##### 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 March 31, 2009; 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
 Date of event requiring this shell company report
 For the transition period from  to  .
 Commission File Number: 001-33900
 (DESWELL INDUSTRIES LOGO)
    
    DESWELL INDUSTRIES, INC.(Exact name of registrant as specified in its charter)
 Betty Lam, Chief Financial Officer, telephone:17B, Edificio Comercial Rodrigues,
    
    853-28-322096599 Avenida da Praia Grande, Macao
    
    fax: 853-28-323265British Virgin Islands
    
    Special Administrative Region, PRC
    
    E-mail: bettylam@jetcrown.com.mo(Jurisdiction of incorporation or organization)
    
    (Address of principal executive offices)
    
    (Name, Telephone, E-mail and/or Facsimile number andAddress of Company Contact Person)
     o þ
 o þ
  þ o
 o þ
  Large accelerated  o
Accelerated filer o
Non-accelerated filer þ
(Do not check if a smaller reporting company)
Smaller reporting company o
  U.S. GAAP þ
    
    International Financial Reporting Standards as issued
by the International Accounting Standards Board o
    
    Other o
 o o
 o þ




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##### 



PageINTRODUCTION
    
    
    3FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
    
    
    3PART I
    
    
    3ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
    
    
    3ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    3ITEM 3. KEY INFORMATION
    
    
    3ITEM 4. INFORMATION ON THE COMPANY
    
    
    17ITEM 4A UNRESOLVED STAFF COMMENTS
    
    
    27ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    27ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    36ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    39ITEM 8. FINANCIAL INFORMATION
    
    
    41ITEM 9. THE OFFER AND LISTING
    
    
    41ITEM 10. ADDITIONAL INFORMATION
    
    
    42ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    49ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    50PART II
    
    
    50ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    50ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS
    
    
    50ITEM 15. CONTROLS AND PROCEDURES
    
    
    50ITEM 16. RESERVED
    
    
    53ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    53ITEM 16B. CODE OF ETHICS
    
    
    53ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    53ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR THE AUDIT COMMITTEE
    
    
    53ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATE PURCHASERS
    
    
    53ITEM 16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT
    
    
    54ITEM 16G. CORPORATE GOVERNANCE
    
    
    54PART III
    
    
    54ITEM 17. FINANCIAL STATEMENTS
    
    
    54ITEM 18. FINANCIAL STATEMENTS
    
    
    54REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    F-1ITEM 19. EXHIBITS
    
    
    55SIGNATURES
    
    
    56CERTIFICATION OF CHIEF EXECUTIVE OFFICER REQUIRED BY RULE 13A-14(A)
OR RULE 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
    
    
    Ex. 12.1CERTIFICATION OF CHIEF FINANCIAL OFFICER REQUIRED BY RULE 13A-14(A)
OR RULE 15D-14(A) UNDER THE SECURITIES EXCHANGE ACT OF 1934
    
    
    Ex. 12.2CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
    
    
    Ex. 13.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
    
    
    Ex. 14.1
  2




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##### Table of Contents



INTRODUCTION
    
    
    we, us, our company, our, the Company or Deswell refers to Deswell
Industries, Inc. and, in the context of describing our operations, also include our
operating subsidiaries;
    
    shares refer to our common shares, no par value;
    
    China or PRC refers to the Peoples Republic of China, excluding Taiwan, Hong
Kong and Macao;
    
    Hong Kong refers to the Hong Kong Special Administrative Region of the Peoples
Republic of China;
    
    Macao refers to the Macao Special Administrative Region of the Peoples Republic
of China;
    
    all references to renminbi, RMB or yuan are to the legal currency of China, of
which yuan is the base unit;
    
    all references to HK dollars or HK$ are to the legal currency of Hong Kong; and
    
    all references to U.S. dollars, dollars, $ or US$ are to the legal currency
of the United States.
 
