company
evaluated the viability of the related purchase arrangement as aforesaid and fully wrote off
its then carrying value of $398 (included in selling, general and administrative expenses)
as the intangible asset was no longer expected to recover its carrying value through future
cash flows.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As of December&nbsp;31, 2004, JCT owed the Company $66. For the years ended December&nbsp;31, 2004
and 2005, the Company recognized net sales of $34,181 and $6,195 to JCT and purchased raw
materials of $12,398 and $5,766 from JCT and its related companies, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company did not make any loans or guarantees or had any contingent liabilities with
Alpha Star or any of its subsidiaries.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>10.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investments</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investments in TCL</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company had various investments in TCL Group of companies in the form of convertible
notes, and available for sale marketable securities. During the year ended December&nbsp;31,
2003, the Company disposed of the convertible notes. During the year ended December&nbsp;31,
2004, the investments at cost became marketable securities upon the listing of these
investments on public stock exchanges. The Company has not incurred any material operating
revenue or expenses from the TCL Group of companies, for the years ended December&nbsp;31, 2003,
2004 and 2005.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(a)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Convertible Notes</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On November&nbsp;11, 2002, in connection with its disposal of 1.467% indirect interest in
Huizhou TCL (see note 3(b)(iv)) for approximately $10,424, the Company purchased
$5,128 in 3% convertible notes (&#147;CB Note&#148;) due in November&nbsp;2005 of TCL International
Holdings Limited, a company publicly listed on the SEHK. In August&nbsp;2003, the CB Note
was disposed of by the Company for a consideration of $5,026, resulting in a loss of
$102.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-20
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>10.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investments &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investments, at cost/available for sale investment securities</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(i)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>TCL Corporation</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2003, the Company acquired a 6% equity interest in TCL Holdings
Corporation Ltd., now known as TCL Corporation, for a consideration of
$11,968. TCL Corporation, an enterprise established in the PRC, is the parent
company of the TCL Group of companies. TCL Corporation&#146;s scope of business
includes the import and export of raw materials, the design, manufacturing and
sales and marketing of telephones, VCD players, color television
sets, mobile phones and other consumer electronic products. TCL Corporation
changed from a limited liability company to a company limited by shares in
April&nbsp;2002 (the &#147;Establishment Date&#148;).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In January&nbsp;2004, TCL Corporation listed its A-shares on the Shenzhen Stock
Exchange at RMB4.26 (equivalent to US$0.52) per A-share. The Company&#146;s
interest in TCL Corporation has then been diluted to 3.69% and represents
95.52&nbsp;million promoter&#146;s shares of TCL Corporation after its initial public
offering. According to Article&nbsp;147 of the Company Law of the PRC, the Company
is restricted to transfer its promoter&#146;s shares within three years from the
Establishment Date. The Company is, however, entitled to dividend and other
rights similar to the holders of A-shares.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As these promoter&#146;s shares have a restriction on their sale prior to April
2005, the Company hired a third party valuation firm to determine the fair
value of these shares as of December&nbsp;31, 2004 and 2005 and recognized an
unrealized gain of $6,549 and $1,362, respectively, based on the Company&#146;s
cost of $11,968 and an estimated fair value of $20,700 and $13,330.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On 28 November&nbsp;2005, TCL Corporation announced the proposal of a split share
structure reform (&#147;SSR&#148;). Under the proposed SSR, holders of TCL Corporation
tradable A-shares will receive 2.5 shares for every 10 shares from the holders
of promoter&#146;s shares of TCL Corporation, on a pro rata basis. Upon completion
of the SSR, the Company&#146;s interest in TCL Corporation will be reduced from
95,516,112 shares to 80,600,173 shares, representing a change from 3.69% to
3.12%.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The proposed SSR was approved by the holders of TCL Corporation&#146;s A-shares
during the shareholders&#146; meeting held on 30 December&nbsp;2005, and shall become
effective upon approval by the China Securities Regulatory Commission. As at
31 December&nbsp;2005, such approval has not been obtained.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(ii)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Huizhou TCL</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company had a 3.033% direct interest in Huizhou TCL. As described in note
3(b)(iv), the Company increased its equity interest in Huizhou TCL to 9%. In
August&nbsp;2004, as part of the preparation for TCL Communication&#146;s public
offering on SEHK, the shares in Huizhou TCL were exchanged for the shares in
TCL Communication. In September&nbsp;2004, TCL Communication&#146;s public offering was
completed. At December&nbsp;31, 2004, the Company&#146;s investment in TCL
Communication is stated at fair value based on the traded market price of TCL
Communication&#146;s shares and recognized an impairment loss of $58,316 based on
the Company&#146;s cost of $79,522 and a fair value of $21,206. At June&nbsp;30, 2005,
the Company further recognized an impairment loss of $6,525 based on the fair
value of $14,681. In the fourth quarter of 2005, the Company disposed of its
entire stake in TCL Communication and recorded a loss of $3,686.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Investment in Stepmind</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In December&nbsp;2003, the Company paid approximately $5,277 (Euros 4,250) into an escrow account
for an investment in Stepmind, which was included in prepaid expenses and other receivables
at December&nbsp;31, 2003. Approximately $2,646 (Euros 2,122) was released from the escrow
account in January&nbsp;2004 for the Company&#146;s first phase of investment and was included in
investments. In August&nbsp;2004, the remaining balance in the escrow account was released. In
the same month, the Company disposed of its entire interest in Stepmind to one of the
shareholders of Stepmind at the original subscription price. As a result, a loss of $67,
representing the legal and administrative costs incurred, was noted.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-21
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>11.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Bank Loans and Banking Facilities</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has credit facilities with various banks representing notes payable, trade
acceptances, import facilities, revolving loans and overdrafts. At December&nbsp;31, 2004 and
2005, these facilities totaled $87,923 and $117,345, of which $84,495 and $110,246 were
unused at December&nbsp;31, 2004 and 2005, respectively. The maturity of these facilities is
generally up to 120&nbsp;days. Interest rates are generally based on the banks&#146; usual lending
rates in Hong Kong or the PRC and the credit lines are normally subject to annual review.
The banking facilities are secured by guarantees given by Nam Tai and certain subsidiaries.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The notes payable, which include trust receipts and shipping guarantees, may not agree to
utilized banking facilities due to a timing difference between the Company receiving the
goods and the bank issuing the trust receipt to cover financing of the purchase. The
Company recognizes the outstanding letter of credit as a note payable when the goods are
received, even though the bank may not have issued the trust receipt. However, this will
not affect the total bank facility utilization, as an addition to the trust receipts will be
offset by a reduction in the same amount of outstanding letters of credit.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>At December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding letters of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,348</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">11</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Trust receipts</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,257</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,813</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Usance bills pending maturity</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Short term bank loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,275</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total banking facilities utilized</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,428</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,099</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Less: Outstanding letters of credit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,348</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(11</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Notes payable and short term bank loans</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">7,088</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A subsidiary of the Company has an unsecured four-year term loan with borrowings in May&nbsp;2002
totaling $4,500 at a rate of 1.5% p.a. over three months London Interbank Offered Rate
(&#147;LIBOR&#148;), repayable in 16 quarterly instalments of approximately $281 beginning August&nbsp;31,
2002. The interest rate was reduced to 0.75% p.a. over three months LIBOR in 2004. During
the year 2004, it has obtained another unsecured four-year term loan totaling $7,000 at a
rate of 0.75% p.a. over three months LIBOR, repayable in 16 quarterly instalments of $438
beginning in July&nbsp;2004. At December&nbsp;31, 2005, the loans had outstanding balances of $5,162.
There are no restrictive financial covenants associated with these term loans.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The long term bank loans at December&nbsp;31, 2005 are repayable as follows for the years ending
December&nbsp;31</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">2,312</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,750</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,100</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5,162</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Shareholders&#146; Equity</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(a)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has only one class of common shares authorized, issued and
outstanding.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock options</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In May&nbsp;2001, the Board of Directors approved a stock option plan which would
grant 15,000 options to each non-employee director of the Company elected at each
annual general meeting of shareholders, and might grant options to key employees,
consultants or advisors of the Company or any of its subsidiaries to subscribe for
its shares in accordance with the terms of this stock option plan based on past
performance and/or expected contributions to the Company. The maximum
number of shares to be issued pursuant to the exercise of options granted was 3,300,000 shares.
The options granted under this plan vest immediately and generally have a term of
two to three years, subject to the discretion of the board of directors, but cannot
exceed ten years.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-22
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Shareholders&#146; Equity &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock options &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A summary of stock option activity during the three years ended December&nbsp;31, 2005 is
as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Number of</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>Weighted average</B></TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>options</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2"><B>option price per share</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at January&nbsp;1, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,449,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.84</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">18.50</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised prior to 10 for 1 stock
dividend</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(1,422,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">5.97</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Effect of 10 for 1 stock dividend on
stock option</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised after 10 for 1 stock dividend</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(3,100</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.02</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December&nbsp;31, 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">108,550</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">12.35</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">645,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.94</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(16,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">4.39</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December&nbsp;31, 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">737,050</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.83</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Granted</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,105,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.79</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">Exercised</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(841,050</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.74</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Outstanding at December&nbsp;31, 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,001,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">6.86</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Details of the options granted by the Company in 2003, 2004 and 2005 are as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">Number of</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Exercise</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="center">options granted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">price</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center">Exercisable period</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD colspan="7" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">In 2003</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">75,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left" valign="top">$</TD>
    <TD align="right" valign="top">16.82 </TD>
    <TD nowrap valign="top">*</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July 8, 2003 to July 8, 2006</TD>
</TR>

<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">In 2004</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">645,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">19.40</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">July 30, 2004 to July 30, 2006</TD>
</TR>

<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">In 2005</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD width="6%">&nbsp;</TD>
    <TD width="56%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">1,000,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">20.84</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">February 4, 2005 to February 4, 2007</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD align="right"><DIV style="margin-left:15px; text-indent:-15px">105,000</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">$</TD>
    <TD align="right" valign="top">21.62</TD>
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">June 6, 2005 to June 6, 2008</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The following summarizes information about stock options
outstanding at December&nbsp;31, 2005. All stock options are
exercisable as of December&nbsp;31, 2005.</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="76%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted average</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Number</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">remaining contractual</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Exercise prices</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">of options</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2" style="border-bottom: 1px solid #000000">life in months</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$16.82*</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6.3</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$19.40</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">228,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7.0</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$20.84</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">650,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">13.1</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">$21.62</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29.2</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,001,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12.9</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Subsequent to November&nbsp;7, 2003, the exercise price has been
adjusted to reflect the 10 for 1 stock dividend effect.</TD>
</TR>

</TABLE>


<P align="center" style="font-size: 10pt">F-23
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>12.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Shareholders&#146; Equity &#151; continued</B></TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Stock options &#151; continued</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The weighted average remaining contractual life of the stock options outstanding at
December&nbsp;31, 2003, 2004 and 2005 was 23, 18 and 13&nbsp;months, respectively. The
weighted average fair value of options granted during 2003, 2004 and 2005 was $7.76,
$6.94 and 6.79, respectively, using the Black-Scholes option-pricing model based on
the following assumptions:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="23%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000">Year ended December 31,</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2003</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2004</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">2005</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Risk-free interest rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.56</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">2.75</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">3.56% to 3.59%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected life</DIV></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">3 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" nowrap align="right">2 years</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">2 to 3 years</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected volatility</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">64.24</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">68.62</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" nowrap align="center">62.62% to 71.14%</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Expected dividend per quarter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">0.12</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&nbsp;</TD>
    <TD align="center">$0.33</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(c)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Share buy &#151; back</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No shares were repurchased during the years ended December&nbsp;31, 2003, 2004 and 2005.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(d)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Share redemptions</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On January&nbsp;22, 1999, pursuant to its Articles of Association, the Company redeemed
and canceled 415,500 shares of the Company registered in the name of Tele-Art at a
price of $3.73 per share for $1,549 (see note 18(b)).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;12, 2002, pursuant to its Articles of Association, the Company redeemed and
cancelled an additional 509,181 shares of the Company beneficially owned by Tele-Art
at a price of $6.14 per share for $3,125 (see note 18(b)).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>No shares have been redeemed since August&nbsp;12, 2002.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-24
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left"><B>13.</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Earnings Per Share</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="1%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The calculations of basic earnings per share and diluted earnings per share are computed as
follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">average number</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Per share</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left"><B>Year ended December 31, 2003</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">Income</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">of shares *</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="2">amount</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Continuing operations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">41,823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,336,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.04</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">
- Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">502,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">41,823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,839,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.02</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discontinued operation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,336,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">502,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,839,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">0.05</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,336,439</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.09</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">
- Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">502,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">40,839,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1.07</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD>All options and warrants to purchase shares of common stock were included in the computation
of 2003 diluted earnings per share as the exercise prices were less than the average market
price of the common stock.</TD>
</TR>

</TABLE>
</DIV>


<DIV align="left">
<DIV style="font-size: 3pt; margin-top: 16pt; width: 18%; border-top: 1px solid #000000">&nbsp;</DIV>
</DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">
<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD nowrap align="left">*</TD>
    <TD>&nbsp;</TD>
    <TD>Adjusted for 3 for 1 stock split and 10 for 1 stock dividend.</TD>
</TR>

</TABLE>


<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Per share</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31, 2004</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Income</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">of shares</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">amount</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,496,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>

<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">
- Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">52,123</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>


<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,548,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.57</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt">All options and warrants to purchase shares of common stock were included in the computation
of 2004 diluted earnings per share as the exercise prices were less than the average market
price of the common stock.
</DIV>

<P align="center" style="font-size: 10pt">F-25
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">




<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>13. Earnings Per Share &#151; continued</B>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="55%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Weighted</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">average number</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3">Per share</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31, 2005</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">Income</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">of shares</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">amount</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Basic earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,944,682</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of dilutive securities
- Stock options</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">223,859</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Diluted earnings per share</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,168,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1.19</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">All options to purchase shares of common stock were included in the computation of 2005
diluted earnings per share as the exercise prices were less than the average market price of
the common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>14. Staff Retirement Plans</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The Company operates a retirement benefit scheme (&#147;RBS&#148;) for all qualifying employees in
Macao and a Mandatory Provident Fund (&#147;MPF&#148;) scheme for all qualifying employees in Hong
Kong. The RBS and MPF are defined contribution schemes and the assets of the schemes are
managed by the trustees independent to the Company.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">Both the RBS and MPF are available to all employees aged 18 to 64 and with at least 60&nbsp;days
of service under the employment of the Company in Macao and Hong Kong. Contributions are
made by the Company at 5% based on the staff&#146;s relevant income. The maximum relevant income
for contribution purpose per employee is $3 per month. Staff members are entitled to 100%
of the Company&#146;s contributions together with accrued returns irrespective of their length of
service with the Company, but the benefit can be withdrawn by the employees in Macao at the
end of employment contracts while the benefits are required by law to be preserved until the
retirement age of 65 for employees in Hong Kong.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">According to the relevant laws and regulations in the PRC, the Company is required to
contribute 8% to 9% of the stipulated salary set by the local government of Shenzhen, the
PRC, to the retirement benefit schemes to fund the retirement benefits of their employees.
The principal obligation of the Company with respect to these retirement benefit schemes is
to make the required contributions under the scheme. No forfeited contributions may be used
by the employer to reduce the existing level of contributions.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The cost of the Company&#146;s contribution to the staff retirement plans in Macao, Hong Kong and
PRC amounted to $982, $1,190 and $1,510 for the years ended December&nbsp;31, 2003, 2004 and
2005, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. Income Taxes</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The components of income before income taxes and minority interest are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="61%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">&nbsp;&nbsp;&nbsp;&nbsp;<B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">PRC, excluding Hong Kong and Macao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">39,778</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">37,546</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>

    <TD align="right">36,138</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Hong Kong, Macao and other jurisdictions</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,013</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,034</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD>&nbsp;</TD>
    <TD align="right">23,997</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">42,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">80,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">$</TD>
    <TD align="right">60,135</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>

<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">Under the current BVI law, the Company&#146;s income is not subject to taxation. Subsidiaries
operating in Hong Kong and the PRC are subject to income taxes as described below, and the
subsidiaries operating in Macao are exempted from income taxes. Under the current Cayman
Islands law, ZPTL, NTEEP, JIC Technology and Namtek Software are not subject to profit tax
in the Cayman Islands as they have no business operations in the Cayman Islands. However,
they may be subject to Hong Kong income taxes as described below if they are registered in
Hong Kong.
</DIV>

<P align="center" style="font-size: 10pt">F-26
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. Income Taxes &#151; continued</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The provision for current income taxes of the subsidiaries operating in Hong Kong has been
calculated by applying the current rate of taxation of 17.5% to the estimated taxable income
earned in or derived from Hong Kong during the period, if applicable.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">Deferred tax, where applicable, is provided under the liability method at the rate of 17.5%,
being the effective Hong Kong statutory income tax rate applicable to the ensuing financial
year, on the difference between the financial statement and income tax bases of measuring
assets and liabilities.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The basic corporate tax rate for Foreign Investment Enterprises (&#147;FIEs&#148;) in the PRC, such as
Namtai Electronic (Shenzhen) Co., Ltd. (&#147;NTSZ&#148;), Zastron Electronic (Shenzhen) Co., Ltd.
(&#147;Zastron&#148;), Shenzhen Namtek Co., Ltd (&#147;Shenzhen Namtek&#148;) and Jetup (collectively the &#147;PRC
subsidiaries&#148;) is currently 33% (30% state tax and 3% local tax). However, because all the
PRC subsidiaries are located in Shenzhen and are involved in production operations, they
qualify for a special reduced state tax rate of 15%. In addition, the local tax authorities
in Shenzhen are not currently assessing any local tax.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">Since the PRC subsidiaries have agreed to operate for a minimum of 10&nbsp;years in the PRC, a
two-year tax holiday from the first profit making year is available, following which in the
third through fifth years there is a 50% reduction to 7.5%. In any event, for FIEs such as
NTSZ, Zastron and Shenzhen Namtek which export 70% or more of the production value of their
products, a reduction in the tax rate is available; in all cases apart from the years in
which a tax holiday and tax incentive is available, there is an overall minimum tax rate of
10%. The following details the tax concessions received for the Company&#146;s PRC subsidiaries:
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On January&nbsp;8, 1999, NTSZ received the recognition of &#147;High and New Technology
Enterprise&#148; which entitles it to various tax benefits including a lower income tax rate
of 7.5% until 2003. In July&nbsp;2002, the Shenzhen local tax authority issued a notice to
shorten the tax incentive period from 5&nbsp;years to 3&nbsp;years expiring in 2001.
Nevertheless NTSZ was advised by the Shenzhen local tax authority that it would
continue to provide a rebate of corporate tax paid for 2&nbsp;years for 2002 and 2003.
During 2003, NTSZ received $110 rebate of corporate tax paid for 2002, a tax refund of
$122 from reinvestment of profits for 1999 to 2001 and a refund of $441 for being an
export-oriented enterprise in 2002. In 2004, NTSZ received a tax refund of $821 from
reinvestment of profits for 2003 and a refund of $399 for being an export-oriented
enterprise in 2003. In 2005, NTSZ received a tax refund of $1,815 from reinvestment of
profit for 2003. Besides, NTSZ further paid $738 and subsequently received a tax
refund of $1,726 from reinvestment of profit for year 2004 and a refund of $971 for
being an export-oriented enterprise.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In 2003, Zastron received a refund of $56 from reinvestment of profits for 1999 and
a refund of $124 for being an export-oriented enterprise. On May&nbsp;13, 2005, Zastron
received the recognition of &#147;High and New Technology Enterprise&#148; and was entitled to
enjoy a reduced corporate tax rate of 7.5% for three years commencing 2005. In 2004,
Zastron also received a refund of $243 from reinvestment of profits for 1999 to 2003
and a refund of $793 for being an export-oriented enterprise in 2003. In 2005, Zastron
received a refund of $1,398 from reinvestment of profit for year 2000 to 2003.
Besides, Zastron further paid $170 and subsequently received a tax refund of $874 from
reinvestment of profit for year 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In February&nbsp;2001, Shenzhen Namtek received the recognition of &#147;Advanced Technology
Enterprise&#148; which entitles it to various tax benefits including a lower income tax rate
of 7.5% until 2003. In 2003, Shenzhen Namtek received a refund of $27 from the
reinvestment of profits for 1998 to 2000. In 2004, Shenzhen Namtek is entitled to a 5%
tax refund for being an export-oriented enterprise in 2004.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Shenzhen local tax authority has granted Jetup the status of &#147;High and New
Technology Enterprise&#148; and allowed it to enjoy a lower income tax rate of 7.5% for 3
years from 2002 to 2004. During 2003, Jetup received a refund of $175 from
reinvestment of profit for 2002. During 2005, Jetup received a refund of $233 and $346
from reinvestment of profit for 2003 and 2004, respectively.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt">F-27
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. Income Taxes &#151; continued</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">A FIE whose foreign investor directly reinvests by way of capital injection its share of
profits obtained from that FIE or another FIE owned by the same foreign investor in
establishing or expanding an export-oriented or technologically advanced enterprise in the
PRC for a minimum period of five years may obtain a refund of the taxes already paid on
those profits. The PRC subsidiaries qualified for such refunds of taxes as a result of
reinvesting their profit earned in previous years by their respective holding companies. As
a result, the Company recorded tax expense net of the benefit related to the refunds. At
December&nbsp;31, 2004 and 2005, taxes recoverable under such arrangements were $6,520 and
$2,624, respectively, which are included in income taxes recoverable and expected to be
received during 2005 and 2006, respectively. However, during 2003 the Shenzhen government
did not refund approximately $13 in taxes the Company paid in 1998 to 2000. Therefore, the
Company reversed the related receivable into current tax expense in 2003.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">In accordance with its normal practice, the Hong Kong tax authorities selected the Company
and one of its wholly owned subsidiaries for a tax audit. In March&nbsp;2003, in relation to
fiscal year 1996, the Hong Kong tax authorities have made certain estimated assessments for
public revenue protection purposes to prevent the assessments, if any, from becoming time
barred. The Hong Kong tax authorities have not provided concrete grounds for the
assessments. The Company and the subsidiary concerned have objected to these estimated
assessments. The outcome of the objection is uncertain at this stage as the Hong Kong tax
authorities are still reviewing the Company&#146;s and its subsidiary&#146;s Hong Kong tax position.
At the time, it is not possible to estimate the outcome of the tax audit, the amount that
may have to be paid, if any, or the impact that the results of the 1996 tax audit will have
to subsequent tax years. However, management is of the view that there will be no material
tax adjustment as a result of the tax audit. In March&nbsp;2004, this wholly owned subsidiary
received a tax demand note from the Hong Kong tax authorities for additional tax assessment
of US$567 for the fiscal year 1997 and such tax payable can be held over on condition that a
tax reserve certificate is purchased. The subsidiary requested for an unconditional
hold-over of such assessment without purchasing tax reserve certificate but was denied by
the Hong Kong tax authorities. In June&nbsp;2004, this subsidiary applied to the High Court of
Hong Kong for a judicial review in relation to the purchase of the tax reserve certificate.
The judgement was delivered on December&nbsp;7, 2005 dismissing the Company&#146;s application. The
Company had filed an appeal on January&nbsp;10, 2006 and the hearing is scheduled to be held on
July&nbsp;25 and 26, 2006. Management is of the view that they will obtain favorable judgement
and hence, no material tax adjustment is expected.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The current and deferred components of the income tax expense appearing in the consolidated
statements of income are as follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="36%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="10%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
<TD style="border-bottom: 1px solid #000000">&nbsp;</TD>


<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">&nbsp;&nbsp;&nbsp;&nbsp;<B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Current tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(433</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(957</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$(651)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Deferred tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">78</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(399</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(879</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap>&nbsp;</TD>

    <TD nowrap align="right">$</TD>
    <TD align="right">(651)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The Company&#146;s deferred tax assets and liabilities as of
December&nbsp;31, 2004 and 2005 are attributable to the following:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="54%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
<TD style="border-bottom: 1px solid #000000">&nbsp;</TD>

<TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000">&nbsp;&nbsp;&nbsp;&nbsp;<B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net operating losses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,863</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>

    <TD align="right">$</TD>
    <TD align="right">8,914</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Valuation allowance</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,863</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>

    <TD nowrap align="right">&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,914</TD>
<TD nowrap>)&nbsp;</TD>

</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>

    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The realization of the recorded deferred tax assets is dependent on generating sufficient
taxable income prior to the expiration of net operating loss carryforwards. As the
management does not believe that it is more likely than not that all of the deferred tax
asset will be realized, a full valuation allowance has been established at December&nbsp;31, 2004
and 2005.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">At
December&nbsp;31, 2003, the Company did not have any net operating
loss carryforwards. For the years ended December&nbsp;31, 2004 and
2005, the Company had net operating losses of $5,863 and $3,051,
respectively, which may be carried forward indefinitely.
</DIV>

<P align="center" style="font-size: 10pt">F-28
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>15. Income Taxes &#151; continued</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">A reconciliation of the income tax expense to the amount computed by applying the current
tax rate to the income before income taxes in the consolidated statements of income is as
follows:
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="66%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #000000"><B>Year ended December 31,</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2003</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2004</B></TD>
    <TD style="border-bottom: 1px solid #000000">&nbsp;</TD>
    <TD nowrap align="center" colspan="3" style="border-bottom: 1px solid #000000"><B>2005</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">42,791</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">80,580</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">60,135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">PRC tax rate</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">15</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income tax expense at PRC tax rate on income before
income tax</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(6,419</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(12,087</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(9,020</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of difference between Hong Kong and PRC tax
rates applied to Hong Kong income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">205</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">196</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of (loss)&nbsp;income for which no income tax benefit/
expense is receivable/payable</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">796</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7,660</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,813</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax holidays and tax incentives</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,122</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,103</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Effect of PRC tax concessions, giving rise to no PRC tax
liability</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,435</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,774</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,667</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax losses not recognised-</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,026</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(534</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Tax benefit (expense)&nbsp;arising from items which are not
assessable (deductible)&nbsp;for tax purposes:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Gain on disposal of land in Hong Kong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">82</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Exempted interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">16</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Non-deductible legal and professional fees</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(301</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(282</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(317</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Non-deductible and non-taxable other items</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(105</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(744</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Overprovision for income tax expense in prior year</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Underprovision of income tax expense in prior years</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(268</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(41</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(119</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(116</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">127</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(399</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(879</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(651</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">No income tax arose in the United States of America in any of the periods presented.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">Tax that would otherwise have been payable without tax holidays and tax concessions amounts
to approximately $5,557, $4,994 and $4,770 in the years ended December&nbsp;31, 2003, 2004 and
2005, respectively (representing a decrease in the basic earnings and diluted earnings per
share of $0.14, $0.12 and $0.11 in the years ended December&nbsp;31, 2003, 2004 and 2005,
respectively).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>16. Related Party Balance and Transactions</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">As of December&nbsp;31, 2004, the balance due from a related party represented the balance due
from JCT, a subsidiary of Alpha Star. For the years ended December&nbsp;31, 2004 and 2005, the
Company recognized net sales of $34,181 and $6,195 and purchased raw materials of $12,398
and $5,766 from JCT and its related companies, respectively.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">During the year ended December&nbsp;31, 2004, the Company disposed of certain other assets to a
director of the Company at a consideration of $231, which represented the then carrying
value of the assets. No significant gain or loss arose from such transaction.
</DIV>

<P align="center" style="font-size: 10pt">F-29
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>17. Financial Instruments</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The Company&#146;s financial instruments that are exposed to concentrations of credit risk
consist primarily of its cash and cash equivalents and trade receivables.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The Company&#146;s cash and cash equivalents are high-quality deposits placed with banking
institutions with high credit ratings. This investment policy limits the Company&#146;s exposure
to concentrations of credit risk.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The trade receivable balances largely represent amounts due from the Company&#146;s principal
customers who are generally international organizations with high credit ratings. Letters of
credit are the principal security obtained to support lines of credit or negotiated contracts
from a customer. As a consequence, concentrations of credit risk are limited. Allowance for
doubtful debts was $157 and $494 in 2004 and 2005, respectively. There were no other
movements in the allowance for doubtful accounts.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 3%">The Company&#146;s financial instruments reported in current assets or current liabilities in the
consolidated balance sheet at carrying amounts approximate their fair values due to the
short term nature of these instruments. The Company&#146;s financial instruments reported as
non-current liabilities, such as its long term bank loans, approximate their fair values due
to the variable nature of the interest calculations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. Commitments and Contingencies</B>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(a)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Lease commitments</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company leases premises under various operating leases, certain of which contain
contingent escalation clauses whereby the percentage increase is subject to periodic
review and agreement between the Company and the lessor. Rental expense under
operating leases was $617, $975 and $1,546 in the years ended December&nbsp;2003, 2004
and 2005, respectively.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>At December&nbsp;31, 2005, the Company was obligated under operating leases, which relate
to land and buildings, requiring minimum rentals as follows:</TD>
</TR>

</TABLE>
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="88%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD nowrap align="left" style="border-bottom: 1px solid #ffffff">Year ending December 31,</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">1,703</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- 2007</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,662</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- 2008</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,476</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- 2009</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,242</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- 2010</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,314</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">- 2011 and thereafter</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,935</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap colspan="2" align="right" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">9,332</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
        <TD nowrap colspan="2" align="right" style="border-top: 3px double #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Significant legal proceedings</B></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><I>&nbsp;</I></TD>
    <TD width="1%"><I>&nbsp;</I></TD>
    <TD><I>Tele-Art</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In June&nbsp;1997, the Company filed a petition in BVI for the winding up of Tele-Art Inc.
(&#147;Tele-Art&#148;) on account of an unpaid judgment debt owing to the Company. The High
Court of Justice granted an order to wind up Tele-Art in July&nbsp;1998. Tele-Art
appealed to the Court of Appeal against the winding up order. This appeal was heard
on January&nbsp;13, 1999 by the Court of Appeal and was dismissed on January&nbsp;25, 1999. On
January&nbsp;22, 1999, pursuant to its Articles of Association, the Company redeemed and
cancelled 415,500 shares * of the Company registered in the name of Tele-Art at a
price of $3.73 per share to offset substantially all of the judgment debt of $799,
plus interest and legal costs totaling $1,673. The Company had also previously
withheld dividends on shares beneficially owned by Tele-Art which were applied
towards the partial satisfaction of the said judgment debts costs and interest.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-30
</DIV>

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. Commitments and Contingencies </B>- continued
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Significant legal proceedings </B>- continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><I>&nbsp;</I></TD>
    <TD width="1%"><I>&nbsp;</I></TD>
    <TD><I>Tele-Art </I>- continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In September&nbsp;1999, the High Court heard the application by the Company dated March
22, 1994 for an inquiry into damage suffered by the Company (the &#147;First Inquiry&#148;) as
a result of the ex-part injunction granted to Tele-Art against the Company on
September&nbsp;29, 1993 which prohibited the Company from proceeding with a rights
offering in September&nbsp;1993.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Following the completion of the first redemption on January&nbsp;22, 1999, the Company
received notice that David Hague, the then liquidator of Tele-Art, had obtained an
ex-parte injunction from the High Court preventing the Company from redeeming the
Company 415,500 shares *.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On July&nbsp;5, 2002, upon the Company&#146;s application, the High Court ordered the removal
of the David Hague&#146;s ex-parte injunction and ordered an inquiry into damages suffered
by the Company as a result of the injunction (the &#147;Second Inquiry&#148;).</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;9, 2002, the High Court delivered its decision on the First Inquiry and
awarded the Company damages of approximately $34,000. On August&nbsp;12, 2002, the Company
redeemed and cancelled, pursuant to its Articles of Association, the remaining
509,181 shares ** beneficially owned by Tele-Art at a price of $6.14 per share.
Including the dividends which we had withheld and credited against the judgment, this
offset a further $3,519 in judgment debts owed to the Company by Tele-Art. The
Company recorded the $3,333 redemption, net of expenses, as other income in 2002.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In accordance with the directions given by the High Court in respect of the Second
Inquiry on March&nbsp;28, 2003, the Company filed its points of claim on April&nbsp;3, 2003 and
subsequently filed amended points of claim on April&nbsp;16, 2003. In breach of the
court&#146;s directions, David Hague failed to file his points of defense on June&nbsp;20, 2003
as ordered but instead he filed an application in the High Court, inter alia, to
strike out the Company&#146;s points of claim and for summary judgment on the inquiry into
damages on June&nbsp;20, 2003. The Company thereupon applied to the High Court on August
19, 2003 for judgment against David Hague in default of defense on the basis that
David Hague had not complied with the directions of the court for the filing of his
points of defense to the Company&#146;s points of claim.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Both applications were heard by the High Court on May&nbsp;12, 2004. At the hearing, the
court allowed David Hague to file his points of defense on May&nbsp;12, 2004. The Company
filed an application for leave to appeal against this ruling on May&nbsp;24, 2004. The
High Court dismissed David Hague&#146;s strike out application on December&nbsp;14, 2004 and
David Hague applied for leave to appeal against the order dismissing his application
on December&nbsp;28, 2004. The Company&#146;s appeal and David Hague&#146;s appeal were heard by
the Court of Appeal on September&nbsp;19 to 21, 2005 and the court delivered its judgment
on January&nbsp;16, 2006. In this judgment, the Court of Appeal reversed the High Court&#146;
s ruling on David Hague&#146;s application and struck out the Company&#146;s points of claim on
the inquiry into damages on the ground that the Company had no realistic process of
succeeding on same. The court also ordered costs against the Company to be assessed
on a prescribed costs basis. The court further expressed the view that, in light of
its dismissal of the Company&#146;s points of claim, it was not necessary to rule on the
Company&#146;s appeal against the dismissal of its application for judgment in default
since the point was now academic with the dismissal of the Company&#146;s points of claim.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company filed an application for leave to appeal the decision of the Court of
Appeal to the Privy Council, the BVI final court of appeal on February&nbsp;3, 2006. This
application is expected to come on for hearing when the Court of Appeal next sits in
the British Virgin Islands in May&nbsp;2006.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-31
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. Commitments and Contingencies </B>- continued
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Significant legal proceedings </B>- continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><I>&nbsp;</I></TD>
    <TD width="1%"><I>&nbsp;</I></TD>
    <TD><I>Tele-Art </I>- continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Previously, on February&nbsp;4, 1999, David Hague, the then liquidator of Tele-Art filed a
summons (the &#147;Priority Summons&#148;) in the BVI on its behalf seeking, among other
matters:</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>A declaration as to the respective priorities of the debts of Tele-Art to the
Bank of China, the Company, and other creditors and their respective rights to
have their debts discharged out of the proceeds of the
Tele-Art&#146;s Nam Tai shares;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>An order setting aside the redemption of 415,500 shares *, and ordering
delivery of all shares in possession or control of the Company to the
liquidator; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="6%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>&#149;</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Payment of all dividends in respect of Tele-Art&#146;s Nam Tai shares.</TD>
</TR>

</TABLE>
</DIV>

<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Priority Summons was heard by the High Court on July&nbsp;29 and 30, 2002 and the High
Court delivered its judgment on January&nbsp;21, 2003 declaring that the redemption and
set-off of dividends on the 415,500 shares * be set aside and that all Tele-Art&#146;s
property withheld by the Company be delivered to Tele-Art in liquidation. On
February&nbsp;4, 2003, the Company filed an application for a stay of execution and leave
to appeal the decision. The appeal was heard on January&nbsp;12, 2004 and judgment was
delivered on April&nbsp;26, 2004. The Court of Appeal held that the redemption by the
Company of 415,500 * of the Company&#146;s shares was proper and efficacious. However,
the Company must return the redemption proceeds and dividends payable prior to the
redemption to the liquidator. David Hague obtained leave to appeal to the Privy
Council on September&nbsp;21, 2004 to appeal the finding by the Court of Appeal that the
redemption by the Company was efficacious. It is not expected that this appeal will
be heard in 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Bank of China, which had involved in the proceedings in the High Court and Court
of Appeal with respect to the Priority Summons, applied on December&nbsp;12, 2005 for
special leave to intervene and to be joined as a respondent to the Privy Council
appeal of David Hague, firstly so as to be in a position to support David Hague&#146;s
appeal and secondly, to appeal against that part of the Court of Appeal Order that
declared that the redemption price for the sale of the Company&#146;s shares owned by Tele
Art and all withheld dividends to be paid to the liquidator of Tele Art and not the
Bank of China despite finding that the Bank of China was a secured creditor. The
Bank of China&#146;s application for special leave was heard by the Privy Council on
February&nbsp;6, 2006 which granted the Bank of China special leave to intervene on the
ground that the matter raised important points of law.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>In their judgments on the Priority Summons, both the High Court and the Court of
Appeal held that Bank of China was a secured creditor pursuant to its share charge
dated November&nbsp;10, 1993 over the shares of the Company held beneficially by Tele-Art.
Neither court determined the amount owned by Tele-Art to Bank of China,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>Bank of China has submitted that it is a secured creditor. In this respect, its
position is that as of December&nbsp;6, 2004, the secured debt, which was from advances
made to Tele-Art&#146;s subsidiary, Tele-Art Limited, was $2,819 with interest accruing
daily. The liquidator, however, took the view in his third liquidator report, which
was submitted to the Court on October&nbsp;13, 2004, that the Bank of China&#146;s proof of
debt was incomplete. The liquidator has requested the Court&#146;s approval to take
further action and demand that Bank of China provide further information for his
consideration. According to the third report, the amount of debt owed by Tele-Art
Limited to Bank of China may not exceed $1,400. It should be further noted that
apart from the Company, the liquidator admitted the proof of debts of two other
unsecured creditors which together amounted to approximately $33. David Hague, the
former liquidator, has submitted a claim for $382 in respect of costs for work as
liquidator of Tele-Art. These costs, however, are subject to the approval of the
court and as such are still pending, as they have not yet been approved. The
liquidator filed a summons for the approval of his third report on October&nbsp;13, 2004
and this was heard on December&nbsp;14, 2004. The Court, inter alia, ordered that the
liquidator continue the administration of the liquidation of Tele-Art substantially
in accordance with his proposals contained in said report as well as the second
report..</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-32
</DIV>

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. Commitments and Contingencies </B>- continued
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Significant legal proceedings </B>- continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><I>&nbsp;</I></TD>
    <TD width="1%"><I>&nbsp;</I></TD>
    <TD><I>Tele-Art </I>- continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On August&nbsp;25, 2005, the liquidator filed his summons in the High Court for the
approval of his fourth liquidator report. The report sought the court&#146;s approval of
his recommendation to the amount of debt owed by Tele-Art to the Company of
approximately $3,890, two other unsecured creditors of approximately $221 and the fee
to David Hague of approximately $382. The report also sought the court&#146;s approval of
the Company&#146;s proposal on the distribution of the redemption proceeds among the
unsecured creditors and direction of court on whether Bank of China is eligible to
claim any debts as against Tele-Art and , if eligible, the quantum of such debt.
This liquidator&#146;s summons was due to be heard on February&nbsp;20, 2006 but had been
adjourned to a date to be fixed by the Registrar of the High Court because the
liquidator failed to serve a copy of the summons on the Bank of China.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On April&nbsp;11, 2005, Bank of China also filed a summons to the BVI court to seek orders
to force the Company to pay redemption price and dividends ordered by the Court of
Appeal on the appeal of the Priority Summons to Bank of China. The Company filed
affidavit evidence in response on July&nbsp;19, 2005. The hearing date of this summons has
not yet been fixed and the Company will continue to contest the summons vigorously.
The Company dispute that finding, and among other matters, that the proof of debt by Bank of
China submitted to the liquidator was incomplete and invalid.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>As of December&nbsp;31, 2002, due to the uncertainty of the final outcome of the
litigation as a result of the January&nbsp;21, 2003 judgment and in accordance with SFAS
No.&nbsp;5, &#147;Accounting for Contingencies&#148;, the Company recorded a provision for $5,192 as
a component of accrued expenses as of December&nbsp;31, 2002, pending a final
determination of this matter by the courts, represented the then best estimate of the
net monetary expense the Company would have if its appeal to the judgment in relation
to the Priority Summons on January&nbsp;21, 2003 was unsuccessful and its two judgment
debts in the total amount of $38,000 (including interest, costs, and related
expenses) was determined as having the lowest priorities in recovering from the
estate of Tele-Art. According to the information provided by the liquidator on
November&nbsp;7, 2003, apart from the Company, a total of 3 other creditors of Tele-Art,
including the Bank of China, submitted their proof of debt to the liquidator for a
total claim of approximately $3,390. Together with the outstanding legal charge as
at December&nbsp;31, 2003, the total potential obligation to the Company was estimated to
be approximately $3,890, and accordingly, the 2002 provision for $5,192 had been
reduced to $3,890 in the fourth quarter of 2003. As a result of the April&nbsp;26, 2004
judgment, the Company negotiated with the liquidator on the distribution of the
redemption proceeds among the unsecured creditors and suggested a proposal for the
court&#146;s approval. If the Company&#146;s proposal is approved by the court, and all legal
matters related to Tele-Art are finalized, including the final determination of the
position of the Bank of China, then any remaining portion of the $3,890 provision
will be reversed into income in the related period.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>However, the actual amount of the recovery, if any, is uncertain, and is dependent on
a number of factors including the final determination of the Bank of China&#146;s
position. The Company plans to continue to pursue vigorously all legal alternatives
available to seek to recover the maximum amount of the outstanding debt from Tele-Art
as well as to pursue other parties that may have assisted in any transfers of the
assets from Tele-Art. In furtherance of this objective, the Company commenced
proceedings in 2002 against David Hague and PricewaterhouseCoopers for, inter alia,
negligence and breach of statutory duty in their conduct of the liquidation. David
Hague had submitted a letter of resignation from the post of liquidator of Tele-Art
on September&nbsp;3, 2002 to the High Court and his resignation was approved by the High
Court on December&nbsp;17, 2002. A new liquidator, Mr.&nbsp;Glenn Harrigan, was then appointed
by the BVI court on July&nbsp;11, 2003. David Hague and PricewaterhouseCoopers applied to
the High Court of the BVI on December&nbsp;24, 2002 challenge the service of these
proceedings on them to Hong Kong and jurisdiction of the BVI courts to determine the
claim by the Company. The application was heard by the High Court on May&nbsp;11 and 12,
2004 and dismissed in its judgment on October&nbsp;29, 2004. David Hague and
PricewaterhouseCoopers obtained leave to appeal this judgment in March&nbsp;2005 and the
appeal was heard by the Court of Appeal on September&nbsp;19 to 21, 2005. The Court of
Appeal delivered its judgment dismissing the appeal and awarding costs to the
Company. David Hague and PricewaterhouseCoopers made an application on February&nbsp;6,
2006 for leave to appeal this judgment to the Privy Council. The Company has
cross-applied for leave on February&nbsp;3, 2006 to appeal to the Privy Council against
the costs awarded to the Company in the Court of Appeal on the basis that such costs
were determined by the application of incorrect legal principles and were in any
event too low and inconsistent with cost orders made against the Company in other
appeal proceedings involving David Hague. It is expected that both the applications
of the Company and David Hague and PricewaterhouseCoopers will come on for hearing in
May&nbsp;2006 when the Court of Appeal next sits in the BVI.</TD>
</TR>

</TABLE>
</DIV>
<P align="center" style="font-size: 10pt">F-33
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV style="margin-top: 6pt"><TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">



</TABLE>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>18. Commitments and Contingencies </B>- continued
</DIV>


<DIV style="margin-top: 6pt">
<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt">

<TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><B>(b)</B></TD>
    <TD width="1%">&nbsp;</TD>
    <TD><B>Significant legal proceedings </B>- continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><I>&nbsp;</I></TD>
    <TD width="1%"><I>&nbsp;</I></TD>
    <TD><I>Tele-Art </I>- continued</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>The Company has also instituted proceedings in the British Virgin Islands against UBS
Painewebber (&#147;UBS&#148;) on June&nbsp;20, 2005 for breach of trust in respect of UBS&#146;s role as
brokers in carrying out the terms of the September&nbsp;1997 BVI Court Order for the sale
of Tele-Art&#146;s Nam Tai shares in sufficient quantities to pay the debts of the Bank of
China and the Company. UBS has filed an application challenging the jurisdiction of
the Court, which has not yet been formally served on the Company. The High Court has
adjourned the hearing of this application to May&nbsp;22, 2006.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(* Subsequent to November&nbsp;7, 2003, the number of shares has been adjusted to 457,050
to reflect the 10 for 1 stock dividend effect.)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>(** Subsequent to November&nbsp;7, 2003, the number of shares has been adjusted to 560,099
to reflect the 10 for 1 stock dividend effect.)</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left"><I>&nbsp;</I></TD>
    <TD width="1%"><I>&nbsp;</I></TD>
    <TD><I>Shareholders&#146; Actions</I></TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR><TR valign="top" style="font-size: 10pt; color: #000000; background: transparent">
    <TD width="2%" style="background: transparent">&nbsp;</TD>
    <TD width="3%" nowrap align="left">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD>On March&nbsp;11, 2003, we were served with a complaint in an action captioned Michael
Rocco v. Nam Tai, et al., 03 Civ. 1148 S.D.N.Y.), or the Rocco Action. In addition to
Nam Tai, certain directors are named as defendants.On or about April&nbsp;9, 2003, a
second complaint was filed in an action captioned A.J. &#038; Celine Steigler v. Nam Tai,
et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco
Action, the Actions. The Actions have been consolidated since July&nbsp;2003 and purport
to represent a putative class of persons who purchased the common stock of Nam Tai
from July&nbsp;29, 2002 through February&nbsp;18, 2003. Plaintiffs in the Actions assert
claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
allege that misrepresentations and/or omissions were made during the alleged class
period concerning the partial reversal of an inventory provision and a charge to
goodwill related to Nam Tai&#146;s LPT segment. Our motion to dismiss the Actions was
denied on September&nbsp;27, 2004. On May&nbsp;27, 2005, the plaintiffs moved to certify the
Actions as a class action with an individual, Douglas Ward, as the named class
representative. We filed our opposition to the motion on June&nbsp;20, 2005. The court
heard oral argument on the motion on July&nbsp;26, 2005, and has not yet ruled. On
October&nbsp;7, 2005, the plaintiffs filed a Second Amended Consolidated Class&nbsp;Action
Complaint which contained substantive allegations that did not vary from the
previously filed Actions and added an additional individual, Michael Rocco, as a
named class representative. After class representative discovery, on February&nbsp;10,
2006, plaintiffs filed their motion for class certification with Michael Rocco as on
added class representative. The Company filed its opposition papers on March&nbsp;3,
2006. The motion is scheduled for oral argument on April&nbsp;17, 2006. The Company
believes it has meritorious defenses and intends to defend the case vigorously.</TD>
</TR>

</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-34
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="font-family: 'Times New Roman',Times,serif">



<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>19. Segment Information</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company operates in three segments: CECP, TCA and LCDP. In 2003, LCDP also comprised
the transformers operations. These segments are operated and managed as strategic business
units. The chief operating decision maker evaluates the net income of each segment in
assessing performance and allocating resources between segments.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The following table provides operating financial information for the three reportable
segments.
</DIV>
<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><u><B>Year ended December&nbsp;31, 2003</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>CECP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>TCA</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>LCDP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; third parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">132,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">211,380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">41,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">385,524</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,782</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,782</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,820</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">232,162</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,324</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">406,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(98,511</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(206,915</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(34,590</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(340,016</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,309</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,247</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,734</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">66,290</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
   <TD nowrap align="right">(9,056</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(8,749</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,958</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,103</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(24,866</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,081</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,466</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(490</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,037</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other (expenses)&nbsp;income, net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(256</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,078</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(815</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend income received from marketable
securities and investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,696</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,018</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,714</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on partial disposal of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,838</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">775</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">788</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(116</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(121</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes and minority
interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,617</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">15,041</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">936</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,791</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(233</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(219</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(399</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before minority interests and equity
income of affiliated companies</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,384</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">932</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,254</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">42,392</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(295</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(211</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(561</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,067</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in income of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">498</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income after minority interests and equity
in income of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">721</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">41,823</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Discontinued operation</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,979</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,979</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">24,089</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,822</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,700</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,191</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>Year ended December&nbsp;31, 2004</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>CECP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>TCA</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>LCDP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; third parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">168,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">282,514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">48,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">499,680</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,181</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">168,456</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">316,695</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">48,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">533,861</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(131,163</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(286,206</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(40,016</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(457,385</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">37,293</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">30,489</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">8,694</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">76,476</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">(10,268</TD>
    <TD>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,940</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,212</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,633</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(28,053</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,348</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,748</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(949</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,045</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expenses), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">777</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(72</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,756</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,012</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend income received from marketable
securities and investment</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">926</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">17,369</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,295</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on partial disposal of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,320</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">77,320</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment loss on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(58,316</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(58,316</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">164</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">823</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,110</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(23</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(171</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(195</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before income taxes and
minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">26,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,811</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,419</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,580</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(689</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(180</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(67</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(879</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income before minority interests and equity
in loss of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">25,854</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">29,864</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">79,701</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,351</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(254</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(405</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,010</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in loss of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,806</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,806</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">20,503</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,098</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">22,653</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-35
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>19. Segment Information &#151; continued</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><u><B>Year ended December&nbsp;31, 2005</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>CECP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>TCA</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>LCDP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; third parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">169,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">563,874</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">58,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">791,042</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales &#151; related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,195</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">169,056</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">570,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,112</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">797,237</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Cost of sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(134,002</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(523,869</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(46,443</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(704,314</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gross profit</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,054</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">11,669</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">92,923</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Selling, general and administrative
expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(11,166</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(10,364</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,224</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(5,303</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(33,057</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Research and development expenses</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,500</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(2,546</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,164</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,210</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Other income (expenses), net</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">1,276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">740</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(4,649</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(125</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Dividend income received from
marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">579</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">579</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on partial disposal of subsidiaries</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,095</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">10,095</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Gain on disposal of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,631</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Loss on disposal of marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,686</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,686</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Impairment loss on marketable securities</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,525</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,525</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">514</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">47</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">2,659</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,948</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Interest expense</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(438</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(438</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before income taxes
and minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,989</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,294</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,630</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">60,135</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income taxes</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(498</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(78</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(75</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(651</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Income (loss)&nbsp;before minority interests and
equity in loss of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">23,491</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,555</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(3,778</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">59,484</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Minority interests</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(6,661</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(1,331</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(7,992</TD>
    <TD nowrap>)</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Equity in loss of an affiliated company</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(186</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">&nbsp;</TD>
    <TD align="right">(186</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income (loss)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">35,216</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right">$</TD>
    <TD align="right">(3,964</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="19" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>Year ended December&nbsp;31, 2003</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>CECP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>TCA</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>LCDP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,207</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,449</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,631</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">977</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">12,264</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">380</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">17,053</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">86,919</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">87,331</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">49,530</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">73,915</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">297,695</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>Year ended December&nbsp;31, 2004</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>CECP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>TCA</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>LCDP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">4,527</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">6,030</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,016</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">21,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">14,628</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">2,227</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">151</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">38,611</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">138,691</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">127,261</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">51,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">143,185</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">460,473</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>Year ended December&nbsp;31, 2005</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="40%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>CECP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>TCA</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>LCDP</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Corporate</B></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="center" colspan="3"><B>Total</B></TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Depreciation and amortization</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">5,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">7,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">3,508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">1,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">16,824</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Capital expenditures</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">13,498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">8,402</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">10,222</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">44</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">32,166</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Identifiable assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">148,173</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">170,624</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">57,736</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">143,478</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">$</TD>
    <TD align="right">520,011</TD>
    <TD>&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">There were no material inter-segment sales for the years ended December&nbsp;31, 2003, 2004 and
2005. Sales in relation to software development services of Namtek Software was included in
the product segment of CECP after internal restructuring in 2005 and the comparative figures
have been restated. The Company charges 100% of its corporate level related expenses to its
reportable segments as management fees.
</DIV>