 FINANCIAL STATEMENTS AND CURRENCY PRESENTATION
  
 PART I
 
 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
  
 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
  
 ITEM 3. KEY INFORMATION
  3




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Selected Financial Data (1)
 (in thousands except per share data)Year ended March 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Income Statement Data:Net sales
    
    $
    125,590
    
    
    $
    115,276
    
    
    $
    136,779
    
    
    $
    143,806
    
    
    $
    131,738Cost of sales
    
    
    92,072
    
    
    
    89,850
    
    
    
    105,506
    
    
    
    117,373
    
    
    
    111,570Gross profit
    
    
    33,518
    
    
    
    25,426
    
    
    
    31,273
    
    
    
    26,433
    
    
    
    20,168Selling, general and administrative expenses
    
    
    15,759
    
    
    
    15,052
    
    
    
    18,957
    
    
    
    19,601
    
    
    
    19,291Other income (expenses), net
    
    
    (106
    )
    
    
    (823
    )
    
    
    1,376
    
    
    
    1,838
    
    
    
    (132
    )Operating income (4)
    
    
    17,653
    
    
    
    9,551
    
    
    
    13,692
    
    
    
    8,670
    
    
    
    745Interest expense
    
    
    (12
    )
    
    
    (6
    )
    
    
    
    
    
    
    
    
    
    
    Non-operating income (expenses), net
    
    
    448
    
    
    
    447
    
    
    
    547
    
    
    
    521
    
    
    
    168Income before income taxes
    
    
    18,089
    
    
    
    9,992
    
    
    
    14,239
    
    
    
    9,191
    
    
    
    913Income taxes
    
    
    576
    
    
    
    (27
    )
    
    
    1,239
    
    
    
    104
    
    
    
    (282
    )Income before minority interests
    
    
    17,513
    
    
    
    10,019
    
    
    
    13,000
    
    
    
    9,087
    
    
    
    1,195Minority interests
    
    
    2,330
    
    
    
    1,240
    
    
    
    833
    
    
    
    228
    
    
    
    Net income
    
    $
    15,183
    
    
    $
    8,779
    
    
    $
    12,167
    
    
    $
    8,859
    
    
    $
    1,195Basic earnings per share (2)(3)
    
    $
    1.04
    
    
    $
    0.59
    
    
    $
    0.81
    
    
    $
    0.57
    
    
    $
    0.08Average number of shares outstandingbasic (2)(3)
    
    
    14,656
    
    
    
    14,908
    
    
    
    14,956
    
    
    
    15,517
    
    
    
    15,791Diluted earnings per share (3)
    
    $
    1.02
    
    
    $
    0.59
    
    
    $
    0.81
    
    
    $
    0.57
    
    
    $
    0.08Average number of shares outstandingdiluted (2)(3)
    
    
    14,933
    
    
    
    14,936
    
    
    
    15,048
    
    
    
    15,566
    
    
    
    15,805Statistical Data:Gross margin
    
    
    26.7
    %
    
    
    22.1
    %
    
    
    22.9
    %
    
    
    18.4
    %
    
    
    15.3
    %Operating margin (4)
    
    
    14.1
    %
    
    
    8.3
    %
    
    
    10.0
    %
    
    
    6.0
    %
    
    
    0.6
    %Dividends per share (3)
    
    $
    0.65
    
    
    $
    0.63
    
    
    $
    0.65
    
    
    $
    0.61
    
    
    $
    0.24
 At March 31,2005
    
    2006
    
    2007
    
    2008
    
    2009Balance Sheet Data:Working capital
    
    $
    57,576
    
    
    $
    55,114
    
    
    $
    58,672
    
    
    $
    54,751
    
    
    $
    52,605Total assets
    
    
    136,976
    
    
    
    130,670
    
    
    
    141,210
    
    
    
    140,407
    
    
    
    137,482Long-term debt, less current portion
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Shareholders equity
    
    
    104,767
    
    
    
    106,768
    
    
    
    111,655
    
    
    
    121,257
    
    
    
    120,307
 
 (1)
    
    Our consolidated financial statements are prepared in accordance with generally accepted
accounting principles in the United States of America and are stated in U.S. dollars. See
Financial Statements and Currency Presentation.(2)
    
    Basic EPS excludes dilution from potential common shares and is computed by dividing income
available to common shareholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution from potential common shares.(3)
    
    Share and per share amounts presented above have been adjusted to reflect the three-for-two
stock split effected in March 2005.(4)
    
    Other operating income (expenses) were reclassified in the consolidated statement of income for
the year ended March 31, 2007 for a comparable presentation. Comparative figures for the years
ended March 31, 2005 and 2006 were reclassified accordingly. The reclassification of operating
income had no impact on the net income on the consolidated statements of income for the years ended
March 31, 2005 and 2006. 4




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Risk Factors
  We are dependent on a few major customers and have no long-term contracts with them. Our sales
would substantially decrease and we would suffer decreases in net income or losses if we lose any
of our major customers, if they substantially reduce their orders or if they are unable to pay us.
These risks have become particularly acute in the current adverse economic environment.
   The global economic weakness has adversely affected our earnings, liquidity and financial condition
and, until global economic conditions improve, is expected to continue to do so.
  Our exposure to financially troubled customers or suppliers may adversely affect our financial
results.
  5




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Our gross margins fluctuate from year to year and may be adversely affected by a number of factors.
  Gross Margins Percentage
 
  
    
    increasing competition in our market segments, which has forced us to maintain or
reduce unit prices or attempt to pass on our costs of materials and components on to
customers;
    
    costs of labor, particularly in recent years, which such costs have increased
substantially as consequence of increasing governmental regulation directed at labor
practices and policies;
    
    continuing appreciation of the RMB, in which we pay our labor and manufacturing
costs, against the U.S. dollar, in which we present our financial statements;
    
    our cost of raw materials, especially our cost of plastic resins;
    
    changes in the prices or the availability of components needed to manufacture our
electronic products;
    
    changes in our customer mix or the mix of higher and lower margin products, or a
combination of both in any year;
    
    increases in value-added taxes as result of changes in the value-added tax policy of
the Chinese government for various categories of export products; and
    
    increased costs of conforming our products to consumer and product safety laws and
regulations of the various countries in which our products are sold.
 6




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If OEMs stop or reduce their manufacturing outsourcing, our business could suffer.
  Our industry is extremely competitive, with aggressive pricing dynamics, and; if we are not able to
continue to provide competitive products and services, we may lose business.
   We have no long-term contracts to obtain plastic resins and our profit margins and net income could
suffer from an increase in resin prices.
  Year ended March 31, 2009Average cost of ABS as a percentage of the total cost of:
    
    2007
    
    2008
    
    2009Plastic products sold
    
    
    52
    %
    
    
    46
    %
    
    
    45
    %Goods sold
    
    
    20
    %
    
    
    17
    %
    
    
    25
    %
  7




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We have no written agreements with suppliers to obtain components and our profit margins and net
income could suffer from an increase in component prices and our results of operations could suffer
from shortages of required electronic components.
   The Chinese government could change its policies toward or even nationalize private enterprise,
which could result in the total loss of our investment in that country.
  There may be a lack of remedies and impartiality under the Chinese legal system that prevents us
from enforcing the agreements under which we operate our factories.
  If our business licenses in China were not renewed, we would be required to move our operations out
of China, which would impair our profitability, competitiveness and market position and jeopardize
our ability to continue operations.
  8




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Our insurance coverage may not be adequate to cover loss related to major accidents or acts of God.
 
 We may be faced with product liability claims and have no product liability insurance.
  Payment of dividends by our subsidiaries in the PRC to us is subject to restrictions under PRC law.
The new PRC tax law could force us to reduce the amount of dividends we have historically paid to
our shareholders or possibly eliminate them or we may decide not pay dividends in the future.
   Under the new EIT Law, we may be classified as a resident enterprise for PRC tax purposes, which
may subject us to PRC enterprise income tax for any dividends we receive from our Chinese
subsidiaries and to PRC income tax withholding for any dividends we pay to our non-PRC
stockholders.
  9




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We could suffer losses from corrupt or fraudulent business practices. Conducting business in China
is inherently risky.
  Controversies affecting Chinas trade with the United States could harm our operations or depress
our stock price.
  Changes in currency rates involving the RMB implemented in July 2005 have increased our expenses
since they were implemented. Changes in currency rates involving the Hong Kong dollar could
increase our expenses or cause economic or political problems affecting our business.
   10




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(1)
    