<P align="center" style="font-size: 10pt">F-36
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>19. Segment Information &#151; continued</B>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">A summary sets forth the percentage of net sales of each of the Company&#146;s product lines of
each segment for the years ended December&nbsp;31, 2003, 2004 and 2005, is as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>Year ended December&nbsp;31,</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px"><u><B>Product line</B></u></DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">CECP:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Assembling</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">- Consumer electronics and communication products</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">32</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">31</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">20</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">- Software development services</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">33</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">32</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">21</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">TCA</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">57</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">59</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">72</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">LCDP:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Parts and components</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">- LCD panels</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7</TD>
    <TD nowrap>%</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">- Transformers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">1</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">0</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">10</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">9</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">7</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">100</TD>
    <TD nowrap>%</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">A summary of net sales, net income and long-lived assets by geographic areas is as follows:
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">By geographical area:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>Year ended December&nbsp;31,</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales from operations within:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Hong Kong and Macao:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">295,113</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">48,710</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">58,112</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Related party</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,770</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Intercompany sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">404</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">670</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">310,287</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">49,273</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,782</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- PRC, excluding Hong Kong and Macao:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Unaffiliated customers</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">90,411</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">450,970</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">732,930</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Related parties</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">34,181</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">6,195</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:45px; text-indent:-15px">Intercompany sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">263,971</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">4,393</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">360,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">489,544</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">739,125</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Intercompany eliminations</DIV></TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(264,375</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(4,956</TD>
    <TD nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="left">&nbsp;</TD>
    <TD align="right">(670</TD>
    <TD nowrap>)</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" nowrap align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">406,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">533,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">797,237</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<TR valign="bottom"><!-- Blank Space -->
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net income within:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- PRC, excluding Hong Kong and Macao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">38,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">30,981</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">31,354</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Hong Kong and Macao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,175</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">35,904</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">19,952</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net income</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">43,802</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">66,885</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">51,306</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<P align="center" style="font-size: 10pt">F-37
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><B>19. Segment Information &#151; continued</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt"><u><B>Year ended December&nbsp;31,</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Net sales to customers by geographical area:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Hong Kong</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">36,433</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">160,959</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">383,138</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Europe (excluding Estonia)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">84,954</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">96,304</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">138,974</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- United States</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">55,543</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">58,696</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,259</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- PRC (excluding Hong Kong)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">101,211</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">132,603</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">151,788</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Japan</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">68,498</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">33,880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,858</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Estonia</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,474</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">3,106</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">&#151;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- North America (excluding United States)</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">5,352</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">492</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Korea</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">24,499</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,520</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">53,979</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Other</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">14,347</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">21,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">20,749</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total net sales</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">406,306</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">533,861</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">797,237</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>As at December&nbsp;31,</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Long-lived assets by geographic area:</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- PRC, excluding Hong Kong and Macao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">59,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">84,453</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100,372</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:30px; text-indent:-15px">- Hong Kong and Macao</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">18,248</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">12,988</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">369</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">Total long-lived assets</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">77,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">97,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">100,741</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">Intercompany sales arise from the transfer of finished goods between subsidiaries operating
in different areas. These sales are generally at prices consistent with what the Company
would charge third parties for similar goods.
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 2%">The Company&#146;s sales to customers which accounted for 10% or more of its sales are as follows:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt"><u><B>Year ended December&nbsp;31,</B></u>
</DIV>

<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="64%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>
<TR style="font-size: 8pt" valign="bottom">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2003</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2004</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD nowrap align="right" colspan="2"><B>2005</B></TD>
    <TD>&nbsp;</TD>
</TR>

<!-- End Table Head -->
<!-- Begin Table Body -->
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">A</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">72,235</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">257,595</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">B</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">100,541</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">75,426</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">121,369</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">C</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,023</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">80,354</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">D</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">54,635</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">E</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">46,057</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD><DIV style="margin-left:15px; text-indent:-15px">F</DIV></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">43,233</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="right">N/A</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 1px solid #000000">&nbsp;</TD>
</TR>
<TR valign="bottom" style="background: #cceeff">
    <TD><DIV style="margin-left:15px; text-indent:-15px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">189,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">256,319</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left">$</TD>
    <TD align="right">459,318</TD>
    <TD>&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11" align="left" style="border-top: 3px double #000000">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">F-38
</DIV>


<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="font-family: 'Times New Roman',Times,serif">






<DIV align="center" style="font-size: 10pt; margin-top: 18pt"><B>SIGNATURES</B>
</DIV>


<DIV align="left" style="font-size: 10pt; margin-top: 6pt">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Pursuant to the requirements of Section&nbsp;12 of the Securities Exchange Act of 1934, the
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has
duly caused and authorized the undersigned to sign this annual report on its behalf.
</DIV>
<DIV align="center">
<TABLE style="font-size: 10pt" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<TR valign="bottom">
    <TD width="49%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="15%">&nbsp;</TD>
</TR>
<!-- End Table Head -->
<!-- Begin Table Body -->
<TR valign="bottom">
    <TD valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" valign="top" align="left">NAM TAI ELECTRONICS, INC.</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">By:
</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">/s/ PATINDA LEI</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR style="font-size: 1px">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top" style="border-top: 1px solid #000000">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Patinda Lei</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">&nbsp;
</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<TR valign="bottom">
    <TD valign="top"><DIV style="margin-left:0px; text-indent:-0px">Date: March&nbsp;15, 2006</DIV></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">&nbsp;</TD>
</TR>
<!-- End Table Body -->
</TABLE>
</DIV>