    RMB (yuan) to US dollar data presented in this chart were derived from the historical
currency converter available at http://forex-history.net.(2)
    
    If the end of a quarter fell on a Saturday or Sunday, datum is provided as of the previous
Friday.   Restrictions on the convertibility of RMB into foreign currency may limit our ability to transfer
excess funds or dividends to the companys subsidiaries outside China.
  11




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We face risks related to health epidemics and other outbreaks that may disrupt our operations and
have a material adverse effect on our business and results of operations.
  Political and economic instability of Hong Kong and Macao could harm our operations.
  Recent changes in the PRCs labor law restrict our ability to reduce our workforce in the event of
an economic downturn.
  12




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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.
  Protecting, seeking licenses for or asserting claims over, intellectual property could be costly.
   We are dependent on customers operating in highly competitive markets and the inability of our
customers to succeed in their markets can adversely impact our business, operating results and
financial condition.
  Because our operations are international, we are subject to significant worldwide political,
economic, legal and other uncertainties.
  
    
    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.
  13




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We depend on our executive officers, senior managers and skilled personnel. We lost three of our
top executives during fiscal 2009 and have not yet replaced them, which has increased the pressure
and responsibilities on our remaining senior managers.
   Compliance with current and future environmental regulations may be costly which could impact our
future earnings. Our results could be adversely affected if we have to comply with new
environmental regulations.
    14




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A material failure of internal control over financial reporting could materially impact the
Companys financial results.
  Potential new accounting pronouncements are likely to impact our future financial position and
results of operations and in the case of FASBs pronouncement regarding the expensing of stock
options have adversely impacted, and will in the future, adversely impact our financial results.
  The concentration of share ownership in our senior management allows them to control or
substantially influence the outcome of matters requiring shareholder approval.
  Our boards ability to amend our charter without shareholder approval could have anti-takeover
effects that could prevent a change in control.
  Sales of our shares held by our former executive officers could cause our share price to decrease.
  15




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Our exemptions from certain of the reporting requirements under the Exchange Act limits the
protections and information afforded to investors.
  
    
    the rules under the Exchange Act requiring the filing with the Commission of
quarterly reports on Form 10-Q or current reports on Form 8-K;
    
    the sections of the Exchange Act regulating the solicitation of proxies, consents or
authorizations in respect to a security registered under the Exchange Act;
    
    the sections of the Exchange Act 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); and
    
    Regulation FD, the SECs rules regulating disclosure of information by publicly
traded companies and other issuers and requiring that when an issuer discloses material
nonpublic information to certain individuals or entities such as stock analysts, or
holders of the issuers securities who may trade on the basis of the information, the
issuer must make public disclosure of that information.
 et. seq
 
    
    Rule5605(b)(2): Our independent directors do not meet in executive session;
    
    Rule 5605(d): Our board does not have a compensation committee and compensation of
our Chief Executive Officer and other executive officers is neither determined nor
recommended to the board by a majority of our independent directors; and
    
    Rule 5605(e): Nominees for appointment as our directors are not selected or
recommended by either a majority of our independent directors, or a nominating
committee composed solely of independent directors.
  16




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ITEM 4. INFORMATION ON THE COMPANY
 History and Development of Deswell
 Corporate Information
  Important Events in Deswells Development that Have Occurred since April 1, 2008
   [Continued on Page 18]
 17




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Organizational Structure
  
 18




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Capital Expenditures
  Year ended March 31,2007
    
    2008
    
    2009Purchase of property, plant and equipment
    
    $
    7,812
    
    
    $
    7,288
    
    
    $
    7,402Proceeds from the sale of property, plant and equipment
    
    
    3,232
    
    
    
    333
    
    
    
    345Acquisition of minority interest in a subsidiary
    
    
    
    
    
    
    414
    
    
    
    
       Business Overview
   
    
    Plastic component of electronic entertainment products;
    
    cases for flashlights, telephones, paging machines, projectors and alarm clocks;
 19




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
    
    toner cartridges and cases for photocopy and printer machines;
    
    parts for electrical products such as air-conditioning and ventilators;
    
    parts for audio equipment;
    
    cases and key tops for personal organizers and remote controls;
    
    double injection caps and baby products;
    
    laser key caps; and
    
    automobile components.
  