<P align="center" style="font-size: 10pt">80
</DIV>


</BODY>
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NAM TAI ELECTRONICS, INC.
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 20-F
o
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934
or
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2005
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
or
o
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-16673
Nam Tai Electronics, Inc.
(Exact name of registrant as specified in its charter)
British Virgin Islands
(Jurisdiction of incorporation or organization)
116 Main Street
3rd Floor
Road Town, Tortola
British Virgin Islands
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Common Shares, $0.01 par value per share
Securities registered pursuant to Section 12(g) of the Act: NONE
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE
As of December 31, 2005, there were 43,505,586 common shares of the registrant outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
o
Yes
þ
No
If this report is an annual or transition report, indicate by check mark if the registrant is
not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934.
o
Yes
þ
No
Note – Checking the box above will not relieve any registrant required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under
those Sections.
Indicate by check mark whether the registrant: (i) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (ii) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated
filer" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer
þ
None-accelerated filer
o
Indicate by check mark which financial statement item the registrant has elected to follow:
Item 17.
o
Item 18.
þ
If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
o
Yes
þ
No
TABLE OF CONTENTS
Page
PART I
3
Item 1. Identity of Directors, Senior Management and Advisors — Not applicable
3
Item 2. Offer Statistics and Expected Timetable — Not applicable
3
Item 3. Key Information
3
Item 4. Information on the Company
18
Item 4 A. Unresolved Staff Comments
35
Item 5. Operating and Financial Review and Prospects
36
Item 6. Directors, Senior Management and Employees
51
Item 7. Major Shareholders and Related Party Transactions
57
Item 8. Financial Information
59
Item 9. The Listing
66
Item 10. Additional Information
67
Item 11. Quantitative and Qualitative Disclosure about Market Risk
73
Item 12. Description of Securities Other than Equity Securities — Not applicable
75
PART II
75
Item 13. Defaults, Dividend Arrearages and Delinquencies — Not applicable
75
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds — Not applicable
75
Item 15. Controls and Procedures
75
Item 16.
[Reserved]
75
Item 16 A. Audit Committee Financial Expert
75
Item 16 B. Code of Ethics
76
Item 16 C. Principal Accountant Fees and Services
76
Item 16 D. Exemptions from the Listing Standards For Audit Committees — Not applicable
77
Item 16 E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers — Not applicable
77
PART III
77
Item 17. Financial Statements — Not applicable
77
Item 18. Financial Statements
77
Item 19. Exhibits
78
EX-4.17 LOAN AGREEMENT
EX-4.18 AGREEMENT IN RELATION TO SALE AND PURCHASE
EX-4.19 SUPPLEMENTAL LOAN AGREEMENT
EX-4.20 SUPPLEMENT LETTER DATED MAY 12, 2005
EX-4.21 BANKING FACILITIES LETTER
EX-4.22 BANKING FACILITIES LETTER
EX-12.1 SECTION 302 CEO CERTIFICATION
EX-12.2 SECTION 302 CFO CERTIFICATION
EX-23.1 CONSENT OF DELOITTE
EX-99.1 SECTION 906 CEO CERTIFICATION
EX-99.2 SECTION 906 CFO CERTIFICATION
SIGNATURES AND CERTIFICATIONS
Consents
of Independent Registered Public Accounting Firm (for incorporation of their report on Financial Statements
into the Company's Registration Statements on Form S-8)
This Annual Report on
Form 20-F
contains forward-looking statements. These statements are
subject to certain risks and uncertainties that could cause actual results to differ materially
from those anticipated in the forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section entitled "Risk Factors"
under Item 3. Key Information.
Readers should not place undue reliance on forward-looking statements, which reflect
management's view only as of the date of this Report. The Company undertakes no obligation to
publicly revise these forward-looking statements to reflect subsequent events or circumstances.
Readers should also carefully review the risk factors described in other documents the Company
files from time to time with the Securities and Exchange Commission.
FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
The Company prepares its consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America and publishes its financial
statements in United States dollars.
2
Table of Contents
PART I
Unless the context otherwise requires, all references in this annual report, or Report, to
"Nam Tai", or "we", or "our", or "us", and the "Company" refer to Nam Tai Electronics, Inc. and its
consolidated subsidiaries and their respective predecessors. References to "U.S. dollars",
"dollars" or $ are to United States dollars.
Item 1.
Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2.
Offer Statistics and Expected Timetable
Not applicable.
Item 3.
Key Information
Selected Financial Data
Our historical consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States, or U.S. GAAP, and are presented in United
States dollars. The following selected statements of income data for each of the three years in the
period ended December 31, 2005 and the balance sheet data as of December 31, 2004 and 2005 are
derived from our consolidated financial statements and notes thereto included in this Report. The
selected statements of income data for each of the two year periods ended December 31, 2001 and
2002 and the balance sheet data as of December 31, 2001, 2002 and 2003 were derived from our
audited financial statements, which are not included in this Report. The following data should be
read in conjunction with the Section of the Report entitled Item 5, Operating and Financial Review
and Prospects, and our consolidated financial statements including the related footnotes. All
reference to numbers of common shares, per share data and stock option data have been adjusted to
give effect to a three-for-one stock split effective on June 30, 2003 on a retroactive basis and
for the purposes of earnings per share calculation, all references to numbers of common shares, and
per share data have been adjusted to reflect an issuance of a stock dividend to shareholders at a
ratio of one dividend share for every ten shares, or a ten-for-one stock dividend, effective on
November 7, 2003.
Year ended December 31,
2001
2002
2003
2004
2005
(in thousands)
Consolidated statements of income data:
Net sales — third parties
$
212,934
$
228,167
$
385,524
$
499,680
$
791,042
Net sales — related party
21,072
7,849
20,782
34,181
6,195
Total net sales
234,006
236,016
406,306
533,861
797,237
Cost of sales
203,974
197,956
340,016
457,385
704,314
Gross profit
30,032
38,060
66,290
76,476
92,923
Operating costs and expenses:
Selling, general and administrative
21,974
17,983
24,866
28,053
33,057
Research and development
2,954
2,686
4,037
5,045
7,210
Impairment of goodwill
—
339
—
—
—
Total operating expenses
24,928
21,008
28,903
33,098
40,267
Income from operations
5,104
17,052
37,387
43,378
52,656
Other income (expenses) — net
989
(8,418
)
(815
)
(1,012
)
(125
)
Dividend income received from marketable
securities and investment
525
917
3,714
18,295
579
Gain on sale of subsidiaries' shares
—
17
1,838
77,320
10,095
Gain on disposal of an affiliated company
—
—
—
—
3,631
Gain (Loss) on disposal of marketable securities
—
642
—
—
(3,686
)
Impairment loss on marketable securities
—
—
(58,316
)
(6,525
)
Interest income
1,195
799
788
1,110
3,948
Interest expense
(178
)
(790
)
(121
)
(195
)
(438
)
Income before income taxes and minority interests
7,635
10,219
42,791
80,580
60,135
3
Table of Contents
Year ended December 31,
2001
2002
2003
2004
2005
(in thousands, except per share data)
Income taxes expenses
(227
)
(773
)
(399
)
(879
)
(651
)
Income before minority interests and equity in
income (loss) of affiliated companies
7,408
9,446
42,392
79,701
59,484
Minority interests
(230
)
(164
)
(1,067
)
(6,010
)
(7,992
)
Income after minority interests
7,178
9,282
41,325
73,691
$
51,492
Equity in income (loss) of affiliated companies
1,867
10,741
498
(6,806
)
(186
)
Discontinued operation
—
—
1,979
—
—
Net income
$
9,045
$
20,023
$
43,802
$
66,885
$
51,306
Earnings per share:
Basic
$
0.27
$
0.57
$
1.09
$
1.57
$
1.19
Diluted
$
0.26
$
0.57
$
1.07
$
1.57
$
1.19
Income from continuing operations per share:
Basic
$
0.27
$
0.57
$
1.04
$
1.57
$
1.19
Diluted
$
0.26
$
0.57
$
1.02
$
1.57
$
1.19
Weighted average shares:
Basic
33,905
34,885
40,336
42,496
42,945
Diluted
34,298
35,430
40,839
42,548
43,169
At December 31,
2001
2002
2003
2004
2005
(in thousands, except per share data)
Consolidated balance sheet data:
Cash and cash equivalents
$
58,676
$
82,477
$
61,827
$
160,649
$
213,843
Working capital
83,525
87,184
93,474
218,243
234,674
Land use
right and property, plant and equipment — net
70,414
75,914
77,647
97,441
100,741
Total assets
224,573
275,086
297,695
460,473
520,011
Short-term debt, including current portion of long-term debt
3,687
14,970
3,004
4,955
9,400
Long-term debt, less current portion
12,860
2,812
1,688
5,163
2,850
Total debt
16,547
17,782
4,692
10,118
12,250
Shareholders' equity
169,351
202,128
217,118
305,053
310,391
Common shares
312
360
412
426
435
Total dividend per share
0.13
0.49
1.00
0.48
1.32
Total number of common shares issued
34,326
39,665
41,231
42,665
43,506
Note:
Working Capital represents the excess of current assets over current
liabilities.
Risk Factors
We may from time to time make written or oral forward-looking statements. Written
forward-looking statements may appear in this document and other documents filed with the
Securities and Exchange Commission, in press releases, in reports to shareholders, on our website,
and other documents. The Private Securities Reform Act of 1995 contains a safe harbor for
forward-looking statements on which the Company relies in making such disclosures. In connection
with this "safe harbor", we are hereby identifying important factors that could cause actual
results to differ materially from those contained in any forward-looking statements made by us or
on our behalf. Any such statements are qualified by reference to the following cautionary
statements:
Risks Related to Our Business
We are dependent on a few large customers, the loss of any of which could substantially harm our
business and operating results.
Historically, a substantial percentage of our sales have been to a small number of customers.
During the years ended December 31, 2003, 2004 and 2005, sales to our customers accounting for 10%
or more of our net sales aggregated approximately 46.7%, 47.9%, and 57.7%, respectively, of our net
sales. The loss of Sanyo Epson Imaging Devices (HK) Limited (formerly
known as Epson Precision (HK) Ltd.), Sharp Corporation or Wuxi Sharp Electronic Components
Co., Ltd., each of which accounted for more than 10% of our net sales during 2005, or a substantial
reduction in orders from any of them, would materially and adversely impact our business and
operating results.
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Our quarterly and annual operating results are subject to significant fluctuations due to a wide
variety of factors.
Our quarterly and annual operating results are affected by a wide variety of factors that
could materially and adversely affect our business and operating results during any period. This
could result from any one or a combination of factors, such as:
•
the timing, cancellation or postponement of orders;
•
the type of product and related margins;
•
our customers' announcement and introduction of new products or new generations of products;
•
the life cycles of our customers' products;
•
our timing of expenditures in anticipation of future orders;
•
our effectiveness in managing manufacturing processes, including, interruptions
or slowdowns in production and changes in cost and availability of components; and
•
the mix of orders filled.
The volume and timing of orders received during a quarter are difficult to forecast. From time
to time, our customers encounter uncertain and changing demand for their products. Customers
generally order based on their forecasts. If demand falls below such forecasts or if customers do
not control inventories effectively, they may reduce, cancel or postpone shipments of orders.
As a consequence of any of the above factors, our results of operations in any period should
not be considered indicative of results to be expected in any future period, and fluctuations in
operating results may also result in fluctuations in the market price of our common shares. Our
results of operations in future periods may fall below the expectations of public market analysts
and investors or projections provided by the Company. This failure to meet expectations could cause
the trading price of our common shares to decline substantially.
Cancellations or delays in orders could materially and adversely affect our gross margins and
operating income.
Sales to our original equipment manufacturer, or OEM, customers are primarily based on
purchase orders we receive from time to time rather than firm, long-term purchase commitments.
Although it is our general practice to purchase raw materials only upon receiving a purchase order,
for certain customers we will occasionally purchase raw materials based on such customers' rolling
forecasts. Further, during times of potential component shortages, we have purchased, and may
continue to purchase, raw materials and component parts in the expectation of receiving purchase
orders for products that use these components. In the event actual purchase orders are delayed, are
not received or are cancelled, we would experience increased inventory levels or possible
write-down of raw material inventory that could materially and adversely affect our business and
operating results.
We do not have long-term purchase commitments from our customers and the life cycles of their
products (and therefore ours) may be short, so our future revenues are difficult to predict.
As our customers do not have long-term purchase commitments with us and our sales are made on
individual purchase orders, our customers may cancel or defer purchase orders. In addition, the
life cycles of our customers' products (and therefore ours) may be insufficient to ensure that
these increased costs can be offset. Our customers' purchase orders may vary significantly from
period to period, and it is difficult to forecast future order quantities. Further, we do not
typically operate with any significant backlog in orders, and this makes it difficult for us to
forecast our revenues, plan our production and allocate resources for future periods (including our
capital expenditures). There can be no assurance that the volume of our customers' orders will be
consistent with prior periods or with our expectations. Accordingly, our results of operations may
fluctuate significantly in the future. Such fluctuations may adversely affect our liquidity,
profitability, results of operations and financial condition.
Our
business has been characterized by a rapidly changing mix of products and customers.
Our business has been characterized by a rapidly changing mix of products and customers,
driven in significant part by changes in demand for consumer electronics as well as technological
innovation. We are engaged in the production of
Bluetooth
TM
wireless headsets,
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printed circuit board assembly, or PCBA, for Bluetooth
TM
headsets, radio
frequency, or RF, modules, thin film transistor liquid crystal display, or TFT LCD, modules, color
LCD modules and complementary metal oxide semiconductor, or CMOS, sensor modules, flexible printed
circuit, or FPC, sub-assemblies and digital audio broadcast, or DAB, modules. We expect that a
substantial portion of our growth will come from the manufacturing of these products. Certain
products have become less economically significant to us over time, such as monochrome LCD modules
for mobile phone headsets, which sales have dropped significantly in each of the past three years
since 2002 as end use customers are increasingly choosing color LCD panels instead. We expect that
our current mix of customers and products will continue to change rapidly, and we believe this to
be relatively common in the electronics manufacturing services, or EMS, industry. If the products
that we or our customers manufacture become obsolete or otherwise less profitable and we are not
able to diversify our current product offerings or customer base in a timely manner, our business
would be materially and adversely affected.
There may not be a sufficient market for new products that our customers or we develop.
Our customers may not develop new products in a timely and cost-effective manner, or the
market for products they choose to develop may not grow or be sustained in line with their
expectations. This would reduce the overall businesses they outsource, which would seriously affect
our business and operating results. Even if we develop capabilities to manufacture new products,
there can be no guarantee that a market exists or will develop for such products or that such
products will adequately respond to market trends. If we invest resources to develop capabilities
to manufacture new products, like the investment in our new factory, for which a market does not
develop, our business and operating results would be seriously harmed. Even if the market for our
services grows, it may not grow at an adequate pace.
Our inability to utilize capacity at our new factory could materially and adversely affect our
business and operating results.
In order to expand our production capacity, we have built a new factory consisting of
approximately 265,000 square feet adjacent to our principal manufacturing facilities in Shenzhen,
the People's Republic of China, or China or the PRC. The construction was completed in December
2004 and we commenced full operations at the new manufacturing site in April 2005. As of December
31, 2005, we had incurred approximately $25.8 million to cover the cost of construction and
fixtures and equipment for the new factory. The financing for these improvements to our
manufacturing facilities was obtained from our internal resources. We have committed substantial
expenditures and resources constructing and equipping this factory but cannot guarantee that we
will be able to fully utilize such additional capacity. Our factory utilization is dependent on our
success in providing manufacturing services for new or other products that we intend to produce at
that factory, such as mobile phone accessories, CMOS sensor modules for cellular phones and
entertainment devices at a price and volume sufficient to absorb our increased overhead expenses.
Demand for contract manufacturing of these products may not be as high as we expect, and we may
fail to realize the expected benefit from our investment in our new factory.
We face increasing competition, which has had and could continue to have an adverse effect on our
margins.
Although certain barriers to entry exist in the EMS industry, including technical expertise,
substantial capital requirements, difficulties relating to building customer relationships and a
large customer base, the barriers to entry are comparatively low and we are aware that
manufacturers in Hong Kong and China may be developing or have developed the required technical
capability and customer base to compete with our existing business.
Competition in the EMS industry is intense and is characterized by price erosion, rapid
technological change, and competition from major international companies. This intense competition
has resulted in pricing pressures, lower sales and reduced margins. Continuing competitive
pressures could materially and adversely affect our business and operating results. Over the last
several years our margins have declined substantially, from 12.8% in 2001 to approximately 11.7% in
2005. Continuing competitive pressures could materially and adversely affect our business and
operating results.
We may not be able to compete successfully with our competitors, many of which have substantially
greater resources than we do.
The EMS we provide are available from many independent sources as well as from our current and
potential customers with in-house manufacturing capabilities. We believe our EMS competitors
include Celestica, Inc., Flextronics International Ltd., Hon Hai Precision Industry Co., Ltd.,
Jabil Circuit, Inc., Sanmina-SCI Corporation and Solectron Corporation. We believe our principal
competitors in the manufacturing of our traditional product lines of calculators, personal
organizers and linguistic products include Kinpo Electronics, Inc. and Inventec Co. Ltd. We believe
our competitors in the manufacturing of image capturing devices and
their modules include Lite-On Technology Corporation,
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The Primax Group and Logitech International
S.A. We believe our principal competitors in the manufacturing of mobile phone accessories include
Elcoteq Network Corp, Balda-Thong Fook Solutions Sdn. Bhd. and WKK International (Holdings) Ltd.
We believe our competitors in the manufacturing of RF modules include Wavecom and WKK International
(Holdings) Ltd. We believe our competitors in the manufacturing of LCD panels include Truly
International Holdings Ltd., Elec & Eltek International Holdings Limited and Varitronix
International Ltd. We believe we also have numerous competitors in the telecommunication,
sub-assemblies and components product lines, including Philips, Samsung, Solectron and Varitronix
International Ltd. Many of our competitors have greater financial, technical, marketing,
manufacturing, regional shipping capabilities and logistics support and personnel resources than we
do. As a result, we may be unable to compete successfully with these organizations in the future.
We must spend substantial amounts to maintain and develop advanced manufacturing processes and
engage additional engineering personnel in order to attract new customers and business.
We operate in rapidly changing industries. Technological advances, the introduction of new
products and new manufacturing and design techniques could materially and adversely affect our
business unless we are able to adapt to those changing conditions. As a result, we are continually
required to commit substantial funds for, and significant resources to, engaging additional
engineering and other technical personnel and to purchase advanced design, production and test
equipment.
Our future operating results will depend to a significant extent on our ability to continue to
provide new manufacturing solutions that compare favorably on the basis of time to introduction,
cost, and performance with the manufacturing capabilities of OEMs and competitive third-party
suppliers. Our success in attracting new customers and developing new business depends on various
factors, including:
•
utilization of advances in technology;
•
development of new or improved manufacturing processes for our customer's products;
•
delivery of efficient and cost-effective services; and
•
timely completion of the manufacture of new products.
We generally have no written agreements with suppliers to obtain components and our margins and
operating results could suffer from increases in component prices.
We are sometimes responsible for purchasing components used in manufacturing products for our
customers. We do not have written agreements with some of our suppliers of components. This
typically results in our bearing the risk of component price increases because we may be unable to
procure the required materials at a price level necessary to generate anticipated margins from the
orders of our customers. Accordingly, increases in component prices could materially and adversely
affect our gross margins and operating results.
Our business and operating results would be materially and adversely affected if our suppliers of
needed components fail to meet our needs.
At various times, we have experienced and expect to continue to experience shortages of some
of the electronic components that we use, and suppliers of some components lack sufficient capacity
to meet the demand for these components. In some cases, supply shortages and delays in deliveries
of particular components have resulted in curtailed production, or delays in production, of
assemblies using that component, which contributed to an increase in our inventory levels and
reduction in our gross margins. We expect that shortages and delays in deliveries of some
components will continue. If we are unable to obtain sufficient components on a timely basis, we
may experience manufacturing delays, which could harm our relationships with current or prospective
customers and reduce our sales. We also depend on a small number of suppliers for certain of the
components that we use in our business. For example, we purchase most of our integrated circuits
from Cambridge Silicon Radio Plc, Toshiba Corporation and Sharp Corporation and certain of their
affiliates. If we were to be unable to continue to purchase components from these limited source
suppliers, our business and operating results would be materially and adversely affected.
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Factors affecting the electronics industry in general and our customers in particular could harm
our operations.
Most of our sales are to customers in the electronics industry, which is subject to rapid
technological change, product obsolescence and short product life cycles. The factors affecting the
electronics industry in general, or any of our major customers or competitors in particular, could
have a material adverse effect on our business and operating results. Our success will depend to a
significant extent on the success achieved by our customers in developing and marketing their
products, including their products that use RF modules, color straight-twisted nematic, or STN, LCD
modules, TFT LCD modules, CMOS sensor modules, FPC sub-assemblies and DAB modules, some of which
may be new and untested. If our customers' products become obsolete, fail to gain widespread
commercial acceptance or become the subject of intellectual property disputes, our business and
operating results could be materially and adversely affected.
As we currently only operate one production facility for each of our subsidiaries, our business may
be materially and adversely affected if the facility of any of our major subsidiaries were to be
shut down.
Our turnover has been substantially obtained from manufacturing completed at the production
facilities of our subsidiaries, located in Baoan, Shenzhen. If any of the production facilities of
our subsidiaries were to be shut down for any reason, our business may be materially and adversely
affected.
Future acquisitions or strategic investments may not be successful and may harm our operating
results.
An important element of our strategy is to review prospects for acquisition or strategic
investments that would complement our existing companies and products, augment our market coverage
and distribution ability or enhance our technological capabilities.
Future acquisitions or strategic investments could have a material adverse effect on our
business and operating results because of:
•
possible charges to operating results for purchased technology, restructuring or
impairment charges related to goodwill or amortization expenses associated with intangible
assets;
•
potential increase in our expenses and working capital requirements and the
incurrence of debt and contingent liabilities;
•
difficulties in successfully integrating any acquired operations, technologies,
customers products and businesses with our operations;
•
diversion of our capital and management's attention to other business concerns;
•
risks of entering markets or geographic areas in which we have limited prior experience; or
•
potential loss of key employees of acquired organizations or inability to hire key employees necessary for expansion.
For example, in September 2004, we made an impairment to write down our $10.0 million
investment in Alpha Star Investments Ltd., or Alpha Star, to its fair value of approximately $3.0
million, based on a valuation report from an external valuation firm. During 2005, this affiliated
company continued to be loss making. In August 2005, we disposed of our entire stake in Alpha Star
to the majority shareholders of Alpha Star with sales proceeds of $6.5 million, resulting in an
accumulated net realized loss of $3.5 million.
In addition, we also disposed of our entire stake in TCL Communication Technology Holdings
Limited, or TCL Communication, during the period from August 2005 to December 2005 for total sales
proceeds of approximately of $11.0 million, which resulted in a net realized loss of $68.5 million
as compared to the cost of investment of $79.5 million. Losses include $58.3 million impairment
loss made in December 2004, $6.5 million impairment loss made in June 2005 and $3.5 million
realized loss recorded in the second half of 2005.
Our customers are dependent on shipping companies for delivery of our products and interruptions to
shipping could materially and adversely affect our business and operating results.
Our customers rely on a variety of carriers for product transportation through various world
ports. A work stoppage, strike or shutdown of one or more major ports or airports could result in
shipping delays materially and adversely affecting our customers, which in turn could have a
material adverse effect on our business and operating results. Similarly, an increase in freight
surcharges due to rising fuel costs or general price increases could materially and adversely
affect our business and operating results.
8
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Because our operations are international, we are subject to significant worldwide political,
economic, legal and other uncertainties.
We are incorporated in the British Virgin Islands and have subsidiaries incorporated in the
Cayman Islands, Hong Kong, Macao, Japan and China. We have administrative offices in Hong Kong and
Macao. We manufacture all of our products in China. As of December 31, 2005, approximately 99.6% of
the net book value of our total property, plant and equipment is located in China. We sell our
products to customers in Hong Kong, North America, Europe, Japan, China and Southeast Asia. Our
international operations may be subject to significant political and economic risks and legal
uncertainties, including:
•
changes in economic and political conditions and in governmental policies;
•
changes in international and domestic customs regulations;
•
wars, civil unrest, acts of terrorism and other conflicts;
•
changes in tariffs, trade restrictions, trade agreements and taxation;
•
difficulties in managing or overseeing foreign operations; and
•
limitations on the repatriation of funds because of foreign exchange controls.
The occurrence or consequences of any of these factors may restrict our ability to operate in
the affected region and decrease the profitability of our operations in that region.
Our operating results could be negatively impacted by seasonality.
Historically, our sales and operating results have been affected by seasonality. Sales of
calculators, personal organizers and linguistic products are typically higher during the second and
third quarters in anticipation of the start of the school year and the Christmas buying season.
Similarly, our consumers' orders for electronics products have historically been lower in the first
quarter from both the closing of our factories in China for the Chinese New Year holidays and the
general reduction in sales following the holiday season. These sales patterns may not be indicative
of future sales performance.
Our results could be adversely affected if we have to comply with new environmental regulations.
Our operations create some environmentally sensitive waste that may increase in the future
depending on the nature of our manufacturing operations. The general issue of the disposal of
hazardous waste has received increasing attention from Chinese national and local governments and
foreign governments and agencies and has been subject to increasing regulation. Currently, relevant
Chinese environmental protection laws and regulations impose fines on discharge of waste materials
and empower certain environmental authorities to close any facility which causes serious
environmental problems. Although it has not been alleged that we have violated any current
environmental regulations by China government officials, there is no assurance that the Chinese
government will not amend its current environmental protection laws and regulations. Our business
and operating results could be materially and adversely affected if we were to increase
expenditures to comply with environmental regulations affecting our operations.
Our insurance coverage may not be sufficient to cover the risks related to our operations and
losses.
We have not experienced any major accidents in the course of our operations which have caused
significant property damage or personal injuries. However, there is no assurance that we will not
experience major accidents in the future. Although we have purchased the necessary insurances,
including a business interruption policy, a fidelity guarantee policy and policies covering losses
or damages in respect of buildings' machinery, equipment and inventories, the occurrence of certain
incidents such as earthquake, war, pandemics, and flood, and the consequences resulting from them,
may not be covered adequately, or at all, by the insurance policies under which we are protected.
We also face exposure to product liability claims in the event that any of our products is alleged
to have resulted in property damage, bodily injury or other adverse effects. We only have product
liability insurance for some of our products. Losses incurred or payments we may be required to
make, may have a material adverse effect on our results of operations if such losses or payments
are not fully insured.
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We are a defendant in putative class action lawsuits and this litigation could adversely
affect our business regardless of the final outcome.
On March 11, 2003, we were served with a complaint in an action captioned Michael Rocco v. Nam
Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain
directors are named as defendants. On or about April 9, 2003, a second complaint was filed in an
action captioned A.J. & Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the
Steigler Action, and together with the Rocco Action, the Actions. The Actions have been
consolidated since July 2003 and purport to represent a putative class of persons who purchased the
common stock of Nam Tai from July 29, 2002 through February 18, 2003. Plaintiffs in the Actions
assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and allege that
misrepresentations and/or omissions were made during the alleged class period concerning the
partial reversal of an inventory provision and a charge to goodwill related to Nam Tai's LPT
segment. Our motion to dismiss the Actions was denied on September 27, 2004. On May 27, 2005, the
plaintiffs moved to certify the Actions as a class action with an individual, Douglas Ward, as the
named class representative. We filed our opposition to the motion on June 20, 2005. The court
heard oral argument on the motion on July 26, 2005, and has not yet ruled on the motions. On
October 7, 2005, the plaintiffs filed a Second Amended Consolidated Class Action Complaint which
contained substantive allegations that did not vary from the previously filed Actions and added an
additional individual, Michael Rocco, as a named class
representative. After class representative discovery on February 10, 2006, plaintiffs filed their motion for class
certification with Michael Rocco as an added class representative. Nam Tai filed its opposition
papers on March 3, 2006. The motion is scheduled for oral
argument on April 17, 2006. Nam Tai believes it has meritorious defenses and it intends to defend the case
vigorously. Nam Tai is aware of no other actions that have been filed which relate to these
matters. The ultimate outcome of this litigation cannot be presently determined. However, this
litigation could be very costly and divert our management's attention and resources. In addition,
we have no insurance covering our liability, if any, or that of our officers and directors, for
this lawsuit and we will have to pay the costs of the defense. Any adverse determination in this
litigation could also subject us to significant liabilities, any or all of which could materially
and adversely affect our business and operating results. Please see Item 8. "Financial Information
¾
Legal Proceedings
¾
Putative Class Actions" for more information.
We may be unable to succeed in recovering on our judgment debts against Tele-Art, Inc.
We have two judgments in our favor against Tele-Art, Inc. awarded by The High Court of Justice
in the British Virgin Islands for approximately $38.0 million (including interest, costs, and
related expenses). Because Tele-Art, Inc. is in liquidation, we may not realize the entire amount
of our judgments, and the actual amount of the recovery, if any, is uncertain and dependent on a
number of factors. We may incur substantial additional costs in pursuing our recovery, and such
costs may not be recoverable. Please see Item 8. "Financial Information
¾
Legal Proceedings
¾
Tele-Art Litigation" for more information.
We could become involved in intellectual property disputes.
We do not have any patents, licenses, or trademarks material to our business. Instead, we rely
on trade secrets, industry expertise and our customers sharing of intellectual property with us.
However, there can be no assurance that such intellectual property is not in violation of that
belonging to other parties. We may be notified that we are infringing patents, copyrights or other
intellectual property rights owned by other parties. In the event of an infringement claim, we may
be required to spend a significant amount of money to develop a non-infringing alternative or to
obtain licenses. We may not be successful in developing such an alternative or obtaining a license
on reasonable terms, if at all. Any litigation, even without merit, could result in substantial
costs and diversion of resources and could materially and adversely affect our business and
operating results.
We depend on our executive officers and skilled management personnel.
Our success depends to a large extent upon the continued services of our executive officers.
Generally, our employees are bound by employment or non-competition agreements. However, we cannot
assure you that we will retain our executive officers and other key employees. We could be
seriously harmed by the loss of any of our executive officers. In order to manage our growth, we
will need to recruit and retain additional skilled management personnel and if we are not able to
do so our business and our ability to continue to grow could be harmed. We maintain no key person
insurance on these individuals. The loss of service of any of these officers or key management
personnel could have a material adverse effect on our business growth and operating results.
We may not pay dividends in the future.
Although we have declared dividends during each of the last twelve years, we may not be able
to declare them or may decide not to declare them in the future. Our China subsidiaries are
required to reserve 11% of their profits for future development and
staff welfare, which may
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affect our ability to declare dividends. We will determine the amounts of the dividends when they are
declared and even if dividends are declared in the future, we may not continue them in any future
period.
We are subject to the risk of increased taxes.
We base our tax position upon the anticipated nature and conduct of our business and upon our
understanding of the tax laws of the various countries in which we have assets or conduct
activities. Our tax position, however, is subject to review and possible challenge by taxing
authorities and to possible changes in law. We cannot determine in advance the extent to which some
jurisdictions may assess additional tax or interest and penalties on such additional taxes.
Several places in which we are located allow for tax holidays or provide other tax incentive
to attract and retain business. We have obtained holidays or other incentives where available. Our
taxes could increase if certain tax holidays or incentives are retracted, or if they are not
renewed upon expiration, or tax rates applicable to us in such jurisdictions are otherwise
increased.
Recently enacted changes in the securities laws and regulations are likely to increase our costs.
The Sarbanes-Oxley Act of 2002 that became law in July 2002 has required changes in some of
our corporate governance, securities disclosure and compliance practices. In response to the
requirements of that act, the Securities and Exchange Commission, or SEC, and the New York Stock
Exchange, or NYSE, have promulgated new rules on a variety of subjects. Compliance with these new
rules as well as the Sarbanes-Oxley Act of 2002 has increased our legal, financial and accounting
costs, and we expect these increased costs to continue indefinitely, particularly as new rules and
regulations, including Section 404 of the Sarbanes-Oxley Act of 2002, come into effect. We also
expect these developments to make it more difficult and more expensive for us to obtain director
and officer liability insurance, and we may be forced to accept reduced coverage or incur
substantially higher costs to obtain coverage. Likewise, these developments may make it more
difficult for us to attract and retain qualified members of our board of directors or qualified
executive officers.
Risks Related to Our Operations in China, Hong Kong, Macao and Japan
Our manufacturing facilities are located in China and several of our customers and suppliers
are located in Hong Kong and China. Our subsidiaries are located in China, Hong Kong, Macao and
Japan. As a result, our operations and assets are subject to significant political, economic, legal
and other uncertainties associated with doing business in China, Hong Kong, Macao and Japan, which
are discussed in more detail below.
We are exposed to risks associated with doing business in China.
Our principal manufacturing operations are located in Shenzhen, China. These operations could
be severely impacted by evolving interpretation and enforcement of legal standards, by strains on
Chinese energy, transportation, communications, trade and other infrastructures, by conflicts,
embargoes, increased tensions or escalation of hostilities between China and Taiwan, and by other
trade customs and practices that are dissimilar to those in the United States and Europe.
Interpretation and enforcement of China's laws and regulations continue to evolve and we expect
differences in interpretation and enforcement to continue in the foreseeable future. Further, we
may be exposed to fluctuations in the value of the renminbi yuan, or RMB, the local currency of
China. Under international pressure, the Chinese government in July 2005 allowed the RMB to
appreciate and our operating cost has increased accordingly. Should the Chinese government allow a
further and significant RMB appreciation, our operating costs could further increase and could
adversely affect our financial results.
Changes in the economic and political environment in China and policies adopted by the Chinese
government to regulate its economy and toward, or even nationalize, private enterprise, may
adversely affect our business, operating results and financial condition.
Our production facilities are located in China. China's economy differs from the economies of
most countries belonging to the Organization for Economic Cooperation and Development in respect of
various areas such as structure, government involvement, level of development, growth rate, capital
reinvestment, allocation of resources, rate of inflation and balance of payments position. Prior
to 1978, China's economy was a planned economy. Subsequently, increasing emphasis has been placed
on the utilization of market forces in the development of China's economy, including the
encouragement of private economic activities and decentralization of economic regulation with a
move towards a market economy. However, the Chinese government still retains a large role in
industrial output (which is majority state-owned), the allocation of resources, production, pricing
and management, and there can be no assurance that the Chinese government will continue to pursue a
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policy of economic reform and they may significantly alter them to our detriment from time to time
without notice. Furthermore, we may not in all cases be able to capitalize on the economic reform
measures adopted by the Chinese government. Our operations and financial results could be
adversely affected by changes in political, economic and social conditions or the relevant policies
of the Chinese government, such as changes in laws and regulations (or the interpretations
thereof), measures which might be introduced to control inflation, changes in the rate or method of
taxation, imposition of additional restrictions on currency conversion and the imposition of
additional import restrictions. The nationalization or other expropriation of private enterprises
by the Chinese government could result in the total loss of our investment in China. Furthermore, a
significant portion of economic activities in China are export-driven at present and, therefore,
are affected by development in the economies of the China's principal trading partners and other
export-driven economies.
The Chinese legal system has inherent uncertainties that could materially and adversely impact our
ability to enforce the agreements governing our factories and to do business.
We do not own, on a freehold basis, the land on which our factories in China are located, but
instead, on a leasehold basis. We occupy our principal manufacturing facilities under land use
agreements with agencies of the Chinese government and we occupy other facilities under lease
agreements with the relevant lessor. The performance of these agreements and the operations of our
factories are dependent on our relationship with the local government. Our operations and prospects
would be materially and adversely affected by the failure of the local government to honor these
agreements or an adverse change in the law governing them. In the event of a dispute, enforcement
of these agreements could be difficult in China. Unlike the United States, China has a civil law
system based on written statutes in which judicial decisions have limited precedential value. The
Chinese government has enacted laws and regulations dealing with economic matters such as corporate
organization and governance, foreign investment, commerce, taxation and trade. However, its
experience in implementing, interpreting and enforcing these laws and regulations is limited, and
our ability to enforce commercial claims or to resolve commercial disputes in China is
unpredictable. These matters may be subject to the exercise of considerable discretion by agencies
of the Chinese government, and forces and factors unrelated to the legal merits of a particular
matter or dispute may influence their determination.
Fire, severe weather, flood or earthquake could cause significant damage to our facilities in China
and disrupt our business operations.
Our products are manufactured exclusively at our factories located in China. Fire fighting and
disaster relief or assistance in China is not well developed. Material damage to, or the loss of,
our factories due to fire, severe weather, flood, earthquake or other acts of God or cause may not
be adequately covered by proceeds of our insurance coverage and could materially and adversely
affect our business and operating results. In addition, any interruptions to our business caused by
such disasters could harm our business and operating results.
Controversies affecting China's trade with the United States could harm our results of operations
or depress our stock price.
While China has been granted permanent most favored nation trade status in the United States
through its entry into the World Trade Organization, controversies between the United States and
China may arise that threaten the status quo involving trade between the United States and China.
These controversies could materially and adversely affect our business by, among other things,
causing our products in the United States to become more expensive resulting in a reduction in the
demand for our products by customers in the United States. Political or trade friction between the
United States and China, whether or not actually affecting our business, could also materially and
adversely affect the prevailing market price of our common shares.
A deterioration of relations between China and Japan may harm our business.
While our production base is located in China, we derive a substantial amount of our sales
from Japanese customers. With respect to our major customers accounting for 10% or more of our net
sales, our Japanese customers represented approximately 46.7%, 37.7% and 57.7% of our net sales for
each of the years ended December 31, 2003, 2004 and 2005, respectively. Our business is therefore
vulnerable to any deterioration of relations or disruption of trade between China and Japan.
Beginning in the spring of 2005, relations between China and Japan grew increasingly strained.
This culminated in a week of anti-Japan protests throughout China which included attacks on
Japanese citizens and property and a boycott on Japanese imports. Should this situation continue
or worsen, our Japanese customers may be less willing or otherwise less able to purchase our
products. More broadly, companies based in Japan may become reluctant to outsource manufacturing
to us and other EMS providers based in China. This could materially and adversely affect our
business and operating results. There can also be no assurance that
our operations in China will not be targeted
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by anti-Japan protestors or boycotts due to the presence of our Japanese managers
and employees and our relationships with Japanese customers. Any harm caused to our facilities or
personnel, or any boycott targeting us, could materially and adversely affect our business and
operating results.
Payment of dividends by our subsidiaries in China to us are subject to restrictions under Chinese
law.
Under Chinese law, dividends may be paid only out of distributable profits. Distributable
profits with respect to our subsidiaries in China refers to after-tax profits as determined in
accordance with accounting principles and financial regulations applicable to Chinese enterprises,
or China GAAP, less any recovery of accumulated losses and allocations to statutory funds that it
is required to make. Any distributable profits that are not distributed in a given year are
retained and available for distribution in subsequent years. The calculation of distributable
profits under China GAAP differs in many respects from the calculation under U.S. GAAP. As a
result, our subsidiaries in China may not be able to pay any dividend in a given year as determined
under U.S. GAAP. Accordingly, since we derive a majority of our profits from our subsidiaries in
China, we may not have sufficient distributable profits to pay dividends to our shareholders.
Changes to Chinese tax laws and heightened efforts by the Chinese tax authorities to increase
revenues could subject us to greater taxes.
Under applicable Chinese law, we have been afforded a number of tax concessions by, and tax
refunds from, the Chinese tax authorities on a substantial portion of our operations in China by
reinvesting all or part of the profits attributable to our Chinese manufacturing operations.
However, the Chinese tax system is subject to substantial uncertainties with respect to its
interpretation and enforcement. Following the Chinese government's program of privatizing many
state-owned enterprises, the Chinese government has attempted to augment its revenues through
heightened tax collection efforts. Continued efforts by the Chinese government to increase tax
revenues could result in decisions or interpretations of the tax laws by the Chinese tax
authorities that would increase our future tax liabilities or deny us expected concessions or
refunds. For example, the tax reform of reducing the VAT tax refund from 17% to 13%, with effect
from January 1, 2004, has adversely affected our margins.
Our results could be affected by changes in foreign exchange regulations of China.
Some of our earnings are denominated in RMB. The People's Bank of China, or PBOC, and the
State Administration of Foreign Exchange, or SAFE, regulate the conversion of RMB into foreign
currencies. Under the current unified floating exchange rate system, the PBOC publishes a daily
exchange rate for RMB based on the previous day's dealings in the inter-bank foreign exchange
market. Financial institutions may enter into foreign exchange transactions at exchange rates
within an authorized range above or below the PBOC exchange rate according to the market
conditions. Since 1996, a number of rules, regulations and notices regarding foreign exchange
control have been issued by the Chinese government which are designed to provide for greater
convertibility of RMB. Under such regulations, any foreign investment enterprise, or FIE, must
establish a "current account" and a "capital account" with a bank authorized to deal in foreign
exchange. Currently, FIEs are able to exchange RMB into foreign exchange currencies at designated
foreign exchange banks for settlement of current account transactions, which include payment of
dividends on the basis of the board resolutions authorizing the distribution of profits or
dividends of the company concerned, without the approval of SAFE. Conversion of RMB into foreign
currencies for capital account transactions, which include the receipt and payment of foreign
exchange for loans, capital contributions and the purchase of fixed assets, continues to be subject
to limitations and requires the approval of SAFE. Our subsidiaries in China are all FIEs and under
the relevant laws of China to which such regulations apply. However, there can be no assurance
that we will be able to obtain sufficient foreign exchange to make relevant payments or satisfy
other foreign exchange requirements in the future.
Our results have been affected by changes in currency exchange rates. Changes in currency rates
involving the Japanese yen, Hong Kong dollar or Chinese renminbi could increase our expenses.
Our financial results have been affected by currency fluctuations, resulting in total foreign
exchange gains of approximately $2.5 million during the year ended December 31, 2005, total foreign
exchange gains of $189,000 during the year ended December 31, 2004 and total foreign exchange
losses of $62,000 during the year ended December 31, 2003. We sell most of our products in United
States dollars and pay our expenses in United States dollars, Japanese yen, Hong Kong dollars, and
RMB. While we face a variety of risks associated with changes among the relative value of these
currencies, we believe the most significant exchange risk presently results from material purchases
we make in Japanese yen and RMB. Approximately 16%, 6% and 3% of our material costs have been in
Japanese yen during the years ended December 31, 2003, 2004 and 2005, respectively, but sales made
in Japanese yen only accounted for 11%, 4% and 2%, respectively, of our sales for each of the last
three years. Approximately 4%, 4% and 3%, respectively, of our material costs have been in RMB during the years
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ended December 31, 2003, 2004 and 2005, respectively. However, sales in RMB
accounted for 0%, 8% and 3%, respectively, of our sales for each of the last three years. An
appreciation of the Japanese yen or RMB against United States dollars would increase our costs when
translated into United States dollars and would materially and adversely affect our margins unless
we made sufficient sales in Japanese yen to offset against material purchases made in the
corresponding currency.
Approximately 3% and 4% of our revenues and 10% and 9% of our total costs and expenses were in
RMB and Hong Kong dollars, respectively, during the year ended December 31, 2005. An appreciation
of the RMB or Hong Kong dollars against United States dollars would increase our expenses when
translated into United States dollars and could materially and adversely affect our margins. In
addition, a significant devaluation in the RMB or Hong Kong dollars could harm our business if it
destabilizes the economy of China or Hong Kong, creates serious domestic problems or increases our
borrowing costs.
We have suffered losses from hedging against our currency exchange risk.
From time to time, we have attempted to hedge our currency exchange risk. We did not engage in
currency hedging transactions for fiscal year 2003, 2004 and 2005. We have experienced in the past
and may experience in the future losses as a result of currency hedging.
Political and economic instability in Hong Kong could harm our operations.
Some of our subsidiaries' offices and several of our customers and suppliers are located in
Hong Kong, formerly a British Crown Colony. Sovereignty over Hong Kong was resumed by China
effective July 1, 1997. Since then, Hong Kong has become a Special Administrative Region of China,
enjoying a high degree of autonomy except for foreign and defense affairs. Moreover, China's
political system and policies are not practiced in Hong Kong. Under the principle of "one country,
two systems", Hong Kong maintains a legal system that is based on the common law and is different
from that of China. It is generally acknowledged as an open question whether Hong Kong's future
prosperity in its role as a hub and gateway to China after China's accession to the World Trade
Organization (introducing a market liberalization in China) will be diminished. The continued
stability of political, economic or commercial conditions in Hong Kong remains uncertain, and any
instability could materially and adversely impact our business and operating results.
Power shortages in China could affect our business.
We consume substantial amounts of electricity in our manufacturing processes at our production
facilities in China. Certain parts of China have been subject to power shortages in recent years.
We have experienced a number of power shortages at our production facilities in China to date. We
are sometimes given advance notice of power shortages and in relation to this we currently have a
backup power system. However, there can be no assurance that in the future our backup power system
will be completely effective in the event of a power shortage, particularly if that power shortage
is over a sustained period of time and/or we are not given advance notice thereof. Any power
shortage, brownout or blackout for a significant period of time may disrupt our manufacturing, and
as a result, may have an adverse impact on our business.
The spread of severe acute respiratory syndrome, avian influenza or similar illnesses may have a
negative impact on our business and operating results.
In March 2003, several economies in Asia, including Hong Kong and southern China, where our
operations are located, were affected by the outbreak of severe acute respiratory syndrome, or
SARS. If there is a recurrence of a serious outbreak of SARS, it may adversely affect our business
and operating results. For example, the future SARS outbreak could result in quarantines or
closures to some of our factories if our employees are infected with SARS and ongoing concerns
regarding SARS, particularly its effect on travel, could negatively impact our China-based
customers and suppliers and our business and operating results.
In addition, there has recently been an outbreak of avian influenza in humans and has proven
to be fatal in Asian countries, including China, Cambodia, Indonesia, Thailand, and Vietnam. Since
then, avian influenza has spread to other parts of the world, including Europe, Africa and the
Middle East. As the human death toll continues to grow, many are concerned that the virus will
mutate and trigger a human pandemic. If such an outbreak were to spread to southern China, where
our operation facilities are located, it may adversely affect our business operating results.
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We conduct operations in a number of countries and the effect of business, legal and political
risks associated with international operations could significantly harm us.
We conduct operations in number of countries. There are risks inherent in doing business in
international markets, including:
•
Difficulties in staffing and managing international operations;
•
Compliance with laws and regulations, including environmental laws, which vary
from country to country and over time, increasing the costs of compliance and potential
risks of non-compliance;
•
Exposure to political and financial instability, leading to currency exchange losses, collection difficulties or other losses;
•
Exposure to fluctuations in the value of local currencies;
•
Changes in value-added tax or VAT reimbursement;
•
Imposition of currency exchange controls; and
•
Delays from customs brokers or government agencies.
Any of these risks could significantly harm our business, financial condition and operating
results.
Risks Related to Our Industry
We are exposed to general economic conditions. Any slowdown in the technology products industry may
affect our business and operating results adversely.
As a result of the economic downturn in the United States and internationally, and reduced
capital spending, sales to OEMs in the electronics industry declined beginning in the second
quarter of fiscal year 2001 and continuing through 2002. Lower consumer demand and high customer
inventory levels have resulted in the delay and cancellation of orders for nearly all types of
electronic products. As a result of order cancellations in 2001, we were required to write down
slow-moving inventory, which materially and adversely impacted our net income in 2001. Although the
industry experienced a recovery since 2003, we cannot assure you that this recovery is sustainable
or that the industry will not further decline. If the economic conditions in the United States or
the other markets we serve worsen, particularly in the electronics and contract manufacturing
businesses particularly, or if a wider or global economic slowdown occurs, this could materially
and adversely impact our business and operating results.
Our business and operating results are dependent on growing global outsourcing trends.
Over the last two decades, the EMS industry experienced rapid change and growth as the
capabilities of EMS companies continued to expand and consumer electronic product manufacturers
adopted, and became increasingly reliant on, manufacturing outsourcing strategies to remain
competitive. Despite the slow down of the EMS industry in 2001 and 2002 as a result of consumer
electronic product manufacturers' decreasing production requirement, growth has been renewed since
2003 and we believe that the EMS industry has the potential for further growth as many consumer
electronic product manufacturers continue to favor outsourcing over internal manufacturing, and the
market for outsourcing, as a whole, continues to flourish. However, there can be no assurance that
the trends of adopting manufacturing outsourcing strategies by consumer electronic product
manufacturers will continue to grow. If the growing outsourcing trends discontinue, this could
materially and adversely impact our business and operating results.
Actual or perceived health risks associated with the use of mobile phone handsets or other
communications equipment could negatively affect our business.
There have been public concerns about health risks arising from electromagnetic fields
generated by mobile phone handsets. Any perceived risks or new findings, regardless or their
scientific basis, concerning the potential adverse health effects of communications equipment could
negatively affect our reputation and brand value, or that of our direct or indirect customers, and
could result in a reduction in sales. We cannot assure you that we will not become the subject of
product liability claims or be held liable for such claims or be required to comply with future
regulatory changes that may have an adverse effect on our business.
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Risks Related to Ownership of Our Common Shares
The market price of our shares will likely be subject to substantial price and volume fluctuations.
The markets for equity securities have been volatile and the price of our common shares has
been and could continue to be subject to wide fluctuations in response to variations in operating
results, news announcements, trading volume, sales of common shares by our officers, directors and
our principal shareholders, customers, suppliers or other publicly traded companies, general market
trends both domestically and internationally, currency movements and interest rate fluctuations.
Certain events, such as the issuance of common shares upon the exercise of our outstanding stock
options could also materially and adversely affect the prevailing market price of our common
shares.
Further, the stock markets have recently experienced extreme price and volume fluctuations
that have affected the market prices of equity securities of many companies and that have been
unrelated or disproportionate to the operating performance of such companies. These fluctuations
may materially and adversely affect the market price of our common shares.
The concentration of share ownership in our senior management allows them to control or
substantially influence the outcome of matters requiring shareholder approval.
On March 1, 2006, members of our senior management and Board of Directors as a group
beneficially owned approximately 29.1% of our common shares. As a result, acting together, they may
be able to control and substantially influence the outcome of all matters requiring approval by our
shareholders, including the election of directors and approval of significant corporate
transactions. This ability may have the effect of delaying or preventing a change in control of Nam
Tai, or causing a change in control of Nam Tai that may not be favored by our other shareholders.
If we do not receive an unqualified opinion on the adequacy of our internal control over financial
reporting as of December 31, 2006 and future year-ends as required by Section 404 of the
Sarbanes-Oxley Act of 2002, investors could lose confidence in the reliability of our financial
statements, which could result in a decrease in the value of our shares.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring
public companies to include a report of management on the company's internal control structure and
procedures over financial reporting in their annual reports on Form 20-F that contains an
assessment by management of the effectiveness of the company's internal control structure and
procedures over financial reporting. In addition, the public accounting firm auditing the company's
financial statements must attest to and report on management's assessment of the effectiveness of
the company's internal control structure and procedures over financial reporting. While we intend
to conduct a rigorous review of our internal control structure and procedures over financial
reporting in order to assure compliance with Section 404 requirements, if our independent public
accountants interpret Section 404 requirements and the related rules and regulations differently
from us or if our independent public accountants are not satisfied with our internal control
structure and procedures over financial reporting or with the level at which it is documented,
operated or reviewed, they may decline to attest to management's assessment or issue a qualified
report. This could result in an adverse reaction in the financial markets due to a loss of
confidence in the reliability of our financial statements, which could cause the market price of
our shares to decline.
Changes to financial accounting standards may affect our reported results of operations and could
result in a decrease in the value of our shares.
The Financial Accounting Standards Board published amendments to Statement of Financial
Accounting Standards No. 123 (revised) in December 2004 with effect from the beginning of the first
interim or annual reporting period that begins after June 15, 2005. Upon adoption, the Company is
required to, among other things, recognize compensation costs for share-based awards to employees
after December 31, 2005 based on their grant-date fair value, in which the recognition provisions
are first applied, as well as compensation costs for awards that were granted prior to, but not
vested as, of the date of adoption, or restate prior periods by recognizing compensation cost in
the amounts previously reported in the pro forma footnote disclosure under SFAS No. 123. For a
detailed discussion of application methods, see Note 2(u) – "Summary of Significant Accounting
Policies – Recent changes in accounting standards". Although our current practice is only to grant
15,000 stock options to each non-employee director with an exercise price equal to the fair market
value of our common share upon their election in each annual shareholders' meeting, if we were to
grant a large amount share-based compensation awards to our employee in future, our results or
operations could be adversely affected. For discussion of our employee stock option and employee
stock purchase plans, see Note 2(p) – "Summary of Significant Accounting Policies – Stock Options"
and Note 12 – "Shareholders' Equity" to the Consolidated Financial Statements.
In May
2005, the FASB issued SFAS No. 154, "Accounting Changes And
Error Corrections". This statement supercedes APB Opinion No. 20,
"Accounting changes"  and SFAS No. 3, "Reporting
Accounting changes in Interim Financial Statements". SFAS No. 154
requires retrospective application to prior periods'
financial statements of changes in accounting principles, unless it is
impracticable to determine the period-specific effects or the
cumulative effect of the change. APB Opinion No. 20 "Accounting Changes,"
previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period  of
the change the cumulative effect of changing to the new accounting
principle. SFAS No. 154 will be effective for accounting changes and
corrections of errors made in fiscal years beginning after December
15, 2005.
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Risks Related to Our Foreign Private Issuer Status
It may be difficult to serve us with legal process or enforce judgments against our management or
us.
We are a British Virgin Islands holding corporation with subsidiaries in Hong Kong, Macao,
Japan and China. We have appointed Stephen Seung, 2 Mott Street, Suite 601, New York, New York
10013 as our agent upon whom process may be served in any action brought against us under the
securities laws of the United States. However, outside the United States, it may be difficult for
investors to enforce judgments against us obtained in the United States in any of these actions,
including actions based upon civil liability provisions of the Federal securities laws. In
addition, all of our officers and most of our directors reside outside the United States, and all
of our assets, and the assets of those persons who reside outside of the United States, are located
outside of the United States. As a result, it may not be possible for investors to effect service
of process within the United States upon those persons, or to enforce against those persons or use
judgments obtained in United States courts grounded upon the liability provisions of the United
States securities laws. There is substantial doubt as to the enforceability against us or any of
our directors and officers located outside of the United States in original actions or in actions
for enforcement of judgments of United States courts of liabilities based solely on the civil
liability provisions of the securities laws of the United States.
No treaty exists between Hong Kong or the British Virgin Islands and the United States
providing for the reciprocal enforcement of foreign judgments. However, the courts of Hong Kong and
the British Virgin Islands are generally prepared to accept a foreign judgment as evidence of a
debt due. An action may then be commenced in Hong Kong or the British Virgin Islands for recovery
of this debt. A Hong Kong or British Virgin Islands court will only accept a foreign judgment as
evidence of a debt due if:
•
the judgment is for a liquidated amount in a civil matter;
•
the judgment is final and conclusive and has not been stayed or satisfied in full;
•
the judgment is not, directly or indirectly, for the payment of foreign taxes,
penalties, fines or charges of a like nature (in this regard, a Hong Kong or British Virgin
Islands court is unlikely to accept a judgment for an amount obtained by doubling, trebling
or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by
the person in whose favor the judgment was given);
•
the judgment was not obtained by actual or constructive fraud or duress;
•
the foreign court has taken jurisdiction on grounds that are recognized by the
common law rules as to conflict of laws in Hong Kong or the British Virgin Islands;
•
the proceedings in which the judgment was obtained were not contrary to natural
justice (i.e., the concept of fair adjudication);
•
the proceedings in which the judgment was obtained, the judgment itself and the
enforcement of the judgment are not contrary to the public policy of Hong Kong or the
British Virgin Islands;
•
the person against whom the judgment is given is subject to the jurisdiction of
the Hong Kong or the British Virgin Islands court; and
•
the judgment is not on a claim for contribution in respect of damages awarded by
a judgment, which does not satisfy the criteria stated previously.
Enforcement of a foreign judgment in Hong Kong or the British Virgin Islands may also be
limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement and moratorium,
or similar laws relating to or affecting creditors' rights generally, and will be subject to a
statutory limitation of time within which proceedings may be brought.
No treaty exists between Macao and the United States providing for the reciprocal enforcement
of foreign judgments. However, the courts of Macao are generally prepared to accept a foreign
judgment as evidence of a debt due. An action may then be commenced in Macao for recovery of this
debt. A Macao court will only accept a foreign judgment as evidence of a debt due if:
•
there is no doubt to the authenticity of the judgment documents and the understanding of the judgment;
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•
pursuant to the law of the place of judgment, the judgment is final and conclusive;
•
the judgment was not obtained by fraud or the matter in relation to the judgment
is not within the exclusive jurisdiction of Macao courts;
•
the judgment will not be challenged on the ground that the relevant matter has
been adjudicated by the Macao court, except matters which have first been adjudicated by
courts outside Macao;
•
pursuant to the law of the place of the judgment, the defendant has been
summoned and the proceedings in which the judgment was obtained were not contrary to natural
justice; and
•
the enforcement of the judgment will not cause any orders that may result in
apparent public disorder.
Enforcement of a foreign judgment in Macao may also be limited or affected by applicable
bankruptcy, insolvency, liquidation, arrangement and moratorium, or similar laws relating to or
affecting creditors' rights generally, and will be subject to a statutory limitation of time within
which proceedings may be brought.
Future issuances of preference shares could materially and adversely affect the holders of our
common shares or delay or prevent a change of control.
Our Board of Directors may amend our Memorandum and Articles of Association without
shareholder approval to create from time to time and issue one or more classes of preference shares
(which are analogous to preferred stock of corporations organized in the United States). While
currently no preference shares are issued or outstanding, we may issue preference shares in the
future. Future issuance of preference shares could materially and adversely affect the rights of
the holders of our common shares, or delay or prevent a change of control.
Our status as a foreign private issuer exempts us from certain of the reporting requirements under
the Securities Exchange Act of 1934 and corporate governance standards of the NYSE, limiting the
protections and information afforded to investors.
We are a foreign private issuer within the meaning of rules promulgated under the Securities
Exchange Act of 1934. As such, we are exempt from certain provisions applicable to United States
public companies including:
•
the rules under the Securities Exchange Act of 1934 requiring the filing with
the SEC of quarterly reports on Form 10-Q, current reports on Form 8-K or annual reports on
Form 10-K;
•
the sections of the Securities Exchange Act of 1934 regulating the solicitation
of proxies, consents or authorizations in respect of a security registered under the
Securities Exchange Act of 1934;
•
the provisions of Regulation FD aimed at preventing issuers from making
selective disclosures of material information; and
•
the sections of the Securities Exchange Act of 1934 requiring insiders to file
public reports of their stock ownership and trading activities and establishing insider
liability for profits realized from any "short-swing" trading transaction (i.e., a purchase
and sale, or sale and purchase, of the issuer's equity securities within less than six
months).
In addition, because the Company is a foreign private issuer, certain corporate governance
standards of the NYSE that are applied to domestic companies listed on that exchange may not be
applicable to us.
Because of these exemptions, investors are not afforded the same protections or information
generally available to investors holding shares in public companies organized in the United States
or traded on the NYSE.
Item 4.
Information on the Company
History and Development of Nam Tai
Nam Tai Electronics, Inc. was founded in 1975 and moved its manufacturing facilities to China
in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates
available and subsequently relocated to Shenzhen, China in order to capitalize on
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opportunities offered in southern China. We were reincorporated as a limited liability International Business
Company under the laws of the British Virgin Islands in August 1987. Our principal manufacturing
and design operations are based in Shenzhen, China, approximately 30 miles from Hong Kong. Our PRC
headquarters is at Macao, China. Some of our subsidiaries' offices are located in Hong Kong and
Macao, which provides us access to Hong Kong's and Macao's infrastructure of communication and
banking and facilitates management of our China operations. One of our subsidiaries also has an
office in Japan.
Our corporate administrative matters are conducted in the British Virgin Islands through our
registered agent, McNamara Corporate Services Limited, McNamara Chambers, P.O. Box 3342, Road Town,
Tortola, British Virgin Islands. Our agent for service of process in the United States is Stephen
Seung, 2 Mott Street, Suite 601, New York, New York 10013. Our principal executive offices are
located in the British Virgin Islands at 116 Main Street, 3rd Floor, Road Town, Tortola, British
Virgin Islands, and the telephone number is (284) 494-7752.
In 1978, Mr. Koo, the founder of the Company, began recruiting operating executives from the
Japanese electronics industry. These executives brought years of experience in Japanese
manufacturing methods, which emphasize quality, precision, and efficiency in manufacturing. Senior
management currently includes Japanese professionals who provide technical expertise and work
closely with both our Japanese component suppliers and customers.
For a number of years, we specialized in manufacturing large-volume, hand-held digital
consumer electronic products and established a leading position in electronic calculators and
handheld organizers for OEMs such as Texas Instruments Incorporated and Sharp Corporation. Over the
years, we have broadened our product mix to include a range of digital products for business and
personal use, as well as key components and sub-assemblies for telecommunications and consumer
electronic products. In August 1999, we established Nam Tai Telecom (Hong Kong) Company Limited,
which targeted the expanding market for telecommunications components including LCD modules as well
as end products, including cordless phones and family radio systems. Since December 2002, we have
also produced RF modules for integration into cellular phones and other hand-held consumer
electronic products, such as personal digital assistants, or PDAs, laptop computers and other
products with wireless connectivity. In 2003, we further diversified our product mix by
manufacturing CMOS sensor modules for integration into various image capturing devices such as
digital cameras for cellular phones and entertainment devices, FPC sub-assemblies for integration
into various LCD modules and front light panels for handheld video game devices. In 2004, we
expanded our business on CMOS sensor modules and FPC sub-assemblies. We also further broadened our
product line by manufacturing back light panels for handheld video game devices and
Bluetooth
TM
wireless headsets for cellular phones. In 2005, we further diversified our
business, and commenced production of DAB modules, further expanding our line of educational
products and entertainment devices.
In September 2000, we acquired for $2.0 million a 5% indirect shareholding in both TCL Mobile
Communication (HK) Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together known as TCL
Mobile, through the acquisition of 25% of the outstanding shares of Mate Fair Group Limited, or
Mate Fair, a privately held investment holding company incorporated in the British Virgin Islands
with a 20% shareholding interest in TCL Mobile. TCL Mobile is engaged in manufacturing,
distributing and trading of digital mobile phones and accessories in China as well as in overseas
markets.
In October 2000, we completed the acquisition of J.I.C. Group (BVI) Limited. The J.I.C. Group
(BVI) Limited and its subsidiaries, or the J.I.C. group, who at the relevant time was principally
engaged in the manufacture and marketing of transformers and LCD panels, a key component for a
variety of consumer electronic products. Of the purchase price of $32.8 million, we paid $11.0
million in cash and issued 3.48 million of our common shares.
In November 2002, Mate Fair sold a portion of its equity interest in Huizhou TCL Mobile
Communication Co., Ltd. for which we received proceeds of approximately $10.4 million, reducing our
direct equity interest (held through Mate Fair) in TCL Mobile to approximately 3%. In November
2002, we invested $5.1 million of the proceeds in TCL International Holdings Limited's 3%
convertible notes that are due in November 2005. In August 2003, we disposed of those convertible
notes to independent third parties and received proceeds of approximately $5.03 million in cash.
TCL International Holdings Limited is another company in the TCL group, which consists of the TCL
Corporation and its subsidiaries, and is publicly listed on The Stock Exchange of Hong Kong
Limited, or the Hong Kong Stock Exchange.
In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly known as TCL
Holdings Corporation Ltd.) for a consideration of approximately $12.0 million. TCL Corporation, an
enterprise established in China, is the parent company of the TCL group of companies. TCL
Corporation changed its status from a limited liability company to a company limited by shares in
April 2002, or the Establishment Date. In January 2004, TCL Corporation listed its A-shares on the
Shenzhen Stock Exchange at RMB 4.26 (equivalent to $0.52) per A-share. The Company's interest in
TCL Corporation has since been diluted to 3.69% and represents 95.52 million promoter's shares of
19
Table of Contents
TCL Corporation after its initial public offering. Pursuant to Article 147 of the Company Law of
China, the Company is restricted from transferring its promoter's shares within three years from
the Establishment Date. The Company is, however, entitled to receive dividends and other rights
similar to holders of A-shares. In December 2005, shareholders of TCL Corporation approved a split
share structure reform. Pursuant to this reform, the Company will give away 15.62% of its total
shares in TCL Corporation to public shareholders as consideration and thereafter, all restricted
shares held by the Company will become floating shares, subject to the regulations of the China
Securities Regulation Commission, and can be tradable in the market 12 months from the first
trading day after the reform is formally in effect, which will depend on the approval of the
Ministry of Commerce of China. The Company's interest in TCL Corporation has been reduced from
3.69% to 3.12% and represents 80.60 million shares. However, the financial impact on the Company's
interest in TCL Corporation cannot be ascertained at the moment because of the unforeseeable impact
of the reform on TCL Corporation's A-share price. As of December 31, 2005, the Company's
investment in TCL Corporation was stated at fair value based on traded market price of TCL
Corporation's shares. For the year ended December 31, 2005, the Company recognized an unrealized
gain of $1.36 million based on the Company's cost of $11.97 million and a fair value of $13.33
million, based on a valuation report issued by an external valuation firm.
In January 2002, we entered into a transaction which resulted in the listing of a company
holding J.I.C. group's business on the Hong Kong Stock Exchange. To effect the transaction, we
entered into an agreement with the liquidators of Albatronics (Far East) Company Limited, or
Albatronics, whose shares had been listed on the Hong Kong Stock Exchange and which was placed into
voluntary liquidation in August 1999. Under the agreement, we agreed to transfer the J.I.C. group
into J.I.C. Technology Company Limited, or J.I.C., a new company, for a controlling interest in
J.I.C. Albatronics' listing status on the Hong Kong Stock Exchange was withdrawn and J.I.C. was
listed on the Hong Kong Stock Exchange free from the liabilities of Albatronics. This arrangement
was more cost effective than using an initial public offering. For our contribution to J.I.C., we
received a combination of ordinary and preference shares, which are analogous to common stock and
convertible preferred stock, respectively, of companies organized under the laws of the United
States and which upon their full conversion, could result in us, the creditors and the Hong Kong
public owning approximately 92.9%, 5.8% and 1.3%, respectively, of the outstanding ordinary shares
of J.I.C. On June 4, 2002, the reverse merger was completed and all the shares of Albatronics were
transferred to the liquidators for a nominal consideration. The preference shares are
non-redeemable, non-voting shares that rank
pari passu
with ordinary shares of J.I.C. on the
payment of dividends or other distribution other than on a winding-up. No holder of preference
shares (including Nam Tai) may convert them if such conversion would result in the minimum public
float of 25% (required under the Hong Kong Stock Exchange Listing Rules) not being met. In August
2002, we acquired an additional 7,984,000 ordinary shares of J.I.C. for a cash consideration of
$437,000. During the period from June to November 2003, we disposed of a total of 42,600,000
ordinary shares for cash consideration of $4.0 million. In November 2003, we converted 175,100,000
preference shares into 170,000,000 ordinary shares of J.I.C. During the period from November to
December 2004, we further disposed of a total of 128,000,000 ordinary shares of J.I.C. for cash
consideration of $12.90 million. The disposal resulted in a net gain on partial disposal of a
subsidiary of $6.25 million and the release of goodwill of $3.52 million. During the same period,
we converted all 423,320,000 preference shares into 410,990,290 ordinary shares. As of December 31,
2005, we held 546,890,978 ordinary shares of J.I.C., equivalent to 71.63% of J.I.C.'s issued
ordinary shares.
In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star, the
ultimate holding company of JCT Wireless Technology Limited, or JCT. JCT is engaged in the design,
development and marketing of wireless communication terminals and wireless application software and
is using us to manufacture wireless communication terminals and their related modules. As of
December 31, 2004, we recognized net sales of $34.2 million to JCT for the year. However, in
September 2004, we made an other-than-temporary impairment to write down our $10.0 million
investment in Alpha Star to a fair value of approximately $3.0 million as based on the valuation
report issued by an external valuation firm. As of December 31, 2004, another analysis had been
conducted by an independent valuer, who determined that no further impairment to the carrying value
of the investment was required. From January to August 2005, this affiliated company continued to
be loss making. We disposed of our entire stake in Alpha Star in August 2005 to the majority
shareholders of Alpha Star with sales proceeds of $6.5 million (as mutually agreed between the
parties), resulting in a gain of $3.6 million in 2005.
In January 2003, we disposed of 20% of our equity interest in Namtek Software Development
Company Limited, or Namtek Software, to a company that is owned by the management of Namtek
Software for a cash consideration of $160,000. As of the date of disposal, Namtek Software had a
fair value of $3.3 million.
On January 23, 2003, the listing of our shares was transferred to the NYSE from the NASDAQ
National Market with the symbol of "NTE". On June 30, 2003, we implemented a three-for-one stock
split with both the stock size and market price to be divided by three. As of December 31, 2005,
there were 43,505,586 common shares outstanding.
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Table of Contents
In June 2003, one of our subsidiaries, J.I.C., disposed of its transformers operation to a
third party for a cash consideration of $2.4 million. The gain from disposal of this discontinued
operation amounted to $2.0 million, net of $0.1 million shared by minority interest.
In August 2003, we set up our first subsidiary, Nam Tai Investments Consultant (Macao
Commercial Offshore) Company Limited, or Nam Tai Macao, in Macao as our PRC headquarters. Macao,
like Hong Kong, is a special administrative region of the China and has recently introduced an
incentive program to attract investment to Macao. In March and November 2004, we further
established Zastron (Macao Commercial Offshore) Company Limited, or Zastron Macao, and J.I.C.
(Macao Commercial Offshore) Company Limited, or J.I.C. Macao, in Macao, respectively.
In November 2003, our common shares were listed in the Regulated Unofficial Market
(Freiverkehr) on the Frankfurt Stock Exchange, in Germany. The stocks are being traded on Xetra,
the Deutsche Borse AG electronic trading system under the stock symbol "884852".
In December 2003, we placed approximately $5.3 million into an escrow account for an
investment in Stepmind. The investment was to occur in two phases. For the first phase,
approximately $2.64 million, representing 7.66% of the equity interest in Stepmind, was released to
Stepmind in January 2004. The second phase amounting to approximately $2.65 million was released to
Stepmind in August 2004 subject to fulfillment of certain conditions. In August 2004, we disposed
of our entire interest in Stepmind to one of the shareholders of Stepmind at the original
subscription price for those shares.
In April 2004, we increased our shareholding in TCL Mobile from approximately 3% to 9% through
the acquisition of Jasper Ace Limited, or Jasper Ace, which directly holds a 9% equity interest in
TCL Mobile, for a consideration of approximately $102.2 million. The consideration was satisfied by
the exchange of our 72.2% equity interest in Mate Fair, plus cash of $25 million in cash, and the
issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5 million. In
July 2004, Nam Tai transferred all its shares in TCL Mobile to TCL Communication in exchange for 90
shares of TCL Communication. In August 2004, we further subscribed for 254,474,910 shares in TCL
Communication at a consideration of approximately $16 million. The consideration was satisfied by
the dividend receivable from TCL Communication. Together with the 90 shares it received in July
2004, Nam Tai in total holds 254,475,000 shares in TCL Communication, representing 9% of the
shareholding of TCL Communication. In September 2004, shares of TCL Communication were listed on
the Hong Kong Stock Exchange by way of introduction. There were no new shares issued or sold in
connection with the listing, and therefore no dilution to Nam Tai's original stake in TCL
Communication. As of December 31, 2004, the Company's investment in TCL Communication was stated
at fair value based on the traded market price of TCL Communication's shares. The Company
recognized an impairment loss of $58.3 million in its consolidated statement of income based on the
Company's cost of $79.5 million and a fair value of $21.2 million. In the second quarter of 2005,
the Company further recognized an impairment loss of $6.5 million in its consolidated statements of
income based on a market value of $14.7 million. Due to a share swap between TCL Communication and
Alcatel on July 18, 2005, our shareholding in TCL Communication decreased from 9% to 8.57%. During
the period from August to December 2005, we have disposed of our entire stake in TCL Communication,
receiving proceeds from the sale of $11.0 million and recorded a realized loss of $3.7 million.
In April 2004, shares of Nam Tai Electronic & Electrical Products Limited, or NTEEP, a wholly
owned subsidiary of the Company, were listed on the Hong Kong Stock Exchange. Since all of the
shares of NTEEP involved in the initial public offering, or IPO, were existing shares of NTEEP
owned by Nam Tai, all of the proceeds raised in the IPO went to Nam Tai instead of NTEEP. The offer
price of NTEEP's share was $0.497, which resulted in net proceeds of approximately $92.8 million
and a gain of approximately $71.1 million to the Company. In May 2005, NTEEP completed an
agreement with Nam Tai and Asano Company Limited, or Asano Company, for the acquisition of 80% and
20% interests in Namtek Software, respectively. The total consideration for the acquisition,
amounted to approximately $26.7 million, and was satisfied by issuance of 81,670,588 new shares of
NTEEP to Nam Tai and Asano Company (65,336,470 new shares to Nam Tai and 16,334,118 new shares to
Asano Company) at approximately $0.327, or HK$2.55, per share. At various times in 2005, Nam Tai
disposed of a total of 52,574,000 shares of NTEEP, resulting in net proceeds of approximately $15.0
million and a gain of approximately $8.2 million to the Company. As of December 31, 2005 we held
612,762,470 shares of NTEEP, representing 69.5% of the total issued capital of NTEEP.
In October 2004, Jetup Electronic (Shenzhen) Co., Ltd., or Jetup, relocated to the new factory
premises and full operation has commenced in early 2005. The new factory premises are about twice
the size of the former factory premises with approximately 670,000 square feet. This new factory
provides room for the future expansion of production capacity. As of December 31, 2004, we had
spent $7.7 million for this relocation. A further $5.4 million was spent in 2005 to cover the cost
of fixtures and equipment for the new factory and was financed through a combination of internal
resources and bank financing.
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Table of Contents
In December 2004, the construction of a new five-story factory building for a subsidiary
was completed and full operation commenced in April 2005. The new factory premises are adjacent to
Nam Tai's existing main manufacturing campus in Shenzhen, PRC, and added approximately 265,000
square feet of manufacturing space. During 2005, the Company has also built two additional blocks
of dormitories with approximately 76,216 square feet. With this new addition, as of December 31,
2005, our principal manufacturing facilities consists of
approximately 557,835 square feet of manufacturing space
and 266,168 square feet of dormitories. As of December 31, 2005, we had incurred $25.8 million to
cover the cost of construction, fixtures and equipment for the new factory.
In October 2005, the Company undertook two conditional general cash offers to privatize two of
its Hong Kong listed subsidiaries, NTEEP and J.I.C. As part of the conditions precedent to closing
for both offers, the Company needed to acquire at least 90% of the public float shares of each of
NTEEP and J.I.C., failing which, the offers would terminate. However, as of the closing date of the
respective offers, the Company had not been able to acquire 90% of the public float shares of NTEEP
and J.I.C., respectively. As a result, both offers were terminated and the proposed privatizations
of both NTEEP and J.I.C. were not successful. Both companies retain their listing status on the
Hong Kong Stock Exchange.
Also refer to the section of this Report entitled Item 5. Operating and Financial Review and
Prospects for a further discussion of our investments and acquisitions.
An important element of our strategy is to acquire companies that would complement our
existing products and services, augment our market coverage and sales ability or enhance our
technological capabilities. Accordingly, we may acquire additional businesses, products or
technologies in the future or make investments in related businesses for strategic business
purposes.
Capital Expenditures
Our principal capital expenditures and divestitures over the last three years include the
following:
2003
2004
2005
Property, plant and equipment (net)
$
17,053,000
$
38,611,000
$
32,166,000
Our major capital expenditures in 2005 included:
•
$10.8 million for new factory expansion;
•
$5.4 million for expansion of a LCD factory;
•
$3.3 million for machinery used mainly for COG products;
•
$4.9 million for machinery used mainly for FPC sub-assemblies;
•
$7.8 million for other capital equipment.
Our major capital expenditures in 2004 included:
•
$13.8 million for new factory expansion;
•
$7.7 million for the expansion of LCD factory (which included $5.8 million paid
as a deposit for property, plant and equipment);
•
$0.7 million for the expansion of our high-resolution color LCD module production capacity;
•
$14.5 million for machinery used mainly for FPC sub-assemblies;
•
$5.6 million for other capital equipment; and
•
$2.1 million for construction work in relation to the electricity supply for
Namtai Electronic (Shenzhen) Co., Ltd.
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Table of Contents
Our major capital expenditures in 2003 included:
•
$6.0 million for machinery for manufacturing RF modules;
•
$1.2 million for new factory expansion;
•
$0.4 million for machinery on FPC sub-assemblies;
•
$1.7 million for expansion of our high-resolution color LCD module production capacity;
•
$6.7 million for other capital equipment; and
•
$1.1 million for construction of a new trade union building for our workers in China.
In order to expand production capacity, we have built a new factory consisting of
approximately 265,000 square feet adjacent to our existing principal manufacturing facilities in
Shenzhen, China. The construction was completed in December 2004 and in use since April 2005. As of
December 31, 2005, we had incurred $25.8 million to cover the cost of construction, fixtures and
equipment for the new factory. The financing for these improvements to our manufacturing facilities
were obtained from internal resources. In October 2004, our existing production facility for the
LCD panels segment also relocated to new factory premises which are approximately 670,000 square
feet and twice the size of the former factory premises. This new factory provides room for the
future expansion of production capacity. As of December 31, 2004, we had spent $7.7 million for
this relocation and financed this amount with a combination of internal resources and bank
financing. A further $5.4 million was spent in 2005 to cover the cost of fixtures and equipment for
the new factory and financed with a combination of internal resources and bank financing.
Other capital expenditures we have planned for 2006 include:
•
$3.7 million for the purchase of land for the construction of a new factory by a subsidiary;
•
$15.8 million for machinery and equipment;
•
$2.6 million for other capital equipment.
•
$20.9 million for FPC board project (including $18.5 million for machinery,
$1.4 million for factory improvement and $1.0 million consultancy fee)
Our plans for capital expenditures are subject to change from time to time and could result
from, among other things, our consummation of any significant amount of additional acquisition or
strategic investment opportunities, which we regularly explore.
Business Overview
We are an electronics manufacturing and design services provider to a select group of the
world's leading OEMs of telecommunications and consumer electronic products. Through our
electronics manufacturing services operations, we manufacture electronic components and
sub-assemblies, including LCD panels, LCD modules, RF modules, DAB modules, FPC sub-assemblies and
image sensors modules and PCBA for Bluetooth
TM
headsets. These components are used in
numerous electronic products, including cellular phones, laptop computers, digital cameras,
electronic toys, handheld video game devices, entertainment devices and microwave ovens. We also
manufacture finished products, including cellular phones in
semi-knocked down, or SKD, form, mobile
phone accessories and educational products.
We assist our OEM customers in the design and development of their products and furnish full
turnkey manufacturing services that utilize advanced manufacturing processes and production
technologies. Our services include hardware and software design, component purchasing, assembly
into finished products or electronic sub-assemblies and post-assembly testing. These services are
value-added and assist us in obtaining new business but do not represent a material component of
our revenue. We also provide original design manufacturing, or ODM,
services, in which we design and develop proprietary products that are sold by our OEM
customers using their brand name.
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Table of Contents
We were founded in 1975 as an electronic products trading company based in Hong Kong and
shifted our focus to manufacturing of electronic products in 1978. We moved our manufacturing
facilities to China in 1980 to take advantage of lower overhead costs, lower material costs and
competitive labor rates, subsequently relocating to Shenzhen, China in order to capitalize on
opportunities offered in southern China. We were reincorporated as a limited liability
International Business Company under the laws of the British Virgin Islands in August 1987. Our
principal manufacturing and design operations are based in Shenzhen, China, approximately 30 miles
from Hong Kong. Some of our subsidiaries' offices are located in Hong Kong and Macao, which
provides us access to Hong Kong's and Macao's infrastructure of communication and banking and
facilitates management of our China operations. One of our subsidiaries also has an office in
Japan.
Our Customers
Historically, we have had substantial recurring sales from existing customers. Approximately
95.8% of our 2005 net sales came from customers that also used our services in 2004. While we seek
to diversify our customer base, a small number of customers currently generate a significant
portion of our sales. Sales to our 10 largest customers accounted for 84.9%, 82.5% and 86.6% of our
net sales during the years ended December 31, 2003, 2004 and 2005, respectively. Sales to customers
accounting for 10% or more of our net sales in the year ended December 31, 2003, 2004 or 2005 were
as follows:
Year ended
December 31,
2003
2004
2005
Sanyo Epson Imaging Devices (HK) Limited (formerly
known as Epson Precision (HK) Ltd.)
24.8
%
14.1
%
15.3
%
Sony Ericsson Mobile Communications AB
11.3
%
*
*
Toshiba Matsushita Display Technology Co. Ltd
10.6
%
*
*
Motorola Inc.
*
10.2
%
*
Sharp Corporation
*
13.5
%
32.3
%
Wuxi Sharp Electronic Components Co., Ltd.
*
10.1
%
10.1
%
*
Less than 10% of our total net sales.
Our 10 largest OEM customers based on net sales during 2005 include the following (listed
alphabetically):
Customer
Products
Hikari Alphax Co., Ltd.
LCD modules
Motorola Inc.
CMOS sensor modules
Sanyo Epson Imaging Devices (HK) Limited (formerly
LCD modules for cellular phones and FPC sub-assemblies
known as Epson Precision (HK) Ltd.)
Sharp Corporation
FPC sub-assemblies, calculators, PDAs and dictionaries
Sony Computer Entertainment Europe Ltd.
Home entertainment products
Sony Ericsson Mobile Communications AB
Mobile phone digital camera accessories,
Bluetooth
TM
wireless headset accessory and
flashlight for mobile phone
Sumitronics Hong Kong Ltd.
FPC sub-assemblies
Texas Instruments Incorporated
Calculators
Uniden HK Ltd.
LCD panels
Wuxi Sharp Electronic Components Co., Ltd.
Telecom printed circuit board, or PCB, modules and
FPC sub-assemblies
At any given time, different customers account for a significant portion of our business.
Percentages of net sales to customers vary from quarter to quarter and year to year and fluctuate
depending on the timing of production cycles for particular products.
Sales to our OEM customers are primarily based on purchase orders we receive from time to time
rather than firm, long-term purchase commitments from our customers. Although it is our general
practice to purchase raw materials only upon receiving a purchase order, for certain customers we
will occasionally purchase raw materials based on such customers' rolling forecasts. Uncertain
economic conditions and our general lack of long-term
purchase commitments with our customers make it difficult for us to accurately predict revenue
over the longer term. Even in those cases where customers are contractually obligated to purchase
products from us or repurchase unused inventory from us, we may elect not to immediately enforce
our contractual rights because of the long-term nature of our customer relationships and for other
business reasons, and instead may negotiate accommodations with customers regarding particular
situations.
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Table of Contents
Our Products
During 2003, our operations were generally organized in two segments, Consumer Electronics
Products, or CEP, and LCD panels and transformers, or LPT. The activities of our LPT segment relate
primarily to our J.I.C. subsidiary that we acquired in October 2000. In 2004, our operations were
re-organized into three reportable segments consisting of consumer electronics and communication
products, or CECP, telecommunication components assembly, or TCA and LCD panels, or LCDP. In 2003,
CECP and TCA were classified as a single reportable segment as CEP while LCDP also comprised the
transformers operations and collectively referred to as LPT as a result of the disposal of
transformer business in 2003. In 2005, software development services were included in the product
segment of CECP (previously in TCA) due to a re-organization and the comparison figures have been
restated accordingly.
The dollar amount (in thousands) and percentage of our net sales by business segment and
product category for the years ended December 31, 2003, 2004 and 2005 were as follows:
Year ended December 31,
2003
2004
2005
Dollars
Percent
Dollars
Percent
Dollars
Percent
Consumer Electronics and
Communication Products
Consumer Electronics and
Communication Products
$
128,779
32
%
$
163,584
31
%
$
163,645
20
%
Software Development Services
4,041
1
4,872
1
5,411
1
Telecommunication, components assembly
232,162
57
316,695
59
570,069
72
LCD Panels
and Transformers
LCD panels
35,040
9
48,710
9
58,112
7
Transformers
(1)
6,284
1
—
—
—
—
Total
$
406,306
100
%
$
533,861
100
%
$
797,237
100
%
(1)
We sold our transformers operation to a third party in June 2003.
Please
refer to Note 19 "Segment Information" of the Consolidated Financial Statements and
Item 8 Financial Information — Export Sales which sets forth the information of net sales to
customers by geographical area.
Consumer Electronic and Communication Products, or CECP
The consumer electronic and communication products we manufacture are primarily finished
products and include:
•
Optical devices such as CMOS sensor modules.
•
Entertainment devices such as USB camera accessory, USB microphone and
converter box, controller for a music quiz game and a gaming device
for mobile phones.
•
Mobile phone accessories such as Bluetooth
TM
wireless headsets, a
snap-on speaker, a snap-on card holder and snap-on flash lights.
•
Educational products such as digital pens, calculators and electronic
dictionaries.
Software Development Services
We also offer software development services principally for electronic dictionary products for
major Japanese customers. In addition, we focus on research and development for car navigation
products for which we aim to provide license and/or manufacturing services to the OEM customers.
Telecommunication Component Assembly, or TCA
We manufacture the following sub-assemblies and components:
•
Color and monochrome LCD modules to display information as part of
telecommunication products such as cellular phones and telephone systems and appliances
such as micro-wave ovens. Our LCD modules could be manufactured for use in most other
hand-held consumer electronic devices, such as electronic games and digital cameras.
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Table of Contents
•
RF modules, which we began manufacturing in December 2002, for integration into
cellular phones. These modules could be manufactured for use in most other hand-held
consumer electronic products, such as PDAs, laptop computers and other products with
wireless connectivity.
•
DAB modules, which we began manufacturing in 2005 are designed into digital
radio products such as home tuners, kitchen radios, in-car receivers, CD players, clock
radios, boomboxes, midi-systems and handheld portable devices.
•
Cellular phones in SKD form.
•
FPC sub-assemblies which we began manufacturing in March 2003 for integration
into various LCD modules.
•
Front light panels for handheld video game devices.
•
Back light panels for handheld video game devices, which we began manufacturing in October 2004.
•
1.9 high frequency cordless telephones and home feature phones.
LCD Panels, or LCDP
LCD panels are found in numerous applications in electronics products, such as watches,
clocks, calculators, pocket games, PDAs and mobile and cordless telephones, and car audio systems.
We are a customized LCD panel manufacturer, and we develop each product from design concept all the
way to a high quality mass producible product. Since 2003, we have also begun manufacturing
customized LCD modules that include components such as backlights, FPC and Chip on Class, or COG.
In 2005, J.I.C. began developing LCD modules for cordless and Voice-Over-Internet Protocol, or
VoIP, phones.
Our Manufacturing and Assembly Capabilities
We utilize the following production techniques:
•
Chip on Film,
or COF, is an assembly method for bonding integrated circuit
chips and other components onto a flexible printed circuit. This process allows for greater
compression of the size of a product when assembled enabling the production and
miniaturization of small form factor devices like cellular phones, PDAs, digital cameras
and notebook PCs. As of December 31, 2005, we had 16 COF machines. These machines connect
the bump of large scale integrated, or LSI, driver onto FPC pattern with anisotropic
conductive film, or ACF, is available. These COF machines have the ability to pitch fine to
38 micrometers and a total production capacity of up to 4,000,000 chips per month.
•
Chip On Glass,
or COG, is a process that connects integrated circuits directly
to LCD panels without the need for wire bonding. We apply this technology to produce
advanced LCD modules for high-end electronic products, such as cellular phones and PDAs. As
of December 31, 2005, we had 23 COG lines in our principal manufacturing facilities. These
machines provide an LCD of dimension of up to 200 millimeters (length) x 150 (width) x 2.2
(height), a process time of five seconds per chip, a pin pitch fine to 38 micrometers and a
total production capacity of up to 4,300,000 chips per month. During 2005, our subsidiary,
Jetup Electronic (Shenzhen) Co. Ltd., or Jetup, also started manufacturing COG LCD modules.
As of December 31, 2005, Jetup had nine COG lines and is capable of bonding 2,500,000
pieces of COG LCD modules a month. They are able to bond LCD panels up to sizes of 200
millimeters x 200 millimeters
x 2.2 millimeters thick, with an accuracy of five microns' tolerence, in a cycle time of
12-15 seconds per piece
•
Chip On Board,
or COB, is a technology that utilizes wire bonding to connect
large-scale integrated circuits directly to printed circuit boards. As of December 31,
2005, we had 51 COB aluminum bonding machines which provide a high speed chip mounting time
of 0.25 second per 2 millimeters wire, a bond pad fine to 75 micrometers and a total
production capacity of up to 3,000,000 per month. We use COB aluminum bonding in the
assembly of consumer products such as calculators, personal organizers, linguistic
products, meters and car audio products. We also had two COB gold bonding machines which
provide a high speed chip mounting time of 0.072 second per 2 millimeters wire, a bond pad
fine to 50 micrometers and a total production capacity of up to 300,000 per month. We use
COB gold bonding in the assembly for digital still camera, mobile phone and digital pen
products.
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Table of Contents
•
Outer Lead Bonding,
or OLB, is an advanced technology used to connect PCBs and
large-scale integrated circuits with a large number of connectors. We use this technology
to manufacture complex miniaturized products, such as high-memory PDAs. As of December 31,
2005, we had three OLB machines. The machines include multi-pinned tape carrier packaged
large scale integrated circuit, or TCP LSIC, bonding which is up to 280 pins, which also
provide ultra thin assembly with module thickness to around one millimeter and high
accuracy bonding with pin pitch to 100 micrometers. The total production capacity is 12,000
units per month.
•
Tape Automated Bonding with Anisotropic Conductive Film,
or TAB with ACF, is an
advanced heat sealing technology that connects a liquid crystal display component with an
integrated circuit in very small LCD modules, such as those used in cellular phones and
pagers. As of December 31, 2005, we had 19 systems of TAB with ACF machines. The machines
provide process time of 10 to 25 seconds per component, a pin pitch fine to 200 micrometers
and a total production capacity of up to 4,020,000 components per month. During 2005, Jetup
also started manufacturing TAB LCD modules. As of December 31, 2005, Jetup had four TAB
lines and is capable of bonding 500,000 pieces of TAB LCD modules a month. They are able to
bond LCD panels up to sizes of 120 millimeters x 120 millimeters x 2.2 millimeters thick,
with an accuracy of 10 microns' tolerence in a cycle time of 20-25 seconds per piece.
•
Fine Pitch Heat Seal Technology,
or FPHS technology, allows us to connect LCD
displays to PCBs produced by COB and outer lead bonding that enables very thin connections.
This method is highly specialized and is used in the production of finished products such
as PDAs. As of December 31, 2005, we had eight machines utilizing FPHS technology. The
machines provide a pin pitch fine to 260 micrometers and a total production capacity of up
to 268,000 units per month.
•
Surface Mount Technology,
or SMT, is a process by which electronic components
are mounted directly on both sides of a printed circuit board, increasing board capacity,
facilitating product miniaturization and enabling advanced automation of production. We use
SMT for products such as electronic linguistic devices. As of December 31, 2005, we had 33
SMT productions lines. The production time per chip ranges from 0.06 second per chip to 0.8
second per chip and high precision ranging from +/-0.05 millimeter to +/-0.1 millimeter.
The components size ranges from 0.6 millimeter (length) x 0.3 millimeter (width) to 55
millimeters (length) x 55 millimeters (width). Ball grid array, or BGA, ball pitch is 0.5
millimeter and ball diameter is 0.2 millimeter. Flip Chip, our smallest lead/bump pitch, is
250/240UM. The total production capacity is 910,000,000 resistor capacitor chips per month.
•
Super-Twisted Nematic LCDs,
or STN, type LCDs capable of providing higher
information content display systems are found in applications such as cordless phones,
mobile phones, MP3 players, pocket games and PDAs. J.I.C. group started producing STN LCDs
in 2002. During 2005, J.I.C. group update its two existing twisted nematic, or TN type,
LCD lines to STN LCD lines. As of December 31 2005, J.I.C. group was equipped with three
automated STN lines capable of producing both TN and STN type LCDs with capacity of 150,000
pairs of glass (each sheet of glass of 360 millimeters x 400 millimeters size) panels per
month.
As of December 31, 2005, we had six clean rooms at our principal manufacturing facilities,
which housed COB, COF and COG capabilities for CMOS sensor modules, electronic calculators, LCD
module and front light or back light panel manufacturing. We also have four clean rooms at another
of our factories, which are used to manufacture
LCD panels and modules. Of our ten clean rooms as of December 31, 2005, five were class ten
thousand, four were class thousand and one was class one hundred.
Quality Control
We maintain strict quality control programs for our products, including the use of total
quality management, systems and advanced testing and calibration equipment. Our quality control
personnel test the quality of incoming raw materials and components. During the production stage,
our quality control personnel also test the quality of work-in-progress at several points in the
production process. Finally, after the assembly stage, we conduct testing of finished products. In
addition, we provide office space at our principal manufacturing facilities for representatives of
our major customers to permit them to monitor production of their products and we provide them with
direct access to our manufacturing personnel.
All of our manufacturing facilities are certified under ISO 9001 quality standards, the
International Organization for Standardization's, or ISO's, highest standards. The ISO is a
Geneva-based organization dedicated to the development of worldwide standards for quality
management guidelines and quality assurance. ISO 9000, which was the first quality system standard
to gain worldwide recognition, requires a company to gather, analyze, document, monitor and make
improvements where needed. Our certification under an ISO 9001 quality standard demonstrates that
our manufacturing operations meet the most demanding of the established world standards. All of our
manufacturing
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facilities are also certified under an ISO 14001 quality standard, which was
published in 1996 to provide a structured basis for environmental management control.
We started the implementation of the Six Sigma approach. In 2004, our principal manufacturing
facilities were recognized by the China Association for Quality of the Chinese Government as a
"National Advanced Enterprise for the Promotion of Six Sigma". Six Sigma is an internationally
recognized approach that uses facts and data to develop better solutions, thereby reducing defects
and production times, and improving customer satisfaction. This approach allows the Company to
lower its costs due to the minimization of manufacturing defects. This results in improved profit
margins and higher competitiveness.
Our Suppliers
We purchase thousands of different component parts from numerous suppliers. For some
components, we may rely on a single supplier. We purchase components from suppliers in Japan, China
and elsewhere. We generally place component orders upon received purchase orders from customers and
under customer's authorization with agreed liability so as to minimize our inventory risk by
ordering components and products only to the extent necessary although for certain customers we may
occasionally purchase raw materials based on such customer's rolling forecasts.
The major component parts we purchase include the following:
•
off-the-shelf and custom integrated circuits or "chips", most of which we
purchase presently from Cambridge Silico Radio Plc, Toshiba Corporation, Sharp Corporation
and certain of their affiliates;
•
LCD panels, which are available from many manufacturers. In 2005, we purchased
LCD panels from Epson Hong Kong Ltd., Toshiba Matsushita Display Technology Co. Ltd.,
Optrex Corporation, Sharp Corporation, Nanya Plastic Corporation and Safaring Technology
Co. Ltd. One of our subsidiary groups, J.I.C. group, also produces LCD panels for the
NTEEP group;
•
CMOS sensors, which we purchase mainly from Omnivision Technologies Inc.;
•
solar cells and batteries, which are standard "off-the-shelf" items that we
generally purchase in Hong Kong from agents of Japanese manufacturers or directly from
companies in China;
•
various mechanical components such as plastic parts, rubber keypads, PCBs,
indium tin oxide, or ITO, glass used in the production of LCD panels, and packaging
materials from various local suppliers in China; and
•
various acoustic components, which we mainly sourced from KSY Technology
Limited and Ole Wolf (Asia) Limited.
Whenever practical, we use domestic China suppliers who are often able to provide items at low
costs and with short lead times.
Certain components may be subject to limited allocation by certain of our suppliers. From time
to time, there have been industry-wide shortages of components in the electronics industry as
supply was unable to satisfy growing world demand. In some cases, supply shortages and delays in
deliveries of particular components have resulted in curtailed production, or delays in production
of assemblies using scarce components. These supply shortages have contributed to an increase in
our inventory levels and reduction in our margins. We expect that shortages and delays in
deliveries of some components will continue. If we are unable to obtain sufficient components on a
timely basis, we may experience manufacturing delays, which could harm our relationships with
current or prospective customers and reduce our sales.
The principal raw materials used by the Company are large scale integrated, or LSI, circuits
(CMOS), semiconductors, LCD panels and batteries. At times, the pricing and availability of these
raw materials can be volatile, due to numerous factors beyond the Company's control, including
general economic conditions, currency exchange rates, industry cycles, production levels or a
supplier's tight supply. In the past, we have asked our customers to share in the increased costs
of raw materials where such increased costs would adversely affect the Company's business, results
of operations and financial condition. Our customers have generally agreed when so requested in the
past. We cannot assure you, however, that our customers will agree to share costs in the future and
that our business, results of operations and financial condition would not be adversely affected by
increased volatility of raw materials.
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Production Scheduling
The typical cycle for a product to be designed, manufactured and sold to an OEM customer is
one to two years, which includes the production period, the development period and the period for
market research and data collection (which is undertaken primarily by our OEM customers). Initially
an OEM customer gathers data from its sales personnel on products for which there is market
interest, including features and unit costs. The OEM customer then contacts us, and possibly other
prospective manufacturers, with forecasted total production quantities and design specifications or
renderings. From that information, we in turn contact our suppliers and determine estimated
component and material costs. We later advise our OEM customer of the development costs, charges
(including molds, tooling and software design, if applicable) and unit cost based on the forecasted
production quantities desired during the expected production cycle.
Once we and the OEM customer agree to the quotation for the development costs and the unit
cost, we begin the product development if we are engaged to do so. This development period
typically lasts less than six months, but may be longer if software design is included. During this
time we complete all molds, tooling and software required to manufacture the product with the
development costs generally borne by our customer. Upon completion of the molds, tooling and
software, we produce samples of the product for the customer's quality testing, and, once approved,
commence mass production of the product. We recover the development costs in relation to molds,
tooling and software from our customers.
The production period usually lasts approximately six to twelve months. In some cases, our OEM
customer handles all product design and development and engages us only at the point of initial
production. Typically, more advanced products have shorter production runs. If total production
quantities change, the OEM customer often provides only limited notice before discontinuing orders
for a product. At any point in time we may be in different stages of the development and production
periods for the various models under development or in production for our OEM customers.
Generally, our production is based on purchase orders received from OEM customers. Purchase
orders are often supported by letters of credit or written confirmation from the OEM customer and
generally may not be cancelled once confirmed without the mutual consent of the parties. Even in
those cases where customers are contractually obligated to purchase products from us or repurchase
unused inventory from us, we may elect not to immediately enforce our contractual rights because of
the long-term nature of our customer relationships and for other business reasons, and instead may
negotiate accommodations with customers regarding particular situations.
We did not suffer a material loss resulting from the cancellation of OEM customer orders for
the years ended December 31, 2003, 2004 and 2005.
Sales and Marketing
We focus on developing close relationships with our customers at the development and design
phases and continuing throughout all stages of production. We identify, develop and market new
technologies that benefit our customers and position us well as an EMS provider.
Sales and marketing operations are integrated processes involving direct salespersons, project
managers and senior executives. We direct our sales resources and activities at several management
and staff levels within our customers and prospective customers. We receive unsolicited inquiries
resulting from word of mouth, from public relations activities, and through referrals from current
customers. We evaluate these opportunities against our customer selection criteria and assign
direct salespersons.
Seasonality
Historically, our sales and operating results are often affected by seasonality. Sales of
calculators, personal organizers and linguistic products are often higher during the second and
third quarters in anticipation of the start of the school year and the Christmas buying season.
Similarly, our consumer services for electronics products have historically been lower in the first
quarter resulting from both the closing of our factories in China for the Chinese New Year holidays
and the general reduction in sales following the holiday season. As we have diversified our
services for complex components, we expect that seasonality may be less of a factor affecting our
business.
Transportation
Transportation of components and finished products to and from Shenzhen is by truck. Component
parts purchased from Japan are generally shipped by air. To date, we have not been materially
affected by any transportation problems. However, transportation difficulties affecting
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air cargo or shipping, such as an extended closure of ports that
materially disrupts the flow of our customers' products into the United States, could materially
and adversely affect our sales and margins if, as a result, our customers delay or cancel orders or
seek concessions to offset expediting charges they incurred pending resolution of the problems
causing the port closures.
Competition
General competition in the contract EMS industry is intense and characterized by price
erosion, rapid technological change and competition from major international companies. This
intense competition has resulted in pricing pressures, lower sales and reduced margins. We believe
that the principal competitive factors in our targeted markets are product quality, pricing,
flexibility and timeliness in responding to design and schedule changes, reliability in meeting
product delivery schedules, technological sophistication and geographic location. Many of our
competitors have greater financial, technical, marketing, manufacturing, regional shipping
capabilities and logistics support and personnel resources than we do and we may not be able to
continue to compete successfully.
The EMS services we provide are available from many independent sources as well as from
current and potential customers with in-house manufacturing capabilities. We believe our EMS
competitors include Celestica, Inc., Flextronics International Ltd., Hon Hai Precision Industry
Co., Ltd., Jabil Circuit, Inc., Sanmina-SCI Corporation and Solectron Corporation. We believe our
principal competitors in the manufacture of our traditional product lines of calculators, personal
organizers and linguistic products include Kinpo Electronics, Inc. and Inventec Co. Ltd. We believe
our competitors in the manufacturing of image capturing devices and their modules include Lite-On
Technology Corporation, The Primax Group and Logitech International S.A. We believe our principal
competitors in the manufacture of mobile phone accessories include Elcoteq Network Corp,
Balda-Thong Fook Solutions Sdn. Bhd. and WKK International (Holdings) Ltd. We believe our
competitors in the manufacturing of RF modules include Wavecom and WKK International (Holdings)
Ltd. We believe our competitors in the manufacturing of LCD panels include Truly International
Holdings Ltd., Elec & Eltek International Holdings Limited and, Varitronix International Ltd. We
also believe that we have numerous competitors in the telecommunication, sub-assemblies and
components product lines, including Philips, Samsung and Varitronix International Ltd. Our
competitors in our FPC sub-assemblies business include Solectron Corporation.
Research and Development
We invest in research and development for manufacturing and assembly technology that provide
us with the potential to offer better and more technologically advanced services to our OEM
customers or assist us in working with our OEM customers in the design and development of future
products. We plan to continue acquiring advanced design equipment and to enhance our technological
expertise through continued training of our engineers and further hiring of qualified system
engineers. These investments are intended to improve the speed, efficiency and quality of our
assembly processes.
In our ODM business, we are responsible for the design and development of new products, the
rights to which we own. We sell these products to OEM customers to be marketed to end users under
the customers' brand names. To date, we have successfully developed a number of electronic
dictionaries, cordless telephones, calculator products and game accessories. Our efforts to expand
or maintain the ODM business may not be successful and we may not achieve material revenues or
profits from our efforts. To date, our ODM design activities have not been a material portion of
our research and development budget.
Patents, Licenses and Trademarks
We do not have any patents, licenses or trademarks on which our business is substantially
dependent. Instead, we rely on our trade secrets, industry expertise and long-term relationships
with our customers and suppliers.
Organizational Structure
We are a holding company for Nam Tai Electronic & Electrical Products Limited, Zastron
Precision-Tech Limited, and J.I.C. Technology Company Limited and their subsidiaries. The chart
below illustrates the organizational structure of the Company and our principal operating
subsidiaries as of December 31, 2005.
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Note:
(1)
Namtai Electronic (Shenzhen) Co. Ltd. currently holds 3.69%
interest in TCL Corporation and will be changed to 3.12% upon
completion of the split share structure reform of TCL Corporation
Our significant operating entities are described below:
Nam Tai Electronic & Electrical Products Limited
Nam Tai Electronic & Electrical Products Limited was incorporated in June 2003 in the Cayman
Islands, and is the holding company for Namtai Electronic (Shenzhen) Co., Ltd., or Namtai Shenzhen,
Nam Tai Macao, Shenzhen Namtek Co., Ltd., or Shenzhen Namtek, and Namtek Japan Company Limited, or
Namtek Japan. Shares of NTEEP were listed on the Hong Kong Stock
Exchange on April 28, 2004 and as of December 31, 2005, the
Company held 69.5% of the issued ordinary shares of NTEEP.
Namtai Electronic (Shenzhen) Co., Ltd.
Namtai Electronic (Shenzhen) Co., Ltd. was established as Baoan (Nam Tai) Electronic Co. Ltd.
in June 1989 as a contractual joint venture company with limited liability pursuant to the relevant
laws of China. The equity of Baoan (Nam Tai) Electronic Co. Ltd. was 70% owned by Nam Tai
Electronic & Electrical Products Limited, a Hong Kong subsidiary of Nam Tai, and 30% owned by a
Chinese company. In 1992, the Chinese company transferred all of its equity interest in the
contractual joint venture to Nam Tai Electronic & Electrical Products Limited, which name was
subsequently changed to Nam Tai Trading Company Limited, and Baoan (Nam Tai) Electronic Co. Ltd.
changed its name to Namtai Electronic (Shenzhen) Co., Ltd. In December 2003, the equity interest
in Namtai Shenzhen was transferred from Nam Tai Electronic & Electrical Products Limited (Hong
Kong) to NTEEP and became its wholly owned subsidiary. It is currently the principal operating arm
of the NTEEP group.
Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited
Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited was established in
August 2003 in Macao, China. In March 2004, the equity interest in Nam Tai Macao was transferred
from the Company to NTEEP and became its wholly owned subsidiary. Its principal business is the
provision of consultancy, administrative and data processing services to other companies within the
NTEEP group.
Shenzhen Namtek Co., Ltd.
Shenzhen Namtek Co., Ltd. was organized in December 1995 as a limited liability company
pursuant to the relevant laws of China. Shenzhen Namtek commenced operations in early 1996
developing and commercializing software for the consumer electronics
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industry, particularly for our customers and for products we manufacture or we will
manufacture in the future. On December 30, 2005, the equity interest in Shenzhen Namtek was
transferred from Namtek Software to NTEEP and became its wholly owned subsidiary. At December 31,
2005, Shenzhen Namtek employed approximately 98 software engineers and provides the facilities and
expertise to assist in new product development and research, enabling us to offer our customers
program design for microprocessors, enhanced software design and development services, and
strengthening our ODM capabilities.
Namtek Japan Company Limited
Namtek Japan Company Limited, or Namtek Japan, was incorporated in June 2003 in Tokyo, Japan.
On December 23, 2005, the equity interest in Namtek Japan was transferred from Namtek Software to
NTEEP. Namtek Japan functions as a representative office of Shenzhen Namtek in Japan.
Zastron Precision-Tech Limited
Zastron Precision-Tech Limited, or Zastron, was incorporated in June 2003 in the Cayman
Islands, and is the holding company for Zastron Electronic (Shenzhen) Co. Ltd., or Zastron
Shenzhen, and Zastron Macao.
Zastron Electronic (Shenzhen) Co. Ltd.
Zastron Electronic (Shenzhen) Co. Ltd., was organized as Zastron Plastic & Metal Products
(Shenzhen) Ltd. in March 1992 as a limited liability company pursuant to the relevant laws of
China. Zastron Plastic & Metal Products (Shenzhen) Ltd. was engaged in the production of metallic
parts and PVC plastic products, much of which is used in the products manufactured in our principal
manufacturing facilities. In August 2002, Zastron Plastic & Metal Products (Shenzhen) Ltd. changed
its name to Zastron Electronic (Shenzhen) Co. Ltd. and expanded the nature of its business to
include manufacturing of telecommunication products, LCD modules, TFT LCD modules and others. It
also became one of our principal manufacturing arms. Zastron Shenzhen is currently a wholly-owned
subsidiary of Zastron.
Zastron (Macao Commercial Offshore) Company Limited
Zastron (Macao Commercial Offshore) Company Limited was established in March 2004 in Macao,
China and is a wholly owned subsidiary of Zastron. Its principal business is the provision of
consultancy, administrative and data processing services to other companies within the Zastron
group.
J.I.C. Technology Company Limited
J.I.C. Technology Company Limited was formed in the Cayman Islands in January 2002 in
connection with a reverse merger with Albatronics, of which we owned slightly more than 50% of the
outstanding capital stock. J.I.C. was listed on the Hong Kong Stock
Exchange in June 2002. As of December 31, 2005, the Company
held 71.63% of the issued ordinary shares of J.I.C.
Jetup Electronic (Shenzhen) Co., Ltd.
Jetup Electronic (Shenzhen) Co. Ltd. was incorporated in 1993 in China and handles the
manufacturing and processing works of LCD panels and modules through its factory plants in Baoan
County, Shenzhen. It is the principal operating arm of the J.I.C. group.
J.I.C. (Macao Commercial Offshore) Company Limited
J.I.C. (Macao Commercial Offshore) Company Limited was incorporated in November 2004 in Macao,
China and is a wholly-owned subsidiary of J.I.C. Its principal business is the provision of
consultancy, administrative and data processing services to other companies within the J.I.C.
group.
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Property, Plant and Equipment
Our registered office in the British Virgin Islands is located at McNamara Chambers, P.O. Box
3342, Road Town, Tortola. Our principal executive office in the British Virgin Islands is located
at 116 Main Street, 3rd Floor, Road Town, Tortola. Corporate administrative matters are conducted
at this office through our registered agent, McNamara Corporate Services Limited. We do not own any
property in the British Virgin Islands. The table below lists the locations, square footage,
principal use and lease expiration dates of the facilities used in our principal operations as of
December 31, 2005.
Owned or lease
Location
Square Footage
Principal Use
expiration date
(1)
Hong Kong
24,200
Offices
Owned
(2)
3,482
Offices
2008
Macao
2,479
Offices
2007
British Virgin Islands
300
Offices
2006
Principal Manufacturing Facilities
557,835
Manufacturing
2043/2049
(3)
Shenzhen, China
87,462
Offices
2043/2049
(3)
266,168
Dormitories
2043/2049
(3)
26,939
Cafeteria
2043
(3)(4)
33,826
Recreational
2049
(3)
Other Facilities
Shenzhen, China
383,547
Manufacturing LCD
panels and modules
2012
32,005
Offices
2012
221,666
Dormitories
2012
22,259
Cafeteria
2012
14,548
Recreational
2012
Shekou, Shenzhen, China
15,602
Software development
2007
Tokyo, Japan
904
Software development
2007
(1)
Only the Chinese government and peasant collectives may own land in China. Our
principal manufacturing facilities are located on land in which we have entered into a land
lease agreement with the Chinese government that gives us the right to use the land for 50
years. Based on our understanding of the practice as it exists today, at the expiration of the
land lease we may be given the right to renew the lease. However, at the end of the lease
term, all improvements we have made will revert to the government. For our other facilities,
we have entered into factory building lease agreements with peasant collectives or other
companies for 10 years or less.
(2)
Although we own the office space, the land on which the building is located is
subject to a 75-year lease with the government that expires in 2055, with a right to renew for
75 more years. This office was sold in February 2006. See " — Hong Kong" below for more
details of this transaction.
(3)
Our principal manufacturing facilities occupy two pieces of land with 50-year leases
which we acquired in 1993 and 1999, respectively.
(4)
In January 2006, the construction of another cafeteria
of approximately 14,589 square feet was also completed.
In order to expand our production capacity, we have built a new factory consisting of
approximately 265,000 square feet adjacent to our existing principal manufacturing facilities in
Shenzhen, China. The construction was completed in December 2004. We commenced full operations in
the new manufacturing facilities in April 2005. As of December 31, 2005, we had incurred $25.8
million to cover the cost of construction and fixtures and equipment for the new factory. The
financing of these improvements to our manufacturing facilities were obtained from internal
resources.
In October 2004, our existing production facility for the LCD panels segment also relocated to
new factory premises which are approximately 670,000 square feet and twice the size of the former
factory premises. This new factory provides room for future expansion of production capacity. As of
December 31, 2004, we had spent $7.7 million for this relocation and financed this amount with a
combination of internal resources and bank financing. During 2005, a further of $5.4 million was
spent for fixtures and equipment.
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Hong Kong
In October 2005, to align with the Company's China-focused operations, Nam Tai restructured
its subsidiaries to keep a minimal workforce in Hong Kong in order to support those subsidiaries
which are listed on Hong Kong Stock Exchange, and to resolve outstanding legal proceedings and tax
matters in Hong Kong. To achieve a more favorable and competitive cost structure, the Company
relocated from the approximately 24,200 square feet of office space at Shun Tak Centre, or Shun Tak
office, to the approximately 3,400 square feet office space at Suites 1506-1508, One Exchange
Square, 8 Connaught Place, in the Central district in Hong Kong. In February 2006, the Company
entered into a provisional agreement to sell the Shun Tak office with gross sales proceeds of
approximately $20.6 million, resulting in an expected gain of approximately $9.3 million, which
will be recognized in 2006. A formal sales and purchase agreement was signed on March 9, 2006 and
the Company has received 10% of the sales proceeds as a deposit. This transaction will be
completed before April 20, 2006.
Until 1996, we owned approximately ten acres of land in Hong Kong carried on our books at a
cost of approximately $523,000. Between 1997 and 2005, we sold approximately 8.2 acres of land for
net proceeds of $7.77 million; realizing a gain of $7.51 million. We plan to sell the remaining
land and, pending the sale, to continue to carry the land at a carrying value of approximately
$108,000.
Macao
In August 2003, we established our PRC headquarters in Macao, China and set up Nam Tai Macao
in Macao, China. Macao, like Hong Kong, is a special administrative region of China and has
recently introduced an incentive program to attract investments to Macao. In March and November
2004, we further established Zastron Macao and J.I.C. Macao in Macao, China, respectively. We
currently lease three offices and all of them under two-year leases expiring in July 2007. The
monthly rental costs are approximately $865.0, $1,076.0 and $760.0, respectively.
Shenzhen, China
Principal Manufacturing Facilities
Our principal manufacturing facilities are located in Baoan County, Shenzhen, China. In
December 1993, we acquired a 50-year lease for the first piece of land for approximately $2.45
million. The first phase facility consisted of 160,000 square feet of manufacturing space, 39,000
square feet of offices, 212,000 square feet of new dormitories, 26,000 square feet of full service
cafeteria, recreation facilities and a swimming pool. The total cost of this addition to our
complex, excluding land, was approximately $21.8 million. In November 2000, we began construction
of another addition to our factory complex. We completed construction in October 2002, adding a new
five-story factory with 138,000 square feet of production facilities, including one floor for
assembling, one floor of office space, one floor for warehouse use and two floors of class thousand
clean room facilities. Prior to this addition, we had only one floor of class ten thousand clean
room facilities at our factory complex. As of December 31, 2002, we had spent $9.1 million to
complete the construction of the new facility. With this new addition, we had approximately 626,000
square feet of manufacturing space at our manufacturing facilities as of December 31, 2002, with
only minimal additions in 2003.
In July 1999, we purchased another vacant lot of approximately 280,000 square feet
(approximately 6.5 acres) bordering our manufacturing complex located in Shenzhen, China at the
relevant time at a cost of approximately $1.2 million. We have built another factory consisting of
approximately 265,000 square feet of space. Construction started in September 2003 and completed in
December 2004. We commenced full operations in April 2005. During 2005, we built two additional
blocks of dormitories. With this new addition, our principal manufacturing facilities then
consisted of approximately 557,835 square feet of manufacturing space, 87,462
square feet of offices, 266,168
square feet of dormitories and 60,765 square feet of cafeteria space and a full services
recreational building. In January 2006, the construction of another cafeteria of approximately
14,589 square feet was also completed. As of December 31, 2005, we had incurred $25.8 million to
cover the cost of construction and fixtures and equipment for the new factory. The financing for
these improvements to our manufacturing facilities was obtained from internal resources.
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LCD Factory
In October 2003, Jetup Electronic (Shenzhen) Co., Ltd. entered into a tenancy agreement for
new factory premises, which is also located in Baoan County, Shenzhen, China, and relocated to the
new factory premises in October 2004. The new factory premises are about twice the size of the
former factory premises and consist of 383,547 square feet of manufacturing space, 32,005 square
feet of offices, 221,666 square feet of dormitories, and 36,807 square feets of cafeteria and
recreational spaces. This new factory provides room for the future expansion of production
capacity. As of December 31, 2004, we had spent $7.7 million for this relocation and financed this
amount with a combination of internal resources and bank financing. During fiscal year 2005, a
further $5.4 million was spent for fixtures and equipment.
Software Development
We currently lease two offices in which we conduct software development. Our Shekou, Shenzhen,
China office is approximately 15,602 square feet, which we lease under two one-year leases expiring
in July 2007. The monthly rental is approximately $9,882.3. In July 2003, we opened an office in
Tokyo, Japan to further expand our sales and marketing team in Japan for our software development
business. The Tokyo office has approximately 904 square feet, which we lease under a two-year lease
expiring in June 2007. The monthly rental for the Tokyo office is approximately $1,694.7.
Future Expansion
In September, 2005, we signed a letter of intent with The People's Government of Baoan
District, Shenzhen, PRC, to purchase approximately 1.3 million square feet of land for future
expansion, more than double the space of the land of the existing facilities.
The land is located in the Guangming Hi-Tech Industrial Park, approximately 20 minutes driving
distance from the existing facilities of the Company. It is anticipated that the government will
deliver the land to the Company by the summer of 2006, after completing its development of the
park. The Company plans to commence construction of a new facility on the site before the end of
2006 with the first phase to be completed in the summer of 2008, followed by a second phase to be
completed in the summer of 2010. The Company intends to use the new facility as its PRC
headquarters and also for increased manufacturing capacity. The additional space is expected to
meet the Company's growth needs up to 2015.
Item 4A.
Unresolved Staff Comments
We do not have any unresolved Staff comments.
35
Table of Contents
Item 5.
Operating and Financial Review and Prospects
Except for statements of historical facts, this section contains forward-looking statements
involving risks and uncertainties. You can identify these statements by forward-looking words
including "expect", "anticipate", "believe", "seek", "estimate", "intends", "should", or "may".
Forward-looking statements are not guarantees of our future performance or results and our actual
results could differ materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under the section of this Report entitled Item
3. Key Information — "Risk Factors". This section should be read in conjunction with our
Consolidated Financial Statements included as Item 18 of this Report.
Operating Results
Overview
We are an electronics manufacturing and design services provider to a select group of the
world's leading OEMs of telecommunications and consumer electronic products. Through our
electronics manufacturing services operations, we manufacture electronic components and
sub-assemblies, including LCD panels, LCD modules, RF modules, DAB modules, FPC sub-assemblies,
image sensors modules and PCBA for Bluetooth
TM
headsets. These components are used in
numerous electronic products, including cellular phones, laptop computers, digital cameras,
electronic toys, handheld video game devices and microwave ovens. We also manufacture finished
products, including cellular phones in SKD form, entertainment devices, mobile phone accessories
and educational products.
We assist our OEM customers in the design and development of their products and furnish full
turnkey manufacturing services that utilize advanced manufacturing processes and production
technologies. Our services include hardware and software design, component purchasing, assembly
into finished products, or electronic sub-assemblies and post-assembly testing. These services are
value-added and assist us in obtaining new business but do not represent a material component of
our revenue. We also provide ODM services, in which we design and develop proprietary products that
are sold by our OEM customers using their brand name.
Net Sales and Cost of Sales
We derive our net sales principally from manufacturing services that we provide to OEMs of
telecommunications and consumer electronic products. The market for the products we manufacture is
generally characterized by declining unit prices and short product life cycles. Sales to our OEM
customers are primarily based on purchase orders we receive from time to time rather than firm,
long-term purchase commitments from our customers. We recognize sales, net of product returns and
warranty costs, typically at the time of product shipment or, in some cases, as services are
rendered.
Our production is typically based on purchase orders received from OEM customers. However, for
certain customers, we will occasionally purchase raw materials based on such customers' rolling
forecasts. Purchase orders are often supported by letters of credit or written confirmation from
our OEM customers. We generally do not obtain firm, long-term commitments from our customers.
Uncertain economic conditions and our general lack of long-term purchase commitments with our
customers make it difficult for us to accurately predict our revenue over the longer term. Even in
those cases where customers are contractually obligated to purchase products from us or to
repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights
because of the long-term nature of our customer relationships and for other business reasons, and
instead may negotiate accommodations with customers regarding particular situations.
Gross Margins
Complex products generally have relatively high material costs as a percentage of total unit
costs and accordingly our strategic shift to produce more of such products has historically been a
factor that has adversely affected our gross margins. This is the primary reason for the decline in
our gross margins between 2001 and 2005. During this period, we diversified our product mix from
predominantly low complexity electronic products, including calculators and electronic
dictionaries, to include more complex components and sub-assemblies, like LCD modules, RF modules
and FPC sub-assemblies. Despite the lower gross margin on more complex products, we believe that
the opportunity for growth in the demand for these complex products justifies the shift in our
strategic focus. In dollar value, our gross profit indeed increased from $30.0 million in 2001 to
$92.9 million in 2005. Furthermore, we believe that the experience in manufacturing processes and
know-how that we have developed from producing more complex products are a competitive advantage
for us relative to many of our competitors.
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Table of Contents
The increased costs associated with developing advanced manufacturing techniques to produce
complex products on a mass scale and at a low cost have also negatively impacted our gross margins.
For example, in our initial production runs of LCD modules and RF modules, we experienced low
production yields and other inefficiencies that caused our gross margin to decrease. Although we
believe we have improved the efficiency and quality of our manufacturing processes relating to LCD
modules and RF modules, we may not be able to improve or maintain our gross margin for these
products. Furthermore, in January 2003, we began to produce color and TFT LCD modules, each a
complex component used in a variety of devices. The increased costs associated with manufacturing
these products and other new complex products could have a negative impact on our future gross
margins. The complex manufacturing processes involved in the production of complex products is also
capital intensive, thereby increasing our fixed overhead costs. It has been our strategy to shift
our focus more to the business of key components sub-assembly. The key components sub-assembly
business generally accounts for relatively lower gross profit margin business. Nam Tai has been
very successful in shifting its focus to the business of key components sub-assembly, which
accounted for 72% of our sales in 2005. We believe that the strong growth of this business will
offset the impact of lower gross profit margins and we can continue to achieve strong growth in our
overall profits.
Income Taxes
Under current BVI law, our income is not subject to taxation. Subsidiaries operating in Hong
Kong and China are subject to income taxes as described below, and our subsidiary operating in
Macao is exempted from income taxes. This would be valid unless the Macao government changes its
policy towards offshore companies.
Under current Cayman Islands law, NTEEP, Zastron and J.I.C. are not subject to profit tax in
the Cayman Islands as they have no business operations in the Cayman Islands. However, they may be
subject to Hong Kong income taxes as described below since they are registered in Hong Kong.
The provision for current income taxes of the subsidiaries operating in Hong Kong has been
calculated by applying the current rate of taxation of 17.5% for 2003, 2004 and 2005 to the
estimated taxable income earned in or derived from Hong Kong during the applicable period.
The basic corporate tax rate for FIEs in China, such as our Chinese subsidiaries, is currently
33% (30% state tax and 3% local tax). However, because all of our Chinese subsidiaries are located
in Shenzhen and are involved in production operations, they qualify for a special reduced state tax
rate of 15%. In addition, the local tax authorities in the regions in which our subsidiaries
operate in Shenzhen are not currently assessing any local tax, though that could change at any
time. Moreover, several of our subsidiaries in China are entitled to certain tax benefits and
certain of our subsidiaries in China have qualified for tax refunds as a result of reinvesting
their profits earned in previous years in China.
Efforts by the Chinese government to increase tax revenues could result in decisions or
interpretations of the tax laws by the Chinese tax authorities that are unfavorable to us and which
increase our future tax liabilities, or deny us expected refunds. Changes in Chinese tax laws or
their interpretation or application may subject us to additional Chinese taxation in the future.
Our
effective tax rates were 1% for each of the three years ended 2003, 2004 and 2005, respectively. The
significant factors that caused our effective tax rates to differ from the applicable statutory
rates of 15% were as follows:
2003
2004
2005
Applicable statutory tax rates
15
%
15
%
15
%
Effect of loss / income for which no income tax benefit/expense is receivable/payable
(2
%)
(10
%)
(8
%)
Tax losses not recognised
—
1
%
—
Tax holidays and incentives
(5
%)
(3
%)
(4
%)
Effect of China tax concessions, giving rise to no China tax liability
(8
%)
(3
%)
(4
%)
Other items which are not assessable (deductible) for tax purposes
1
%
1
%
2
%
Effective tax rates
1
%
1
%
1
%
Strategic Investments
An important element of our strategy is to make investments in companies that provide the
potential to complement our existing products and services, become new customers, augment our
market coverage and sales ability, enhance our technological capabilities and expand our service
offerings. We account for investments of less than 20% at fair value and we account for investments
between 20% and 50% under the equity method. Our material investments over the last five years
include:
Stepmind
. In December 2003, we placed approximately $5.3 million into an escrow account for an
investment in Stepmind. The investment was to occur in two phases. For the first phase,
approximately $2.64 million, representing 7.66% of the equity interest in
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Table of Contents
Stepmind, was released to Stepmind in January 2004. The second phase amounting to $2.65
million was released to Stepmind in August 2004 subject to fulfillment of certain conditions. In
August 2004, we disposed of our entire interest in Stepmind to one of the shareholders of Stepmind
at the original subscription price for those shares.
Alpha Star/JCT.
In January 2003, we invested $10.0 million for a 25% equity interest in Alpha
Star, the ultimate holding company of JCT. JCT is engaged in the design, development and marketing
of wireless communication terminals and wireless application software and is using us to
manufacture wireless communication terminals and their related modules. In September 2004, we made
an impairment to write down our $10.0 million investment in Alpha Star to a fair value of
approximately $3.0 million based on the valuation report issued by an external valuation firm. As
of December 31, 2004, another analysis had been conducted by an independent valuer, who determined
that no further impairment to the carrying value of the investment was required. From January to
August 2005, this affiliated company continued to be loss making. We disposed of our
entire stake in Alpha Star in August 2005 to the majority shareholders of Alpha Star with sales
proceeds of $6.5 million resulting in a gain of $3.6 million in 2005.
TCL group.
Over the period from September 2000 through November 2002, we made three
investments in the TCL group of companies and disposed of a portion of the investment in 2002 and
2003. The TCL group of companies is a leading OEM for numerous consumer electronic and
telecommunications products in the domestic Chinese market.
•
In September 2000, we made a strategic investment of $2.0 million to acquire a
5% indirect equity interest (through a 25% direct equity interest in Mate Fair) in both TCL
Mobile Communication (HK) Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together
known as TCL Mobile. TCL Mobile is engaged in manufacturing, distributing and trading of
digital mobile phones and accessories in China and overseas markets. In October 2002, we
began to provide TCL Mobile with LCD modules used in its mobile phones.
•
In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly
known as TCL Holdings Corporation Ltd.), the parent of the TCL group of companies, for
approximately $12.0 million. In January 2004, TCL Corporation listed its A-shares on the
Shenzhen Stock Exchange at $0.52, or RMB4.26, per A-share. The Company's interest in TCL
Corporation has then been diluted to 3.69%, represented by 95.52 million promoter's shares
of TCL Corporation after its initial public offering. However, in December 2005,
shareholders of TCL Corporation approved a split share structure reform. Pursuant to this
reform, the Company will give away 15.62% of its total shares to floating shareholders as
consideration and thereafter all its restricted shares will become floating shares subject
to the regulations of China Securities Regulation Commission and can become tradable 12
months from the first trading day after the reform is formally in effect, which will depend
on the approval of the Ministry of Commerce of China. The Company's interest in TCL
Corporation has been reduced from 3.69% to 3.12%, representing 80.60 million shares.
However, the financial impact on the Company's interest in TCL Corporation cannot be
ascertained at the moment because of the unforeseeable impact of the reform on TCL
Corporation A-share price. As of December 31, 2005, the Company recognized an unrealized
gain of $1.36 million, based on the Company's cost of $11.97 million. The Company's
interest in TCL Corporation was recorded at fair value of $13.33 million, based on a
valuation report from an external valuation firm.
•
In November 2002, one of our subsidiaries sold a portion of its equity interest in Huizhou TCL
Mobile Communication Co., Ltd. for which we received proceeds of approximately $10.4
million, reducing our direct equity interest (held through Mate Fair) in TCL Mobile to
approximately 3%.
•
In November 2002, we invested $5.1 million in the 3% convertible notes of TCL
International Holdings Limited that are due in November 2005. TCL International Holdings
Limited is another company in the TCL group and is publicly listed on the Hong Kong Stock
Exchange. Those convertible notes of TCL International Holdings Limited were disposed of in
August 2003 for approximately $5.03 million.
•
In April 2004, we increased our shareholding in TCL Mobile from approximately 3%
to 9% through acquiring Jasper Ace, which directly holds 9% equity interest in TCL Mobile,
at a consideration of approximately $102.2 million. The consideration was satisfied, by the
exchange of our 72.2% equity interest in Mate Fair, plus cash of $25 million and the
issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5
million. We recognized an impairment loss of $58.3 million as at December 31, 2004. In the
second quarter of 2005, a further $6.5 million impairment loss was recognized. Due to a
share swap between TCL Communication and Alcatel on July 18, 2005, our shareholding in TCL
Communication decreased from 9% to 8.57%. During the period from August to December 2005,
we disposed of our entire stake in TCL Communication realizing proceeds of $11.0 million
which resulted in a net realized and accumulated losses of $68.5 million.
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The following details the impact of our strategic investments on our consolidated statements
of income for each of the years ended 2003, 2004 and 2005:
2003
2004
2005
(in thousands)
Income
from Investments Stated at Fair Value:
Dividend
income received from marketable securities and investment
TCL Corporation
1,696
926
579
Huizhou
TCL
2,018
17,369
—
$
3,714
$
18,295
$
579
Loss on
Disposal of Marketable Securities
—
—
(3,686
)
Impairment Loss on Marketable Securities
—
(58,316
)
(6,525
)
Equity Investments
Alpha Star Investments Limited
Gain on
Disposal of an Affiliated Company
—
—
3,631
Equity in
Income (Loss) of an Affiliated Company
$
498
$
(6,806
)
$
(186
)
J.I.C. Group
We acquired the J.I.C. group in October 2000 for $32.8 million. We paid a portion of the
purchase price to the seller by issuing approximately 3.48 million of our common shares and paid
$11.0 million in cash. The J.I.C. group at the relevant time was principally engaged in the
manufacture and marketing of transformers and LCD panels, a key component for a variety of consumer
electronic products. We accounted for the acquisition of the J.I.C. group under the purchase method
of accounting and the results of the J.I.C. group's operations have been consolidated with our
results since the date of its acquisition.
In June 2002, through a reverse merger, we arranged for the listing of the J.I.C. group on the
Hong Kong Stock Exchange. To effect the listing, we entered into an agreement with the liquidators
of Albatronics to effect the restructuring proposal of Albatronics and the listing of J.I.C. as
this arrangement was more cost effective than using an initial public offering.
Due to the reverse merger, our effective interest in the J.I.C. group was reduced from 100% to
92.9%. As a result of this reduction in interest during 2002, we have released goodwill of $1.5
million, representing 7.1% of the goodwill that had previously been recorded upon purchasing the
J.I.C. group in October 2000. The release of goodwill is included as part of the loss on the
reverse merger of the J.I.C. group.
In August 2002, we acquired an additional 7,984,000 ordinary shares of J.I.C. for a cash
consideration of $437,000, resulting in additional goodwill of $253,000. As of December 31, 2002,
we held 93.97% of effective interest in J.I.C. group, which represented 74.78% of the existing
ordinary shares and 93.97% of the outstanding ordinary shares upon full conversion of the
598,420,000 preference shares.
During the period from June to November 2003, we disposed of a total of 42,600,000 ordinary
shares of J.I.C. for cash consideration of $4.0 million. The disposal resulted in a net gain on
partial disposal of a subsidiary of $1.8 million and the releasing of goodwill of $1.2 million. The
release of goodwill is netted off with the gain on the partial disposal of a subsidiary. In
November 2003, we converted 175,100,000 preference shares into 170,000,000 ordinary shares of
J.I.C.
In June 2003, in order to concentrate its effort on its LCD panels reporting unit, J.I.C.
disposed of its transformers reporting unit to a third party for a cash consideration of $2.4
million. Sales of the transformers reporting unit for the years ended December 31, 2002 and 2003
were $11.3 million and $6.3 million, respectively, and were insignificant compared to the sales of
the Company as a whole. The net income from this discontinued operation for the years ended
December 31, 2002 were also immaterial. In 2003, the net income from discontinued operation
represented a gain of $2.0 million, being the proceeds from the disposal less the carrying value of
the net assets of the transformers reporting unit, and minority interests. Excluding this gain, the
basic and diluted earnings per share for continuing operations for the year ended December 31, 2003
was $1.04 and $1.02, respectively.
During the period from November to December 2004, we further disposed of a total of
128,000,000 ordinary shares of J.I.C. for cash consideration of $12.90 million. The disposal
resulted in a net gain on partial disposal of a subsidiary of $6.25 million. During
39
Table of Contents
the same period, we converted all 423,320,000 preference shares into 410,990,290 ordinary
shares. As of December 31, 2005, we held 546,890,978 ordinary shares of J.I.C., equivalent to
71.63% of issued ordinary shares.
Critical Accounting Policies and Estimates
The preparation of our financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States of America requires management to
make estimates and judgments that affect our reported amounts of assets and liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis,
we evaluate our estimates and assumptions based upon historical experience and various other
factors and circumstances. Management believes that our estimates and assumptions are reasonable
under the circumstances; however, actual results may vary from these estimates and
assumptions under different future circumstances. We have identified the following critical
accounting policies that affect the more significant judgments and estimates used in the
preparation of our consolidated financial statements. For further discussion of our significant
accounting policies, refer to Note 2 — "Summary of Significant Accounting Policies" to the
Consolidated Financial Statements.
Marketable securities
Marketable securities at December 31, 2005 are principally equity securities and are
classified as available-for-sale securities. Securities classified as available-for-sale are stated
at fair value with unrealized gains and losses recorded as a separate component of accumulated
other comprehensive income (loss). Fair value is determined by reference to market price or
analysis conducted by independent valuer. In the event where the fair value of the securities has
been below the carrying value for a period of time, we will assess whether this decline in value is
other-than-temporary.
Our assessment includes the consideration of the duration and severity of the decline in
values and our ability and intent to hold the investments for a reasonable period of time
sufficient for a forecasted recovery of the fair value up to or beyond the cost of the investment,
and an assessment of the evidence indicating that the cost of the investment is recoverable within
a reasonable period of time which outweighs the evidence to the contrary. If it is determined that
the decline is other-than-temporary, an impairment charge to the income statement will be made.
40
Table of Contents
Valuation of long-lived assets, including purchased intangible assets and valuation of goodwill
The Company reviews the carrying value of its long-lived assets, including purchased
intangible assets, for impairment whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. The Company assesses the recoverability of the carrying
value of long-lived assets, including purchased intangible assets by first grouping its long-lived
assets with other assets and liabilities at the lowest level for which identifiable cash flows
largely independent of the cash flows of other assets and liabilities (the asset group) and,
secondly, estimating the undiscounted future cash flows that are directly associated with and
expected to arise from the use of and eventual disposition of such asset group. The Company
estimates the undiscounted cash flows over the remaining useful life of the primary asset within
the asset group. If the carrying value of the asset group exceeds the estimated undiscounted cash
flows, the Company records an impairment charge to the extent the carrying value of the long-lived
asset exceeds its fair value. The Company determines fair value through quoted market prices in
active markets or, if quoted market prices are unavailable, through the performance of internal
analysis of discounted cash flows or obtains external appraisals from independent valuation firms.
The undiscounted and discounted cash flow analyses are based on a number of estimates and
assumptions, including the expected period over which the asset will be utilized, projected future
operating results of the asset group, discount rate and long-term growth rate.
To assess goodwill for impairment, the Company performs an assessment of the carrying value of
its reporting units at least on an annual basis or when events and changes in circumstances occur
that would more likely than not reduce the fair value of the Company's reporting units below their
carrying value. If the carrying value of a reporting unit exceeds its fair value, the Company would
perform the second step in its assessment process and would record an impairment charge to earnings
to the extent the carrying amount of the reporting unit goodwill exceeds its implied fair value.
The Company estimates the fair value of its reporting units through internal analysis and external
independent valuations, which utilize income and market valuation approaches through the
application of capitalized earnings, discounted cash flow and market comparable methods. These
valuation techniques are based on a number of estimates and assumptions, including the projected
future operating results of the reporting unit, discount rate, long-term growth rate and
appropriate market comparables.
The Company's assessments of impairment of long-lived assets and goodwill, and its periodic
review of the remaining useful lives of its long-lived assets are an integral part of the Company's
ongoing strategic review of its business and operations. Therefore, future changes in the Company's
strategy and other changes in the operations of the Company could impact the projected future
operating results that are inherent in the Company's estimates of fair value, resulting in
impairments in the future. Additionally, other changes in the estimates and assumptions, including
the discount rate and expected long-term growth rate, which drive the valuation techniques employed
to estimate the fair value of long-lived assets and goodwill could change and, therefore, impact
the assessments of impairment in the future.
In performing the annual assessment of goodwill for impairment for the years ended December
31, 2004 and 2005, the Company determined that none of the reporting units' carrying values were
close to exceeding their respective fair values.
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Table of Contents
Deferred income taxes
We provide deferred income taxes using the asset and liability method. Under this method, we
recognize deferred income taxes for all significant temporary differences and classified as current
or non-current based upon the classification of the related asset or liability in the financial
statements. We provide a valuation allowance to reduce the amount of deferred tax assets if it is
considered more likely than not that some portion, or all, of the deferred tax asset will not be
realized.
When considering whether a valuation allowance is necessary, we will assess the history of
operating losses and unexpired tax credit, losses expected in the future and any unsettled
circumstances that, if unfavorably resolved, would adversely affect future operations and profit
levels on a continuing basis in future years. Therefore, any changes in our assessment of the above
would impact our estimation of the amount of valuation allowance.
Accruals and provisions for loss contingencies
We make provisions for all loss contingencies when information available to us prior to the
issuance of the financial statements indicates that it is probable that an asset had been impaired
or a liability had been incurred at the date of the financial statements and the amount of loss can
be reasonably estimated.
For provisions or accruals related to litigations, we make provisions based on information
from legal counsels and the best estimation of management. As discussed in Note (18b) to our
consolidated financial statements, we are involved in various legal proceedings and contingencies.
We have recorded a liability for the Tele-Art matter in accordance with Statement of Financial
Accounting Standards No. 5, "Accounting for Contingencies", or SFAS 5. SFAS 5 requires a liability
to be recorded based on our estimate of the probable cost of the resolution of a contingency. The
actual resolution of this contingency may differ from our estimates. If the contingency were
settled for an amount greater than our estimate, a future charge to income would result. Likewise,
if the contingency were settled for an amount that is less than our estimate, a future credit to
income would result.
Summary of Results
The
increase in sales was primarily due to strong growth in demand for LCD modules and FPC
sub-assemblies. The increase in our net sales base year-over-year represents stronger demand from
existing customers, as well as organic growth from new and existing customers.
The following table sets forth key operating results (in thousands, except per share data) for
the years ended December 31, 2003, 2004 and 2005:
Year Ended December 31,
% increase/(decrease)
2003
2004
2005
2004 vs 2003
2005 vs 2004
Net sales
$
406,306
$
533,861
$
797,237
31%
49%
Gross profit
66,290
76,476
92,923
15%
22%
Operating income
37,387
43,378
52,656
16%
21%
Net income
43,802
66,885
51,306
53%
(23%
)
Basic earnings per share
1.09
1.57
1.19
44%
(24%
)
Diluted earnings per share
1.07
1.57
1.19
47%
(24%
)
Key Performance Indicators
The following table sets forth, for the quarterly periods indicated, certain of management's
key financial performance indicators that management utilizes to assess the Company's operating
results:
Three Months Ended
December 31,
September 30,
June 30,
March 31,
2004
2004
2004
2004
Sales cycle
(1)
8 days
29 days
41 days
29 days
Inventory turnover
(2)
18 days
24 days
34 days
37 days
Days in accounts receivable
(3)
62 days
54 days
86 days
56 days
Days in accounts payable
(4)
72 days
49 days
79 days
64 days
Three Months Ended
December 31,
September 30,
June 30,
March 31,
2005
2005
2005
2005
Sales cycle
(1)
11 days
19 days
22 days
18 days
Inventory turnover
(2)
16 days
20 days
16 days
14 days
Days in accounts receivable
(3)
58 days
60 days
50 days
56 days
Days in accounts payable
(4)
63 days
61 days
44 days
52 days
(1)
The sales cycle is calculated as the sum of days in accounts receivable and days
in inventory, less the days in accounts payable.
(2)
Inventory turnover are calculated as the ratio of inventory, net, at period
end divided by year to date of cost of sales.
(3)
Days in accounts receivable is calculated as the ratio of accounts
receivable, net, at period end divided by year to date average daily net sales.
(4)
Days in accounts payable is calculated as the ratio of accounts payable,
net, at period end divided by year to date average daily net cost of sales.
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Table of Contents
Results of Operations
The following table presents selected consolidated financial information stated as a percentage of
net sales for the years ended December 31, 2003, 2004 and 2005 (certain amounts may not calculate
due to rounding and amounts may not add due to rounding).
Year Ended December 31,
2003
2004
2005
Net sales
100.0
%
100.0
%
100.0
%
Cost of sales
(83.7
)
(85.7
)
(88.3
)
Gross profit
16.3
14.3
11.7
Selling, general and administrative expenses
(6.1
)
(5.2
)
(4.2
)
Research and development expenses
(1.0
)
(1.0
)
(0.9
)
Income from operations
9.2
8.1
6.6
Other expenses, net
(0.2
)
(0.2
)
(0.0
)
Dividend income from marketable securities and investments
0.9
3.4
0.1
Gain on sale of subsidiaries' shares
0.5
14.5
1.3
Gain on disposal of investment in an affiliated company
—
—
0.4
Impairment loss on marketable securities
—
(10.9
)
(0.8
)
Realized loss on marketable securities
—
—
(0.5
)
Interest income
0.2
0.2
0.5
Interest expense
—
—
(0.1
)
Income before income taxes and minority interests
10.6
15.1
7.5
Income taxes
(0.1
)
(0.2
)
(0.1
)
Income before minority interests and equity in income (loss) of affiliated companies
10.5
14.9
7.4
Minority interests
(0.3
)
(1.1
)
(1.0
)
Equity in income (loss) of affiliated companies
0.1
(1.3
)
—
Income after minority interests and equity in income (loss) of affiliated companies
10.3
12.5
6.4
Discontinued operation
0.5
—
—
Net income
10.8
%
12.5
%
6.4
%
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Net Sales.
Our net sales increased 49% to $797.2 million for 2005, up from $533.9 million in
2004. The increase was due to increased sales levels across various business segments. Sales of
telecommunication components assembly substantially increased 80.0%, sales of LCD panels increased
19.3% and sales of software development services increased 11.1%. Sales of consumer electronics
and communication products remained at 2004 levels. The increased sales levels were due to the
addition of new customers, and organic growth in these business segments. Specifically, the
increase in telecommunications, components assembly was primarily attributable to the increase in
sales of FPC sub-assemblies, LCD modules and RF modules.
The following table sets forth, for the periods indicated, revenue by business segments
expressed as a percentage of net sales. The distribution of revenue across our business segments
has fluctuated, and will continue to fluctuate, as a result of numerous factors, including but not
limited to the following: increased business from new and existing customers, fluctuations in
customer demand and seasonality.
Year ended December 31,
2003
2004
2005
Percent
Percent
Percent
Consumer
Electronics and Communication Products
Consumer Electronics and Communication Products
32
%
31
%
20
%
Software Development Services
(2)
1
1
1
Telecommunication components assembly
57
59
72
LCD Panels
and Transformers
LCD panels
9
9
7
Transformers
(1)
1
—
—
Total
100
%
100
%
100
%
(1)
We sold our transformers operation to a third party in June 2003.
(2)
Software Development Services was reclassified from
Telecommunication Components Assembly
segment to Consumer Electronics and Communication Products segment in 2005. Comparative
figures for year 2003 and 2004 have been restated accordingly.
Gross Profit.
In terms of dollar value, gross profit for
2005 increased by $16.4 million from 2004, due to the increased
revenue base. However, gross margin decreased to 11.7% of net sales in 2005 from 14.3% in 2004.
Generally, the gross margin for box-built products is higher than key components assembly. Our
target was to shift our business to the high-growth and high-technology key components assemblies
sector, and we succeeded in increasing net sales in the TCA segment. In 2004, we were impacted by
the reduction of input credit with respect to value-added tax related to domestic purchase
materials by the PRC government. In 2005, the percentage decrease was primarily due to strong
growth and a higher proportion of TCA segment revenue.
43
Table of Contents
Selling, General and Administrative Expenses.
Selling, general and administrative expenses
increased to $33.1 million, or 4.2% of net sales in 2005 from
$28.1 million, or 5.2% of net sales
in 2004. The $5.0 million increase was primarily attributable to the increase in salaries and
benefits, audit, legal and professional fee, depreciation and amortization and restructuring
expenses in relation to Hong Kong office. The decrease as a percentage of net sales was due
primarily to the increased revenue base in 2005.
Research and Development Expenses.
Research and development expenses in 2005 increased to $7.2
million from $5.0 million in 2004 accounting for 0.9% of net sales for 2005 compared to 1.0% of
net sales for 2004. The absolute dollar increase was primarily attributable to the recruitment of
more engineers to support our R&D activities, including design of production process, development
of new products and products associated with customer design-related programs.
Other Expenses — Net.
During 2005, other expenses were $0.1 million which mainly include gain
on disposal of land, exchange gain and was partially offset by other non-operating charges. During
2004, other expenses was $1.0 million which mainly represented by other non-operating charges.
Dividend Income Received From Marketable Securities and Investment.
We received $0.6 million
dividend income from our investment in TCL Corporation during the year of 2005. In 2004, we
received $17.4 million and $0.9 million dividend income from our investment in TCL Communication
and TCL Corporation, respectively.
Gain on Sale of Subsidiaries' Shares
. In May 2005, NTEEP acquired 100% interest in Namtek
Software from the Company and Asano Company Limited, and as a result of this series of linked
transactions, the Company effectively disposed of 7.94% interest in Namtek Software, resulting in a
gain of $1.9 million. During 2005, the Company disposed 52,574,000 million shares of NTEEP, one
of the previously wholly-owned subsidiaries of the Company, resulting in a gain of $8.2 million. In April 2004, NTEEP, completed a public offering of its common stock on the Hong
Kong Stock Exchange. As a result, the Company disposed of a 25% interest in this subsidiary,
resulting in a gain on sale of NTEEP's shares of $71.1 million.
In November and December 2004, the Company disposed of 128 million ordinary shares of J.I.C.
for cash consideration of $12.9 million. The disposal resulted
in a net gain on sale of J.I.C.'s shares of $6.3 million after
deducting the release of goodwill of $3.5 million.
Gain on Disposal of Investment in an Affiliated Company.
In the third quarter of 2005, we
sold of our entire stake in Alpha Star to the majority shareholders of Alpha Star. The
proceeds from disposal were $6.5 million, resulting in a gain of $3.6 million
.
Impairment Loss of Marketable Securities and Realized Loss in Marketable Securities
. At
December 31, 2004, the Company's investment in TCL Communication was stated at fair value based on
the traded market price of TCL Communication's shares and the Company recognized an impairment loss
of $58.3 million, based on the Company's cost of $79.5 million and a fair value of $21.2 million.
As the loss is considered to be other-than-temporary, it has been recorded in the consolidated
statements of income. In June 2005, a further $6.5 million impairment loss was made. For the
period from August to December 2005, the Company disposed its entire stake in TCL Communication for
sales proceeds of $11.0 million and recorded a realized loss of $3.7 million.
Interest Income
. Interest income was as $3.9 million which increased $2.8 million from $1.1
million in 2004. The increase was primarily due to higher average cash balances and increase of
interest rate.
Interest Expense.
Interest expense increased to $438,000 in 2005 from $195,000 in 2004. This
increase was primarily a result of increase in interest rates and the draw-down of short-term bank
loans by J.I.C.
Income Taxes.
Pursuant to the strict enforcement of certain PRC regulations, tax paid on
statutory reserve of our PRC entities is not eligible for tax refund. In order to follow the strict
enforcement practice, extra tax expenses of $268,000 for previous years were charged to 2004. As a
result, income tax expenses for 2004 were $879,000 as compared to $651,000 for 2005.
Minority Interests.
Minority interest increased to $8.0 million in 2005 from $6.0 million in
2004. The increase was primarily the result of the increase in minority shareholders' share of
NTEEP's profit of approximately $6.7 million during 2005. In addition, the minority shareholders'
share of profits of the J.I.C. group for 2005 increased to $1.3 million from $254,000 in 2004.
Equity in Loss of Affiliated Companies.
We recorded an equity in loss of $186,000 for 2005 and
$6.8 million for 2004 in relation to Alpha Star. The amount in 2004 included an impairment charge
of approximately $5.6 million upon its unsatisfactory operating results and the continued weakness
in markets operated by Alpha Star and $1.2 million share of loss of Alpha Star. For additional