    
    sophisticated professional audio equipment including digital audio workstation,
digital or analogue mixing consoles, instrument amplifiers, signal processors,
firewire/USB audio interfaces, keyboard controllers and synthesizers, etc.
    
    complex printed circuit board assemblies using surface mount technology (SMT),
ball grip assembly (BGA) and pin-through-hole (PTH) interconnection technologies
and
    
    finished products which include business communication products such as digital
phone systems, or digital keysets and voice over IP, or VoIP, phones, and
   Industry Overview
   20




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Operations
 Plastic Injection Molding
   Mold design and production
         Plastic Injection
  21




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Finishing
  Electronic Products and Assemblies
       Metal Parts Manufacturing
  22




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Quality Control
       Raw Materials, Component Parts and Suppliers
 Plastic Resins.
  Year ended March 31, 20092007
    
    2008
    
    2009Average cost of ABS as a percentage of the total cost of:Plastic products sold
    
    
    52
    %
    
    
    46
    %
    
    
    45
    %Goods sold
    
    
    20
    %
    
    
    17
    %
    
    
    25
    %
   23




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Component Parts and Supplies
  Raw Metal
  Transportation
  Customers and Marketing
  24




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Year ended March 31,Geographic Areas
    
    2007
    
    2008
    
    2009China
    
    
    39.2
    %
    
    
    37.0
    %
    
    
    52.8
    %United States
    
    
    42.4
    
    
    
    46.8
    
    
    
    32.0Europe
    
    
    11.2
    
    
    
    10.7
    
    
    
    12.4Others
    
    
    3.8
    
    
    
    3.8
    
    
    
    1.5Hong Kong
    
    
    3.4
    
    
    
    1.7
    
    
    
    1.3Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 Modern Plastics International Injection Molding
 Major Customers
  Year ended March 31,Customer
    

Product
    

2007
    

2008
    

2009N&J Company Limited
    
    Plastic Component
    
    
    *
    %
    
    
    11.8
    %
    
    
    28.6
    %Digidesign, Inc.
    
    Professional audio equipment
    
    
    13.3
    
    
    
    17.0
    
    
    
    12.7
 
 *
    
    Less than 10%.   Competition
  25




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Patents, Licenses and Trademarks
  Seasonality
  Property, Plants and Equipment
 Macao
  Hong Kong
  Southern China.
     26




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ITEM
4A. UNRESOLVED STAFF COMMENTS
  
 ITEM
5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
  Operating Results
  General
    27




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Rate under EIT for enterprises previously subject to tax rate ofTax Year (Calendar)
    
    15 percent
    
    24 percent2009
    
    
    20
    %
    
    
    25
    %2010
    
    
    22
    %
    
    
    25
    %2011
    
    
    24
    %
    
    
    25
    %2012
    
    
    25
    %
    
    
    25
    %
   Year ended March 31, 2007
    
    Year ended March 31, 2008
    
    Year ended March 31, 2009Plastic
    
    
    
    
    
    
    
    
    
    Plastic
    
    
    
    
    
    
    
    
    
    PlasticInjection
    
    Electronic
    
    
    
    
    
    Injection
    
    Electronic &
    
    
    
    
    
    Injection
    
    Electronic &Molding
    
    & Metallic
    
    
    
    
    
    Molding
    
    Metallic
    
    
    
    
    
    Molding
    
    MetallicSegment
    
    Segment
    
    Total
    
    Segment
    
    Segment
    
    Total
    
    Segment
    
    Segment
    
    TotalNet sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    68.1
    
    
    
    84.1
    
    
    
    77.1
    
    
    
    74.4
    
    
    
    86.6
    
    
    
    81.6
    
    
    
    82.4
    
    
    
    87.6
    
    
    
    84.7Gross profit
    
    
    31.9
    
    
    
    15.9
    
    
    
    22.9
    
    
    
    25.6
    
    
    
    13.4
    
    
    
    18.4
    
    
    
    17.6
    
    
    
    12.4
    
    
    
    15.3Selling,
general and
administrative
expenses
    
    
    17.4
    
    
    
    11.2
    
    
    
    13.9
    
    
    