information, see Note 9 — "Investment in Affiliated Companies, Equity Method
¾
Alpha
Star" to the Consolidated Statements of Income.
44
Table of Contents
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Net Sales.
Our net sales increased 31.4% to $533.9 million for 2004, up from $406.3 million in
2003. The increase was due to increased sales levels across all business segments. Specific
increases include a 27.0% increase in the sales of consumer electronics and communication products,
a 36.4% increase in the sales of telecommunication components assembly, a 17.9% increase in the
sales of LCD panels and a 20.6% increase in the sales of software development services. The
increased sales levels were due to the addition of new customers, and organic growth in these
business segments. The increase in the consumer electronics and communication products was
primarily attributable to the increased sales levels in optical devices. The increase in
telecommunication, components assembly was primarily attributable to sales of FPC sub-assemblies in
2004 and the increase in sales of levels of mobile phone handsets in SKD forms and lighting panels
for hand-held devices.
Gross Profit.
Gross profit decreased to 14.3% of net sales in 2004 from 16.3% in 2003.
Generally, the gross margin for box-built products is higher than key components assembly. Our
target was to shift our business to the high-growth and high-technology key components assemblies
sector, and we succeeded in increasing net sales in the TCA segment. The percentage decrease in
gross profit was primarily due to a higher proportion of TCA segment revenue. Additionally, we have
been impacted by the reduction of input credit in respect of value-added tax related to domestic
purchase materials by the PRC government during 2004. In terms of dollar value, gross profit for
2004 increased by $10.2 million from 2003, due to the increased revenue base.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses
increased to $28.1 million, or 5.2% of net sales in 2004 from $24.9 million, or 6.1% of net sales,
in 2003. The $3.2 million increase was primarily attributable to the increase in sales commission
paid to marketing staff as a result of increased revenue, and the commission paid to external
agents for particular products during 2004. The decrease as a percentage of net sales was due
primarily to the increased revenue base in 2004.
Research and development Expenses.
Research and development expenses in 2004 increased to $5.0
million from $4.0 million in 2003 but remained at 1.0% of net sales for each of 2004 and 2003. The
absolute dollar increase was primarily attributable to the recruitment of more engineers to support
our research and development activities, including design of production process, development of new
products and products associated with customer design-related programs.
Other Expenses, Net.
During 2004, other expenses of $1.0 million were mainly represented by
other non-operating charges. In 2003, other expense also represented by other non-operating
charges and was partially offset by a non-trade receivables which had been written off previously.
Dividend Income Received From Marketable Securities and Investment.
In 2004, we received
$17.4 million and $0.9 million dividend income from our investment in TCL Communication and TCL
Corporation, respectively. This compared to $2.0 million and $1.7 million dividend income from our
investment in TCL Communication and TCL Corporation in 2003
Gain on Sale of Subsidiaries' Shares.
In April 2004, one of the previously wholly-owned
subsidiaries of the Company, NTEEP, completed a public offering of its common stock on the Hong
Kong Stock Exchange. As a result, the Company disposed of a 25% interest in this subsidiary,
resulting in a gain on sale of NTEEP's shares of US$71.1 million. In November and December 2004, the
Company disposed of 128 million ordinary shares of J.I.C. for cash consideration of $12.9 million.
The disposal resulted in a net gain on sale of J.I.C.'s shares of $6.3 million after
deducting the release of goodwill of $3.5 million. During 2003,
we recorded a $1.8 million gain on sale of J.I.C.'s shares.
Unrealized Loss of Marketable Securities
. At December 31, 2004, the Company's investment in
TCL Communication was stated at fair value based on the traded market price of TCL Communication's
shares and the Company recognized an unrealized loss of $58.3 million, based on the Company's cost
of $79.5 million and a fair value of $21.2 million. As the loss is considered to be
other-than-temporary, it has been recorded in the consolidated statements of income.
Interest Income
. Interest income increased to $1.1 million in 2004 from $0.8 million in 2003.
The increase was primarily due to higher average cash balances, partially offset by lower interest
yields on cash deposits.
Interest Expense.
Interest expense increased to $195,000 in 2004 from $121,000 in 2003. This
increase was primarily a result of the draw-down of a $7.0 million fixed-term loan by J.I.C.
45
Table of Contents
Income Taxes.
Income tax expenses of $879,000 for 2004 compares to $399,000 for 2003. The
increase was primarily the result of not receiving full tax refunds for several of our PRC entities
for taxes paid in previous years that we have normally been eligible to receive full tax refunds in
the past as a result of the strict enforcement of certain regulations.
Minority Interests.
Minority interest increased to $6.0 million in 2004 from $1.1 million in
2003. The increase was primarily the result of the increase in minority shareholders' share of
NTEEP's profit of approximately $4.9 million since its listing in April 2004. In addition, the
minority shareholders' share of profits of the J.I.C. group for 2004 increased to $254,000 from
$211,000 in 2003, and the minority shareholders' share of profits of Namtek Software for 2004
increased to $472,000 from $296,000 in 2003. The minority shareholders' share of profits of Mate
Fair for 2004 decreased to $405,000 from $560,000.
Equity in Income (Loss) of Affiliated Companies.
We recorded an equity in loss of $6.8 million
for 2004 of Alpha Star but recognized in equity in income of $0.5 million for 2003. The amount in
2004 included an impairment charge of approximately $5.6 million upon its unsatisfactory operating
results and the continued weakness in markets operated by Alpha Star and $1.2 million share of loss
of Alpha Star. For additional information, see Note 9 — "Investment in Affiliated Companies, Equity
Method
¾
Alpha Star" to the Consolidated Statements of Income.
Liquidity and Capital Resources
Liquidity
We have financed our growth and cash needs to date primarily from internally generated funds,
proceeds from the sale of our strategic investments, sales of our common stock and bank debt. We do
not use off-balance sheet financing arrangements, such as securitization of receivables or
obtaining access to assets through special purpose entities, as sources of liquidity. Our primary
uses of cash have been to fund expansions and upgrades of our manufacturing facilities, to make
strategic investments in potential customers and suppliers and to fund increases in inventory and
accounts receivable resulting from increased sales.
We had positive net working capital of $234.7 million at December 31, 2005 compared to
positive net working capital of $218.2 million at December 31, 2004. We expect our working capital
requirements and capital expenditures to increase in order to support future expansions of our
operations through acquisition of land, construction of a new factory on this land to be acquired
and machinery purchases. It is possible that future expansions may be significant and may require
the payment of cash. Future liquidity needs will also depend on fluctuations in levels of inventory
and shipments, changes in customer order volumes and timing of expenditures for new equipment.
We currently believe that during the next twelve months, our capital expenditures will be in
the range of $30 million to $50 million, principally for land, machinery and equipment, and
expansion in China. We believe that our level of resources, which include cash and cash
equivalents, marketable securities, accounts receivable and available borrowings under our credit
facilities, will be adequate to fund these capital expenditures and our working capital
requirements for the next twelve months. Should we desire to consummate significant additional
acquisition opportunities or undertake significant expansion activities, our capital needs would
increase and could possibly result in our need to increase available borrowings under our revolving
credit facilities or access public or private debt and equity markets. There can be no assurance,
however, that we would be successful in raising additional debt or equity on terms that we would
consider acceptable.
The following table sets forth, for the year ended December 31, 2003, 2004 and 2005, selected
consolidated cash flow information (in thousands):
Year Ended December 31,
2003
2004
2005
Net cash provided by operating activities
$
44,272
$
75,210
$
70,825
Net cash (used in) provided by investing activities
(21,669
)
37,729
18,740
Net cash used in financing activities
(43,253
)
(14,117
)
(36,165
)
Net (decrease) increase in cash and cash equivalents
$
(20,650
)
$
98,822
$
53,400
Net cash provided by operating activities for 2005 was $70.8 million. This consisted primarily
of $51.3 million of net income, adjusted for $17.3 million of depreciation and amortization, $6.5
million impairment loss on marketable securities, $3.7 million realized loss on marketable
securities and $8.0 million in minority interests, which were offset by $10.1 million gain on
sales of subsidiaries' shares and $3.6 million
46
Table of Contents
gain on disposal of investment in an affiliated
company. Our working capital related to operating activities increased, driven by an increase of
$32.0 million in accounts payable and $2.8 million in accrued expenses and others payables, a
decrease of $3.9 million in income taxes recoverable, an increase of $2.7 million in notes payable
and decrease of $0.4 million decrease in prepaid expenses and other receivables, partially offset
by increases in accounts receivable of $35.3 million and $8.6 million in inventories. The increase
in accounts receivable and accounts payable was due to increased levels of business during 2005.
Net cash provided by investing activities of $18.7 million for 2005 consisted primarily of
proceeds from partial disposal of subsidiaries of $25.2 million, proceeds from disposal of
marketable securities of $11.0 million, proceeds from disposal of an affiliated company of $6.5
million, proceeds from disposal of property, plant and equipment of $1.8 million and decrease in
deposits for property, plant and equipment of $6.4 million, partially offset by capital
expenditures of $32.2 million. Capital expenditure in 2005 mainly consisted of the construction of
a new factory and purchases of machinery and equipment which were used to expand our manufacturing
capacity and to upgrade our equipment to produce increasingly complex products.
Net cash used in financing activities of $36.2 million for 2005 resulted primarily from $52.0
million paid to shareholders as dividends, $5.4 million in repayment of bank loans, partially
offset by proceeds of bank loans of $4.8 million and proceeds from shares issued on exercise of
options and warrants of $16.4 million.
Net cash provided by operating activities for 2004 was $75.2 million. This consisted primarily
of $66.9 million of net income, adjusted for $13.9 million of depreciation and amortization, $58.3
million unrealized loss on marketable securities, $6.8 million equity in loss of an affiliated
company and $6.0 million in minority interests partially offset
by $6.2 million in gain on sale of J.I.C.'s shares,
$71.1 million gain on sale of NTEEP's shares and $15.9 million in dividend
income. Our working capital related to operating activities increased, driven by an increase of
$33.9 million in accounts payable and $3.0 million in accrued expenses and others payables, a
decrease of $2.6 million in amount due from a related party, $3.9 million in inventories and $2.6
million in prepaid expenses and other receivables, partially offset by increases in accounts
receivable of $28.3 million. The increase in accounts receivable and accounts payable was due to
increased levels of business during 2004.
Net cash provided by investing activities of $37.7 million for 2004 consisted primarily of
proceeds from partial disposal of subsidiaries and investments of $95.4 million and $5.6 million,
respectively, proceeds from disposal of property, plant and equipment of $4.5 million, partially
offset by capital expenditures of $38.6 million and increase in deposits for property, plant and
equipment of $4.4 million and acquisition of marketable securities of TCL Communication of $25.1
million. Capital expenditure in 2004 mainly consisted of the construction of a new factory and
purchases of machinery and equipment which were used to expand our manufacturing capacity and to
upgrade our equipment to produce increasingly complex products.
Net cash used in financing activities of $14.1 million for 2004 resulted primarily from $19.4
million paid to shareholders as dividends, $5.4 million in repayment of bank loans, partially
offset by proceeds of bank loans of $10.6 million.
Except as discussed above, there are no material transactions, arrangements and relationships
with unconsolidated affiliated entities that are reasonably likely to affect liquidity.
For the years ended December 31, 2004 and 2005, the Company has made guarantees for debt,
loans and credit facilities held by various wholly owned subsidiaries aggregating up to a maximum
guarantee of $49.2 million and $19.0 million, respectively. The terms of the guarantees correspond
with the terms of the underlying debt, loan and credit facility agreements.
Capital Resources
As of December 31, 2005, we had $213.8 million in cash and cash equivalents, consisting of
cash and short-term deposits, compared to $160.6 million as of December 31, 2004. Our short-term
bank loans were $2.3 million and nil as of December 31, 2005 and December 31, 2004, respectively.
Our long-term bank borrowing was $5.2 million and $8.1 million as of December 31, 2005 and December
31, 2004, respectively.
As of December 31, 2005, we had in place general banking facilities with two financial
institutions aggregating $117.3 million. The maturity of these facilities is generally up to 120
days. These banking facilities are guaranteed by us and there is an undertaking not to pledge any
assets to any other banks without the prior consent of our bankers. However, these covenants do not
have any impact on our ability to undertake additional debt or equity financing. Interest rates are
generally based on the banks' reference lending rates. Our facilities permit us to obtain
overdrafts, lines of credit for forward exchange contracts, letters of credit, import facilities,
trust receipt financing, shipping guarantees,
47
Table of Contents
working capital and revolving loans. No significant
commitment fees are required to be paid for the banking facilities. These facilities are subject to
annual review and approval. As of December 31, 2005, we had utilized approximately $7.1 million
under such general credit facilities and had available unused credit facilities of $110.2 million.
As of December 31, 2005, we had two four-year term loans. The outstanding balance amounted to
$5.2 million as of December 31, 2005 and $8.1 million as of December 31, 2004. Here is an analysis
of the term loans:
Outstanding
Outstanding
Original
Amount
balance at
balance at
Date of
Amount
per
December 31,
December 31,
Draw
drawn
No. of
installment
Interest
First
2005
2004
Down
(in millions)
installments
(in millions)
rate
repayment
(in millions)
Term loan 1
May 2002
$
4.5
16
$
0.3
1.5% over LIBOR,
August 2002
$
0.6
$
1.7
changed to 0.75%
over LIBOR in
August 2004
Term loan 2
April 2004
$
1.6
16
$
0.1
0.75% over LIBOR
July 2004
$
1.0
$
1.4
June 2004
$
3.6
16
$
0.2
0.75% over LIBOR
September 2004
$
2.2
$
3.2
December 2004
$
1.8
16
$
0.1
0.75% over LIBOR
March 2005
$
1.4
$
1.8
Total
$
5.2
$
8.1
Our contractual obligations, including long-term debt arrangements, capital expenditure,
purchase obligations and future minimum lease payments under non-cancelable operating lease
arrangements as of December 31, 2005 are summarized below. We do not participate in, or secure
financing for, any unconsolidated limited purpose entities. Non-cancelable purchase commitments do
not typically extend beyond the normal lead-time of several weeks at most. Purchase orders beyond
this time frame are typically cancelable.
Payments due by period
Contractual
2011 and
obligation
Total
2006
2007
2008
2009
2010
thereafter
Long-term bank
borrowing
$
5,162,000
$
2,312,000
$
1,750,000
$
1,100,000
$
—
$
—
$
—
Operating leases
9,332,000
1,703,000
1,662,000
1,476,000
1,242,000
1,314,000
1,935,000
Capital
expenditures
10,758,000
10,758,000
—
—
—
—
—
Purchase
obligations
101,985,000
101,985,000
—
—
—
—
—
Total
$
127,237,000
$
116,758,000
$
3,412,000
$
2,576,000
$
1,242,000
$
1,314,000
$
1,935,000
There are no material restrictions (including foreign exchange controls) on the ability
of our non-China subsidiaries to transfer funds to us in the form of cash dividends, loans,
advances or product or material purchases. With respect to our China subsidiaries, with the
exception of a requirement that 11% of profits be reserved for future developments and staff
welfare, there are no restrictions on the payment of dividends and the removal of dividends from
China once all taxes are paid and assessed and losses, if any, from previous years have been made
good. In the event that dividends are paid by our China subsidiaries, such dividends will reduce
the amount of reinvested profits and, accordingly, the refund of taxes paid will be reduced to the
extent of tax applicable to profits not reinvested.
Impact of Inflation
Inflation and deflation in China, Hong Kong and Macao has not had a material effect on our
past business. During times of inflation, we have generally been able to increase the price of its
products in order to keep pace with inflation.
Exchange Controls
There are no exchange control restrictions on payments of dividends, interest, or other
payments to nonresident holders of our securities or on the conduct of our operations in Hong Kong
and Macao, where the offices of some of our subsidiaries are located, or in the British Virgin
Islands, where we are incorporated. Other jurisdictions in which we conduct operations may have
various exchange controls. With respect to our China subsidiaries, with the exception of a
requirement that 11% of profits be reserved for future developments and staff welfare, there are no
restrictions on the payment of dividends and the removal of dividends from China once all taxes are
paid and assessed and losses, if any, from previous years have been made good. We believe such
restrictions will not have a material effect on our liquidity or cash flows.
48
Table of Contents
Recent Changes in Accounting Standards
In November 2004, the Financial Accounting Standard Board, or FASB, issued SFAS No. 151,
"
Inventory Costs – an amendment of ARB No. 43, Chapter 4
". SFAS No. 151 clarifies the accounting
that requires abnormal amounts of idle facility expenses, freight, handling costs, and spoilage
costs to be recognized as current-period charges. It also requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity of the production
facilities. SFAS No. 151 will be effective for inventory costs incurred on or after July 1, 2005.
The adoption of this new standard did not have any material impact on the Company's financial
position, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 153, "Exchange of Nonmonetary Assets – An Amendment
of APB Opinion No. 29, Accounting for Nonmonetary Transactions" which redefines the types of
non-monetary exchanges that require fair value measurement. The Company is required to adopt SFAS
No. 153 for nonmonetary transactions entered into after June 30, 2005. The adoption of this new
standard did not have a material impact on the Company's financial position, results of operations
or cash flows.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), "
Share-Based Payment
", or SFAS
No. 123R. This statement is a revision to SFAS No. 123 and supercedes APB Opinion No. 25. This
statement establishes standards for the accounting for transactions in which an entity exchanges
its equity instruments for goods or services, primarily focusing on the accounting for transactions
in which an entity obtains employee services in share-based payment transactions. Entities are
required to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited exceptions). That cost
will be recognized over the period during which an employee is required to provide service, the
requisite service period (usually the vesting period), in exchange for the award. The grant-date
fair value of employee share options and similar instruments are to be estimated using
option-pricing models. If an equity award is modified after the grant date, incremental
compensation cost will be recognized in an amount equal to the excess of the fair value of the
modified award over the fair value of the original award immediately before the modification. This
statement is effective as of the beginning of the first interim or annual reporting period that
begins after June 15, 2005. In accordance with the standard, the Company is required to adopt SFAS
No. 123R effective January 1, 2006.
Upon adoption, the Company has two application methods to choose from: the
modified-prospective transition approach or the modified-restrospective transition approach. Under
the modified-prospective transition method the Company would be required to recognize compensation
cost for share-based awards to employees based on their grant-date fair value from the beginning of
the fiscal period in which the recognition provisions are first applied as well as compensation
cost for awards that were granted prior to, but not vested as of the date of adoption. Prior
periods remain unchanged and pro forma disclosures previously required by SFAS No. 123 continue to
be required. Under the modified-retrospective transition method, the Company would restate prior
periods by recognizing compensation cost in the amounts previously reported in the pro forma
footnote disclosure under SFAS No. 123. Under this method, the Company is permitted to apply this
presentation to all periods presented or to the start of the fiscal year in which SFAS No. 123R is
adopted. The Company would follow the same guidelines as in the modified-prospective transition
method for awards granted subsequent to adoption and those that were granted and not yet vested.
The Company believes that the impact that the adoption of SFAS No. 123R will have on its financial
position or results of operations will approximate the magnitude of the stock-based employee
compensation cost disclosed in Note 2 (p) to the financial
statements pursuant to the disclosure requirements of SFAS No. 148.
In March 2005, the FASB issued FASB Interpretation No., or FIN, 47, "
Accounting for
Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143
". FIN 47 clarifies
that an entity is required to recognize a liability for a legal obligation to perform an asset
retirement activity if the fair value can be reasonably estimated even though the timing and/or
method of settlement are conditional on a future event. FIN 47 is required to be adopted for
annual reporting periods ending after December 15, 2005. The Company is evaluating the effect of
the adoption of FIN 47. It is not expected to have a material impact on the Company's financial
position, results of operations or cash flows.
In May 2005, the FASB issued SFAS No. 154, "
Accounting Changes And Error Corrections – a
replacement of APB Opinion No. 20 and FASB Statement No. 3
". This statement supercedes APB Opinion
No. 20, "
Accounting changes" and SFAS No. 3, "Reporting Accounting changes in Interim Financial
Statements
". SFAS No. 154 requires retrospective application to prior periods' financial
statements of changes in accounting principles, unless it is impracticable to determine the
period-specific effects or the cumulative effect of the change. APB Opinion No. 20 "Accounting
Changes," previously required that most voluntary changes in accounting principle be recognized by
including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. SFAS No. 154 will be effective for accounting changes and corrections
of errors made in fiscal years beginning after December 15, 2005.
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In September 2005, the FASB's Emerging Issues Task Force, or EITF, reached a final consensus
on Issue 04-13, "
Accounting for Purchases and Sales of Inventory with the Same Counterparty
". EITF
04-13 requires that two or more legally separate exchange transactions with the same counterparty
be combined and considered a single arrangement for purposes of applying APB Opinion No. 29,
"
Accounting for Nonmonetary Transactions
", when the transactions are entered into in contemplation
of one another. EITF 04-13 is effective for new arrangements entered into, or modifications or
renewals of existing arrangements, in interim or annual periods beginning after March 15, 2006. The
Company is evaluating the effect of the adoption of EITF 04-13. It is not expected to have a
material impact on the Company's financial position, results of operations or cash flows.
Research and Development
Our research and development expenditure mainly comprised of salaries and benefits paid to our
research and development personnel and is mainly for the development of advanced manufacturing
techniques to produce complex products on a mass scale and at a low cost. We expense our research
and development costs as incurred. For the years ended December 31, 2003, 2004 and 2005, we
incurred research and development expenses of approximately $4.0 million, $5.0 million and $7.2
million, respectively.
Trend Information
Currently, our operations consist of three reportable segments, Consumer Electronics and
Communication Products, Telecommunication Components Assembly and LCD panels.
We plan to continue to leverage on our solid customer relationships and to expand our
business. During 2005, we were able to expand our product line to higher growth products and we
were able to benefit from the increase in production capacity from the commencement of operation of
our new factory premises.
For Consumer Electronics and Communication Products, we will continue to focus on optical
devices, educational products, cellular phone accessories and entertainment devices. In 2005, we
produced more new products, such as Bluetooth™ wireless headset accessories for a new customer and
also new entertainment products, such as the game quiz controller and also new gaming devices for
mobile phones. We also added digital scanning pen to our educational products category. Since June
2003, we have been able to diversify our product range from finished products to component
assemblies and began manufacturing the high growth CMOS sensor modules for integration into various
image capturing devices such as cellular phones with built-in camera functions. In addition to our
core manufacturing business for consumer electronic and communication products, we are also
developing a car navigation system.
For Telecommunication Component Assembly, we will continue to focus on high-growth products
which require advance technological production know-how. In addition to high-end color LCD modules,
we began manufacturing FPC sub-assemblies in March 2003 for integration into various LCD modules
and other products, like infotainment consumer electronic products which played a significant role
in increasing our total turnover in the past two years. In 2005, we further increased our product
line and broadened our customer base by producing DAB modules for a new European customer and PCBA
for Bluetooth
TM
headsets. In order to enhance our vertical integration by moving
upstream to increase profitability and support our fast-growing FPC sub-assembly business, we plan
to begin FPC unit manufacturing in 2006. We believe that the combination of FPC unit manufacturing
and FPC sub-assembly capability will allow us to better serve our customers and give us synergy
benefits by improving our gross profit margins and broaden our product and service offering.
LCD panels are found in numerous applications in electronics products, such as watches,
clocks, calculators, pocket games, PDAs and mobile and cordless telephones and car audio systems.
We are a customized LCD panel manufacturer, and we develop each product from design concept all the
way to a high quality mass producible product. Since 2003, we have also begun manufacturing
customized LCD modules that included components such as backlights, FPC and COG. In 2005, we began
developing LCD modules for cordless and VoIP phones. We intend to continue expanding our customized
passive LCD module products utilizing LCD panels that we have manufactured, and we expect this
strategy to provide us with higher value products, a wider customer base, higher revenues and
margins.
It has been our strategy to continue shifting our focus more to the business of key components
sub-assembly. The key components sub-assembly business generally accounts for relatively lower
gross profit margin. We have been very successful in shifting our focus
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to key components sub-assembly, which accounted for 72% of our sales in 2005. We believe that
the strong growth of this business will offset the impact of lower gross profit margins and we can
continue to achieve strong growth in our overall profits.
Off-balance Sheet Arrangement
For 2005, the Company did not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on the Company's financial condition, changes
in financial condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources.
Item 6.
Directors, Senior Management and Employees
Directors and Senior Managers
Our current directors and senior management, and their ages as of March 1, 2006, are as
follows:
Name
Age
Position with Nam Tai
M. K. Koo
61
Chairman of the Board and member of the Board of Directors
Patinda Lei
39
Chief Executive Officer and Chief Financial Officer, Chairman
of the Board of Zastron group
Patrick Lee
41
Chief Executive Officer of Zastron group
Lai Yick Fung
35
Chief Financial Officer of Zastron group
Karene Wong
42
Chairman of the Board of NTEEP group
Kazuhiro Asano
54
Member of the Board of NTEEP
Guy Bindels
45
Member of the Board and Chief Executive Officer of NTEEP group
Joseph Hsu
41
Chief Financial Officer of NTEEP group
Seitaro Furukawa
64
Chairman of the Board of J.I.C. group
Ivan Chui
47
Member of the Board and Chief Executive Officer of J.I.C. group
Colin Yeoh
41
Member of the Board and Chief Financial Officer of J.I.C. group
Peter R. Kellogg
63
Member of the Board of Directors
Stephen Seung
59
Member of the Board of Directors and Corporate Secretary
Dr. Wing Yan (William) Lo
45
Member of the Board of Directors
Charles Chu
49
Member of the Board of Directors
Mark Waslen
45
Member of the Board of Directors
M.K. Koo.
Mr. Koo has served as Chairman of the Board of Nam Tai and its predecessor companies
from inception until September 1998. He then became our Senior Executive Officer, responsible for
corporate strategy, finance and administration and also served as the Company's Chief Financial
Officer. Mr. Koo has resigned from the position of Chief Financial Officer on January 1, 2005 but
maintained his role as a non-executive director of the Company. In July 2005, Mr. Koo reassumed the
position as Chairman upon the resignation of Mr. Tadao Murakami but maintained his non-executive
status. Mr. Koo received his Bachelor's of Laws degree from National Taiwan University in 1970.
Patinda Lei.
Ms. Lei joined Nam Tai group in May 1990. In June 2002, she assumed the position
of Managing Director of our subsidiary Nam Tai Telecom (Hong Kong) Company Limited and in March
2004, became the Chairman of the Board of Zastron and responsible for the overall business of the
Zastron group. Ms. Lei has worked with Nam Tai group for more than fifteen years specializing in
promoting, generating and monitoring sales revenues on various high-end electronics products. With
effect from January 1, 2006, Ms. Lei also assumed the position of Chief Executive Officer and Chief
Financial Officer of the Company. Ms. Lei graduated with a Bachelor of Sciences degree in
Management Science from the Faculty of Engineering of Tokyo University of Science in Japan.
Patrick Lee.
Mr. Lee joined Nam Tai group in August 2005 as Chief Executive Officer of Zastron
group. Before joining the Nam Tai group, he had thirteen years of experiences in mobile phone
business with Nokia Corporation and Philips Corporation and of which eight years were in senior
management positions. Mr. Lee has a Bachelor's degree in Electrical and Electronics Engineering
from University of Surrey, England in 1989 and a Master degree in Advanced Manufacturing Systems
from Brunel University, England in 1997.
Lai Yick Fung.
Mr. Lai joined Nam Tai group in May 2005 as Financial Controller of
Zastron Shenzhen and was promoted to Chief Financial Officer of Zastron group with effect from
January 1, 2006. Mr. Lai has worked for an international accounting firm
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and a number of listed companies in Hong Kong with over 10 years' experience in auditing,
accounting and financial management. He obtained a Bachelor of Arts degree in Accountancy from the
Hong Kong Polytechnic University and a Master degree of Science in Financial Management from the
University of London. Mr. Lai is an associate member of the Hong Kong Institute of Certified
Public Accountants, the Hong Kong Institute of Company Secretaries and the Institute of Chartered
Secretaries and Administrations.
Karene Wong.
Ms. Wong joined us in June 1989. Before joining us, Ms. Wong was Assistant
to the Sales Manager at Wright Joint & Co. Ltd. She was promoted to Managing Director of our
subsidiary, Nam Tai Electronic & Electrical Products Limited. (Hong Kong), on January 1, 2001 and
was further promoted to Chairman of NTEEP in June 2003 responsible for overseeing the overall
business of NTEEP group, continue to maintain close contact with key customers and cultivate new
customer relationships for NTEEP group.
Kazuhiro Asano.
Mr. Asano joined the Nam Tai group in 1995 as a general manager and was
promoted to Managing Director of Shenzhen Namtek in 1997. In June 2002, Mr. Asano was promoted as
the Chairman of the Board of our subsidiary Namtek Software and was responsible for the overall
corporate management and business development for our software business. Mr. Asano was appointed as
an executive director of NTEEP immediately upon the acquisition of Namtek Software by NTEEP in May
2005. Prior to joining Nam Tai group, Mr. Asano was the general manager of Seiko Instruments Inc.,
a private Japanese consumer electronics company, and was responsible for its electronic dictionary
division. Mr. Asano graduated from Tsuyama Government Industrial College, Japan with a degree in
Electrical Engineering in 1972.
Guy Bindels.
Mr. Bindels joined the Nam Tai group as Research and Development Director in
March 2003 and became an executive director of NTEEP in March 2004. He was promoted to Chief
Executive Officer of NTEEP in July 2004 and responsible for overseeing the business and operation
of NTEEP group. Before joining Nam Tai group, he worked with the research and development unit of
Alcatel for 19 years. He graduated from "Ecole Nationale d' Ingenieur de Brest" (Engineering School
located in Brest) in France in 1983.
Joseph Hsu
. Mr. Hsu is the Chief Financial Officer of NTEEP group. He joined Nam Tai group in
February 2004 and has nearly 11 years of investment banking experience. Mr. Hsu worked in the
corporate finance division of the Hongkong and Shanghai Banking Corporation Limited from 1992 to
2003, and his last position was Corporate Finance Director. Mr. Hsu is a qualified accountant and
is an Associate Member of the Hong Kong Society of Accountants and an Associate Member of the
Institute of Chartered Accountants in England and Wales. Mr. Hsu graduated with a Bachelor's degree
in Economics and Accounting from Leeds University, UK and an MSc degree in Management Science from
the Imperial College of Science and Technology, University of London, UK.
Seitaro Furukawa.
Mr. Furukawa assumed the position of Chairman of the Board of our
subsidiary, J.I.C., in March 2002. He has extensive experience in international operational
management. He held management positions in the Japan offices of General Electric, Admiral
International Company and Thompson CSF. After joining the J.I.C. group in 1992 as a Managing
Director, he assumed responsibility for production management and monitoring daily operations of
the LCD plant in Shenzhen. Mr. Furukawa received his Bachelor's of English Literature degree from
Aoyama University in 1965 and his Bachelor's of Technology and Metallurgy degree from Kogakuin
University in 1967.
Ivan Chui
. Mr. Chui is the co-founder and Chief Executive Officer of our subsidiary, J.I.C.
Mr. Chui has directed J.I.C. group's marketing activities since founding J.I.C. group in 1980. He
has over 20 years of experience in the LCD business and has extensive experience in doing business
with Japanese companies.
Colin Yeoh.
Mr. Yeoh joined J.I.C. group in September 2003 and assumed the post of Managing
Director of Jetup. in October 2004. In January 2005, he assumed the position of Chief Financial
Officer of the J.I.C. group. Before joining the J.I.C. group, he worked for Varitronix
International Limited, a customised LCD manufacturer, from 1994 to 2003, in the field of
operations. Prior to Varitronix International Limited, he worked in GEC Marconi Hirst Research (UK)
from 1990 to 1994, in the field of optical and display system research. Mr. Yeoh was awarded a PhD
in Liquid Crystal Devices in 1990 at Imperial College (London, UK), Master of Science in Microwaves
and Modern Optics in 1986 from University College London (UK) and Bachelor of Science in Electrical
and Electronic Engineering from University College London (UK).
Peter R. Kellogg.
Mr. Kellogg was elected to our Board of Directors in June 2000. Mr. Kellogg
was a Senior Managing Director of Spear, Leeds & Kellogg, a registered broker-dealer in the United
States and a specialist firm on the NYSE until the firm merged with Goldman Sachs in 2000. Mr.
Kellogg served on our Audit Committee until July 8, 2003. He currently serves on our Compensation
Committee and Nominating / Corporate Governance Committee. Mr. Kellogg is also a member of the
Board of the Ziegler Companies.
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Stephen Seung.
Mr. Seung was appointed a director of Nam Tai in 1995. Mr. Seung is an attorney
and a C.P.A. and has been engaged in the private practice of law in New York since 1981. Mr. Seung
received a B.S. degree in Engineering from the University of Minnesota in 1969, an M.S. degree in
Engineering from the University of California at Berkeley in 1971, an MBA degree from New York
University in 1973 and a J.D. degree from New York Law School in 1979. Mr. Seung acts as our
authorized agent in the United States. He served on our Audit Committee until October 2003. With
effect from October 15, 2003, Mr. Seung also assumed the role of Corporate Secretary of the
Company.
Dr. Wing Yan (William) Lo
. Dr. Lo was elected to our Board of Directors at our annual meeting
of shareholders on July 8, 2003. Dr. Lo is currently the Executive Director and Vice President of
China Unicom Ltd., a telecommunications operator in China that is listed on both the Hong Kong and
New York Stock Exchanges. From 1998 to 1999, Dr. Lo was the chief executive officer of Citibank's
Global Consumer Banking business for Hong Kong. Prior to joining Citibank, Dr. Lo was the founding
Managing Director of Hongkong Telecom IMS Ltd. Dr. Lo holds an M. Phil. degree in molecular
pharmacology and a Ph.D. degree in Genetic Engineering, both from Cambridge University, England. He
is also an Adjunct Professor of The School of Business, Hong Kong Baptist University as well as the
Faculty of Business, Hong Kong Polytechnic University. In 1998, Dr. Lo was appointed as a Justice
of the Peace of Hong Kong. In 2003, he was appointed as Committee Member of Shantou People's
Political Consultative Conference. Dr. Lo currently serves on the Nominating / Corporate Governance
Committee acting as the Chairman and also serves on our Audit Committee and Compensation Committee.
Charles Chu.
Mr. Chu originally served as a Director from November 1987 to September 1989. He
was reappointed as Director in November 1992. Since July 1988, Mr. Chu has been engaged in the
private practice of law in Hong Kong. Mr. Chu serves on the Compensation Committee acting as
Chairman. He also serves on our Audit Committee and Nominating / Corporate Governance Committee.
Mr. Chu received his Bachelor's of Laws degree and Post-Graduate Certificate of Law from the
University of Hong Kong in 1980 and 1981, respectively.
Mark Waslen
. Mr. Waslen was appointed a director of Nam Tai at our annual meeting of
shareholders on July 8, 2003 and currently serves on the Audit Committee acting as Chairman. He
also serves on our Compensation Committee and Nominating / Corporate Governance Committee.
Previously, Mr. Waslen was employed with Nam Tai during the periods from 1990 to 1995 and from June
1998 to October 1999 in various capacities, including Financial Controller, Secretary and
Treasurer. Mr. Waslen has been employed with various accounting firms, including Peat Marwick
Thorne, Deloitte Touche Tohmatsu and is currently employed with BME + Partners Chartered
Accountants. Mr. Waslen is a CFA, CA and a CPA and received a Bachelor's of Commerce (Accounting
Major) from University of Saskatchewan in 1982.
No family relationship exists among any of the named directors, executive officers or key
employees. No arrangement or understanding exists between any of our directors or executive
officers and any other person pursuant to which any director or executive officer was elected as a
director or executive officer of Nam Tai. Directors are elected each year at our annual meeting of
shareholders or serve until their respective successors take office or until their death,
resignation or removal. Executive officers serve at the pleasure of the Board of Directors.
Compensation of Directors and Senior Management
The aggregate compensation we and our subsidiaries paid during the year ended December 31,
2005 to all directors and senior management as a group for services in all capacities was
approximately $4.6 million.
Directors who are not employees of Nam Tai nor any of its subsidiaries are paid $3,000 per
month for services as a director, $750 per meeting attended in person and $500 per meeting attended
by telephone. In addition, they are reimbursed for all reasonable expenses incurred in connection
with their services as a director.
Members of our key staff are eligible for annual cash bonuses based on their performance and
that of the subsidiaries in which they are assigned for the relevant period. Key staff members will
be entitled to share up to 15% of the operating income from the respective subsidiary during the
year. Our executive officers in charge of the relevant subsidiaries recommend the participating
staff members and the amount, if any, to be allocated from the its respective profit pool to an
eligible individual.
According to the relevant laws and regulations in China, we are required to contribute 8% to
9% of the stipulated salary to our local staff set by the local government of Shenzhen, China, to
the retirement benefit schemes to fund the retirement benefits of our employees. Our principal
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obligation with respect to these retirement benefit schemes is to
make the required contributions under the scheme. No forfeited contributions may be used by us to
reduce the existing level of contributions.
Prior to December 2000, we maintained staff contributory retirement plans (defined
contribution pension plans), which covered certain of our employees in Hong Kong. From December
2000 onwards, we terminated our existing staff contributory retirement plans and enrolled all of
our eligible employees in Hong Kong into a Mandatory Provident Fund, or MPF, program. In August
2003, we set up our first subsidiary, Nam Tai Investments Consultant (Macao Commercial Offshore)
Company Limited, in Macao, China. We enrolled all of our eligible employees in Macao into a
retirement benefit scheme, or RBS. Both the MPF and RBS are available to all employees aged 18 to
64 and with at least 60 days of service under the employment of Nam Tai in Hong Kong and Macao.
Contributions are made by us at 5% based on the staff's relevant income. The maximum relevant
income for contribution purpose per employee is $3,000 per month. Staff members are entitled to
100% of the Company's contributions, together with accrued returns, irrespective of their length of
service with us, but the benefits are required by law to be preserved until the retirement age of
65 for employees in Hong Kong while the benefit can be withdrawn by the employees in Macao at the
end of employment contracts.
The cost of our contribution to the staff retirement plans in Hong Kong, Macao and China
amounted to $982,000, $1,190,000 and $1,510,000, for the years ended December 31, 2003, 2004 and
2005, respectively.
In August 1990, we fixed compensation for loss of office at $500,000 for Mr. M.K. Koo and
$300,000 for Mr. Tadao Murakami, formerly the Chairman of our Board of Directors. We also fixed the
age of retirement for directors, including Messrs. Koo and Murakami, at age 65 years. We have
accrued the entire $800,000 on account of this compensation for loss of office, which was paid out
in 2005.
Board Practices
All directors hold office until our next annual meeting of shareholders, which generally is in
June of each calendar year, or until their respective successors are duly elected and qualified or
their positions are earlier vacated by resignation or otherwise. All board committee members are
appointed by the Board and serve at the pleasure of the Board. There are no director service
contracts providing for benefits upon termination of employment. Our Board of Directors decided,
effective December 31, 2002, to grant future options under our stock option plan only to our
non-employee directors. However, in July 2004, our Board of Directors decided to resume granting
options to management and key staff members as incentive based on their performance.
Corporate Governance Guideline
We have adopted a set of corporate governance guidelines, which are available on our website
at http://www.namtai.com/ corpgov/corpgov.htm. The contents of this website address, other than the
corporate governance guidelines, the code of ethics and committee charters, are not a part of this
Form 20-F. Stockholders also may request a free copy of our corporate governance guidelines in
print form from:
Pan Pacific I.R. Ltd.
Attention: Investor Relations Office
Suite 1790 — 999 W. Hastings Street
Vancouver, BC
Canada V6C 2W2
Toll Free Telephone: 1-800-661-8831
Committee Charters
The charters for our audit committee, compensation committee and nominating / corporate
governance committee are available on our website at http://www.namtai.com/corpgov/corpgov.htm. The
contents of this website address, other than the corporate governance guidelines, the code of
ethics and committee charters, are not a part of this Form 20-F. Stockholders may request a copy of
each of these charters from the address and phone number set forth above under "—Corporate
Governance Guideline".
Audit Committee
Nam Tai has established an audit committee whose primary duties consist of reviewing, acting
on and reporting to the Board of Directors with respect to various auditing and accounting matters,
including the selection of independent registered public accounting
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firm, the scope of the annual audits and the fees to be paid to the independent registered
public accounting firm and the performance of the independent registered public accounting firm and
accounting practices. The audit committee currently consists of three independent non-executive
directors, Messrs. Waslen, Chu and Lo. Mr. Waslen, who was elected by the full Board of Directors,
currently acts as the Chairman of the audit committee.
In November 2003, the SEC approved the final NYSE corporate governance guidelines. Pursuant to
NYSE Section 303A, three committees, namely the audit committee, nominating / corporate governance
committee and compensation committee, are to be set up by all domestic filers and should be
composed entirely of independent directors. For purposes of keeping with the best practice, Nam Tai
established the compensation committee and the nominating / corporate governance committee on July
30, 2004. The composition and primary duties of these committees are set forth as below.
Pursuant to the requirements of NYSE Section 303A.11, the Company has evaluated its corporate
governance standards in light of the corporate governance standards required of domestic companies
under NYSE standards. Based on this evaluation, the Company has determined that there are no
significant ways in which its corporate governance standards differ from those required of domestic
companies by the NYSE.
Compensation Committee
Nam Tai has established a compensation committee whose primary duties consist of evaluating and
making recommendations to the Board of Directors of the Company regarding (i) compensation of the
Company's Board of Directors; (ii) compensation of the executive director and chief executive
officer with reference to achievement of corporate goals and objectives established in the previous
year; (iii) compensation of other senior management if required by the Board; and (iv) equity based
and incentive compensation programs of the Company.
The compensation committee currently consists of four independent non-executive directors,
Messrs. Chu, Lo, Waslen and Kellogg. Mr. Chu was appointed by the Board to be the Chairman of the
compensation committee.
Nominating / Corporate Governance Committee
Nam Tai established a nominating / corporate governance committee on July 30, 2004, whose primary
duties consist of (i) assisting the Board by actively identifying individuals qualified to become
Board members consistent with criteria approved by the Board; (ii) recommending to the Board the
director nominees for election at the next annual meeting of stockholders, the member nominees for
the audit committee, compensation committee and the nominating / corporate governance committee on
an annual basis; (iii) reviewing and recommending to the Board whether it is appropriate for such
director to continue to be a member of the Board in the event that there is a significant change in
the circumstance of any director that would be detrimental to the Company's business or his/her
ability to serve as a director or his/her independence; (iv) reviewing the composition of the Board
on an annual basis; (v) recommending to the Board a succession plan for the chief executive officer
and directors, if necessary; (vi) monitoring significant developments in the law and practice of
corporate governance and of the duties and responsibilities of directors of public companies; (vii)
establishing criteria to be used in connection with the annual self-evaluation of the
nominating / corporate governance committee; and (viii) developing and recommending to the Board and
administering the corporate governance guidelines of the Company.
The
nominating / corporate governance committee currently consists of four independent
non-executive directors, Messrs. Lo, Chu, Waslen and Kellogg. Dr. Lo was appointed by the Board to
be the Chairman of the nominating / corporate governance committee.
Options of Directors and Senior Management
The following table provides information concerning the options owned by our current Directors
and Senior Management as of March 1, 2006. All share numbers subject to options and exercise price
per share have been adjusted to give effect to a three-for-one stock split effective on June 30,
2003 and a ten-for-one stock dividend effective on November 7, 2003.
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Number of
common shares
Exercise
subject to
Price ($)
Expiration
Name
options
per share
Date
M.K. Koo
—
—
—
Patinda Lei
—
—
—
Patrick Lee
Lai Yick Fung
Karene Wong
—
—
—
Kazuhiro Asano
—
—
—
Guy Bindels
—
—
—
Joseph Hsu
—
—
—
Seitaro Furukawa
—
—
—
Ivan Chui
—
—
—
Colin Yeoh
—
—
—
Charles Chu
16,500
16.82
7/8/2006
15,000
19.40
7/30/2006
15,000
21.62
6/6/2008
Peter R. Kellogg
15,000
21.62
6/6/2008
Stephen Seung
15,000
19.40
7/30/2006
15,000
21.62
6/6/2008
Wing Yan (William) Lo
16,500
16.82
7/8/2006
15,000
19.40
7/30/2006
15,000
21.62
6/6/2008
Mark Waslen
15,000
19.40
7/30/2006
15,000
21.62
6/6/2008
Please
see Item 7 "Major Shareholders and Related Party
Transactions" of this Report, which sets forth the shareholding information of each
of the director and senior management of the Company.
Employee Stock Option and Incentive Plan
In July 2004, our Board of Directors has decided to resume granting stock options under our
2001 stock option plan
,
which provides for the grant of stock options to directors, employees
(including officers), and consultants. Pursuant to the amended 2001 stock option plan, the terms
and conditions of individual grants may vary subject to the following: (i) the exercise price of
incentive stock options may not normally be less than market value on the date of grant; (ii) the
term of incentive stock options may not exceed ten years from the date of grant; (iii) the exercise
price of an option cannot be altered once granted unless such action is approved by shareholders in
a general meeting or results from adjustments pursuant to Section 16 of the amended 2001 stock
option plan; and (iv) every non-employee director shall, on an annual basis upon their election to
the Board of Director at the annual shareholders' meeting, be automatically granted 15,000 options,
with an exercise price equal to 100% of the fair market value of the common shares on the date of
grant. At March 1, 2006, options to purchase 1,001,000 shares were outstanding under our amended
2001 stock option plan and 154,869 shares were available for future grant under them. The full text
of our amended 2001 stock option plan, amended on July 30, 2004, was filed as Exhibit 4.18 with our
Annual Report on Form 20-F for 2004.
Our Board of Directors decided, effective December 31, 2002, to grant future options under our
stock option plans only to our non-employee directors. However, our Board of Directors decided to
resume granting options to management and key staff members as incentive based on their performance
in July 2004. Thereafter, incentive compensation paid to management and other key employees was in
the form of either cash bonuses and/or stock options.
On February 10, 2006, a new stock option plan, or the New Plan, was approved by the Board with
a maximum number of 2,000,000 common shares which can be issued pursuant to the exercise of
options. Options can only be granted under this New Plan subject to the shareholders' approval in
the 2006 annual shareholders' meeting.
Employees
As of December 31, 2005, we employed 6,818 persons on a full-time basis, of which 6,790 were
employed in China, 14 were employed in Hong Kong, 11 were employed in Macao, 2 were employed in
Japan and 1 was employed in the British Virgin Islands. Of these employees, approximately 5,003
were engaged in manufacturing, approximately 1,815 were engaged in administrative, research and
development, quality control, engineering and marketing positions, and the balance in supporting
jobs such as security, janitorial, food and medical services.
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As of December 31, 2004, we employed 5,636 persons on a full-time basis, of which 5,574 were
employed in China, 49 were employed in Hong Kong, 10 were employed in Macao, 2 were employed in
Japan and 1 was employed in the British Virgin Islands. Of these employees, approximately 4,131
were engaged in manufacturing, approximately 1,505 were engaged in administrative, research and
development, quality control, engineering and marketing positions, and the balance in supporting
jobs such as security, janitorial, food and medical services.
As of December 31, 2003, we employed 4,476 persons on a full-time basis, of which 4,385 were
employed in China, 62 were employed in Hong Kong, 24 were employed in Macao, 4 were employed in
Japan and 1 was employed in the British Virgin Islands. Of these employees, approximately 3,415
were engaged in manufacturing, approximately 1,061 were engaged in administrative, research and
development, quality control, engineering and marketing positions, and the balance in supporting
jobs such as security, janitorial, food and medical services.
We have entered into labor contracts with each manufacturing employee which will be renewed on
an annual basis. The nature of our arrangement with our manufacturing employees is such that we can
increase or reduce staffing levels without significant difficulty, cost or penalty. Although we
have experienced no significant labor stoppages and believe relations with our employees are
satisfactory, this situation may not continue in the future, and any labor difficulties could lead
to increased costs and/or interruptions in our production.
Three of our subsidiaries in China have entered into collective agreements with their
respective trade unions. The collective agreements usually set out the minimum standard for the
wages, working hours and other benefits of the workers. The current collective agreements between
our subsidiaries and its trade union will expire on December 31, 2006 and will be renewed on an
annual basis.
Item 7.
Major Shareholders and Related Party Transactions
The following table sets forth certain information known to us regarding the beneficial
ownership of our common shares as of March 1, 2006, by:
•
each person (or group within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934) known by us to own beneficially 5% or more of our common shares; and
•
each of our current directors and senior management.
We are not directly owned or controlled by another corporation or by any foreign government,
natural or legal person.
Shares beneficially
(1)
owned
Name
Number
(11)
Percent
M. K. Koo
5,690,786
(2)
13.1
Peter R. Kellogg
5,694,680
(3)
13.1
I.A.T. Reinsurance Syndicate Ltd.
5,108,300
(3)
11.7
Li & Chui Holdings (B.V.I.) Ltd.
2,000,000
4.6
Joseph Li
2,158,870
(4)
5.0
Ivan Chui
2,045,870
(5)
4.7
Patinda Lei
25,300
*
Patrick Lee
—
—
Lai Yick Fung
—
—
Karene Wong
37,100
*
Kazuhiro Asano
—
—
Guy Bindels
1,000
*
Joseph Hsu
2,000
*
Seitaro Furukawa
—
—
Colin Yeoh
—
—
Charles Chu
49,000
(6)
*
Stephen Seung
92,800
(7)
*
Wing Yan (William) Lo
46,500
(8)
*
Mark Waslen
40,000
(9)
*
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*
Less than 1%.
(1)
Pursuant to the rules of the Securities and Exchange Commission, shares of
common shares that an individual or group has a right to acquire within 60 days pursuant to
the exercise of options are deemed to be outstanding for the purpose of computing the
percentage ownership of such individual or group, but are not deemed to be outstanding for the
purpose of computing the percentage ownership of any other person shown in the table.
Percentage of ownership is based on 43,505,586 common shares outstanding as of March 1, 2006.
(2)
Mr. Koo beneficially owned 5,690,786 common shares includes 1,000,000
common shares, which owned by Mr. Koo as sole holder and 4,690,786 common shares owned jointly
with Ms. Cho Siu Sin, Mr. Koo's wife.
(3)
Mr. Kellogg holds directly 571,380 common shares and options to purchase
15,000 common shares exercisable within 60 days of March 1, 2006. Indirectly, through I.A.T.
Reinsurance Syndicate Ltd., Mr. Kellogg holds 5,108,300 common shares. I.A.T. Reinsurance
Syndicate Ltd. is a Bermuda corporation of which Mr. Kellogg is the sole holder of voting
stock. Mr. Kellogg disclaims beneficial ownership of these shares.
(4)
Includes 2,000,000 common shares held of record by Li & Chui Holdings (B.V.I.) Limited for
which Mr. Li shares investment and voting control equally with Mr. Chui. These are the same
shares shown in the table for Ivan Chui. Also, includes 78,870 common
shares and options to purchase 80,000 common
shares exercisable within 60 days of March 1, 2006, which
are held directly by Mr. Li.
(5)
Includes 2,000,000 common shares held of record by Li & Chui Holdings (B.V.I.) Limited for
which Mr. Chui shares investment and voting control equally with Mr. Li. These are the same
shares shown in the table for Joseph Li. Also, includes 45,870 common shares held
directly by Mr. Chui
(6)
Includes  2,500 common shares and options to purchase 46,500 common shares exercisable within 60
days of March 1, 2006.
(7)
Includes 62,800 common shares and options to purchase 30,000 common shares exercisable within 60
days of March 1, 2006, and 20,300 common shares that are registered to Violet Seung, Mr.
Seung's wife, as to which Mr. Seung disclaims beneficial ownership.
(8)
Consists of options to purchase common shares exercisable within 60 days of
March 1, 2006.
(9)
Includes 10,000 common shares and options to purchase 30,000 common shares exercisable within 60
days of March 1, 2006.
(10)
All the share numbers have been adjusted to give effect to a three-for-one
stock split effective on June 30, 2003 and a ten-for-one stock dividend effective on November
7, 2003.
(11)
These share numbers include options owned by these individuals and assume
that these options will be exercised.
All of the holders of our common shares have equal voting rights with respect to the
number of common shares held. As of March 1, 2006, there were approximately 732 holders of record
of our common shares. According to information supplied by our transfer agent, 707 holders of
record with addresses in the United States held 34,182,902 of our outstanding common shares.
The following table reflects the percentage ownership of our common shares beneficially owned
by our major shareholders during the past three years:
Percentage Ownership
(1)
March 1,
February 28,
March 1,
2004
2005
2006
M. K. Koo
12.9
16.2
13.1
Peter R. Kellogg
12.7
13.3
13.1
I.A.T. Reinsurance Syndicate Ltd.
11.3
12.0
11.7
Li & Chui Holdings (B.V.I.) Ltd.
7.1
6.9
4.6
Joseph Li
7.3
7.2
5.0
Ivan Chui
7.2
7.0
4.7
(1)
Based on 41,231,272, 42,664,536, and 43,505,586 common shares outstanding on
March 1, 2004, February 28, 2005 and March 1, 2006 respectively.
There are no arrangements that may, at a subsequent date, result in a change of control of the
Company.
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Certain Relationships and Related Transactions
In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star, the
ultimate parent of JCT. JCT is engaged in the design, development and marketing of wireless
communication terminals and wireless application software. In connection with our investment, Mr.
Koo was appointed as a director to Alpha Star's Board of Directors. Mr. Koo resigned from the Board
of Directors of Alpha Star on July 12, 2004. We have manufactured wireless communication terminals
and related modules for JCT. As part of our investment, Alpha Star agreed to have us manufacture
the RF modules for at least 50 percent of the orders it, or any of its subsidiaries, receives for
RF modules provided we perform such manufacturing services at a price comparable to the market. As
of December 31, 2004, we were owed $66,000 from JCT. For the year ended December 31, 2004 and 2005,
we recognized net sales of $34.2 million and $6.2 million, respectively, to JCT and purchased raw
materials of approximately $12.4 million and $5.8 million, respectively, from JCT and its related
companies. However, in August 2005, we disposed of our entire stake in Alpha Star. The proceeds
from such disposition were $6.5 million, resulting in a gain of $3.6 million.
On February 16, 2004, by unanimous consent following resolutions without meeting, the Board of
Directors adopted a resolution for the sale of a residential property located in Hong Kong by a
wholly-owned subsidiary of the Company, Nam Tai Group Management Limited, or one of our wholly
owned subsidiaries, to Mr. Tadao Murakami, prior Chairman of the Board of Directors, for
consideration of approximately $1.8 million, which is close to the original acquired cost and
appraised market value of the property as of January 31, 2004. The agreement for the sale of the
property was entered into between such subsidiary and Mr. Murakami on March 10, 2004.
On December 10, 2004, by unanimous consent, the Board of Directors of one of our wholly owned
subsidiaries, adopted a resolution for assigning the beneficial interest in such subsidiary in 10
units of debentures of nominal value of approximately $1,603 each, issued by The Clearwater Bay
Golf & Country Club to Mr. Koo at the consideration of approximately $231,000, which represented
the book value of the debentures in the financial statements of such subsidiary. An agreement was
entered between such subsidiary and Mr. Koo on December 10, 2004.
In May 2005, NTEEP purchased from Nam Tai and Asano Company 80% and 20% interests in Namtek
Software, respectively. The total consideration for the acquisition, which amounts to approximately
$26.7 million, was satisfied by the issuance of 81,670,588 new shares of NTEEP to Nam Tai and Asano
Company (65,336,470 new shares to Nam Tai and 16,334,118 new shares to Asano Company) at
approximately $0.327, or HK$2.55, per share. Mr. Asano, a member of Nam Tai's senior management is
the controlling shareholder of Asano Company.
Item 8.
Financial Information
Financial Statements
The Consolidated Financial Statements have been appended to this Form 20-F (see pages F-1 to
F-38). From year-end dated December 31, 2005 to our reporting
date of March 9, 2006 there has been
no significant changes on our Consolidated Financial Statements.
Change in Public Accountants
In May 2002, upon consideration and to reduce our professional fees, our Board of Directors,
including our Audit Committee, recommended that HLB Hodgson Impey Cheng should replace Deloitte
Touche Tohmatsu as our independent registered public accounting firm. This change was included in our proxy
statement and approved by our shareholders at our annual meeting on June 14, 2002. Deloitte Touche
Tohmatsu did not resign nor refuse to stand for re-election, and none of Deloitte Touche
Tohmatsu's reports on the financial statements for either of the two years prior to the change and
included in this Report contained an adverse opinion, disclaimer, modification or qualification.
In November 2002, HLB advised us that they could not meet our audit requirements for the
agreed fees and on a cost-effective basis because the increasingly complex regulatory guidelines
for the auditing of public companies would require them to perform a
significant portion of the final audit work with personnel from a U.S. affiliate. HLB
submitted their resignation accordingly. There were no disagreements with HLB on any matter or
accounting principle, practice, financial statement disclosure, or auditing scope or procedure.
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In December 2002, in contemplation of our intention to list on the NYSE, we sought a
replacement firm with a strong U.S. and Asian presence and an ability to handle our audit
requirements. Accordingly, our Board of Directors appointed Grant Thornton as our independent
registered public accounting firm based on Grant Thornton's ranking among accounting firms in the U.S. and our
Board's belief that Grant Thornton would be acceptable to our shareholders. The appointment of
Grant Thornton was accepted by our shareholders at our annual meeting held on July 8, 2003.
Accordingly, Grant Thornton issued the audited account for 2002.
In August 2003, we set up the PRC's headquarters in Macao, China, due to our continuous
increase in investment in PRC. Since Grant Thornton does not have an office in Macao and does not
have a licence to handle Macao statutory tax filings, Grant Thornton tendered its resignation as
our independent public accountants. Deloitte Touche Tohmatsu, who had
been our independent registered public accounting firm from 1998-2001, was hired to perform audit for both 2002 and 2003. Deloitte Touche
Tohmatsu has been appointed as our independent registered public
accounting firm on October 24, 2003. Grant
Thornton will, however, continue to provide tax advisory services to us, other than with respect to
Macao.
Legal Proceedings
We are not a party to any legal proceedings other than routine litigation incidental to our
business and there are no material legal proceedings pending with respect to our property, other
than as described below.
Tele-Art Litigation
In June 1997, Nam Tai filed a petition in the British Virgin Islands for the winding up of
Tele-Art, Inc. on account of an unpaid judgment debt owed to Nam Tai by Tele-Art, Inc. The High
Court of Justice of the British Virgin Islands, or the High Court, granted an order to wind up
Tele-Art, Inc. in July 1998. Tele-Art, Inc. appealed to the Court of Appeal of the British Virgin
Islands, or the Court of Appeal, against the winding up order. This appeal was heard on January 13,
1999 by the Court of Appeal, which dismissed the appeal on January 25, 1999. On January 22, 1999,
pursuant to our Articles of Association, we redeemed and cancelled 415,500 (Note 1) shares of Nam
Tai registered in the name of Tele-Art, Inc. at a price of $3.73 per share to offset substantially
all of the judgment debt of $799,000 plus interest and legal costs totaling approximately $1.7
million. Nam Tai had also previously withheld dividends on shares beneficially owned by Tele-Art,
Inc., which were applied towards the partial satisfaction of the said judgment debts, costs and
interest.
In September 1999, the High Court heard the application by Nam Tai dated March 22, 1994 for an
inquiry into damage suffered by Nam Tai, or the First Inquiry, as a result of the ex-part
injunction granted to Tele-Art, Inc. against Nam Tai on September 29, 1993, which prohibited Nam
Tai from proceeding with a rights offering in September 1993.
Following the completion of the first redemption on January 22, 1999, Nam Tai received notice
that David Hague, then liquidator of Tele-Art, Inc., had obtained an ex-parte injunction from the
High Court preventing Nam Tai from redeeming 415,500 (Note 1) shares.
On July 5, 2002, upon our application, the High Court ordered the removal of David Hague's
ex-parte injunction and ordered an inquiry into damages suffered by Nam Tai as a result of the
injunction, or the Second Inquiry.
On August 9, 2002, the High Court delivered its decision on the First Inquiry and awarded Nam
Tai damages of approximately $34.0 million. On August 12, 2002, we redeemed and cancelled, pursuant
to our Articles of Association, the remaining 509,181 (Note 2) shares beneficially owned by
Tele-Art, Inc. at a price of $6.14 per share. Including the dividends which we had withheld and
credited against the judgment, this offset a further approximately $3.5 million in judgment debts
owed to us by Tele-Art, Inc. We recorded the $3.3 million redemption net of expenses as other
income in 2002.
In accordance with the directions given by the High Court in respect of the Second Inquiry on
March 28, 2003, Nam Tai filed its points of claim on April 3, 2003 and subsequently filed amended
points of claim on April 16, 2003. In breach of the said directions, David Hague failed to file his
points of defense on June 20, 2003 as ordered by the court but instead, he filed an application in
the High Court, inter alia, to strike out Nam Tai's points of claim and for summary
judgment on the inquiry into damages on June 20, 2003. Nam Tai thereupon applied to the High
Court on August 19, 2003 for judgment against David Hague in default of defense on the basis that
David Hague had not complied with the directions of the court for the filing of his points of
defense to Nam Tai's points of claim.
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Both applications were heard by the High Court on May 12, 2004. At that hearing, the court
allowed David Hague to file his points of defense at the hearing on May 12, 2004. Nam Tai filed an
application for leave to appeal against this ruling on May 24, 2004. The High Court dismissed
David Hague's strike-out application on December 14, 2004 and David Hague applied for leave to
appeal against the order dismissing his application on December 28, 2004. Nam Tai's appeal and
David Hague's appeal were heard by the Court of Appeal on September 19 to 21, 2005 and that court
delivered its judgment on January 16, 2006. In this judgment, the Court of Appeal reversed the High
Court's ruling on David Hague's application and struck out Nam Tai's points of claim on the inquiry
into damages on the ground that Nam Tai had no realistic chance of succeeding on the same. The
court also ordered costs against Nam Tai to be assessed on a prescribed costs basis. The court
further expressed the view that, in light of its dismissal of Nam Tai's points of claim, it was not
necessary to rule on Nam Tai's appeal against the dismissal of its application for judgment in
default since the point was now academic with the dismissal of Nam Tai's points of claim.
Nam Tai filed an application for leave to appeal the decision of the Court of Appeal to the
Privy Council, the final court of appeal in the
British Virgin Islands on
February 3, 2006. This application is expected to come on for hearing when the Court of Appeal next
sits in the British Virgin Islands in May 2006.
Previously, on February 4, 1999, David Hague, then liquidator of Tele-Art, Inc., filed a
summons, or the Priority Summons, in the British Virgin Islands on its behalf seeking, among other
matters:
•
A declaration as to the respective priorities of the debts of Tele-Art, Inc. to
the Bank of China, Nam Tai, and other creditors and their respective rights to have their
debts discharged out of the proceeds of the Tele-Art, Inc.'s Nam Tai shares;
•
An order setting aside the redemption of 415,500 (Note 1) shares, and ordering
delivery of all shares in our possession or control of to the liquidator; and
•
Payment of all dividends in respect of Tele-Art, Inc.'s Nam Tai shares.
The Priority Summons was heard by the High Court on July 29 and 30, 2002 and the High Court
delivered its judgment on January 21, 2003 declaring that the redemption and set-off of dividends
on the 415,500 (Note 1) shares be set aside and that all of Tele-Art, Inc.'s property withheld by
Nam Tai be delivered to Tele-Art, Inc. in liquidation. On February 4, 2003, Nam Tai filed an
application for a stay of execution and leave to appeal the decision. The appeal was heard on
January 12, 2004 and judgment was delivered on April 26, 2004. The Court of Appeal held that the
redemption by Nam Tai of 415,500 (Note 1) of Nam Tai's shares was proper and efficacious. However,
Nam Tai must return the redemption proceeds and dividends payable
prior to the redemption to the liquidator. David Hague obtained leave to appeal to the Privy
Council on September 21, 2004 to appeal the finding by the Court of Appeal that the redemption by
Nam Tai was efficacious. It is not expected that this appeal will be
heard in 2006.
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Bank of China, which had been involved in the proceedings in the High Court and Court of
Appeal with respect to the Priority Summons, applied on December 12, 2005 for special leave to
intervene and to be joined as a respondent to the Privy Council appeal of David Hague, firstly so
as to be in a position to support David Hague's appeal and secondly, to appeal against that part of
the Court of Appeal order that declared that the redemption price for the sale of the Nam Tai
shares owned by Tele Art, Inc. and all withheld dividends to be paid
to the liquidator of Tele-Art,
Inc. and not the Bank of China despite finding that the Bank of China was a secured creditor. Bank
of China's application for special leave was heard by the Privy Council on February 6, 2006 which
granted the Bank of China special leave to intervene on the ground that the matter raised important
points of law.
In their judgments on the Priority Summons, both the High Court and the Court of Appeal held
that Bank of China was a secured creditor pursuant to its share charge dated November 10, 1993 over
the shares of Nam Tai held beneficially by Tele-Art, Inc. Neither court determined the amount owned
by Tele-Art, Inc. to Bank of China.
Bank of China has submitted that it is a secured creditor. In this respect, its position is
that as of December 6, 2004, the secured debt, which was from advances made to Tele-Art, Inc.'s
subsidiary, Tele-Art Limited, was HK$21,985,970.16 (approximately US$2.8 million) with interest
accruing at HK$4,264.7 (or US$547) daily. The liquidator, however, took the view in his third
liquidator report which was submitted to the court on October 13, 2004, that Bank of China's proof
of debt was incomplete. The liquidator has requested the court's approval to take further action
and demand that Bank of China provide further information for his consideration. According to the
said report, the amount of debt owed by Tele-Art Limited to Bank of China may not exceed $1.4
million. It should further be noted that, apart from Nam Tai, the liquidator admitted the proof of
debts of two other unsecured creditors which together amounted to approximately $33,000. David
Hague, the former liquidator, has submitted a claim for $381,860 in respect of costs for work as
liquidator of Tele-Art, Inc. These costs, however, are subject to the approval of the court and as
such are still pending, as they have not yet been approved. The liquidator filed a summons for the
approval of his third report on October 13, 2004 and this was heard on December 14, 2004. The
court, inter alia, ordered that the liquidator continue the administration of the liquidation of
Tele-Art, Inc. substantially in accordance with his proposals contained in said report as well as
the second report.
On August 25, 2005, the liquidator filed his summons in the High Court for the approval of his
fourth liquidator report. The report sought the court's approval of his recommendation to the
amount of debt owed by Tele-Art Inc. to Nam Tai of approximately $38.0 million, two other unsecured
creditors of approximately $221,127 and the fee to David Hague of approximately $381,860. The
report also sought the court's approval of Nam Tai's proposal on the distribution of the redemption
proceeds among the unsecured creditors and direction of the court on whether Bank of China is
eligible to claim any debts as against Tele-Art, Inc. and, if eligible, the quantum of such debt.
This liquidator's summons was due to be heard on February 20, 2006 but had to be
adjourned to a date to be fixed by the Registrar of the High Court because the liquidator
failed to serve a copy of the summons on Bank of China.
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On April 11, 2005, Bank of China also filed a summons to the British Virgin Islands court to
seek orders to force Nam Tai to pay redemption price and dividends
ordered by the Court of Appeal on
the appeal of the Priority Summons to Bank of China. Nam Tai filed an affidavit of evidence in
response on July 19, 2005. The hearing date of this summons has not yet been fixed and Nam Tai will
continue to contest the summons vigorously. We dispute that finding, and among other matters,
believe that the proof of debt submitted by Bank of China to the liquidator was incomplete and
invalid.
As of December 31, 2002, due to the uncertainty of the final outcome of the litigation as a
result of the January 21, 2003 judgment, and in accordance with SFAS No. 5,
"Accounting for
Contingencies",
we recorded a provision for $5.2 million as a component of accrued expenses,
pending a final determination of this matter by the courts, representing the then-best estimate of
the net monetary expense we would incur if our appeal to the judgment in relation to the Priority
Summons on January 21, 2003 was unsuccessful and the two judgment debts in the total amount of
$38.0 million (including interest, costs, and related expenses) was determined as having the lowest
priorities in recovering from the estate of Tele-Art, Inc. According to the information provided by
the liquidator on November 7, 2003, apart from Nam Tai, a total of three other creditors of
Tele-Art, Inc., including Bank of China, had submitted their proof of debt to the liquidator. These
claims, together with the claim by David Hague, the former liquidator
of Tele-Art, Inc. and other estimated outstanding fees and expenses
amounted to approximately $3.9 million. As a result, the 2002
provision for $5.2 million was reduced to $3.9 million in the fourth quarter of 2003.
With the two judgment debts as well as the several costs orders in favor of Nam Tai, Nam Tai
is the major unsecured creditor of Tele-Art, Inc., holding approximately 99.9% of the outstanding
debts of Tele-Art, Inc. Pursuant to the judgment of April 26 2004, we negotiated with the
liquidator on the distribution of the redemption proceeds among the unsecured creditors and have
reached a proposal for court approval. If the said proposal is approved by the court, as well as
all the legal matters related to Tele-Art, Inc. finalized, including the final determination of the
creditor's position of Bank of China, then the remaining portion of $3.9 million provision will
also be reversed into income for the related period.
However, the actual amount of the recovery, if any, is uncertain, and is dependent on a number
of factors including the final determination of Bank of China's position. We plan to continue to
pursue vigorously all legal alternatives available to seek to recover the maximum amount of the
outstanding debt from Tele-Art, Inc. as well as to pursue other parties that may have assisted in
any transfers of the assets from Tele-Art, Inc.
In furtherance of this objective, Nam Tai commenced proceedings in September 2002 against
David Hague and PriceWaterhouseCoopers for, inter alia, negligence and breach of statutory duty in
their conduct of the liquidation. David Hague had submitted a letter of resignation for the post of
liquidator of Tele-Art, Inc. on September 3, 2002, to the High Court and his resignation was
approved by the High Court on December 17, 2002. A new liquidator, Mr. Glenn Harrigan, was then
appointed by the British Virgin Islands, court on July 11, 2003.
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David Hague and PriceWaterhouseCooper applied to the High Court on December 24, 2002,
challenging the service of these proceedings on them in Hong Kong and British Virgin Islands
court's jurisdiction to determine the claim applied by Nam Tai. The application was heard by the
High Court on May 11 and 12, 2004 and dismissed in its judgment on October 29, 2004. David Hague
and PriceWaterhouseCoopers obtained leave to appeal this judgment in March 2005 and the appeal was
heard by the Court of Appeal on September 19 to 21, 2005. The Court of Appeal delivered its
judgment dismissing the appeal and awarding costs to Nam Tai. David Hague and
PriceWaterhouseCoopers made an application on February 6, 2006 for leave to appeal this judgment to
the Privy Council. Nam Tai has cross-applied for leave on February 3, 2006 to appeal to the Privy
Council against the costs awarded to Nam Tai in the Court of Appeal on the basis that such costs
were determined by the application of incorrect legal principles and were in any event too low and
inconsistent with cost orders made against Nam Tai in other appeal proceedings involving David
Hague. It is expected that both the applications of Nam Tai and David Hague and
PricewaterhouseCoopers will come on for hearing in May 2006 when the Court of Appeal next sits in
the British Virgin Islands.
Nam Tai has also instituted proceedings in the British Virgin Islands against UBS Painewebber,
or UBS, on June 20, 2005, for breach of trust with respect to UBS's role as brokers in carrying out
the terms of the September 1997 British Virgin Islands court order for the sale of Tele Art Inc.'s
Nam Tai shares in sufficient quantities to pay the debts of the Bank of China and Nam Tai. UBS has
filed an application challenging the jurisdiction of the court, which has not yet been formally
served on Nam Tai. The High Court has adjourned the hearing of this application to May 22, 2006.
Note
1.
Subsequent to November 7, 2003, the number of shares was adjusted to 457,050 to reflect the
ten-for-one stock dividend.
2.
Subsequent to November 7, 2003, the number of shares was adjusted to 560,099 to reflect the
ten-for-one stock dividend.
Putative Class Actions
On March 11, 2003, we were served with a complaint in an action captioned Michael Rocco v. Nam
Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain
directors are named as defendants. On or about April 9, 2003, a second complaint was filed in an action captioned A.J. & Celine Steigler v. Nam Tai, et al.,
03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco Action, the Actions.
The Actions have been consolidated since July 2003 and purport to represent a putative class of
persons who purchased the common stock of Nam Tai from July 29, 2002 through February 18, 2003.
Plaintiffs in the Actions assert claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934 and allege that misrepresentations and/or omissions were made during the alleged class
period concerning the partial reversal of an inventory provision and a charge to goodwill related
to Nam Tai's LPT segment. Our motion to dismiss the Actions was denied on September 27, 2004. On
May 27, 2005, the plaintiffs moved to certify the Actions as a class action with an individual,
Douglas Ward, as the named class representative. We filed our opposition to the motion on June 20,
2005. The court heard oral argument on the motion on July 26, 2005, and has not yet ruled on the
motions. On October 7, 2005, the plaintiffs filed a Second Amended Consolidated Class Action
Complaint which contained substantive allegations that did not vary from the previously filed
Actions and added an additional individual, Michael Rocco, as a named class representative. After
class representative discovery on February 10, 2006, plaintiffs filed their motion for class
certification with Michael Rocco as an added class representative. Nam Tai filed its opposition
papers on March 3, 2006. The motion is scheduled for oral argument on April 17, 2006. Nam Tai
believes it has meritorious defenses and intends to defend the case vigorously.
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Export Sales
Geographic Markets
Approximate percentages of net sales to customers by geographic area based upon location of
product delivery are set forth below for the periods indicated:.
Year ended December 31,
Geographic Areas
2003
2004
2005
China (excluding Hong Kong)
25
%
25
%
19
%
Europe (excluding Estonia)
21
18
17
Japan
17
6
2
United States
14
11
4
Hong Kong
9
30
48
Estonia
5
1
—
North America (excluding United States)
—
1
—
Korea
6
4
7
Other
3
4
3
100
%
100
%
100
%
Dividends
We have paid an annual dividend for the last twelve consecutive years. On February 13, 2006,
we announced that we were increasing our regular annual dividend to $1.44 per share and declared a
special dividend of $0.08 per share to be paid in 2006. A total cash dividend of $1.52 per share was declared
and will be paid quarterly in 2006, commencing in the first quarter of $0.38 per share. The
following table sets forth the total cash dividends and dividends per share we have declared for
each of the five years in the period ended December 31, 2005, adjusted to give effect to a
three-for-one stock split effective on June 30, 2003.
Year ended December 31,
2001
2002
2003
2004
2005
Total dividends declared (in thousands)
$
4,134
$
17,056
$
37,584
$
20,424
$
56,324
Regular dividends per share
$
0.13
$
0.16
$
0.20
$
0.48
$
1.32
Special dividends
—
$
0.33
$
0.80
—
—
Total dividends per share
$
0.13
$
0.49
$
1.00
$
0.48
$
1.32
It is our general policy to determine the actual annual amount of future dividends, if any,
based upon our growth during the preceding year. Future dividends, if any, will be in the form of
cash or stock or a combination of both. We may not be able to pay dividends in the future or may
decide not to declare them in any event. We will determine the amounts of the dividends when they
are declared and even if dividends are declared in the future we may not continue them in any
future period.
We declared special dividends in 2002, 2003 and 2006 for the reasons described below:
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•
In 2002, primarily as a result of a realized gain we made from our sale of
approximately one-third of our direct investment in Huizhou TCL Mobile Communication Company
Ltd.; and
•
In 2003, in celebration of our fifteenth anniversary since our listing and
initial public offering in 1988, our fifteenth consecutive year of profitability, and the
transfer of our shares from the NASDAQ National Market to the NYSE in January 2003.
•
In 2006, in celebration of Company's thirtieth founding anniversary and its
fifth consecutive quarter of record-breaking sales.
Item 9.
The Listing
Our common shares are traded in the United States on the NYSE. On January 23, 2003, our common
shares were listed on the NYSE under the symbol "NTE". Prior to that, our common shares were quoted
on the Nasdaq National Market under the symbol "NTAI".
The following table sets forth the high and low closing sales prices for our common shares for
the quarters in the three-year period ended December 31, 2005, adjusted to give effect to a
three-for-one stock split effective on June 30, 2003:
2003
2004
2005
Average
Average
Average
Daily
Daily
Daily
Trading
Trading
Trading
High
Low
Volume
(1)
High
Low
Volume(1)
High
Low
Volume
(1)
First Quarter
$
11.30
$
7.92
363,270
$
34.24
$
22.30
927,119
$
28.36
$
17.25
376,920
Second Quarter
14.13
6.94
288,459
28.00
13.99
509,173
27.80
19.70
302,367
Third Quarter
32.90
12.87
734,330
23.51
16.10
412,488
26.65
22.50
219,858
Fourth Quarter
42.48
26.25
1,393,722
23.14
18.07
283,030
25.88
21.27
238,459
(1)
Determined by dividing the sum of the reported daily volume for the quarter by the
number of trading days in the quarter.
The following table sets forth the high and low closing sale prices for each of the last five
years ended December 31, adjusted to give effect to a three-for-one stock split effective on June
30, 2003:
Daily
Trading
Year ended
High
Low
Volume
(1)
December 31, 2005
$
28.36
$
17.25
283,482
December 31, 2004
34.24
13.99
532,568
December 31, 2003
42.48
6.94
597,858
December 31, 2002
9.07
5.15
164,011
December 31, 2001
6.38
3.77
81,656
(1)
Determined by dividing the sum of the reported daily volume for the year by the
number of trading days in the year.
The following table sets forth the high and low closing sale prices during each of the most
recent six months:
Daily
Trading
Month ended
High
Low
Volume
(1)
February 28, 2006
$
24.48
21.86
312,663
January 31, 2006
24.25
22.23
189,575
December 31, 2005
22.94
21.86
152,357
November 30, 2005
23.08
21.27
299,829
October 31, 2005
25.88
21.30
263,190
September 30, 2005
25.84
22.87
204,314
(1)
Determined by dividing the sum of the reported daily volume for the month by the
number of trading days in the month.
On March 10, 2006, the last reported sale price of our common shares on the NYSE was $21.35 per
share. As of March 1, 2006 there were 732 holders of record of our common shares.
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Item 10.
Additional Information
Share Capital
Our authorized capital consists of 200,000,000 common shares, $0.01 par value per share. On
June 20, 2003, we announced a three-for-one stock split effective on June 30, 2003 and a
ten-for-one stock dividend effective November 7, 2003. As of March 1, 2006, 43,505,586 common
shares were outstanding.
Memorandum and Articles of Association
Holders of our common shares are entitled to one vote for each whole share on all matters to
be voted upon by shareholders, including the election of directors. Holders of our common shares do
not have cumulative voting rights in the election of directors. All of our common shares are equal
to each other with respect to liquidation and dividend rights. Holders of our common shares are
entitled to receive dividends if and when declared by our Board of Directors out of funds legally
available under British Virgin Islands law. In the event of our liquidation, all assets available
for distribution to the holders of our common shares are distributable among them according to
their respective holdings. Holders of our common shares have no preemptive rights to purchase any
additional, unissued common shares. All of our outstanding common shares are duly authorized,
validly issued and nonassessable. All of our outstanding common shares are in registered form and
we do not have any outstanding bearer shares.
Pursuant to our Memorandum and Articles of Association and pursuant to the laws of the British
Virgin Islands, our Board of Directors without shareholder approval may amend our Memorandum and
Articles of Association. This includes amendments to increase or reduce our authorized capital
stock. Our ability to amend our Memorandum and Articles of Association without shareholder approval
could have the effect of delaying, deterring or preventing a change in control of Nam Tai,
including a tender offer to purchase our common shares at a premium over the then-current market
price.
We have never had any class of stock outstanding other than our common shares nor have we ever
changed the voting rights with respect to our common shares.
Our registered office is at P.O. Box 3342, Road Town, Tortola, British Virgin Islands and we
have been assigned company number 3805. Our object or purpose is to engage in any act or activity
that is not prohibited under British Virgin Islands law as set forth in Clause 4 of our Memorandum
of Association. As an International Business Company, and as set forth in Clause 6, we are
prohibited from doing business with persons resident in the British Virgin Islands, owning real
estate in the British Virgin Islands, or accepting banking deposits or contracts of insurance. We
do not believe these restrictions materially affect our operations.
Paragraph 60 of our Amended Articles of Association, or Articles, provides that a director may
be counted as one of a quorum in respect of any contract or arrangement in which the director is
materially interested or makes with the Company; however, if the agreement or transaction cannot be
approved by a resolution of directors without counting the vote or consent of any interested
director, the agreement or transaction may only be validated by approval or ratification by a
resolution of the shareholders, who are referred under the law of the British Virgin Islands as
"members." Paragraph 53 of the Articles allows the directors to vote compensation to themselves in
respect of services rendered to us. Paragraph 69 of the Articles provides that the directors may by
resolution exercise all the powers on our behalf to borrow money and to mortgage or charge our
undertakings and property or any part thereof, to issue debentures, debenture stock and other
securities whenever we borrow money or as security for any of our debts, liabilities or obligations
or those of any third party. These borrowing powers can be altered by an amendment to the Articles.
There is no provision in the Articles for the mandatory retirement of directors; however, we have
fixed 65 as the mandatory age of retirement for our directors. Directors are not required to own
our shares in order to serve as directors.
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Paragraph 85 of the Articles allows us to deduct from any shareholder's dividends amounts
owing to us by that shareholder. Paragraph 13.1 provides that we can redeem shares at fair market
value from any shareholder against whom we have a judgment debt.
Paragraph 12 of the Articles provides that without prejudice to any special rights previously
conferred on the holders of any existing shares, any of our shares may be issued with such
preferred, deferred or other special rights or such restrictions, whether in regard to dividends,
voting, return of capital or otherwise as the directors may from time to time determine.
Paragraph 14 of the Articles provides that if at any time the authorized share capital is
divided into different classes or series of shares, the rights attached to any class or series may
be varied with the consent in writing of the holders of not less than three-fourths of the issued
shares of any other class or series of shares which may be affected by such variation.
Provisions in respect of the holding of general meetings and extraordinary general meetings
are set out in Paragraphs 27 to 46 of the Articles and under the International Business Companies
Act. The directors may convene meetings of our shareholders at such times and in such manner and
places as the directors consider necessary or desirable, and they shall convene such a meeting upon
the written request of shareholders holding more than 30 percent of the votes of our outstanding
voting shares. Other than providing, if requested, reasonable proof of a holder's status as a
holder of our shares as of the applicable record date, there is no condition to the admission of a
shareholder or his or her proxy holder to our meetings of shareholders.
British Virgin Islands law and our Memorandum and Articles of Association impose no
limitations on the right of nonresident or foreign owners to hold or vote our securities.
There are no provisions in our Memorandum of Association or Articles of Association governing
the ownership threshold above which shareholder ownership must be disclosed.
As a result of the issuance of additional common shares in 2003 pursuant to the three-for-one
stock split and increase in the number of Common Shares reserved for issuance under the Company's
1993 Stock Option Plan and 2001 Stock Option Plan, the authorized share capital of the Company was
enlarged from $200,000 to $2,000,000 and number of shares was increased from 20,000,000 to
200,000,000. The full text of our Amended Articles and Memorandum, amended on June 26, 2003, had
been filed as Exhibit 1.1 with the Annual Report on Form 20-F for 2003.
Transfer Agent
Registrar and Transfer Agent Company, 10 Commerce Drive, Cranford, New Jersey 07016-3572,
U.S.A., is the United States transfer agent and registrar for our common shares.
Material Contracts
The following summarizes each material contract, other than contracts entered into in the
ordinary course of business, to which Nam Tai or any subsidiary of Nam Tai is a party, for the two
years immediately preceding the filing of this report:
•
On February 3, 2005, a Loan Agreement was entered into
between Zastron Electronic (Shenzhen) Co. Ltd. and Zastron
Precision Tech-Limited for a loan of $36,000,000 granted from
Zastron Precision-Tech Limited to Zastron Electronic
(Shenzhen) Co. Ltd.
•
On April 8, 2005, an Agreement was entered into between
Nam Tai Electronics, Inc., Asano Company Limited and Nam Tai
Electronic & Electrical Products Limited in relation to the
sale and purchase of the entire issued share capital of Namtek
Software Technology Limited regarding an allotment and
issuance of 65,336,470 and 16,334,118 of shares of Nam Tai
Electronic & Electrical Products Limited to Nam Tai
Electronics, Inc. and Asano Company Limited respectively at an
issue price of HKD2.55 per share.
•
On April 14, 2005, a Supplemental Loan Agreement between
Zastron Electronic (Shenzhen) Co. Ltd. and Zastron Precision
–Tech Limited for extending the repayment term for a loan of
$18,660,000 granted from Zastron Precision-Tech Limited to
Zastron Electronic (Shenzhen) Co. Ltd. in accordance with the
an loan agreement dated March 30, 2004.
•
On May 12, 2005, a Supplement Letter was issued from
Kazuhiro Asano to Nam Tai Electronic & Electrical Products
Limited to undertake certain conditions set out in the
attached Undertaking in relation to the sale and purchase of
the entire issued share
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capital of Namtek Software Development Company Limited
from Nam Tai Electronics, Inc. and Asano Company Limited to
Nam Tai Electronic & Electrical Products Limited.
•
On September 9, 2005, a Banking Facilities Letter from
The Hongkong and Shanghai Banking Corporation Limited was
accepted and confirmed by Nam Tai Electronics, Inc. for
granting of overdraft of HK$500,000, treasury facilities of
$30,000,000 and commercial card facility of HK$1,100,000.
•
On September 9, 2005, a Banking Facilities Letter from
The Hongkong and Shanghai Banking Corporation Limited was
accepted and confirmed by Nam Tai Electronic & Electrical
Products Limited for renewal of corporate card facility of
HK$700,000, the revolving loan of $30,000,000 and foreign
exchange line of $2,000,000.
•
On March 26, 2004, a Memorandum of Understanding was
signed by Namtai Electronic (Shenzhen) Co., Ltd. and Nam Tai
Electronic & Electrical Products Limited (Hong Kong) to
confirm the respective rights and liabilities of Nam Tai
Electronic & Electrical Products Limited (Hong Kong) and
Namtai Electronic (Shenzhen) Co., Ltd. under an internal
restructuring.
•
On March 31, 2004, a Sale and Purchase Agreement was
entered into between Nam Tai Electronics, Inc. and Mr. Wong
Toe Yeung regarding purchasing the entire issued share capital
of Jasper Ace Limited from Mr. Wong Toe Yeung with the
consideration of disposal of a 72.2% interest in Mate Fair
Group Limited, cash of $25 million and 2,389,974 shares issued
by Nam Tai Electronics, Inc.
•
On April 8, 2004, a Trademark License Agreement was
entered into between Nam Tai Electronics, Inc. and Nam Tai
Electronic & Electrical Products Limited for the use of
certain "Namtai" trademarks.
•
On April 15, 2004, a Deed of Indemnity was entered into
between Nam Tai Electronics, Inc., and Nam Tai Electronic &
Electrical Products Limited in favour of Nam Tai Electronic &
Electrical Products Limited regarding the Global Offering of
200,000,000 shares of HK$0.01 each of Nam Tai Electronic &
Electrical Products Limited.
•
On April 15, 2004, an Underwriting Agreement was entered
into among Nam Tai Electronics, Inc. as the selling
shareholder and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura
International (Hong Kong) Limited, Cazenove Asia Limited, DBS
Asia Capital Limited and VC CEF Capital Limited as public
offer underwriters regarding the public offering of 20,000,000
shares of HK$0.01 each of Nam Tai Electronic & Electrical
Products Limited.
•
On April 21, 2004, a Supplemental Agreement was entered
into between Nam Tai Electronics, Inc., and Mr. Wong Toe Yeung
regarding to adjust the consideration for purchasing entire
issued share capital of Jasper Ace Limited by canceling
973,210 common shares of Nam Tai Electronics, Inc., issued to
Top Scale Company Limited on April 21, 2004.
•
On April 22, 2004, an Underwriting Agreement was entered
into among Nam Tai Electronics, Inc. as the selling
shareholder and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura
International (Hong Kong) Limited, Cazenove Asia Limited, DBS
Asia Capital Limited and VC CEF Capital Limited as
international placing underwriters regarding the international
placing of 180,000,000 shares of HK$0.01 each of Nam Tai
Electronic & Electrical Products Limited.
•
On April 22, 2004, a Pricing Determination Agreement was
entered into among Nam Tai Electronics, Inc., Nam Tai
Electronic & Electrical Products Limited and the Hongkong and
Shanghai Banking Corporation Limited for determining the
offering price of the shares of Nam Tai Electronic &
Electrical Products Limited to be HK$3.88 per share.
•
On April 22, 2004, a Stock Borrowing Agreement was
entered into between Nam Tai Electronics, Inc. and the
Hongkong and Shanghai Banking Corporation Limited regarding
the Global Offering of 200,000,000 shares of HK$0.01 each of
Nam Tai Electronic & Electrical Products Limited.
•
On August 4, 2004, an Accession Agreement was entered
into between Welcome Success Technology Ltd. and Mr. Alain
Jolivet in relation to the transfer of entire interest in
Stepmind to Remote Reward SAS and became a party to the
Shareholders Agreement entered into among Nam Tai Electronics,
Inc., AGF Innovation 3, AGF Innovation 4, AGF Innovation 5,
Mighty Wealth Group Limited, Remote Reward SAS, Mr. Alain
Jolivet and Mr. Andre Jolivet executed on November 28, 2003,
December 9, 2003 and December 10, 2003.
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•
On August 18, 2004, an Escrow Agreement was entered into
among Nam Tai Electronics, Inc., Welcome Success Technology
Ltd., Remote Reward SAS, Johnson Stokes & Master, Mr. Andre
Jolivet and Mr. Alain Jolivet in relation to the disposal of
1,457,720 shares in Stepmind to Remote Reward SAS with a
consideration of Euros 4,253,301.98.
•
On August 19, 2004, a Subscription Agreement was entered
into among TCL Industries Holdings (HK) Limited, TCL
International Holdings Limited, Cheerful Asset Investments
Limited, Jasper Ace Limited, Mate Fair Group Limited, and TCL
Communication Technology Holdings Limited for subscribing
254,474,910 shares in TCL Communication Technology Holdings
Limited in a consideration of RMB131,283,020.
•
On September 20, 2004, a Deed of Assignment of Trademarks
was entered into between Nam Tai Electronics, Inc. and Namtai
Electronic (Shenzhen) Co., Ltd. for assigning "Namtai &
device" trademarks to Nam Tai Electronics, Inc.
•
Banking Facilities Letter from the Hongkong and Shanghai
Banking Corporation Limited to Nam Tai Group Management
Limited on September 24, 2004 regarding the renewal of
Overdraft Facility of HK$500,000, Treasury Facilities of
US$30,000,000 and Corporate Card of HK$1,100,000.
•
On October 15, 2004, a Share Transfer Agreement was
entered into between J.I.C. Enterprises (Hong Kong) Limited
and J.I.C. Technology Company Limited for the disposal of the
entire issued share capital of Jetup Electronic (Shenzhen)
Co., Ltd. to J.I.C. Technology Company Limited for a
consideration of HK$105,878,396.
Exchange Controls
There are no exchange control restrictions on payments of dividends, interest, or other
payments to nonresident holders of Nam Tai's securities or on the conduct of our operations in Hong
Kong and Macao or where our principal executive offices are located in the British Virgin Islands,
where Nam Tai is incorporated. Other jurisdictions in which we conduct operations may have various
exchange controls. With respect to our subsidiaries in China, with the exception of a requirement
that 11% of profits be reserved for future developments and staff welfare, there are no
restrictions on the payment of dividends and the removal of dividends from China once all taxes are
paid and assessed and losses, if any, from previous years have been made good. We believe such
restrictions will not have a material effect on our liquidity or cash flow.
Taxation
United States Federal Income Tax Consequences
The discussion below is for general information only and is not, and should not be interpreted
to be, tax advice to any holder of our common shares. Each holder or a prospective holder of our
common shares is urged to consult his, her or its own tax advisor.
General
This section is a general summary of the material United States federal income tax
consequences to U.S. Holders, as defined below, of the ownership and disposition of our common
shares as of the date of this report. This summary is based on the provisions of the Internal
Revenue Code of 1986, as amended, or the Code, the applicable Treasury regulations promulgated and
proposed thereunder, judicial decisions and current administrative rulings and practice, all of
which are subject to change, possibly on a retroactive basis. The summary applies to you only if
you hold our common shares as a capital asset within the meaning of Section 1221 of the Code. The
United States Internal Revenue Service, or the IRS, may challenge the tax consequences described
below, and we have not requested, nor will we request, a ruling from the IRS or an opinion of
counsel with respect to the United States federal income tax consequences of acquiring, holding or
disposing of our common shares. This summary does not purport to be a comprehensive description of
all the tax considerations that may be relevant to the ownership of our common shares. In
particular, the discussion below does not cover tax consequences that depend upon your particular
tax circumstances nor does it cover any state, local or foreign law, or the possible application of
United States federal estate or gift tax. You are urged to consult your own tax advisors regarding
the application of the United States federal income tax laws to your particular situation as well
as any state, local, foreign and United States federal estate and gift tax consequences of the
ownership and disposition of the common shares. In addition, this summary does not take into
account any special United States federal income tax rules that apply to a particular holder of our
common shares, including, without limitation, the following:
•
a dealer in securities or currencies;
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•
a trader in securities that elects to use a market-to-market method of accounting for its securities holdings;
•
a financial institution or a bank;
•
an insurance company;
•
a tax-exempt organization;
•
a person that holds our common shares in a hedging transaction or as part of a straddle or a conversion transaction;
•
a person whose functional currency for United States federal income tax purposes is not the U.S. dollar;
•
a person liable for alternative minimum tax;
•
a person that owns, or is treated as owning, 10% or more, by voting power or value, of our common shares; or
•
a person who receives our shares pursuant to the exercise of employee stock options or otherwise as compensation.
For purposes of the discussion below, you are a "U.S. Holder" if you are a beneficial owner of
our common shares who or which is:
•
an individual United States citizen or resident alien of the United States (as specifically defined for United
States federal income tax purposes);
•
a corporation, or other entity treated as a corporation for United States federal income tax purposes, created
or organized in or under the laws of the United States, any State or the District of Columbia;
•
an estate whose income is subject to United States federal income tax regardless of its source; or
•
a trust (x) if a United States court can exercise primary supervision over the trust's administration and one
or more United States persons are authorized to control all substantial decisions of the trust or (y) if it was in
existence on August 20, 1996, was treated as a United States person prior to that date and has a valid election in
effect under applicable Treasury regulations to be treated as a United States person.
Distributions on Our Common Shares
Subject to the passive foreign investment company, or PFIC, considerations discussed below,
the gross amount of any cash distribution or the fair market value of any property distributed that
you receive with respect to our common shares generally will be subject to tax as ordinary dividend
income to the extent such distribution does not exceed our current or accumulated earnings and
profits, or E&P, as calculated for United States federal income tax purposes. Such income will be
includable in your gross income on the date of receipt. Subject to certain limitations, dividends
paid to noncorporate U.S. Holders, including individuals, may be eligible for a reduced rate of
taxation if we are a "qualified foreign corporation" for U.S. federal income tax purposes. A
qualified foreign corporation includes (i) a foreign corporation that is eligible for the benefits
of a comprehensive income tax treaty with the United States that includes an exchange of
information program, and (ii) a foreign corporation if its stock with respect to which a dividend
is paid is readily tradable on an established securities market within the United States, but does
not include an otherwise qualified corporation that is a PFIC. We believe that we will be a
qualified foreign corporation for so long as we are not a PFIC and our common shares are considered
to be readily tradable on an established securities market within the United States. No assurances
can be made that our Company's status as a qualified foreign corporation will not change. To the
extent any distribution exceeds our E&P, such distribution will first be treated as a tax-free
return of capital to the extent of your adjusted tax basis in our common shares and will be applied
against and reduce such basis on a dollar-for-dollar basis (thereby increasing the amount of gain
and decreasing the amount of loss recognized on a subsequent disposition of such shares). To the
extent that such distribution exceeds your adjusted tax basis in our common shares, the
distribution will be treated as capital gain. Because we are not a United States corporation, no
dividends-received deduction will be allowed to corporations with respect to dividends paid by us.
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For United States foreign tax credit limitation purposes, dividends received on our common
shares will be treated as foreign source income and for taxable years beginning on or before
December 31, 2006 generally will be "passive income", or in the case of certain holders, "financial
services income". For taxable years beginning after December 31, 2006, dividends generally will be
"passive category income", or in the case of certain holders, "general category income." You may be
eligible, subject to a number of complex limitations, to claim a foreign tax credit in respect of
foreign withholding taxes, if any, imposed on dividends received on our common shares. The rules
governing United States foreign tax credits are complex, and we recommend that you consult your tax
advisor regarding the applicability of such rules to you.
Sale, Exchange or Other Disposition of Our Common Shares
Subject to the PFIC considerations discussed below, generally, in connection with the sale,
exchange or other taxable disposition of our common shares:
•
you will recognize capital gain or loss equal to the difference (if any) between:
—
the amount realized on such sale, exchange or other taxable disposition and
—
your adjusted tax basis in such common shares (your adjusted tax basis in the shares
you hold generally will equal your U.S. dollar cost of such shares);
•
such gain or loss will be long-term capital gain or loss if your holding period for our common shares is more than
one year at the time of such sale or other disposition;
•
such gain or loss will generally be treated as United States source for United States foreign tax credit purposes; and
•
your ability to deduct capital losses is subject to limitations.
PFIC Considerations
A foreign corporation will be treated as a PFIC for United States federal income tax purposes
if, after applying relevant look-through rules with respect to the income and assets of
subsidiaries, 75% or more of its gross income consists of certain types of passive income or 50% or
more of the gross value of its assets is attributable to assets that produce passive income or are
held for the production of passive income. For this purpose, passive income generally includes
dividends, interest, royalties, rents (other that rents and royalties derived in the active conduct
of a trade or business), annuities and gains from assets that produce passive income. We presently
believe that we are not a PFIC and do not anticipate becoming a PFIC. This is, however, a factual
determination made on an annual basis and is subject to change. If we were to be classified as a
PFIC in any taxable year, (i) U.S. Holders would generally be required to treat any gain on sales
of our shares held by them as ordinary income and to pay an interest charge on the value of the
deferral of their United States federal income tax attributable to such gain and (ii) distributions
paid by us to our U.S. Holders could also be subject to an interest charge. In addition, we would
not provide information to our U.S. Holders that would enable them to make a "qualified electing
fund" election under which, generally, in lieu of the foregoing treatment, our earnings would be
currently included in their United States federal income.
Backup Withholding and Information Reporting
Payments, including dividends and proceeds of sales, in respect of our common shares that are
made in the United States or by a United States related financial intermediary will be subject to
United States information reporting rules. In addition, such payments may be subject to United
States federal backup withholding tax. You will not be subject to backup withholding provided that:
•
you are a corporation or other exempt recipient, or
•
you provide your correct United States federal taxpayer
identification number and certify, under penalties of perjury,
that you are not subject to backup withholding.
Amounts withheld under the backup withholding rules may be credited against your United States
federal income tax, and you may obtain a refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS in a timely manner.
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BRITISH VIRGIN ISLANDS TAX CONSIDERATIONS
Under the International Business Companies Act of the British Virgin Islands as currently in
effect, a holder of common equity, such as our common shares, who is not a resident of the British
Virgin Islands is exempt from British Virgin Islands income tax on dividends paid with respect to
the common equity and is not liable to the British Virgin Islands for income tax on gains realized
on sale or disposal of such shares. Furthermore, there are no capital gains, gift or inheritance
taxes levied by the British Virgin Islands on persons who are not residents of the British Virgin
Islands. The British Virgin Islands does not impose a withholding tax on dividends paid by a
company incorporated under the International Business Companies Act.
Our common shares are not subject to transfer taxes, stamp duties or similar charges. There is
no income tax treaty or convention currently in effect between the United States and the British
Virgin Islands.
Documents on Display
Nam Tai is subject to the information requirements of the Securities and Exchange Act of 1934,
and, in accordance with the Securities Exchange Act of 1934, Nam Tai. files annual reports on Form
20-F within six months of its fiscal year end, and submit other reports and information under cover
of Form 6-K with the SEC. You may read and copy this information at the SEC's public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Recent filings and reports are also available
free of charge though the EDGAR electronic filing system at www.sec.gov. You can also request
copies of the documents, upon payment of a duplicating fee, by writing to the public reference
section of the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference room or accessing documents through EDGAR. As a foreign private issuer, Nam
Tai. is exempt from the rules under the Securities Exchange Act of 1934 prescribing the furnishing
and content of proxy statements to shareholders.
Item 11.
Quantitative and Qualitative Disclosure About Market Risk
Currency Fluctuations
We
sell a majority of our products in U.S. dollars and pay for our material components in
Japanese yen, U.S. dollars, Hong Kong dollars, and RMB. We pay labor costs and
overhead expenses in RMB, the currency of China (the basic unit of which is the yuan),
Hong Kong dollars and Japanese yen. The exchange rate of the Hong
Kong dollars to the U.S. dollars
have been fixed by the Hong Kong government since 1983 at approximately HK$7.80 to US$1.00, through
the currency-issuing banks in Hong Kong and, accordingly, has not in the past presented a currency
exchange risk. This could change in the future if those in Hong Kong arguing for a floating
currency system prevail in the ongoing debate over whether to
continue to peg the Hong Kong dollars
to the U.S. dollars.
We believe our most significant foreign exchange risk results from material purchases made in
Japanese yen. Approximately 16%, 6%, and 3% respectively, of our material costs have been in
Japanese yen during the years ended December 31, 2003, 2004 and 2005, respectively, sales made in
Japanese yen only accounted for 11%, 4% and 2%, respectively, of sales for each of the last three
years. Our business and operating results could be materially and adversely affected in the event
of a severe increase in the value of the Japanese yen to the U.S.
dollars at a time when our sales
made in Japanese yen are insufficient to cover our material purchases in Japanese yen.
Beginning
on December 1, 1996, the RMB became fully convertible under the current
accounts. There are no restrictions on trade-related foreign exchange receipts and disbursements in
China. Capital account foreign exchange receipts and disbursements are subject to control, and
organizations in China are restricted in foreign currency transactions that must take place through
designated banks.
Our operating expenses and a substantial portion of our assets are denominated in RMB. As a
result, we are exposed to foreign exchange risk, and our results of operations may be negatively
impacted by fluctuations in the exchange rate between the U.S. dollars and RMB. If the RMB
appreciates against the U.S. dollars, our operating expenses will increase and, as a consequence,
our operating margins and net income will likely decline.
In the last three years, the exchange rate between the RMB and the U.S. dollars has varied by
less than one-tenth of one percent. However, on July 21, 2005, the People's Bank of China adjusted
the exchange rate of U.S. dollars to RMB from 1:8:27 to 1:8:11, resulting in an approximately 2%
appreciation in the value of the RMB against the U.S. dollars. Fluctuations in the value of
the
73
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RMB could negatively impact our results of operations. If the RMB had been 1% and 5% less
valuable against the U.S. dollars than the actual rate as of December 31, 2005, which was used in
preparing our audited financial statements as of and for the year ended December 31, 2005, our net
asset value, as presented in U.S. dollars, would have been reduced by $367,000 and $1.8 million,
respectively. Conversely, if the RMB had been 1% and 5% more valuable against the U.S. dollars as
of that date, then our net asset value would have increased by $367,000 and $1.8 million,
respectively.
We may elect to hedge our currency exchange risk when we judge that such action may be
required. In an attempt to lower the costs of expenditures in foreign currencies, we may enter into
forward contracts or option contracts to buy or sell foreign
currency(ies) against the U.S. dollars
through one of our banks. As a result, we may suffer losses resulting from the fluctuation between
the buy forward exchange rate and the sell forward exchange rate, or from the price of the option
premium.
As of December 31, 2005, we held no option or future contracts and during the year we did not
purchase or sell any commodity or currency options. We are continuing to review our hedging
strategy and there can be no assurance that we will not suffer losses in the future as a result of
hedging activities.
Foreign Currency Risk
As of December 31, 2005, we had no open forward contracts or option contracts to purchase or
sell foreign currencies.
Cash on hand at December 31, 2005 of $213,843,000 was held in the following currencies.
Equivalent
U.S. Dollar
Holdings
December 31, 2005
Japanese yen
4,532,000
United States dollars
153,604,000
Hong Kong dollar
26,422,000
Chinese renminbi
29,257,000
Macao Pataca
28,000
Interest Rate Risk
Short-term interest rate risk
Our interest expenses and income are sensitive to changes in interest rates. All of our cash
reserves and short-term borrowings are subject to interest rate changes. Cash on hand of $213.8
million as of December 31, 2005 was invested in short-term interest-bearing investments having a
maturity of three months or less. As such, interest income will fluctuate with changes in
short-term interest rates. In 2005, we had $3.9 million in interest income and $438,000 in interest
expense.
As of December 31, 2005, we had utilized approximately $7.1 million of our credit facilities,
including $4.8 million in short-term notes payable and $2.3 million in short-term bank loans
resulting in minimal interest rate risk.
Long-term interest rate risk
As of December 31, 2005, we had $5.2 million in long-term bank borrowing, including the
current portion of $2.3 million.
Our long-term bank borrowing consisted of a $4.5 million term loan obtained in May 2002, has a
term of four years and bear interest at a rate of 1.5% and subsequently changed to 0.75% effective
August 2004 over three months' LIBOR repayable in 16 quarterly installments of $281,250 beginning
August 2002. The outstanding balance as of December 31, 2005 was $0.6 million. A $1.6 million term
loan obtained in April 2004 has a term of four years and bears interest at a rate of 0.75% over
three months' LIBOR repayable in 16 quarterly installments of $100,000 beginning July 2004. The
outstanding balance as of December 31, 2005 was $1.0 million. A $3.6 million term loan obtained in
June 2004 has a term of four years and bears interest at a rate of 0.75% over three months' LIBOR
repayable in 16 quarterly installments of $225,000 beginning September, 2004. The outstanding
balance as of December 31, 2005 was $2.2 million. A $1.8 million term loan obtained in December
2004 has a term of four years and bears interest at a rate of 0.75% over three months' LIBOR
repayable in 16 quarterly installments of $112,500 beginning March 2005. The outstanding balance as
of December 31, 2005 was $1.4 million.
74
Table of Contents
Item 12.
Description of Securities Other Than Equity Securities
Not applicable
PART II
Item 13.
Defaults, Dividend Arrearages and Delinquencies
Not applicable
Item 14.
Material Modifications to the Rights of Security Holders and Use of Proceeds
Not applicable
Item 15.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-14 under the Securities Exchange Act of 1934, as of December 31, 2005,
the Company carried out an evaluation of the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the
Securities Exchange Act of 1934). This evaluation was carried out under the supervision and with
the participation of the Company's management, including the Company's Chief Executive Officer and
Chief Financial Officer. Based upon that evaluation, the Company's controls and procedures were
designed which provided reasonable assurance of preventing errors and irregularities.
Disclosure controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in the Company's reports filed or submitted under
the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include controls and procedures designed to ensure that information required to be
disclosed in Company reports filed under the Exchange Act is accumulated and communicated to
management, including the Company's Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding disclosures. The Company's management have
evaluated the effectiveness of the Company's disclosure controls and procedures as of the end of
the period covered by this report and have concluded that the Company's disclosure controls and
procedures were effective.
The Company has confidence in its internal controls and procedures and has expanded its
efforts to develop and improve its controls. Nevertheless, the Company's management, including the
Chief Executive Officer and Chief Financial Officer, does not expect that the Company's disclosure
procedures and controls, or its internal controls, will necessarily prevent all error or
intentional fraud. An internal control system, no matter how well-conceived and operated, can
provide only reasonable, but not absolute, assurance that the objectives of such internal controls
are met. Further, the design of an internal control system must reflect the fact that the Company
is subject to resource constraints, and the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all internal control systems, no evaluation of
controls can provide absolute assurance that all internal control issues or instances of fraud, if
any, within the Company be detected.
Changes in Internal Controls
There have been no significant changes in the Company's internal controls or in other factors
that could significantly affect internal controls subsequent to the date the Company carried out
this evaluation.
Item 16.
[Reserved]
Item 16 A. Audit Committee Financial Expert
The Company's Board of Directors has determined that one member of the Audit Committee, Mark
Waslen, qualifies as an "audit committee financial expert" as defined by Item 401(h) of Regulation
S-K, adopted pursuant to the Securities Exchange Act of 1934 since Mr. Waslen has a degree in
Accounting and is a CFA, CA and a CPA. In addition to serving in various financial positions,
including Nam Tai Group Financial Controller from 1990 to 1995 and Treasurer from 1998 to 1999, at
Nam Tai, Mr. Waslen has worked at Peat Marwick Thorne, Deloitte Touche Tohmatsu and BME+ Partners
Chartered Accountants.
All three members of the audit committee, Messrs. Waslen, Chu and Lo, are independent
non-executive directors.
75
Table of Contents
Item 16 B. Code of Ethics
The Company has adopted a Code of Ethics for the Chief Executive Officer and Chief Financial
Officer, which also applies to the Company's principal executive officers and to its principal
financial and accounting officers. In July 2004, the Code of Ethics was revised to apply to all
employees as well. A copy of the revised Code of Ethics is attached as Exhibit 14.1 to this Annual
Report on Form 20-F. This code has been posted on our website, which is located at
http://www.namtai.com/corpgov/corpgov.htm. The contents of this website address, other than the
corporate governance guidelines, the code of ethics and committee charters, are not a part of this
Form 20-F. Stockholders may request a free copy in print form from:
Pan Pacific I.R. Ltd.
Attention : Investor Relations Office
Suite 1790 — 999 W. Hastings Street
Vancouver, BC
Canada V6C 2W2
Toll Free Telephone : 1-800-661-8831
Item 16 C. Principal Accountant Fees and Services
Deloitte Touche Tohmatsu has served as our independent registered public accounting firm for
each of the fiscal years for the three-year period ended December 31, 2005, for which audited
financial statements appeared in this annual report on Form 20-F. The auditor is elected annually
at the Annual General Meeting. The Audit Committee will propose to the Annual General Meeting
convening on June 9, 2006 that Deloitte Touche Tohmatsu be re-elected as independent registered
public accounting firm of the Company for 2006.
The following table presents the aggregate fees for professional services and other services
rendered by Deloitte Touche Tohmatsu to us in 2005 and 2004.
2004
2005
US$'000
US$'000
Audit Fees
(1)
702
476
Audit-related Fees
(2)
21
541
Tax Fees
(3)
3
6
All Other Fees
(4)
15
4
Total
741
1,027
(1)
Audit Fees consist of fees billed for the annual audit of our consolidated financial
statements and the statutory financial statements of our subsidiaries. They also include fees
billed for other audit services, which are those services that only
the independent registered public accounting firm reasonably can provide, and include the provision of comfort letters and consents, and
attestation services relating to the review of documents filed with the SEC. The fees for 2004
include US$159 of accrued audit fees for the 2004 year-end audit that were not billed until 2005.
(2)
Audit-related Fees consist of fees billed for assurance and related services that
are reasonably related to the performance of the audit or review of our financial statements or
that are traditionally performed by the external auditor.
(3)
Tax Fees include fees billed for tax compliance services, including the preparation
of original and amended tax returns and claims for refund; tax consultations, such as assistance
and representation in connection with tax audits and appeals, tax advice related to mergers and
acquisitions, transfer pricing, and requests for rulings or technical advice from tax authorities;
tax planning services; and expatriate tax compliance, consultation and planning services.
(4)
All Other Fees includes business advisory service fee.
Audit Committee Pre-approval Policies and Procedures
The Audit Committee of our Board of Directors is responsible, among other matters, for the
oversight of the independent registered public accounting firm subject to the relevant regulations
of the SEC and NYSE. The Audit Committee has adopted a policy, or the Policy,
76
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regarding pre-approval of audit and permissible non-audit services
provided by our independent registered public accounting firm.
Under the Policy, the Chairman of the Audit Committee is delegated with the authority to grant
pre-approvals in respect of all auditing services including non-audit service, but excluding those
services stipulated in Section 201 "Service Outsider the Scope of Practice of Auditors". Moreover,
if the Audit Committee approves an audit service within the scope of the engagement of the audit
service, such audit service shall be deemed to have been pre-approved. The decisions of the
Chairman of the Audit Committee made under delegated authority to pre-approve an activity shall be
presented to the Audit Committee at each of its scheduled meetings.
Requests or applications to provide services that require specific approval by the Audit
Committee are submitted to the Audit Committee by both the external auditor and the Chief Financial
Officer.
During 2004 and 2005, approximately 49.6% and 93.5%, respectively, of the total audit-related
fees, tax fees and all other fees were approved by the Audit Committee pursuant to the pre-approval
requirement provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
Item 16 D. Exemptions from the Listing Standards for Audit Committees
Not applicable
Item 16 E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable
PART III
Item 17.
Financial Statements
Not Applicable
Item 18.
Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
F-2
Consolidated
Statements of Income for the years ended December 31, 2003, 2004 and 2005
F-3
Consolidated Balance Sheets as of December 31, 2004 and 2005
F-4
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the years
ended December 31, 2003, 2004
and 2005
F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005
F-6 & F-7
Notes to Consolidated Financial Statements
F-8–F-38
The information required within the schedules for which provisions are made in the applicable
accounting regulations of the Securities and Exchange Commission is either not applicable or is
included in the notes to the Consolidated Financial Statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
77
Table of Contents
Item 19.
Exhibits
The following exhibits are filed as part of this annual report:
Exhibit
Number
DESCRIPTION
4.1*
A Memorandum of Understanding signed by Namtai Electronic (Shenzhen) Co.,
Ltd. and Nam Tai Electronic & Electrical Products Limited (Hong Kong) on
March 26, 2004 to confirm the respective rights and liabilities of Nam Tai
Electronic & Electrical Products Limited (Hong Kong) and Namtai Electronic
(Shenzhen) Co., Ltd. under an internal restructuring.
4.2*
A Sale and Purchaser Agreement entered into between Nam Tai Electronics,
Inc. and Mr. Wong Toe Yeung on March 31, 2004 regarding purchasing the
entire issued share capital of Jasper Ace Limited from Mr. Wong Toe Yeung
with the consideration of disposal 72.2% interest in Mate Fair Group
Limited, cash of $25 million and 2,389,974 shares issued by Nam Tai
Electronics, Inc.
4.3*
A Trademark License Agreement entered into between Nam Tai Electronics,
Inc. and Nam Tai Electronic & Electrical Products Limited on April 8, 2004
for the use of certain "Namtai" trademarks.
4.4*
A Deed of Indemnity entered into between Nam Tai Electronics, Inc, and Nam
Tai Electronic & Electrical Products Limited on April 15, 2004 in favour of
Nam Tai Electronic & Electrical Products Limited regarding the Global
Offering of 200,000,000 shares of HK$0.01 each of Nam Tai Electronic &
Electrical Products Limited.
4.5*
An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as
the selling shareholders and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong
Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF
Capital Limited as public offer underwriters on April 15, 2004 regarding
the public offering of 200,000,000 shares of HK$0.01 each of Nam Tai
Electronic & Electrical Products Limited.
4.6*
A Supplemental Agreement entered into between Nam Tai Electronics, Inc, and
Mr. Wong Toe Yeung on July 27, 2004 to adjust the consideration for
purchasing the entire issued share capital of Jasper Ace Limited by
canceling 973,210 common shares of Nam Tai Electronics, Inc, issued to Top
Scale Company Limited on April 21, 2004.
4.7*
An Underwriting Agreement entered into among Nam Tai Electronics, Inc. as
the selling shareholders and the Hongkong and Shanghai Banking Corporation
Limited, BNP Paribas Peregrine Capital Limited, Nomura International (Hong
Kong) Limited, Cazenove Asia Limited, BDS Asia Capital Limited and VC CEF
Capital Limited as international placement underwriters on April 22, 2004
regarding the international placing of 180,000,000 shares of HK$0.01 each
of Nam Tai Electronic & Electrical Products Limited.
4.8*
A Pricing Determination Agreement entered into among Nam Tai Electronics,
Inc., Nam Tai Electronic & Electrical Products Limited and the Hongkong and
Shanghai Banking Corporation Limited on April 22, 2004 for determining the
offering price of the shares of Nam Tai Electronic & Electrical Products
Limited to be HK$3.88 per share.
4.9*
A Stock Borrowing Agreement entered into between Nam Tai Electronics, Inc.
and the Hongkong and Shanghai Banking Corporation Limited on April 22, 2004
regarding the Global Offering of 200,000,000 shares of HK$0.01 each of Nam
Tai Electronic & Electrical Products Limited.
4.10*
Amended 2001 Option Plan dated July 30, 2004.
4.11*
An Accession Agreement entered into between Welcome Success Technology Ltd. and Mr. Alain Jolivet on August
4, 2004 in relation to the transfer of entire interest in Stepmind to Remote Reward SAS and who became a
party to the Shareholders Agreement which entered into among Nam Tai Electronics, Inc., AGF Innovation 3,
AGF Innovation 4, AGF Innovation 5, Mighty Wealth Group Limited, Remote Reward SAS, Mr. Alain Jolivet and
Mr. Andre Jolivet executed on November 278, 2003, December 9, 2003 and December 10, 2003.
4.12*
An Escrow Agreement entered into among Nam Tai Electronics, Inc., Welcome Success Technology Limited, Remote
Reward SAS, Johnson Stokes & Master, Mr. Andre Jolivet and
Mr. Alain Jolivet on August 18, 2004 for the disposal of
Nam Tai's entire interest in Stepmind to Remote
Reward SAS with a consideration of Euros 4,253,301.98.
78
Table of Contents
Exhibit
Number
DESCRIPTION
4.13*
A subscription Agreement entered into among TCL Industries Holdings (HK) Limited, TCL International holdings
Limited, Cheerful Asset Investments Limited, Jasper Ace Limited, Mate Fair Group Limited, and TCL
Communication Technology Holdings Limited on August 19, 2004 for subscribing 254,474,910 shares in TCL
Communication Technology Holdings Limited in a consideration of RMB131,283,020.
4.14*
A Deed of Assignment of Trademarks entered into between Nam Tai Electronics, Inc. and Namtai Electronic
(Shenzhen) Co. Ltd. on September 20, 2004 for assigning "Namtai & device" trademarks to Nam Tai Electronics,
Inc.
4.15*
A Banking Facilities Letter from the Hongkong and Shanghai Banking Corporation Limited to Nam Tai Group
Management Limited on September 24, 2004 regarding the renewal of Overdraft Facility of
HK$500,000, Treasury Facilities of US$30,000,000 and Corporate Card of HK$1,100,000.
4.16*
A Share Transfer Agreement entered into between J.I.C. Enterprises (Hong Kong) Limited and J.I.C. Technology
Company Limited on October 15, 2004 for the disposal of the entire issued share capital of Jetup Electronic
(Shenzhen) Co. Ltd. to J.I.C. Technology Company Limited for a consideration of HK$105,878,396.
4.17
A Loan Agreement entered into between Zastron Electronic (Shenzhen) Co. Ltd. and Zastron Precision
Tech-Limited on February 3, 2005 for a loan of $36,000,000 granted from Zastron Precision-Tech Limited to
Zastron Electronic (Shenzhen) Co. Ltd.
4.18
An Agreement entered into between Nam Tai Electronics, Inc., Asano Company Limited and Nam Tai Electronic &
Electrical Products Limited on April 8, 2005 in relation to the sale and purchase of the entire issued share
capital of Namtek Software Technology Limited regarding an allotment and issuance of 65,336,470 and
16,334,118 of shares of Nam Tai Electronic & Electrical Products Limited to Nam Tai Electronics, Inc. and
Asano Company Limited respectively at an issue price of HKD2.55 per share.
4.19
A
Supplemental Loan Agreement entered into between Zastron Electronic (Shenzhen) Co. Ltd. and Zastron
Precision –Tech Limited on April 14, 2005 for extending the repayment term for a loan of $18,660,000 granted from Zastron
Precision-Tech Limited to Zastron Electronic (Shenzhen) Co. Ltd. in accordance with the an loan agreement
dated March 30, 2004.
4.20
A Supplement Letter dated May 12, 2005 issued from Kazuhiro Asano to Nam Tai Electronic & Electrical
Products Limited to undertake certain conditions set out in the attached Undertaking in relation to the sale
and purchase of the entire issued share capital of Namtek Software Development Company Limited from Nam Tai
Electronics, Inc. and Asano Company Limited to Nam Tai Electronic & Electrical Products Limited.
4.21
A Banking Facilities Letter dated September 9, 2005 from The Hongkong and Shanghai Banking Corporation Limited was accepted and
confirmed by Nam Tai Electronics, Inc. for granting of overdraft of HKD500,000, treasury facilities of
$30,000,000 and commercial card facility of HKD 1,100,000.
4.22
A Banking Facilities Letter dated September 9, 2005 from The Hongkong and Shanghai Banking Corporation Limited was accepted and
confirmed by Nam Tai Electronic & Electrical Products Limited for renewal of corporate card facility of
HKD700,000, the revolving loan of $30,000,000 and foreign exchange line of $2,000,000.
8.1
Diagram
of Company's subsidiaries. See the
Section headed "Organization Structure" under Item 4 of
this Report.
12.1
Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
12.2
Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
14.1*
Code of Ethics.
23.1
Consent of Deloitte Touche Tohmatsu.
99.1
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
99.2
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
*
Previously filed with the registrant's Form 20-F filed with the SEC on March 15, 2005.
79
Table of Contents
NAM TAI ELECTRONICS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page(s)
Report of Independent Registered Public Accounting Firm
F-2
Consolidated Statements of Income for the years ended
December 31, 2003, 2004 and 2005
F-3
Consolidated Balance Sheets as of December 31, 2004 and 2005
F-4
Consolidated Statements of Shareholders' Equity and Comprehensive
Income for the years ended December 31, 2003, 2004 and 2005
F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 2003, 2004 and 2005
F-6 & F-7
Notes to Consolidated Financial Statements
F-8 - F-38
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Nam Tai Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Nam Tai Electronics, Inc.
and subsidiaries (the "Company") as of December 31, 2004 and 2005, and the related
consolidated statements of income, shareholders' equity and comprehensive income, and cash
flows for each of the three years in the period ended December 31, 2005. These financial
statements are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Nam Tai Electronics, Inc. and
subsidiaries at December 31, 2004 and 2005, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2005 in conformity
with accounting principles generally accepted in the United States of America.
DELOITTE TOUCHE TOHMATSU
Certified Public Accountants
Hong Kong
March 9, 2006
F-2
Table of Contents
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US dollars, except per share data)
Year ended December 31,
2003
2004
2005
Net sales — third parties
$
385,524
$
499,680
$
791,042
Net sales — related party
20,782
34,181
6,195
Total net sales
406,306
533,861
797,237
Cost of sales
340,016
457,385
704,314
Gross profit
66,290
76,476
92,923
Selling, general and administrative expenses
24,866
28,053
33,057
Research and development expenses
4,037
5,045
7,210
Total operating expenses
28,903
33,098
40,267
Income from operations
37,387
43,378
52,656
Other expenses, net
(815
)
(1,012
)
(125
)
Dividend income received from marketable securities and investment
3,714
18,295
579
Gain on sales of subsidiaries' shares
1,838
77,320
10,095
Gain on disposal of an affiliated company
—
—
3,631
Loss on disposal of marketable securities
—
—
(3,686
)
Impairment loss on marketable securities
—
(58,316
)
(6,525
)
Interest income
788
1,110
3,948
Interest expense
(121
)
(195
)
(438
)
Income before income taxes and minority interests
42,791
80,580
60,135
Income taxes
(399
)
(879
)
(651
)
Income before minority interests and equity in income (loss) of an
affiliated company
42,392
79,701
59,484
Minority interests
(1,067
)
(6,010
)
(7,992
)
Equity in income (loss) of an affiliated company
498
(6,806
)
(186
)
Income after minority interests and equity in income (loss) of an
affiliated company
41,823
66,885
51,306
Discontinued operation
1,979
—
—
Net income
$
43,802
$
66,885
$
51,306
Basic earnings per share
$
1.09
$
1.57
$
1.19
Diluted earnings per share
$
1.07
$
1.57
$
1.19
See accompanying notes to consolidated financial statements.
F-3
Table of Contents
NAM TAI ELECTRONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share data)
December 31,
2004
2005
ASSETS
Current assets:
Cash and cash equivalents
$
160,649
$
213,843
Marketable securities
41,906
13,330
Accounts receivable, less allowance for doubtful accounts of $157
and $494 at December 31, 2004 and 2005, respectively
90,362
125,662
Amount due from a related party
66
—
Inventories
23,096
31,744
Prepaid expenses and other receivables
12,087
1,490
Income taxes recoverable
6,566
2,671
Asset held for sale
—
10,912
Total current assets
334,732
399,652
Investment in an affiliated company
3,049
—
Property, plant and equipment, net
94,697
97,926
Land use right
2,744
2,815
Deposits for property, plant and equipment
7,701
1,250
Goodwill
15,831
17,068
Intangible assets, net
459
—
Other assets
1,260
1,300
Total assets
$
460,473
$
520,011
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable
$
2,080
$
4,813
Short term bank loans
—
2,275
Long term bank loans — current portion
2,875
2,312
Accounts payable
89,570
121,608
Accrued expenses and other payables
16,661
19,447
Dividend payable
5,120
14,357
Income taxes payable
183
166
Total current liabilities
116,489
164,978
Long term bank loans — non-current portion
5,163
2,850
Total liabilities
121,652
167,828
Minority interests
33,768
41,792
Commitments and contingencies (Note 18)
—
—
Shareholders' equity:
Common shares ($0.01 par value — authorized 200,000,000 shares)
426
435
Additional paid-in capital
241,756
258,167
Retained earnings
56,324
50,771
Accumulated other comprehensive income
6,547
1,018
Total shareholders' equity
305,053
310,391
Total liabilities and shareholders' equity
$
460,473
$
520,011
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(In thousands of US dollars, except share and per share data)
Accumulated
Total
Common
Common
Additional
Other
Share-
Shares
Shares
Paid-in
Retained
Comprehensive
holders'
Comprehensive
Outstanding
Amount
Capital
Earnings
(Loss) income
Equity
Income
Balance at January 1, 2003
36,059,004
$
360
$
147,754
$
54,016
$
(2
)
$
202,128
Shares issued on exercise of options
1,425,600
14
8,494
—
—
8,508
Issue of stock dividend
3,746,668
38
50,333
(50,371
)
—
—
Compensation expense (note 3(b)(iii))
—
—
264
—
—
264
Net income
—
—
—
43,802
—
43,802
$
43,802
Cash dividends ($1.00 per share, including
special dividend of $0.80 per share)
—
—
—
(37,584
)
—
(37,584
)
Balance at December 31, 2003
41,231,272
412
206,845
9,863
(2
)
217,118
Shares issued on exercise of options
16,500
—
72
—
—
72
Shares issued on acquisition of a subsidiary
2,389,974
24
58,769
—
—
58,793
Cancellation of shares issued on acquisition
of a subsidiary
(973,210
)
(10
)
(23,930
)
—
—
(23,940
)
Net income
—
—
—
66,885
—
66,885
$
66,885
Unrealized gain of marketable securities
—
—
—
—
6,549
6,549
6,549
Comprehensive income
$
73,434
Cash dividends ($0.48 per share)
—
—
—
(20,424
)
—
(20,424
)
Balance at December 31, 2004
42,664,536
426
241,756
56,324
6,547
$
305,053
Shares issued on exercise of options
841,050
9
16,411
—
—
16,420
Net income
—
—
—
51,306
—
51,306
$
51,306
Unrealized loss of marketable securities
—
—
—
—
(5,352
)
(5,352
)
(5,352
)
Realization of loss upon disposals of
marketable securities
—
—
—
—
(250
)
(250
)
(250
)
Foreign currency translation
—
—
—
—
73
73
73
Comprehensive income
$
45,777
Cash dividends ($1.32 per share)
—
—
—
(56,859
)
—
(56,859
)
Balance at December 31, 2005
43,505,586
$
435
$
258,167
$
50,771
$
1,018
$
310,391
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
NAM TAI ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
Year ended December 31,
2003
2004
2005
Cash flows from operating activities:
Net income
$
43,802
$
66,885
$
51,306
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization of property, plant and equipment
12,172
13,924
16,824
Amortization and impairment loss of intangible assets
92
92
459
(Gain) loss on disposal of property, plant and equipment
(6
)
347
(563
)
Gain on disposal of other assets
—
(19
)
—
Loss on disposal of convertible notes
102
—
—
Loss on disposal of investment
—
67
—
Impairment loss on marketable securities — TCL Communication
Technology Holdings Limited ("TCL Communication")
—
58,316
6,525
Loss on disposal of marketable securities
—
—
3,686
Gain on disposal of an affiliated company
—
—
(3,631
)
Gain on disposal of a subsidiary — Jieyao Electronics (Shenzhen) Co., Ltd.
("Jieyao")
(1,979
)
—
—
Gain on sale of a subsidiary's shares — J.I.C. Technology Company
Limited ("JIC Technology")
(1,838
)
(6,249
)
—
Gain on sale of a subsidiary's shares — Nam Tai Electronic & Electrical
Products Limited ("NTEEP")
—
(71,071
)
(8,165
)
Gain on sale of a subsidiary's shares — Namtek Software Development
Company Limited ("Namtek Software")
—
—
(1,930
)
Compensation cost on transfer of interest in a subsidiary — Namtek
Software
509
—
—
Equity in (income) loss of an affiliated company less dividend received
(498
)
6,806
186
Others
—
—
206
Dividend income
—
(15,913
)
—
Deferred income taxes
(34
)
(78
)
—
Minority interests
1,067
6,010
7,992
Changes in current assets and liabilities (net of effects of acquisitions
and disposals):
Increase in accounts receivable
(11,146
)
(28,272
)
(35,300
)
(Increase) decrease in amount due from a related party
(2,707
)
2,641
66
(Increase) decrease in inventories
(8,554
)
3,936
(8,648
)
(Increase) decrease in prepaid expenses and other receivables
(3,027
)
2,654
377
(Increase) decrease in income taxes recoverable
(4,067
)
(1,644
)
3,895
Increase in notes payable
894
201
2,733
Increase in accounts payable
17,971
33,896
32,038
Increase in accrued expenses and other payables
1,189
3,028
2,786
Increase (decrease) in income taxes payable
330
(347
)
(17
)
Total adjustments
470
8,325
19,519
Net cash provided by operating activities
$
44,272
$
75,210
$
70,825
F-6
Table of Contents
NAM TAI ELECTRONICS. INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)
Year ended December 31,
2003
2004
2005
Cash flows from investing activities:
Purchase of property, plant and equipment
$
(17,053
)
$
(38,611
)
$
(32,166
)
(Increase) decrease in deposits for property, plant and equipment
(3,103
)
(4,374
)
6,451
Prepayment for long term investment
(5,277
)
—
—
Increase in other assets
(24
)
(37
)
(40
)
(Acquisition) proceeds from disposal of an affiliated company — Alpha Star
Investments Limited ("Alpha Star")
(10,000
)
—
6,494
Acquisition of long term investment — iMagic Infomedia Technology
Limited
(384
)
—
—
Proceeds from disposal of convertible notes — TCL
International Holdings Limited
5,026
—
—
(Acquisition) proceeds from disposal of marketable securities — TCL
Communication
—
(25,084
)
10,995
Proceeds from partial disposal of subsidiaries — JIC Technology and
Namtek Software/JIC Technology and NTEEP/NTEEP
4,165
95,449
25,218
Proceeds from disposal of property, plant and equipment
2,595
4,546
1,788
Proceeds from disposal of investment
—
5,609
—
Proceeds from disposal of other assets
—
231
—
Proceeds from disposal of a subsidiary, net of cash disposed of — Jieyao
2,386
—
—
Net cash (used in) provided by investing activities
(21,669
)
37,729
18,740
Cash flows from financing activities:
Cash dividends paid
(37,777
)
(19,414
)
(51,984
)
Repayment of bank loans
(13,984
)
(5,375
)
(5,375
)
Proceeds from bank loans
—
10,600
4,774
Proceeds from shares issued on exercise of options
8,508
72
16,420
Net cash used in financing activities
(43,253
)
(14,117
)
(36,165
)
Net (decrease) increase in cash and cash equivalents
(20,650
)
98,822
53,400
Cash and cash equivalents at beginning of year
82,477
61,827
160,649
Effect of exchange rate changes on cash and cash equivalents
—
—
(206
)
Cash and cash equivalents at end of year
$
61,827
$
160,649
$
213,843
Supplemental schedule of cash flow information:
Interest paid
$
121
$
195
$
438
Income taxes paid (received), net
4,183
2,953
(3,335
)
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
NAM TAI ELECTRONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data)
1.
Company Information
Nam Tai Electronics, Inc. and subsidiaries (the "Company" or "Nam Tai") is an electronics
manufacturing and design services provider to a selected group of the world's leading
original equipment manufacturers, or OEMs, of telecommunication and consumer electronic
products. Through its electronics manufacturing services operations, the Company
manufactures electronic components and sub-assemblies, including liquid crystal display
("LCD") panels, LCD modules, radio frequency modules, thin film transistor LCD modules,
flexible printed circuit sub-assemblies, digital audio broadcast, modules and image sensors
modules. These components are used in numerous electronic products, including cellular
phones, laptop computers, digital cameras, electronic toys, handheld video game devices and
microwave ovens. The Company also manufactures finished products, including cellular phones
in semi-knock down form, entertainment devices, mobile phone accessories and educational
products.
The Company was founded in 1975 and moved its manufacturing facilities to the People's
Republic of China (the "PRC") in 1980 to take advantage of lower overhead costs, lower
material costs and competitive labor rates available and subsequently relocated to Shenzhen,
the PRC in order to capitalize on opportunities offered in Southern China. The Company was
reincorporated as a limited liability International Business Company under the laws of the
British Virgin Islands ("BVI") in August 1987. The Company's principal manufacturing and
design operations are based in Shenzhen, approximately 30 miles from the Hong Kong Special
Administrative Region ("Hong Kong"). Its PRC headquarters are located in the Macao Special
Administrative Region ("Macao"). Some of the subsidiaries' offices are located in Hong Kong
and Macao, which provide it access to Hong Kong's and Macao's infrastructure of
communication and banking and facilitates management of its PRC operations. The Company's
principal manufacturing operations are conducted in the PRC. The PRC resumed sovereignty
over Hong Kong and Macao effective July 1, 1997 and December 20, 1999, respectively, and
politically Hong Kong and Macao are integral parts of China. However, for simplicity and as
a matter of definition only, our references to PRC in these consolidated financial
statements means the PRC and all of its territories excluding Hong Kong and Macao.
In 2004, Nam Tai's operations were re-organized into three reportable segments consisting of
consumer electronics and communication products ("CECP"), telecommunication components
assembly ("TCA") and LCD panels ("LCDP"). In 2003, CECP and TCA were classified as a single
reportable segment as consumer electronic products ("CEP") while LCDP also comprised the
transformers operations and collectively referred to as LCD panels and transformers ("LPT").
Through the disposal of a subsidiary in 2003, the Company discontinued its transformers
operations, details of which are set out in note 3(b)(ii).
2.
Summary of Significant Accounting Policies
(a)
Principles of consolidation
The consolidated financial statements include the financial statements of the Company
and all its subsidiaries. The Company consolidates companies in which it has
controlling interest of over 50%. All significant intercompany accounts,
transactions and cash flows have been eliminated on consolidation.
The equity method of accounting is used when the Company has the ability to exercise
significant influence over the operating and financial policies of an investee, which
is normally indicated by a 20% to 50% interest in other entities. Under the equity
method, original investments are recorded at cost and adjusted by the Company's share
of undistributed earnings or losses of these entities and distributions received, if
any.
(b)
Cash and cash equivalents
Cash and cash equivalents include all cash balances and certificates of deposit
having a maturity date of three months or less upon acquisition.
F-8
Table of Contents
2.
Summary of Significant Accounting Policies — continued
(c)
Marketable securities
Marketable securities are principally equity securities and are classified as
available-for-sale. Securities classified as available-for-sale are stated at fair
value with unrealized gains and losses recorded as a separate component of
accumulated other comprehensive income (loss). Realized gains and losses on the sale
of the available-for-sale securities are determined using the specific-identification
method and are reflected in other income (expenses).
(d)
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined on
the first-in, first-out basis. Write down of potentially obsolete or slow-moving
inventory are recorded based on management's analysis of inventory levels.
For the Company's CECP and TCA reporting units, the Company orders inventory from its
suppliers based on firm customer orders for products that are unique to each
customer. The inventory is utilized in production as soon as all the necessary
components are received. The only reason that inventory would not be utilized within
six months is if a specific customer deferred or cancelled an order. As the
inventory is typically unique to each customer's products, it is unusual for the
Company to be able to utilize the inventory for other customers' products.
Therefore, the Company's policy is to negotiate with the customer for the disposal of
such inventory that remained unused for six months. The Company does not generally
write down its inventories as usually, the customers are held to their purchase
commitments. However, there are cases where customers are contractually obligated to
purchase the unused inventory from the Company, but the Company may elect not to
immediately enforce such contractual right for business reasons. In this connection,
the Company will consider writing down these inventory items which remained unused
for over six months at the Company's own cost. Prior to writing down, management
would determine if the inventory can be utilized in other products.
For the Company's LCDP segment, due to the nature of the business, LCDP customers do
not always place orders advance enough to enable the Company to order inventory from
suppliers based on firm customer orders. Nonetheless, management reviews its
inventory balance on a regular basis and writes down all inventory over six months
old if it is determined that the relevant inventory can not be utilized in the
foreseeable future.
(e)
Property, plant and equipment and land use right
Property, plant and equipment and land use right are recorded at cost and include
interest on funds borrowed to finance construction. No interest was capitalized for
the years ended December 31, 2003, 2004 and 2005. The cost of major improvements and
betterments is capitalized whereas the cost of maintenance and repairs is expensed in
the year incurred. Assets under construction are not depreciated until construction
is completed and the assets are ready for their intended use. Gains and losses for
the disposal property, plant and equipment and land use right are included in income.
The majority of the land in Hong Kong is owned by the government of Hong Kong which
leases the land at public auction to non-governmental entities. All of the Company's
leasehold land in Hong Kong have leases of not more than 50 years from the respective
balance sheet dates. The cost of such leasehold land is amortized on a straight-line
basis over the respective terms of the leases.
All land in other regions of the PRC is owned by the PRC government. The government
in the PRC, according to PRC law, may sell the right to use the land for a specified
period of time. Thus, all of the Company's land purchases in the PRC are considered
to be leasehold land and classified as land use right. They are amortized on a
straight-line basis over the respective term of the right to use the land.
Depreciation rates computed using the straight-line method are as follows:
Classification
Years
Land use right
50 years
Leasehold land and buildings
20 to 50 years
Machinery and equipment
4 to 12 years
Leasehold improvements
3 to 7 years
Furniture and fixtures
4 to 8 years
Automobiles
4 to 6 years
Tools and molds
4 to 6 years
F-9
Table of Contents
2.
Summary of Significant Accounting Policies — continued
(f)
Goodwill and intangible assets
The excess of the purchase price over the fair value of net assets acquired is
recorded on the consolidated balance sheet as goodwill.
Goodwill is not amortized, but is tested for impairment at the reporting unit level
on at least an annual basis at the balance sheet date. Prior to April 2004, the
Company operated in two reporting units, CEP and LCD panels and transformers. In
June 2003, the Company disposed of its transformers operation through the disposal of
a subsidiary, details of which are set out in note 3(b)(ii). Effective April 2004,
the Company operated in three reporting units, which were its reportable segments of
CECP, TCA and LCDP.
The evaluation of goodwill for impairment involves two steps: (1) the identification
of potential impairment by comparing the fair value of a reporting unit with its
carrying amount, including goodwill and (2) the measurement of the amount of goodwill
loss by comparing the implied fair value of the reporting unit goodwill with the
carrying amount of that goodwill and recognizing a loss by the excess of the latter
over the former. For assessment of impairment loss, the Company will measure fair
value based either on internal models or independent valuations. No impairment loss
was identified in 2004 and 2005.
Costs incurred in the acquisition of licenses are classified as intangible assets.
They are capitalized and amortized to expense on a straight-line basis over the
shorter of the license period or 5 to 7 years.
(g)
Impairment or disposal of long-lived assets
Long-lived assets are included in impairment evaluations when events and
circumstances exist that indicate the carrying amount of these assets may not be
recoverable. The Company reviews its long-lived assets for potential impairment
based on a review of projected undiscounted cash flows associated with these assets.
Measurement of impairment losses for long-lived assets that the Company expects to
hold and use is based on the estimated fair value of the assets.
Long-lived assets to be disposed of are stated at the lower of fair value or carrying
amount. Expected future operating losses from discontinued operations are recorded
in the periods in which the losses are incurred.
(h)
Revenue recognition
The Company recognizes revenue when all of the following conditions are met:
•
Persuasive evidence of an arrangement exists,
•
Delivery has occurred or services have been rendered,
•
Price to the customer is fixed or determinable, and
•
Collectibility is reasonably assured.
Revenue from sales of products is recognized when the title is passed to customers
upon shipment and when collectibility is assured. The Company does not provide its
customers with the right of return (except for quality), price protection, rebates or
discounts. There are no customer acceptance provisions associated with the Company's
products, except for quality. All sales are based on firm customer orders with fixed
terms and conditions, which generally cannot be modified.
F-10
Table of Contents
2.
Summary of Significant Accounting Policies — continued
(i)
Shipping and handling costs
Shipping and handling costs are classified as to cost of sales for material purchased
and selling expenses for those costs incurred in the delivery of finished products.
During the years ended December 31, 2003, 2004, and 2005, shipping and handling costs
classified as costs of sales were $466, $536 and $561, respectively. During the
years ended December 31, 2003, 2004 and 2005, shipping and handing costs classified
as selling expenses were $870, $767 and $847, respectively.
(j)
Research and development costs
Research and development costs are incurred in the development of new products and
processes, including significant improvements and refinements to existing products
and are expensed as incurred.
(k)
Advertising expenses
The Company expenses advertising costs as incurred. Advertising expenses were $261,
$265 and $377 for the years ended December 31, 2003, 2004 and 2005, respectively.
(l)
Staff retirement plan costs
The Company's costs related to the staff retirement plans (see note 14) are charged
to the consolidated statement of income as incurred.
(m)
Income taxes
PRC tax paid by subsidiaries operating in the PRC during the year is recorded as an
amount recoverable at the balance sheet date when management has filed or has the
definite intention to file an application for reinvestment of profits and a refund is
expected unless there is an indication from the PRC tax authority that the refund, or
a portion of which, will be refused.
Deferred income taxes are provided using the asset and liability method. Under this
method, deferred income taxes are recognized for all significant temporary
differences and classified as current or non-current based upon the classification of
the related asset or liability in the financial statements. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is considered more likely
than not that some portion of, or all, the deferred tax asset will not be realized.
(n)
Foreign currency transactions and translations
All transactions in currencies other than functional currencies during the year are
translated at the exchange rates prevailing on the respective transaction dates.
Monetary assets and liabilities existing at the balance sheet date denominated in
currencies other than functional currencies are remeasured at the exchange rates
existing on that date. Exchange differences are recorded in the consolidated
statement of income.
The functional currencies of the Company and its subsidiaries include the U.S. dollar
or the Hong Kong dollar. The financial statements of all subsidiaries with
functional currencies other than the U.S. dollar, the reporting currency, are
translated in accordance with SFAS No. 52, "
Foreign Currency Translation
". All
assets and liabilities are translated at the rates of exchange ruling at the balance
sheet date and all income and expense items are translated at the average rates of
exchange over the year. All exchange differences arising from the translation of
subsidiaries' financial statements are recorded as a component of comprehensive
income.
The exchange rates between the Hong Kong dollar and the U.S. dollar were
approximately 7.7643, 7.7732 and 7.7546 as of December 31, 2003, 2004 and 2005,
respectively.
F-11
Table of Contents
2.
Summary of Significant Accounting Policies — continued
(o)
Earnings per share
On June 20, 2003, the Company's board of directors
declared a 3 for 1 stock split of
its outstanding common shares. Each shareholder of record on June 30, 2003 received
two additional shares for each common share held at that date. In addition, the
Company retained the current par value of $0.01 per share. Accordingly, all
references to numbers of common shares, per share data and stock option data in the
accompanying financial statements have been restated to reflect the stock split on a
retroactive basis.
On October 24, 2003, the Company's board of directors declared an issuance of stock
dividend to shareholders at the ratio of one dividend share for every ten shares held
by the shareholders of record on November 7, 2003. For the purposes of earnings per
share calculation, all references to numbers of common shares and per share data have
been restated to reflect this stock dividend.
Basic earnings per share is computed by dividing net income by the weighted average
number of common shares outstanding during the year.
Diluted earnings per share gives effect to all dilutive potential common shares
outstanding during the year. The weighted average number of common shares
outstanding is adjusted to include the number of additional common shares that would
have been outstanding if the dilutive potential common shares had been issued.
(p)
Stock options
The Company does not recognize compensation expense for employee stock-based
compensation if the strike-price is equal to or greater than the market price of the
stock at the date of grant. The Company's policy is to generally grant stock-based
compensation to employees with a stock price equal to the market price of the stock
on the date of grant. The Company continues to account for stock-based compensation
arrangements under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting
for Stock Issued to Employees"
and provides additional financial statement disclosure
in accordance with SFAS No. 123,
"Accounting for
Stock-Based Compensation"
. The
Company recognizes compensation expense for all stock-based compensation granted to
non-employees by estimating the fair value of the stock-based compensation utilizing
the Black-Scholes option-pricing model. See note 12.
The Company has a stock-based employee compensation plan, as more fully described
in note 12(b). Stock-based employee compensation costs are not reflected in net
income when options granted under the plan had an exercise price equal to the market
value of the underlying common stock on the date of grant.
The following table illustrates the effect on net income and earnings per share as if
the Company had applied the fair value recognition.
Year ended December 31,
2003
2004
2005
Net income, as reported
$
43,802
$
66,885
$
51,306
Less: Stock based compensation costs under
fair value based method for all awards
(582
)
(4,476
)
(7,500
)
Net income, pro forma
$
43,220
$
62,409
$
43,806
Basic earnings per share            As reported
$
1.09
$
1.57
$
1.19
Pro forma
$
1.07
$
1.47
$
1.02
Diluted
earnings per
share         As reported
$
1.07
$
1.57
$
1.19
Pro forma
$
1.06
$
1.47
$
1.01
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No.123R,
"Share-Based Payment"
. This statement is a revision to SFAS No. 123 and
supersedes APB Opinion No. 25 (see note 2(u)). The Company will adopt SFAS No. 123R
in the year ending December 31, 2006.
F-12
Table of Contents
2.
Summary of Significant Accounting Policies — continued
(q)
Use of estimates
The preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(r)
Comprehensive income
Accumulated other comprehensive income (loss) represents unrealized gains on
marketable securities and foreign currency translation adjustments and is included in
the consolidated statement of shareholders' equity.
(s)
Fair value disclosures
The carrying amounts of cash and cash equivalents, accounts receivable, other
receivables, income taxes recoverable, notes payable, short-term bank loans, accounts
payable, accrued expenses and other payables approximate their fair values due to the
short term nature of these instruments. The carrying amount of long term debt also
approximates fair value due to the variable nature of the interest calculations.
(t)
Reclassification
Certain prior year figures have been reclassified to conform with the current year's
presentation
(u)
Recent changes in accounting standards
In November 2004, the Financial Accounting Standard Board ("FASB") issued SFAS No.
151, "
Inventory Costs — an amendment of ARB No. 43,
Chapter 4"
. SFAS No. 151
clarifies the accounting that requires abnormal amounts of idle facility expenses,
freight, handling costs, and spoilage costs to be recognized as current-period
charges. It also requires that allocation of fixed production overheads to the costs
of conversion be based on the normal capacity of the production facilities. SFAS No.
151 will be effective for inventory costs incurred on or after July 1, 2005. The
adoption of this new standard did not have any material impact on the Company's
financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets—An
Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" which
redefines the types of non-monetary exchanges that require fair value measurement.
The Company is required to adopt SFAS No. 153 for nonmonetary transactions entered
into after June 30, 2005. The adoption of this new standard did not have a material
impact on the Company's financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 123 (revised 2004),
"Share-Based Payment"
("SFAS No. 123R"). This statement is a revision to SFAS No. 123 and supercedes APB
Opinion No. 25. This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services, primarily focusing on the accounting for transactions in which an entity
obtains employee services in share-based payment transactions. Entities are required
to measure the cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will be recognized over the period during which an employee
is required to provide service, the requisite service period (usually the vesting
period), in exchange for the award. The grant-date fair value of employee share
options and similar instruments are to be estimated using option-pricing models. If
an equity award is modified after the grant date, incremental compensation cost will
be recognized in an amount equal to the excess of the fair value of the modified
award over the fair value of the original award immediately before the modification.
This statement is effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. In accordance with the standard,
the Company is required to adopt SFAS No. 123R effective January 1, 2006.
F-13
Table of Contents
2.
Summary of Significant Accounting Policies — continued
(u)
Recent changes in accounting standards — continued
Upon adoption, the Company has two application methods to choose from: the
modified-prospective transition approach or the modified-retrospective transition
approach. Under the modified-prospective transition method the Company would be
required to recognize compensation cost for share-based awards to employees based on
their grant-date fair value from the beginning of the fiscal period in which the
recognition provisions are first applied as well as compensation cost for awards that
were granted prior to, but not vested as of the date of adoption. Prior periods
remain unchanged and pro forma disclosures previously required by SFAS No. 123
continue to be required. Under the modified-retrospective transition method, the
Company would restate prior periods by recognizing compensation cost in the amounts
previously reported in the pro forma footnote disclosure under SFAS No. 123. Under
this method, the Company is permitted to apply this presentation to all periods
presented or to the start of the fiscal year in which SFAS No. 123R is adopted. The
Company would follow the same guidelines as in the modified-prospective transition
method for awards granted subsequent to adoption and those that were granted and not
yet vested. The Company believes that the impact that the adoption of SFAS No. 123R
will have on its financial position or results of operations will approximate the
magnitude of the stock-based employee compensation cost disclosed in Note 2 (p)
pursuant to the disclosure requirements of SFAS No. 148.
In March 2005, the FASB issued FASB Interpretation No. ("FIN") 47,
"Accounting for
Conditional Asset Retirement Obligations, an interpretation of SFAS No. 143".
FIN 47
clarifies that an entity is required to recognize a liability for a legal obligation
to perform an asset retirement activity if the fair value can be reasonably estimated
even though the timing and/or method of settlement are conditional on a future event.
FIN 47 is required to be adopted for annual reporting periods ending after December
15, 2005. The Company is evaluating the effect of the adoption of FIN 47. It is not
expected to have a material impact on the Company's financial position, results of
operations or cash flows.
In May 2005, the FASB issued SFAS No. 154, "
Accounting Changes And Error Corrections
- a replacement of APB Opinion No. 20 and FASB Statement
No. 3"
. This statement
supercedes APB Opinion No. 20,
"Accounting changes"
and SFAS No. 3,
"Reporting
Accounting changes in Interim Financial Statements"
. SFAS No. 154 requires
retrospective application to prior periods' financial statements of changes in
accounting principles, unless it is impracticable to determine the period-specific
effects or the cumulative effect of the change. APB Opinion No. 20 "Accounting
Changes," previously required that most voluntary changes in accounting principle be
recognized by including in net income of the period of the change the cumulative
effect of changing to the new accounting principle. SFAS No. 154 will be effective
for accounting changes and corrections of errors made in fiscal years beginning after
December 15, 2005.
In September 2005, the FASB's Emerging Issues Task Force ("EITF") reached a final
consensus on Issue 04-13,
"Accounting for Purchases and Sales of Inventory with the
Same Counterparty"
. EITF 04-13 requires that two or more legally separate exchange
transactions with the same counterparty be combined and considered a single
arrangement for purposes of applying APB Opinion No. 29,
"Accounting for Nonmonetary
Transactions"
, when the transactions are entered into in contemplation of one
another. EITF 04-13 is effective for new arrangements entered into, or modifications
or renewals of existing arrangements, in interim or annual periods beginning after
March 15, 2006. The Company is evaluating the effect of the adoption of EITF 04-13.
It is not expected to have a material impact on the Company's financial position,
results of operations or cash flows.
F-14
Table of Contents
3.
Investment in Subsidiaries
(a)
Subsidiaries
Percentage of ownership
Place of
Principal
as at December 31,
incorporation
activity
2004
2005
Consolidated principal subsidiaries:
Jasper Ace Limited ("Jasper Ace")
BVI
Investment holding*
100
%
100
%
J.I.C. Technology Company
Limited
Cayman Islands
Investment holding
71.63
%
71.63
%
J.I.C Enterprises (Hong Kong)
Limited
Hong Kong
Inactive
71.63
%
71.63
%
Jetup Electronic (Shenzhen)
Co., Limited ("Jetup")
PRC
Manufacturing and
trading
71.63
%
71.63
%
J.I.C. (Macao Commercial
Offshore) Company Limited
Macao
Provision of
consultancy,
administrative and
data processing
services
71.63
%
71.63
%
Nam Tai Electronic & Electrical
Products Limited
Cayman Islands
Investment holding
75
%
69.5
%
Nam Tai Group Management
Limited
Hong Kong
Provision of
administrative
services*
100
%
100
%
Nam Tai Investments Consultant
(Macao Commercial Offshore)
Company Limited
Macao
Provision of
consultancy,
administrative and
data processing
services
75
%
69.5
%
Nam Tai Telecom (Hong Kong)
Company Limited
Hong Kong
Inactive
100
%
100
%
Nam Tai Trading Company
Limited ("NTTC")
Hong Kong
Inactive
100
%
100
%
Namtai Electronic (Shenzhen)
Co., Ltd.
PRC
Manufacturing and
trading
75
%
69.5
%
Namtek Japan Company Limited
Japan
Provision of sales
co-ordination and
marketing services
80
%
69.5
%
Namtek Software Development
Company Limited
Cayman Islands
Investment holding
80
%
69.5
%
Shenzhen Namtek Co., Ltd.
PRC
Software development
80
%
69.5
%
Zastron Electronic (Shenzhen)
Co. Ltd.
PRC
Manufacturing and
trading
100
%
100
%
Zastron Precision-Tech
Limited ("ZPTL")
Cayman Islands
Investment holding
100
%
100
%
Zastron (Macao Commercial
Offshore) Company Limited
Macao
Provision of
consultancy,
administrative and
data processing
services
100
%
100
%
*
Became inactive subsequent to December 31, 2005.
F-15
Table of Contents
3.
Investment in Subsidiaries — continued
(b)
Significant transactions
(i)
During the period from June to November 2003, the Company
disposed of a total of 42,600,000 ordinary shares of JIC Technology for cash
considerations of $4,005. The disposal resulted in a net gain on partial
disposal of a subsidiary of $1,838 after deducting the releasing of unamortized
goodwill of $1,171. In November 2003, the Company converted 175,100,000
preference shares into 170,000,000 ordinary shares of JIC Technology. As at
December 31, 2003, the Company held 263,900,688 ordinary shares of JIC
Technology, equivalent to 74.86% of issued ordinary shares, and 423,320,000
preference shares. Upon full conversion of the preference shares owned, the
Company would have held approximately 88.39% of JIC Technology as of December
31, 2003.
In November and December 2004, the Company disposed of a total of 128,000,000
ordinary shares of JIC Technology for cash considerations of $12,902. The
disposal resulted in a net gain on partial disposal of a subsidiary of $6,249
after deducting the releasing of goodwill of $3,518. The Company also
converted all outstanding preference shares into 410,990,290 ordinary shares
of JIC Technology resulting in 71.63% equity interest held in JIC Technology
as of December 31, 2004.
(ii)
In order to concentrate its effort on its LCD panels reporting
unit, in June 2003, JIC Technology disposed its transformers reporting unit to a
third party for a cash consideration of $2,426. Sales of the transformers
reporting unit for the year ended December 31, 2003 was $6,284, and was
insignificant comparing to the sales of the Company as a whole. The income from
operations of the transformers reporting unit was less than 1% of the Company's
income from operations for the year ended December 31, 2003. The transformers
reporting unit had no non-operating income or expenses for the year ended
December 31, 2003.
The proceeds from the disposal exceeded the carrying value of the net assets
of the transformers reporting unit, resulting in a gain from discontinued
operation, net of minority interests, in 2003 of $1,979.
The carrying amounts of the assets and liabilities of the transformers
reporting unit at the date of disposal were as follows:
Net assets disposed of:
Property, plant and equipment
$
559
Cash
40
Other assets
870
Liabilities
(1,176
)
Total
$
293
(iii)
In January 2003, the Company disposed of 20% of its equity
interest in Namtek Software to Asano Company Limited ("Asano Company"), a
company owned by the management of Namtek Software, for a cash consideration of
$160. As of the date of transfer, Namtek Software was fair valued at $3,347.
Accordingly, a charge to compensation expense of $509 and a credit to additional
paid-in capital of $264 (being the difference between the net asset value and
fair value of Namtek Software disposed) resulted.
In May 2005, the Company and Asano Company transferred 80% and 20%,
respectively, of their interest in Namtek Software to NTEEP for a total
consideration of $26,700. Please also see note 3(b)(v) for further details.
F-16
Table of Contents
3.
Investment in Subsidiaries — continued
(b)
Significant transactions — continued
(iv)
As of January 1, 2003, the Company had a 3.033% interest in
Huizhou TCL Mobile Communication Co., Ltd ("Huizhou TCL") through a then 72.2%
owned subsidiary, Mate Fair Group Limited ("Mate Fair").
In April 2004, the Company increased its equity interest in Huizhou TCL to 9%
through exchange of its existing 72.2% interest in Mate Fair, which had a
3.033% equity interest in Huizhou TCL, and acquiring the entire issued share
capital of Jasper Ace, a holding company with no operations, which directly
holds 9% equity interest in Huizhou TCL. The acquisition was satisfied by the
exchange of the Company's 72.2% equity interest in Mate Fair, cash of $25,000,
and 1,416,764 new shares in the Company upon a pricing adjustment in July 2004
resulting in the cancellation of 973,210 shares of the Company previously
issued as part of the purchase consideration.
(v)
In April 2004, one of the then wholly owned subsidiaries of the
Company, NTEEP, completed public offering of its common stock on the Stock
Exchange of Hong Kong Limited ("SEHK") in which the Company disposed of a 25%
interest in this subsidiary resulting in a gain on partial disposal of $71,071.
In March 2005, the Company disposed of a total of 30,000,000 ordinary shares
of NTEEP for cash considerations of approximately $9,836, resulting in a gain
on partial disposal of a subsidiary of approximately $5,870.
In May 2005, through a series of linked transactions, the Company's
shareholding in NTEEP increased from 71.25% to 72.06% while the effective
shareholding in Namtek Software decreased from 80% to 72.06% upon completion
of the partial disposal of Namtek Software when the Company and Asano Company
transferred 80% and 20%, respectively, of their interest in Namtek Software to
NTEEP for a total consideration of $26,700. The consideration was satisfied
by the issuance of 81,670,588 new shares of NTEEP to the Company and Asano
Company at approximately $0.327 per share. These transactions resulted in a
goodwill of $1,278 arising from the additional interest in NTEEP exchanged and
a net gain on partial disposal of interest in Namtek Software of $1,930.
In August 2005, the Company further disposed of a total of 22,574,000 ordinary shares of NTEEP for cash considerations of approximately $5,163. The disposal
resulted in a net gain on partial disposal of a subsidiary of approximately
$2,295 after deducting the releasing of goodwill of $45.
(c)
Establishment of subsidiaries
(i)
In June 2003, Namtek Software established Namtek Japan Company
Limited, a subsidiary incorporated in Japan, at an investment cost of $85. Its
principal activity is sales co-ordination and marketing of software.
(ii)
In June 2003, the Company established two wholly-owned
subsidiaries, namely ZPTL and NTEEP, incorporated in the Cayman Islands. Their
principal activity is to act as investment holding companies.
(iii)
In August 2003, the Company established Nam Tai Investments
Consultant (Macao Commercial Offshore) Company Limited, at an investment cost of
$13. Its principal activity is provision of consultancy, administrative and
data processing services to other group companies, and to act as the Company's
PRC headquarters due to the continuous increase in investment in China.
(iv)
In March 2004, the ZPTL established Zastron (Macao Commercial
Offshore) Company Limited, a subsidiary incorporated in Macao, at an investment
cost of $13. Its principal activity is provision of consultancy, administrative
and data processing to group companies.
(v)
In November 2004, JIC Technology established J.I.C. (Macao
Commercial Offshore) Company Limited, a wholly owned subsidiary incorporated in
Macao, at an investment cost of $13. Its principal activity was trading of
electronic components, and the provision of consultancy, administrative and data
processing. In 2005, it ceased to carry out the trading of electronic
components and focused on the administrative and data processing services only.
F-17
Table of Contents
3.
Investment in Subsidiaries — continued
(d)
Retained earnings
The Company's retained earnings are not restricted as to the payment of dividends
except to the extent dictated by prudent business practices. The Company believes
that there are no material restrictions, including foreign exchange controls, on the
ability of its non-PRC subsidiaries to transfer surplus funds to the Company in the
form of cash dividends, loans, advances or purchases. With respect to the Company's
PRC subsidiaries, there are restrictions on the payment of dividends and the removal
of dividends from the PRC. In the event that dividends are paid by the Company's PRC
subsidiaries, such dividends will reduce the amount of reinvested profits and
accordingly, the refund of taxes paid will be reduced to the extent of tax applicable
to profits not reinvested. In addition, pursuant to the relevant PRC regulations, a
certain portion of the profits made by these subsidiaries must be set aside for
future capital investment and are not distributable, and amounted to $6,164 and
$7,489 as of December 31, 2004 and 2005 respectively. However, the Company believes
that such restrictions will not have a material effect on the Company's liquidity or
cash flows.
4.
Inventories
Inventories consist of the following:
At December 31,
2004
2005
Raw materials
$
19,815
$
24,023
Work-in-progress
1,578
4,003
Finished goods
1,703
3,718
$
23,096
$
31,744
5. Property, Plant and Equipment, net
Property, plant and equipment, net consist of the following:
At December 31,
2004
2005
At cost:
Leasehold land and buildings
$
41,961
$
46,393
Machinery and equipment
80,479
94,952
Leasehold improvements
15,226
22,215
Furniture and fixtures
2,026
1,907
Automobiles
1,427
1,766
Tools and molds
196
279
Total
141,315
167,512
Less: accumulated depreciation and amortization
(59,912
)
(72,619
)
Construction in progress
13,294
3,033
Net book value
$
94,697
$
97,926
As at December 31, 2005, the Company has entered into commitments for capital expenditure
for property, plant and equipment of approximately $10,758, which are expected to be
disbursed during the year ending December 31, 2006.
In 2005, the Company reclassified certain of the leasehold land and building located in Hong
Kong as asset held for sale (note 8).
F-18
Table of Contents
6.
Goodwill
Goodwill consists of the following:
CECP
LCDP
reporting
reporting
unit
unit
Total
Balance at January 1, 2004
$
788
$
19,349
$
20,137
Goodwill release related to disposition of 16.76%
interest in JIC Technology
—
(3,518
)
(3,518
)
Goodwill release related to disposition of 72.22%
interest in Mate Fair
(788
)
—
(788
)
Balance at December 31, 2004
$
—
$
15,831
$
15,831
Exchange difference
—
5
5
Goodwill upon acquisition of additional 0.81% interest
in NTEEP
1,277
—
1,277
Goodwill release related to disposition of 2.56% interest
in NTEEP
(45
)
—
(45
)
Balance at December 31, 2005
$
1,232
$
15,836
$
17,068
No impairment loss was identified in 2004 and 2005.
7.
Intangible Assets, net
Intangible assets, net consist of the following:
At December 31,
2004
2005
Licenses
$
643
$
643
Accumulated amortization
(184
)
(245
)
Impairment loss recognized (Note 9)
—
(398
)
Net carrying amount
$
459
$
—
Amortization expense charged to income from operations for the year ended December 31, 2003,
2004 and 2005 was $92, $92 and $61, respectively.
8.
Asset held for sale
In 2005, the management of the Company has committed to a plan to sell certain of its
leasehold land and buildings located in Hong Kong. Accordingly, the leasehold land and
building has been reclassified as "asset held for sale" and ceased to record depreciation
expense since then. On March 9, 2006, the Company entered into an agreement to sell this
leasehold land and building for a gross consideration of approximately $20,645.
F-19
Table of Contents
9.
Investment in Affiliated Companies, Equity Method
Alpha Star
In January 2003, the Company further expanded its business to include wireless communication
technology and related products. The Company made a strategic investment of $10,000 by
subscribing for a 25% shareholding in Alpha Star, a BVI company, which is the ultimate
holding company of Jiang Cheug Tang Wireless Technology Limited ("JCT"), a company engaged
in the design, development and marketing of wireless communication terminals and wireless
application software. The Company also manufactures wireless communication terminals and
related modules for JCT. As part of the agreement, Alpha Star agreed to purchase from the
Company at least 50 percent of the orders it, or any of its subsidiaries, receives for RF
modules provided the Company performs such manufacturing services at a price comparable to
the market. The fair value of this arrangement was estimated to be $643 and is included in
the consolidated balance sheet as an intangible asset (note 7). The Company had one
representative on Alpha Star's board of directors until his resignation in July 2004.
The Company initially recorded goodwill of approximately $5,596 as a result of the
acquisition of Alpha Star. The Company recorded an equity in earning of Alpha Star of $498
for 2003 but recognized an equity in loss of $1,210 and $186 for 2004 and 2005,
respectively. In the third quarter of 2004, based on the advise from an independent
external valuer, the Company recorded an other-than-temporary impairment charge of
approximately $5,596 to write down its investment in Alpha Star upon its unsatisfactory
operating results and the continued weakness in market operated by Alpha Star.
In August 2005, the Company disposed of its entire interest in Alpha Star to the majority
shareholders of Alpha Star for a cash consideration of $6,500. As a result, a gain of
$3,631 was recorded. Due to the cessation of relationship with Alpha Star, the Company
evaluated the viability of the related purchase arrangement as aforesaid and fully wrote off
its then carrying value of $398 (included in selling, general and administrative expenses)
as the intangible asset was no longer expected to recover its carrying value through future
cash flows.
As of December 31, 2004, JCT owed the Company $66. For the years ended December 31, 2004
and 2005, the Company recognized net sales of $34,181 and $6,195 to JCT and purchased raw
materials of $12,398 and $5,766 from JCT and its related companies, respectively.
The Company did not make any loans or guarantees or had any contingent liabilities with
Alpha Star or any of its subsidiaries.
10.
Investments
Investments in TCL
The Company had various investments in TCL Group of companies in the form of convertible
notes, and available for sale marketable securities. During the year ended December 31,
2003, the Company disposed of the convertible notes. During the year ended December 31,
2004, the investments at cost became marketable securities upon the listing of these
investments on public stock exchanges. The Company has not incurred any material operating
revenue or expenses from the TCL Group of companies, for the years ended December 31, 2003,
2004 and 2005.
(a)
Convertible Notes
On November 11, 2002, in connection with its disposal of 1.467% indirect interest in
Huizhou TCL (see note 3(b)(iv)) for approximately $10,424, the Company purchased
$5,128 in 3% convertible notes ("CB Note") due in November 2005 of TCL International
Holdings Limited, a company publicly listed on the SEHK. In August 2003, the CB Note
was disposed of by the Company for a consideration of $5,026, resulting in a loss of
$102.
F-20
Table of Contents
10.
Investments — continued
(b)
Investments, at cost/available for sale investment securities
(i)
TCL Corporation
In January 2003, the Company acquired a 6% equity interest in TCL Holdings
Corporation Ltd., now known as TCL Corporation, for a consideration of
$11,968. TCL Corporation, an enterprise established in the PRC, is the parent
company of the TCL Group of companies. TCL Corporation's scope of business
includes the import and export of raw materials, the design, manufacturing and
sales and marketing of telephones, VCD players, color television
sets, mobile phones and other consumer electronic products. TCL Corporation
changed from a limited liability company to a company limited by shares in
April 2002 (the "Establishment Date").
In January 2004, TCL Corporation listed its A-shares on the Shenzhen Stock
Exchange at RMB4.26 (equivalent to US$0.52) per A-share. The Company's
interest in TCL Corporation has then been diluted to 3.69% and represents
95.52 million promoter's shares of TCL Corporation after its initial public
offering. According to Article 147 of the Company Law of the PRC, the Company
is restricted to transfer its promoter's shares within three years from the
Establishment Date. The Company is, however, entitled to dividend and other
rights similar to the holders of A-shares.
As these promoter's shares have a restriction on their sale prior to April
2005, the Company hired a third party valuation firm to determine the fair
value of these shares as of December 31, 2004 and 2005 and recognized an
unrealized gain of $6,549 and $1,362, respectively, based on the Company's
cost of $11,968 and an estimated fair value of $20,700 and $13,330.
On 28 November 2005, TCL Corporation announced the proposal of a split share
structure reform ("SSR"). Under the proposed SSR, holders of TCL Corporation
tradable A-shares will receive 2.5 shares for every 10 shares from the holders
of promoter's shares of TCL Corporation, on a pro rata basis. Upon completion
of the SSR, the Company's interest in TCL Corporation will be reduced from
95,516,112 shares to 80,600,173 shares, representing a change from 3.69% to
3.12%.
The proposed SSR was approved by the holders of TCL Corporation's A-shares
during the shareholders' meeting held on 30 December 2005, and shall become
effective upon approval by the China Securities Regulatory Commission. As at
31 December 2005, such approval has not been obtained.
(ii)
Huizhou TCL
The Company had a 3.033% direct interest in Huizhou TCL. As described in note
3(b)(iv), the Company increased its equity interest in Huizhou TCL to 9%. In
August 2004, as part of the preparation for TCL Communication's public
offering on SEHK, the shares in Huizhou TCL were exchanged for the shares in
TCL Communication. In September 2004, TCL Communication's public offering was
completed. At December 31, 2004, the Company's investment in TCL
Communication is stated at fair value based on the traded market price of TCL
Communication's shares and recognized an impairment loss of $58,316 based on
the Company's cost of $79,522 and a fair value of $21,206. At June 30, 2005,
the Company further recognized an impairment loss of $6,525 based on the fair
value of $14,681. In the fourth quarter of 2005, the Company disposed of its
entire stake in TCL Communication and recorded a loss of $3,686.
Investment in Stepmind
In December 2003, the Company paid approximately $5,277 (Euros 4,250) into an escrow account
for an investment in Stepmind, which was included in prepaid expenses and other receivables
at December 31, 2003. Approximately $2,646 (Euros 2,122) was released from the escrow
account in January 2004 for the Company's first phase of investment and was included in
investments. In August 2004, the remaining balance in the escrow account was released. In
the same month, the Company disposed of its entire interest in Stepmind to one of the
shareholders of Stepmind at the original subscription price. As a result, a loss of $67,
representing the legal and administrative costs incurred, was noted.
F-21
Table of Contents
11.
Bank Loans and Banking Facilities
The Company has credit facilities with various banks representing notes payable, trade
acceptances, import facilities, revolving loans and overdrafts. At December 31, 2004 and
2005, these facilities totaled $87,923 and $117,345, of which $84,495 and $110,246 were
unused at December 31, 2004 and 2005, respectively. The maturity of these facilities is
generally up to 120 days. Interest rates are generally based on the banks' usual lending
rates in Hong Kong or the PRC and the credit lines are normally subject to annual review.
The banking facilities are secured by guarantees given by Nam Tai and certain subsidiaries.
The notes payable, which include trust receipts and shipping guarantees, may not agree to
utilized banking facilities due to a timing difference between the Company receiving the
goods and the bank issuing the trust receipt to cover financing of the purchase. The
Company recognizes the outstanding letter of credit as a note payable when the goods are
received, even though the bank may not have issued the trust receipt. However, this will
not affect the total bank facility utilization, as an addition to the trust receipts will be
offset by a reduction in the same amount of outstanding letters of credit.
At December 31,
2004
2005
Outstanding letters of credit
$
1,348
$
11
Trust receipts
1,257
4,813
Usance bills pending maturity
823
—
Short term bank loans
—
2,275
Total banking facilities utilized
3,428
7,099
Less: Outstanding letters of credit
(1,348
)
(11
)
Notes payable and short term bank loans
$
2,080
$
7,088
A subsidiary of the Company has an unsecured four-year term loan with borrowings in May 2002
totaling $4,500 at a rate of 1.5% p.a. over three months London Interbank Offered Rate
("LIBOR"), repayable in 16 quarterly instalments of approximately $281 beginning August 31,
2002. The interest rate was reduced to 0.75% p.a. over three months LIBOR in 2004. During
the year 2004, it has obtained another unsecured four-year term loan totaling $7,000 at a
rate of 0.75% p.a. over three months LIBOR, repayable in 16 quarterly instalments of $438
beginning in July 2004. At December 31, 2005, the loans had outstanding balances of $5,162.
There are no restrictive financial covenants associated with these term loans.
The long term bank loans at December 31, 2005 are repayable as follows for the years ending
December 31
- 2006
$
2,312
- 2007
1,750
- 2008
1,100
$
5,162
12.
Shareholders' Equity
(a)
The Company has only one class of common shares authorized, issued and
outstanding.
(b)
Stock options
In May 2001, the Board of Directors approved a stock option plan which would
grant 15,000 options to each non-employee director of the Company elected at each
annual general meeting of shareholders, and might grant options to key employees,
consultants or advisors of the Company or any of its subsidiaries to subscribe for
its shares in accordance with the terms of this stock option plan based on past
performance and/or expected contributions to the Company. The maximum
number of shares to be issued pursuant to the exercise of options granted was 3,300,000 shares.
The options granted under this plan vest immediately and generally have a term of
two to three years, subject to the discretion of the board of directors, but cannot
exceed ten years.
F-22
Table of Contents
12.
Shareholders' Equity — continued
(b)
Stock options — continued
A summary of stock option activity during the three years ended December 31, 2005 is
as follows:
Number of
Weighted average
options
option price per share
Outstanding at January 1, 2003
1,449,000
$
5.84
Granted
75,000
$
18.50
Exercised prior to 10 for 1 stock
dividend
(1,422,500
)
$
5.97
Effect of 10 for 1 stock dividend on
stock option
10,150
—
Exercised after 10 for 1 stock dividend
(3,100
)
$
6.02
Outstanding at December 31, 2003
108,550
$
12.35
Granted
645,000
$
6.94
Exercised
(16,500
)
$
4.39
Outstanding at December 31, 2004
737,050
$
6.83
Granted
1,105,000
$
6.79
Exercised
(841,050
)
$
6.74
Outstanding at December 31, 2005
1,001,000
$
6.86
Details of the options granted by the Company in 2003, 2004 and 2005 are as follows:
Number of
Exercise
options granted
price
Exercisable period
In 2003
75,000
$
16.82
*
July 8, 2003 to July 8, 2006
In 2004
645,000
$
19.40
July 30, 2004 to July 30, 2006
In 2005
1,000,000
$
20.84
February 4, 2005 to February 4, 2007
105,000
$
21.62
June 6, 2005 to June 6, 2008
The following summarizes information about stock options
outstanding at December 31, 2005. All stock options are
exercisable as of December 31, 2005.
Weighted average
Number
remaining contractual
Exercise prices
of options
life in months
$16.82*
33,000
6.3
$19.40
228,000
7.0
$20.84
650,000
13.1
$21.62
90,000
29.2
1,001,000
12.9
*
Subsequent to November 7, 2003, the exercise price has been
adjusted to reflect the 10 for 1 stock dividend effect.
F-23
Table of Contents
12.
Shareholders' Equity — continued
(b)
Stock options — continued
The weighted average remaining contractual life of the stock options outstanding at
December 31, 2003, 2004 and 2005 was 23, 18 and 13 months, respectively. The
weighted average fair value of options granted during 2003, 2004 and 2005 was $7.76,
$6.94 and 6.79, respectively, using the Black-Scholes option-pricing model based on
the following assumptions:
Year ended December 31,
2003
2004
2005
Risk-free interest rate
2.56
%
2.75
%
3.56% to 3.59%
Expected life
3 years
2 years
2 to 3 years
Expected volatility
64.24
%
68.62
%
62.62% to 71.14%
Expected dividend per quarter
$
0.05
$
0.12
$0.33
(c)
Share buy — back
No shares were repurchased during the years ended December 31, 2003, 2004 and 2005.
(d)
Share redemptions
On January 22, 1999, pursuant to its Articles of Association, the Company redeemed
and canceled 415,500 shares of the Company registered in the name of Tele-Art at a
price of $3.73 per share for $1,549 (see note 18(b)).
On August 12, 2002, pursuant to its Articles of Association, the Company redeemed and
cancelled an additional 509,181 shares of the Company beneficially owned by Tele-Art
at a price of $6.14 per share for $3,125 (see note 18(b)).
No shares have been redeemed since August 12, 2002.
F-24
Table of Contents
13.
Earnings Per Share
The calculations of basic earnings per share and diluted earnings per share are computed as
follows:
Weighted
average number
Per share
Year ended December 31, 2003
Income
of shares *
amount
Continuing operations
Basic earnings per share
$
41,823
40,336,439
$
1.04
Effect of dilutive securities
- Stock options
—
502,701
Diluted earnings per share
$
41,823
40,839,140
$
1.02
Discontinued operation
Basic earnings per share
$
1,979
40,336,439
$
0.05
Effect of dilutive securities
- Stock options
—
502,701
Diluted earnings per share
$
1,979
40,839,140
$
0.05
Net income
Basic earnings per share
$
43,802
40,336,439
$
1.09
Effect of dilutive securities
- Stock options
—
502,701
Diluted earnings per share
$
43,802
40,839,140
$
1.07
All options and warrants to purchase shares of common stock were included in the computation
of 2003 diluted earnings per share as the exercise prices were less than the average market
price of the common stock.
*
Adjusted for 3 for 1 stock split and 10 for 1 stock dividend.
Weighted
average number
Per share
Year ended December 31, 2004
Income
of shares
amount
Basic earnings per share
$
66,885
42,496,122
$
1.57
Effect of dilutive securities
- Stock options
—
52,123
—
Diluted earnings per share
$
66,885
42,548,245
$
1.57
All options and warrants to purchase shares of common stock were included in the computation
of 2004 diluted earnings per share as the exercise prices were less than the average market
price of the common stock.
F-25
Table of Contents
13. Earnings Per Share — continued
Weighted
average number
Per share
Year ended December 31, 2005
Income
of shares
amount
Basic earnings per share
$
51,306
42,944,682
$
1.19
Effect of dilutive securities
- Stock options
—
223,859
—
Diluted earnings per share
$
51,306
43,168,541
$
1.19
All options to purchase shares of common stock were included in the computation of 2005
diluted earnings per share as the exercise prices were less than the average market price of
the common stock.
14. Staff Retirement Plans
The Company operates a retirement benefit scheme ("RBS") for all qualifying employees in
Macao and a Mandatory Provident Fund ("MPF") scheme for all qualifying employees in Hong
Kong. The RBS and MPF are defined contribution schemes and the assets of the schemes are
managed by the trustees independent to the Company.
Both the RBS and MPF are available to all employees aged 18 to 64 and with at least 60 days
of service under the employment of the Company in Macao and Hong Kong. Contributions are
made by the Company at 5% based on the staff's relevant income. The maximum relevant income
for contribution purpose per employee is $3 per month. Staff members are entitled to 100%
of the Company's contributions together with accrued returns irrespective of their length of
service with the Company, but the benefit can be withdrawn by the employees in Macao at the
end of employment contracts while the benefits are required by law to be preserved until the
retirement age of 65 for employees in Hong Kong.
According to the relevant laws and regulations in the PRC, the Company is required to
contribute 8% to 9% of the stipulated salary set by the local government of Shenzhen, the
PRC, to the retirement benefit schemes to fund the retirement benefits of their employees.
The principal obligation of the Company with respect to these retirement benefit schemes is
to make the required contributions under the scheme. No forfeited contributions may be used
by the employer to reduce the existing level of contributions.
The cost of the Company's contribution to the staff retirement plans in Macao, Hong Kong and
PRC amounted to $982, $1,190 and $1,510 for the years ended December 31, 2003, 2004 and
2005, respectively.
15. Income Taxes
The components of income before income taxes and minority interest are as follows:
Year ended December 31,
2003
2004
2005
PRC, excluding Hong Kong and Macao
$
39,778
$
37,546
$
36,138
Hong Kong, Macao and other jurisdictions
3,013
43,034
23,997
$
42,791
$
80,580
$
60,135
Under the current BVI law, the Company's income is not subject to taxation. Subsidiaries
operating in Hong Kong and the PRC are subject to income taxes as described below, and the
subsidiaries operating in Macao are exempted from income taxes. Under the current Cayman
Islands law, ZPTL, NTEEP, JIC Technology and Namtek Software are not subject to profit tax
in the Cayman Islands as they have no business operations in the Cayman Islands. However,
they may be subject to Hong Kong income taxes as described below if they are registered in
Hong Kong.
F-26
Table of Contents
15. Income Taxes — continued
The provision for current income taxes of the subsidiaries operating in Hong Kong has been
calculated by applying the current rate of taxation of 17.5% to the estimated taxable income
earned in or derived from Hong Kong during the period, if applicable.
Deferred tax, where applicable, is provided under the liability method at the rate of 17.5%,
being the effective Hong Kong statutory income tax rate applicable to the ensuing financial
year, on the difference between the financial statement and income tax bases of measuring
assets and liabilities.
The basic corporate tax rate for Foreign Investment Enterprises ("FIEs") in the PRC, such as
Namtai Electronic (Shenzhen) Co., Ltd. ("NTSZ"), Zastron Electronic (Shenzhen) Co., Ltd.
("Zastron"), Shenzhen Namtek Co., Ltd ("Shenzhen Namtek") and Jetup (collectively the "PRC
subsidiaries") is currently 33% (30% state tax and 3% local tax). However, because all the
PRC subsidiaries are located in Shenzhen and are involved in production operations, they
qualify for a special reduced state tax rate of 15%. In addition, the local tax authorities
in Shenzhen are not currently assessing any local tax.
Since the PRC subsidiaries have agreed to operate for a minimum of 10 years in the PRC, a
two-year tax holiday from the first profit making year is available, following which in the
third through fifth years there is a 50% reduction to 7.5%. In any event, for FIEs such as
NTSZ, Zastron and Shenzhen Namtek which export 70% or more of the production value of their
products, a reduction in the tax rate is available; in all cases apart from the years in
which a tax holiday and tax incentive is available, there is an overall minimum tax rate of
10%. The following details the tax concessions received for the Company's PRC subsidiaries:
•
On January 8, 1999, NTSZ received the recognition of "High and New Technology
Enterprise" which entitles it to various tax benefits including a lower income tax rate
of 7.5% until 2003. In July 2002, the Shenzhen local tax authority issued a notice to
shorten the tax incentive period from 5 years to 3 years expiring in 2001.
Nevertheless NTSZ was advised by the Shenzhen local tax authority that it would
continue to provide a rebate of corporate tax paid for 2 years for 2002 and 2003.
During 2003, NTSZ received $110 rebate of corporate tax paid for 2002, a tax refund of
$122 from reinvestment of profits for 1999 to 2001 and a refund of $441 for being an
export-oriented enterprise in 2002. In 2004, NTSZ received a tax refund of $821 from
reinvestment of profits for 2003 and a refund of $399 for being an export-oriented
enterprise in 2003. In 2005, NTSZ received a tax refund of $1,815 from reinvestment of
profit for 2003. Besides, NTSZ further paid $738 and subsequently received a tax
refund of $1,726 from reinvestment of profit for year 2004 and a refund of $971 for
being an export-oriented enterprise.
•
In 2003, Zastron received a refund of $56 from reinvestment of profits for 1999 and
a refund of $124 for being an export-oriented enterprise. On May 13, 2005, Zastron
received the recognition of "High and New Technology Enterprise" and was entitled to
enjoy a reduced corporate tax rate of 7.5% for three years commencing 2005. In 2004,
Zastron also received a refund of $243 from reinvestment of profits for 1999 to 2003
and a refund of $793 for being an export-oriented enterprise in 2003. In 2005, Zastron
received a refund of $1,398 from reinvestment of profit for year 2000 to 2003.
Besides, Zastron further paid $170 and subsequently received a tax refund of $874 from
reinvestment of profit for year 2004.
•
In February 2001, Shenzhen Namtek received the recognition of "Advanced Technology
Enterprise" which entitles it to various tax benefits including a lower income tax rate
of 7.5% until 2003. In 2003, Shenzhen Namtek received a refund of $27 from the
reinvestment of profits for 1998 to 2000. In 2004, Shenzhen Namtek is entitled to a 5%
tax refund for being an export-oriented enterprise in 2004.
•
The Shenzhen local tax authority has granted Jetup the status of "High and New
Technology Enterprise" and allowed it to enjoy a lower income tax rate of 7.5% for 3
years from 2002 to 2004. During 2003, Jetup received a refund of $175 from
reinvestment of profit for 2002. During 2005, Jetup received a refund of $233 and $346
from reinvestment of profit for 2003 and 2004, respectively.
F-27
Table of Contents
15. Income Taxes — continued
A FIE whose foreign investor directly reinvests by way of capital injection its share of
profits obtained from that FIE or another FIE owned by the same foreign investor in
establishing or expanding an export-oriented or technologically advanced enterprise in the
PRC for a minimum period of five years may obtain a refund of the taxes already paid on
those profits. The PRC subsidiaries qualified for such refunds of taxes as a result of
reinvesting their profit earned in previous years by their respective holding companies. As
a result, the Company recorded tax expense net of the benefit related to the refunds. At
December 31, 2004 and 2005, taxes recoverable under such arrangements were $6,520 and
$2,624, respectively, which are included in income taxes recoverable and expected to be
received during 2005 and 2006, respectively. However, during 2003 the Shenzhen government
did not refund approximately $13 in taxes the Company paid in 1998 to 2000. Therefore, the
Company reversed the related receivable into current tax expense in 2003.
In accordance with its normal practice, the Hong Kong tax authorities selected the Company
and one of its wholly owned subsidiaries for a tax audit. In March 2003, in relation to
fiscal year 1996, the Hong Kong tax authorities have made certain estimated assessments for
public revenue protection purposes to prevent the assessments, if any, from becoming time
barred. The Hong Kong tax authorities have not provided concrete grounds for the
assessments. The Company and the subsidiary concerned have objected to these estimated
assessments. The outcome of the objection is uncertain at this stage as the Hong Kong tax
authorities are still reviewing the Company's and its subsidiary's Hong Kong tax position.
At the time, it is not possible to estimate the outcome of the tax audit, the amount that
may have to be paid, if any, or the impact that the results of the 1996 tax audit will have
to subsequent tax years. However, management is of the view that there will be no material
tax adjustment as a result of the tax audit. In March 2004, this wholly owned subsidiary
received a tax demand note from the Hong Kong tax authorities for additional tax assessment
of US$567 for the fiscal year 1997 and such tax payable can be held over on condition that a
tax reserve certificate is purchased. The subsidiary requested for an unconditional
hold-over of such assessment without purchasing tax reserve certificate but was denied by
the Hong Kong tax authorities. In June 2004, this subsidiary applied to the High Court of
Hong Kong for a judicial review in relation to the purchase of the tax reserve certificate.
The judgement was delivered on December 7, 2005 dismissing the Company's application. The
Company had filed an appeal on January 10, 2006 and the hearing is scheduled to be held on
July 25 and 26, 2006. Management is of the view that they will obtain favorable judgement
and hence, no material tax adjustment is expected.
The current and deferred components of the income tax expense appearing in the consolidated
statements of income are as follows:
Year ended December 31,
2003
2004
2005
Current tax
$
(433
)
$
(957
)
$(651)
Deferred tax
34
78
$
(399
)
$
(879
)
$
(651)
The Company's deferred tax assets and liabilities as of
December 31, 2004 and 2005 are attributable to the following:
December 31,
2004
2005
Net operating losses
$
5,863
$
8,914
Valuation allowance
(5,863
)
(8,914
)
$
—
$
—
The realization of the recorded deferred tax assets is dependent on generating sufficient
taxable income prior to the expiration of net operating loss carryforwards. As the
management does not believe that it is more likely than not that all of the deferred tax
asset will be realized, a full valuation allowance has been established at December 31, 2004
and 2005.
At
December 31, 2003, the Company did not have any net operating
loss carryforwards. For the years ended December 31, 2004 and
2005, the Company had net operating losses of $5,863 and $3,051,
respectively, which may be carried forward indefinitely.
F-28
Table of Contents
15. Income Taxes — continued
A reconciliation of the income tax expense to the amount computed by applying the current
tax rate to the income before income taxes in the consolidated statements of income is as
follows:
Year ended December 31,
2003
2004
2005
Income before income taxes and minority interests
$
42,791
$
80,580
$
60,135
PRC tax rate
15
%
15
%
15
%
Income tax expense at PRC tax rate on income before
income tax
$
(6,419
)
$
(12,087
)
$
(9,020
)
Effect of difference between Hong Kong and PRC tax
rates applied to Hong Kong income
72
205
196
Effect of (loss) income for which no income tax benefit/
expense is receivable/payable
796
7,660
4,813
Tax holidays and tax incentives
2,122
2,220
2,103
Effect of PRC tax concessions, giving rise to no PRC tax
liability
3,435
2,774
2,667
Tax losses not recognised-
—
(1,026
)
(534
)
Tax benefit (expense) arising from items which are not
assessable (deductible) for tax purposes:
Gain on disposal of land in Hong Kong
1
—
82
Exempted interest income
16
24
17
Non-deductible legal and professional fees
(301
)
(282
)
(317
)
Non-deductible and non-taxable other items
(105
)
17
(744
)
Overprovision for income tax expense in prior year
103
—
—
Underprovision of income tax expense in prior years
—
(268
)
(41
)
Other
(119
)
(116
)
127
$
(399
)
$
(879
)
$
(651
)
No income tax arose in the United States of America in any of the periods presented.
Tax that would otherwise have been payable without tax holidays and tax concessions amounts
to approximately $5,557, $4,994 and $4,770 in the years ended December 31, 2003, 2004 and
2005, respectively (representing a decrease in the basic earnings and diluted earnings per
share of $0.14, $0.12 and $0.11 in the years ended December 31, 2003, 2004 and 2005,
respectively).
16. Related Party Balance and Transactions
As of December 31, 2004, the balance due from a related party represented the balance due
from JCT, a subsidiary of Alpha Star. For the years ended December 31, 2004 and 2005, the
Company recognized net sales of $34,181 and $6,195 and purchased raw materials of $12,398
and $5,766 from JCT and its related companies, respectively.
During the year ended December 31, 2004, the Company disposed of certain other assets to a
director of the Company at a consideration of $231, which represented the then carrying
value of the assets. No significant gain or loss arose from such transaction.
F-29
Table of Contents
17. Financial Instruments
The Company's financial instruments that are exposed to concentrations of credit risk
consist primarily of its cash and cash equivalents and trade receivables.
The Company's cash and cash equivalents are high-quality deposits placed with banking
institutions with high credit ratings. This investment policy limits the Company's exposure
to concentrations of credit risk.
The trade receivable balances largely represent amounts due from the Company's principal
customers who are generally international organizations with high credit ratings. Letters of
credit are the principal security obtained to support lines of credit or negotiated contracts
from a customer. As a consequence, concentrations of credit risk are limited. Allowance for
doubtful debts was $157 and $494 in 2004 and 2005, respectively. There were no other
movements in the allowance for doubtful accounts.
The Company's financial instruments reported in current assets or current liabilities in the
consolidated balance sheet at carrying amounts approximate their fair values due to the
short term nature of these instruments. The Company's financial instruments reported as
non-current liabilities, such as its long term bank loans, approximate their fair values due
to the variable nature of the interest calculations.
18. Commitments and Contingencies
(a)
Lease commitments
The Company leases premises under various operating leases, certain of which contain
contingent escalation clauses whereby the percentage increase is subject to periodic
review and agreement between the Company and the lessor. Rental expense under
operating leases was $617, $975 and $1,546 in the years ended December 2003, 2004
and 2005, respectively.
At December 31, 2005, the Company was obligated under operating leases, which relate
to land and buildings, requiring minimum rentals as follows:
Year ending December 31,
- 2006
$
1,703
- 2007
1,662
- 2008
1,476
- 2009
1,242
- 2010
1,314
- 2011 and thereafter
1,935
$
9,332
(b)
Significant legal proceedings
Tele-Art
In June 1997, the Company filed a petition in BVI for the winding up of Tele-Art Inc.
("Tele-Art") on account of an unpaid judgment debt owing to the Company. The High
Court of Justice granted an order to wind up Tele-Art in July 1998. Tele-Art
appealed to the Court of Appeal against the winding up order. This appeal was heard
on January 13, 1999 by the Court of Appeal and was dismissed on January 25, 1999. On
January 22, 1999, pursuant to its Articles of Association, the Company redeemed and
cancelled 415,500 shares * of the Company registered in the name of Tele-Art at a
price of $3.73 per share to offset substantially all of the judgment debt of $799,
plus interest and legal costs totaling $1,673. The Company had also previously
withheld dividends on shares beneficially owned by Tele-Art which were applied
towards the partial satisfaction of the said judgment debts costs and interest.
F-30
Table of Contents
18. Commitments and Contingencies
- continued
(b)
Significant legal proceedings
- continued
Tele-Art
- continued
In September 1999, the High Court heard the application by the Company dated March
22, 1994 for an inquiry into damage suffered by the Company (the "First Inquiry") as
a result of the ex-part injunction granted to Tele-Art against the Company on
September 29, 1993 which prohibited the Company from proceeding with a rights
offering in September 1993.
Following the completion of the first redemption on January 22, 1999, the Company
received notice that David Hague, the then liquidator of Tele-Art, had obtained an
ex-parte injunction from the High Court preventing the Company from redeeming the
Company 415,500 shares *.
On July 5, 2002, upon the Company's application, the High Court ordered the removal
of the David Hague's ex-parte injunction and ordered an inquiry into damages suffered
by the Company as a result of the injunction (the "Second Inquiry").
On August 9, 2002, the High Court delivered its decision on the First Inquiry and
awarded the Company damages of approximately $34,000. On August 12, 2002, the Company
redeemed and cancelled, pursuant to its Articles of Association, the remaining
509,181 shares ** beneficially owned by Tele-Art at a price of $6.14 per share.
Including the dividends which we had withheld and credited against the judgment, this
offset a further $3,519 in judgment debts owed to the Company by Tele-Art. The
Company recorded the $3,333 redemption, net of expenses, as other income in 2002.
In accordance with the directions given by the High Court in respect of the Second
Inquiry on March 28, 2003, the Company filed its points of claim on April 3, 2003 and
subsequently filed amended points of claim on April 16, 2003. In breach of the
court's directions, David Hague failed to file his points of defense on June 20, 2003
as ordered but instead he filed an application in the High Court, inter alia, to
strike out the Company's points of claim and for summary judgment on the inquiry into
damages on June 20, 2003. The Company thereupon applied to the High Court on August
19, 2003 for judgment against David Hague in default of defense on the basis that
David Hague had not complied with the directions of the court for the filing of his
points of defense to the Company's points of claim.
Both applications were heard by the High Court on May 12, 2004. At the hearing, the
court allowed David Hague to file his points of defense on May 12, 2004. The Company
filed an application for leave to appeal against this ruling on May 24, 2004. The
High Court dismissed David Hague's strike out application on December 14, 2004 and
David Hague applied for leave to appeal against the order dismissing his application
on December 28, 2004. The Company's appeal and David Hague's appeal were heard by
the Court of Appeal on September 19 to 21, 2005 and the court delivered its judgment
on January 16, 2006. In this judgment, the Court of Appeal reversed the High Court'
s ruling on David Hague's application and struck out the Company's points of claim on
the inquiry into damages on the ground that the Company had no realistic process of
succeeding on same. The court also ordered costs against the Company to be assessed
on a prescribed costs basis. The court further expressed the view that, in light of
its dismissal of the Company's points of claim, it was not necessary to rule on the
Company's appeal against the dismissal of its application for judgment in default
since the point was now academic with the dismissal of the Company's points of claim.
The Company filed an application for leave to appeal the decision of the Court of
Appeal to the Privy Council, the BVI final court of appeal on February 3, 2006. This
application is expected to come on for hearing when the Court of Appeal next sits in
the British Virgin Islands in May 2006.
F-31
Table of Contents
18. Commitments and Contingencies
- continued
(b)
Significant legal proceedings
- continued
Tele-Art
- continued
Previously, on February 4, 1999, David Hague, the then liquidator of Tele-Art filed a
summons (the "Priority Summons") in the BVI on its behalf seeking, among other
matters:
•
A declaration as to the respective priorities of the debts of Tele-Art to the
Bank of China, the Company, and other creditors and their respective rights to
have their debts discharged out of the proceeds of the
Tele-Art's Nam Tai shares;
•
An order setting aside the redemption of 415,500 shares *, and ordering
delivery of all shares in possession or control of the Company to the
liquidator; and
•
Payment of all dividends in respect of Tele-Art's Nam Tai shares.
The Priority Summons was heard by the High Court on July 29 and 30, 2002 and the High
Court delivered its judgment on January 21, 2003 declaring that the redemption and
set-off of dividends on the 415,500 shares * be set aside and that all Tele-Art's
property withheld by the Company be delivered to Tele-Art in liquidation. On
February 4, 2003, the Company filed an application for a stay of execution and leave
to appeal the decision. The appeal was heard on January 12, 2004 and judgment was
delivered on April 26, 2004. The Court of Appeal held that the redemption by the
Company of 415,500 * of the Company's shares was proper and efficacious. However,
the Company must return the redemption proceeds and dividends payable prior to the
redemption to the liquidator. David Hague obtained leave to appeal to the Privy
Council on September 21, 2004 to appeal the finding by the Court of Appeal that the
redemption by the Company was efficacious. It is not expected that this appeal will
be heard in 2006.
The Bank of China, which had involved in the proceedings in the High Court and Court
of Appeal with respect to the Priority Summons, applied on December 12, 2005 for
special leave to intervene and to be joined as a respondent to the Privy Council
appeal of David Hague, firstly so as to be in a position to support David Hague's
appeal and secondly, to appeal against that part of the Court of Appeal Order that
declared that the redemption price for the sale of the Company's shares owned by Tele
Art and all withheld dividends to be paid to the liquidator of Tele Art and not the
Bank of China despite finding that the Bank of China was a secured creditor. The
Bank of China's application for special leave was heard by the Privy Council on
February 6, 2006 which granted the Bank of China special leave to intervene on the
ground that the matter raised important points of law.
In their judgments on the Priority Summons, both the High Court and the Court of
Appeal held that Bank of China was a secured creditor pursuant to its share charge
dated November 10, 1993 over the shares of the Company held beneficially by Tele-Art.
Neither court determined the amount owned by Tele-Art to Bank of China,
Bank of China has submitted that it is a secured creditor. In this respect, its
position is that as of December 6, 2004, the secured debt, which was from advances
made to Tele-Art's subsidiary, Tele-Art Limited, was $2,819 with interest accruing
daily. The liquidator, however, took the view in his third liquidator report, which
was submitted to the Court on October 13, 2004, that the Bank of China's proof of
debt was incomplete. The liquidator has requested the Court's approval to take
further action and demand that Bank of China provide further information for his
consideration. According to the third report, the amount of debt owed by Tele-Art
Limited to Bank of China may not exceed $1,400. It should be further noted that
apart from the Company, the liquidator admitted the proof of debts of two other
unsecured creditors which together amounted to approximately $33. David Hague, the
former liquidator, has submitted a claim for $382 in respect of costs for work as
liquidator of Tele-Art. These costs, however, are subject to the approval of the
court and as such are still pending, as they have not yet been approved. The
liquidator filed a summons for the approval of his third report on October 13, 2004
and this was heard on December 14, 2004. The Court, inter alia, ordered that the
liquidator continue the administration of the liquidation of Tele-Art substantially
in accordance with his proposals contained in said report as well as the second
report..
F-32
Table of Contents
18. Commitments and Contingencies
- continued
(b)
Significant legal proceedings
- continued
Tele-Art
- continued
On August 25, 2005, the liquidator filed his summons in the High Court for the
approval of his fourth liquidator report. The report sought the court's approval of
his recommendation to the amount of debt owed by Tele-Art to the Company of
approximately $3,890, two other unsecured creditors of approximately $221 and the fee
to David Hague of approximately $382. The report also sought the court's approval of
the Company's proposal on the distribution of the redemption proceeds among the
unsecured creditors and direction of court on whether Bank of China is eligible to
claim any debts as against Tele-Art and , if eligible, the quantum of such debt.
This liquidator's summons was due to be heard on February 20, 2006 but had been
adjourned to a date to be fixed by the Registrar of the High Court because the
liquidator failed to serve a copy of the summons on the Bank of China.
On April 11, 2005, Bank of China also filed a summons to the BVI court to seek orders
to force the Company to pay redemption price and dividends ordered by the Court of
Appeal on the appeal of the Priority Summons to Bank of China. The Company filed
affidavit evidence in response on July 19, 2005. The hearing date of this summons has
not yet been fixed and the Company will continue to contest the summons vigorously.
The Company dispute that finding, and among other matters, that the proof of debt by Bank of
China submitted to the liquidator was incomplete and invalid.
As of December 31, 2002, due to the uncertainty of the final outcome of the
litigation as a result of the January 21, 2003 judgment and in accordance with SFAS
No. 5, "Accounting for Contingencies", the Company recorded a provision for $5,192 as
a component of accrued expenses as of December 31, 2002, pending a final
determination of this matter by the courts, represented the then best estimate of the
net monetary expense the Company would have if its appeal to the judgment in relation
to the Priority Summons on January 21, 2003 was unsuccessful and its two judgment
debts in the total amount of $38,000 (including interest, costs, and related
expenses) was determined as having the lowest priorities in recovering from the
estate of Tele-Art. According to the information provided by the liquidator on
November 7, 2003, apart from the Company, a total of 3 other creditors of Tele-Art,
including the Bank of China, submitted their proof of debt to the liquidator for a
total claim of approximately $3,390. Together with the outstanding legal charge as
at December 31, 2003, the total potential obligation to the Company was estimated to
be approximately $3,890, and accordingly, the 2002 provision for $5,192 had been
reduced to $3,890 in the fourth quarter of 2003. As a result of the April 26, 2004
judgment, the Company negotiated with the liquidator on the distribution of the
redemption proceeds among the unsecured creditors and suggested a proposal for the
court's approval. If the Company's proposal is approved by the court, and all legal
matters related to Tele-Art are finalized, including the final determination of the
position of the Bank of China, then any remaining portion of the $3,890 provision
will be reversed into income in the related period.
However, the actual amount of the recovery, if any, is uncertain, and is dependent on
a number of factors including the final determination of the Bank of China's
position. The Company plans to continue to pursue vigorously all legal alternatives
available to seek to recover the maximum amount of the outstanding debt from Tele-Art
as well as to pursue other parties that may have assisted in any transfers of the
assets from Tele-Art. In furtherance of this objective, the Company commenced
proceedings in 2002 against David Hague and PricewaterhouseCoopers for, inter alia,
negligence and breach of statutory duty in their conduct of the liquidation. David
Hague had submitted a letter of resignation from the post of liquidator of Tele-Art
on September 3, 2002 to the High Court and his resignation was approved by the High
Court on December 17, 2002. A new liquidator, Mr. Glenn Harrigan, was then appointed
by the BVI court on July 11, 2003. David Hague and PricewaterhouseCoopers applied to
the High Court of the BVI on December 24, 2002 challenge the service of these
proceedings on them to Hong Kong and jurisdiction of the BVI courts to determine the
claim by the Company. The application was heard by the High Court on May 11 and 12,
2004 and dismissed in its judgment on October 29, 2004. David Hague and
PricewaterhouseCoopers obtained leave to appeal this judgment in March 2005 and the
appeal was heard by the Court of Appeal on September 19 to 21, 2005. The Court of
Appeal delivered its judgment dismissing the appeal and awarding costs to the
Company. David Hague and PricewaterhouseCoopers made an application on February 6,
2006 for leave to appeal this judgment to the Privy Council. The Company has
cross-applied for leave on February 3, 2006 to appeal to the Privy Council against
the costs awarded to the Company in the Court of Appeal on the basis that such costs
were determined by the application of incorrect legal principles and were in any
event too low and inconsistent with cost orders made against the Company in other
appeal proceedings involving David Hague. It is expected that both the applications
of the Company and David Hague and PricewaterhouseCoopers will come on for hearing in
May 2006 when the Court of Appeal next sits in the BVI.
F-33
Table of Contents
18. Commitments and Contingencies
- continued
(b)
Significant legal proceedings
- continued
Tele-Art
- continued
The Company has also instituted proceedings in the British Virgin Islands against UBS
Painewebber ("UBS") on June 20, 2005 for breach of trust in respect of UBS's role as
brokers in carrying out the terms of the September 1997 BVI Court Order for the sale
of Tele-Art's Nam Tai shares in sufficient quantities to pay the debts of the Bank of
China and the Company. UBS has filed an application challenging the jurisdiction of
the Court, which has not yet been formally served on the Company. The High Court has
adjourned the hearing of this application to May 22, 2006.
(* Subsequent to November 7, 2003, the number of shares has been adjusted to 457,050
to reflect the 10 for 1 stock dividend effect.)
(** Subsequent to November 7, 2003, the number of shares has been adjusted to 560,099
to reflect the 10 for 1 stock dividend effect.)
Shareholders' Actions
On March 11, 2003, we were served with a complaint in an action captioned Michael
Rocco v. Nam Tai, et al., 03 Civ. 1148 S.D.N.Y.), or the Rocco Action. In addition to
Nam Tai, certain directors are named as defendants.On or about April 9, 2003, a
second complaint was filed in an action captioned A.J. & Celine Steigler v. Nam Tai,
et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler Action, and together with the Rocco
Action, the Actions. The Actions have been consolidated since July 2003 and purport
to represent a putative class of persons who purchased the common stock of Nam Tai
from July 29, 2002 through February 18, 2003. Plaintiffs in the Actions assert
claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
allege that misrepresentations and/or omissions were made during the alleged class
period concerning the partial reversal of an inventory provision and a charge to
goodwill related to Nam Tai's LPT segment. Our motion to dismiss the Actions was
denied on September 27, 2004. On May 27, 2005, the plaintiffs moved to certify the
Actions as a class action with an individual, Douglas Ward, as the named class
representative. We filed our opposition to the motion on June 20, 2005. The court
heard oral argument on the motion on July 26, 2005, and has not yet ruled. On
October 7, 2005, the plaintiffs filed a Second Amended Consolidated Class Action
Complaint which contained substantive allegations that did not vary from the
previously filed Actions and added an additional individual, Michael Rocco, as a
named class representative. After class representative discovery, on February 10,
2006, plaintiffs filed their motion for class certification with Michael Rocco as on
added class representative. The Company filed its opposition papers on March 3,
2006. The motion is scheduled for oral argument on April 17, 2006. The Company
believes it has meritorious defenses and intends to defend the case vigorously.
F-34
Table of Contents
19. Segment Information
The Company operates in three segments: CECP, TCA and LCDP. In 2003, LCDP also comprised
the transformers operations. These segments are operated and managed as strategic business
units. The chief operating decision maker evaluates the net income of each segment in
assessing performance and allocating resources between segments.
The following table provides operating financial information for the three reportable
segments.
Year ended December 31, 2003
CECP
TCA
LCDP
Corporate
Total
Net sales — third parties
$
132,820
$
211,380
$
41,324
$
—
$
385,524
Net sales — related parties
—
20,782
—
—
20,782
Total net sales
132,820
232,162
41,324
—
406,306
Cost of sales
(98,511
)
(206,915
)
(34,590
)
—
(340,016
)
Gross profit
34,309
25,247
6,734
—
66,290
Selling, general and administrative expenses
(9,056
)
(8,749
)
(3,958
)
(3,103
)
(24,866
)
Research and development expenses
(2,081
)
(1,466
)
(490
)
—
(4,037
)
Other (expenses) income, net
(256
)
7
(3,078
)
2,512
(815
)
Dividend income received from marketable
securities and investment
1,696
—
—
2,018
3,714
Gain on partial disposal of subsidiaries
—
—
1,838
—
1,838
Interest income
5
2
6
775
788
Interest expense
—
—
(116
)
(5
)
(121
)
Income before income taxes and minority
interests
24,617
15,041
936
2,197
42,791
Income taxes
(233
)
(219
)
(4
)
57
(399
)
Income before minority interests and equity
income of affiliated companies
24,384
14,822
932
2,254
42,392
Minority interests
(295
)
—
(211
)
(561
)
(1,067
)
Equity in income of an affiliated company
—
—
—
498
498
Income after minority interests and equity
in income of an affiliated company
24,089
14,822
721
2,191
41,823
Discontinued operation
—
—
1,979
—
1,979
Net income
$
24,089
$
14,822
$
2,700
$
2,191
$
43,802
Year ended December 31, 2004
CECP
TCA
LCDP
Corporate
Total
Net sales — third parties
$
168,456
$
282,514
$
48,710
$
—
$
499,680
Net sales — related parties
—
34,181
—
—
34,181
Total net sales
168,456
316,695
48,710
—
533,861
Cost of sales
(131,163
)
(286,206
)
(40,016
)
—
(457,385
)
Gross profit
37,293
30,489
8,694
—
76,476
Selling, general and administrative expenses
(10,268
)
(6,940
)
(5,212
)
(5,633
)
(28,053
)
Research and development expenses
(2,348
)
(1,748
)
(949
)
—
(5,045
)
Other income (expenses), net
777
(72
)
39
(1,756
)
(1,012
)
Dividend income received from marketable
securities and investment
926
—
—
17,369
18,295
Gain on partial disposal of subsidiaries
—
—
—
77,320
77,320
Impairment loss on marketable securities
—
—
—
(58,316
)
(58,316
)
Interest income
164
105
18
823
1,110
Interest expense
(1
)
(23
)
(171
)
—
(195
)
Income before income taxes and
minority interests
26,543
21,811
2,419
29,807
80,580
Income taxes
(689
)
(180
)
(67
)
57
(879
)
Income before minority interests and equity
in loss of an affiliated company
25,854
21,631
2,352
29,864
79,701
Minority interests
(5,351
)
—
(254
)
(405
)
(6,010
)
Equity in loss of an affiliated company
—
—
—
(6,806
)
(6,806
)
Net income
$
20,503
$
21,631
$
2,098
$
22,653
$
66,885
F-35
Table of Contents
19. Segment Information — continued
Year ended December 31, 2005
CECP
TCA
LCDP
Corporate
Total
Net sales — third parties
$
169,056
$
563,874
$
58,112
$
—
$
791,042
Net sales — related parties
—
6,195
—
—
6,195
Total net sales
169,056
570,069
58,112
—
797,237
Cost of sales
(134,002
)
(523,869
)
(46,443
)
—
(704,314
)
Gross profit
35,054
46,200
11,669
—
92,923
Selling, general and administrative
expenses
(11,166
)
(10,364
)
(6,224
)
(5,303
)
(33,057
)
Research and development expenses
(3,500
)
(2,546
)
(1,164
)
—
(7,210
)
Other income (expenses), net
2,508
1,276
740
(4,649
)
(125
)
Dividend income received from
marketable securities
579
—
—
—
579
Gain on partial disposal of subsidiaries
—
—
—
10,095
10,095
Gain on disposal of an affiliated company
—
—
—
3,631
3,631
Loss on disposal of marketable securities
—
—
—
(3,686
)
(3,686
)
Impairment loss on marketable securities
—
—
—
(6,525
)
(6,525
)
Interest income
514
728
47
2,659
3,948
Interest expense
—
—
(438
)
—
(438
)
Income (loss) before income taxes
and minority interests
23,989
35,294
4,630
(3,778
)
60,135
Income taxes
(498
)
(78
)
(75
)
—
(651
)
Income (loss) before minority interests and
equity in loss of an affiliated company
23,491
35,216
4,555
(3,778
)
59,484
Minority interests
(6,661
)
—
(1,331
)
—
(7,992
)
Equity in loss of an affiliated company
—
—
—
(186
)
(186
)
Net income (loss)
$
16,830
$
35,216
$
3,224
$
(3,964
)
$
51,306
Year ended December 31, 2003
CECP
TCA
LCDP
Corporate
Total
Depreciation and amortization
$
4,207
$
4,449
$
2,631
$
977
$
12,264
Capital expenditures
$
5,404
$
10,800
$
469
$
380
$
17,053
Identifiable assets
$
86,919
$
87,331
$
49,530
$
73,915
$
297,695
Year ended December 31, 2004
CECP
TCA
LCDP
Corporate
Total
Depreciation and amortization
$
4,527
$
6,030
$
2,454
$
1,005
$
14,016
Capital expenditures
$
21,605
$
14,628
$
2,227
$
151
$
38,611
Identifiable assets
$
138,691
$
127,261
$
51,336
$
143,185
$
460,473
Year ended December 31, 2005
CECP
TCA
LCDP
Corporate
Total
Depreciation and amortization
$
5,132
$
7,140
$
3,508
$
1,044
$
16,824
Capital expenditures
$
13,498
$
8,402
$
10,222
$
44
$
32,166
Identifiable assets
$
148,173
$
170,624
$
57,736
$
143,478
$
520,011
There were no material inter-segment sales for the years ended December 31, 2003, 2004 and
2005. Sales in relation to software development services of Namtek Software was included in
the product segment of CECP after internal restructuring in 2005 and the comparative figures
have been restated. The Company charges 100% of its corporate level related expenses to its
reportable segments as management fees.
F-36
Table of Contents
19. Segment Information — continued
A summary sets forth the percentage of net sales of each of the Company's product lines of
each segment for the years ended December 31, 2003, 2004 and 2005, is as follows:
Year ended December 31,
2003
2004
2005
Product line
CECP:
- Assembling
- Consumer electronics and communication products
32
%
31
%
20
%
- Software development services
1
%
1
%
1
%
33
%
32
%
21
%
TCA
57
%
59
%
72
%
LCDP:
- Parts and components
- LCD panels
9
%
9
%
7
%
- Transformers
1
%
0
%
0
%
10
%
9
%
7
%
100
%
100
%
100
%
A summary of net sales, net income and long-lived assets by geographic areas is as follows:
By geographical area:
Year ended December 31,
2003
2004
2005
Net sales from operations within:
- Hong Kong and Macao:
Unaffiliated customers
$
295,113
$
48,710
$
58,112
Related party
14,770
—
—
Intercompany sales
404
563
670
310,287
49,273
58,782
- PRC, excluding Hong Kong and Macao:
Unaffiliated customers
90,411
450,970
732,930
Related parties
6,012
34,181
6,195
Intercompany sales
263,971
4,393
—
360,394
489,544
739,125
- Intercompany eliminations
(264,375
)
(4,956
)
(670
)
Total net sales
$
406,306
$
533,861
$
797,237
Net income within:
- PRC, excluding Hong Kong and Macao
$
38,627
$
30,981
$
31,354
- Hong Kong and Macao
5,175
35,904
19,952
Total net income
$
43,802
$
66,885
$
51,306
F-37
Table of Contents
19. Segment Information — continued
Year ended December 31,
2003
2004
2005
Net sales to customers by geographical area:
- Hong Kong
$
36,433
$
160,959
$
383,138
- Europe (excluding Estonia)
84,954
96,304
138,974
- United States
55,543
58,696
33,259
- PRC (excluding Hong Kong)
101,211
132,603
151,788
- Japan
68,498
33,880
14,858
- Estonia
20,474
3,106
—
- North America (excluding United States)
347
5,352
492
- Korea
24,499
21,520
53,979
- Other
14,347
21,441
20,749
Total net sales
$
406,306
$
533,861
$
797,237
As at December 31,
2003
2004
2005
Long-lived assets by geographic area:
- PRC, excluding Hong Kong and Macao
$
59,399
$
84,453
$
100,372
- Hong Kong and Macao
18,248
12,988
369
Total long-lived assets
$
77,647
$
97,441
$
100,741
Intercompany sales arise from the transfer of finished goods between subsidiaries operating
in different areas. These sales are generally at prices consistent with what the Company
would charge third parties for similar goods.
The Company's sales to customers which accounted for 10% or more of its sales are as follows:
Year ended December 31,
2003
2004
2005
A
$
N/A
$
72,235
$
257,595
B
100,541
75,426
121,369
C
N/A
54,023
80,354
D
N/A
54,635
N/A
E
46,057
N/A
N/A
F
43,233
N/A
N/A
$
189,831
$
256,319
$
459,318
F-38
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the
registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has
duly caused and authorized the undersigned to sign this annual report on its behalf.
NAM TAI ELECTRONICS, INC.
By:
/s/ PATINDA LEI
Patinda Lei
Chief Executive Officer
Date: March 15, 2006
80