    18.4
    
    
    
    10.3
    
    
    
    13.6
    
    
    
    16.3
    
    
    
    12.6
    
    
    
    14.6Other income, net
    
    
    2.5
    
    
    
    (0.1
    )
    
    
    1.0
    
    
    
    4.0
    
    
    
    (0.6
    )
    
    
    1.3
    
    
    
    0.5
    
    
    
    (0.8
    )
    
    
    (0.1
    )Operating income
    
    
    17.0
    
    
    
    4.6
    
    
    
    10.0
    
    
    
    11.2
    
    
    
    2.5
    
    
    
    6.1
    
    
    
    1.8
    
    
    
    (1.0
    )
    
    
    0.6Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-operating
income, net
    
    
    0.8
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    0.8
    
    
    
    0.1
    
    
    
    0.4
    
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    0.1Income before
income taxes
and minority
interest
    
    
    17.8
    
    
    
    4.8
    
    
    
    10.4
    
    
    
    12.0
    
    
    
    2.6
    
    
    
    6.5
    
    
    
    2.1
    
    
    
    (1.1
    )
    
    
    0.7Income taxes
    
    
    1.8
    
    
    
    0.2
    
    
    
    0.9
    
    
    
    0.5
    
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    (0.1
    )
    
    
    (0.4
    )
    
    
    (0.2
    )Income before
minority
interests
    
    
    15.9
    
    
    
    4.6
    
    
    
    9.5
    
    
    
    11.5
    
    
    
    2.8
    
    
    
    6.4
    
    
    
    2.2
    
    
    
    (0.7
    )
    
    
    0.9Minority interests
    
    
    
    
    
    
    1.1
    
    
    
    0.6
    
    
    
    
    
    
    
    0.3
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    15.9
    %
    
    
    3.5
    %
    
    
    8.9
    %
    
    
    11.5
    %
    
    
    2.5
    %
    
    
    6.2
    %
    
    
    2.2
    %
    
    
    (0.7
    )%
    
    
    0.9
    %
 Year ended March 31, 2009 Compared to Year Ended March 31, 2008
 Net
Sales
 28




---



##### Table of Contents



Gross Profit
   Selling, general and administrative expenses 
   29




---



##### Table of Contents



Other operating income 
   Operating Income 
   Non-operating income
 Income Taxes 
 Minority Interest 
 Net Income 
   30




---



##### Table of Contents



Year ended March 31, 2008 Compared to Year Ended March 31, 2007
 Net
Sales
    Gross Profit
   Selling, General and Administrative Expenses
   31




---



##### Table of Contents



Other operating income
   Operating Income
   Non-operating income
 Income Taxes
  Minority Interest
 32




---



##### Table of Contents



Net Income
   Seasonality
  Year ended March 31,2007
    
    2008
    
    2009Q1
    
    Q2
    
    Q3
    
    Q4
    
    Q1
    
    Q2
    
    Q3
    
    Q4
    
    Q1
    
    Q2
    
    Q3
    
    Q4Net sales
    
    $
    31,689
    
    
    $
    35,715
    
    
    $
    39,002
    
    
    $
    30,373
    
    
    $
    38,452
    
    
    $
    38,414
    
    
    $
    35,416
    
    
    $
    31,524
    
    
    $
    35,039
    
    
    $
    32,241
    
    
    $
    37,101
    
    
    $
    27,357Gross profit
    
    
    8,446
    
    
    
    8,865
    
    
    
    8,754
    
    
    
    5,208
    
    
    
    6,762
    
    
    
    6,698
    
    
    
    7,923
    
    
    
    5,050
    
    
    
    5,901
    
    
    
    3,524
    
    
    
    6,413
    
    
    
    4,330Operating
income
    
    
    3,866
    
    
    
    3,973
    
    
    
    4,016
    
    
    
    1,837
    
    
    
    3,304
    
    
    
    1,681
    
    
    
    3,033
    
    
    
    652
    
    
    
    1,310
    
    
    
    (1,663
    )
    
    
    878
    
    
    
    220Net income
    
    
    3,403
    
    
    
    3,597
    
    
    
    3,605
    
    
    
    1,562
    
    
    
    3,111
    
    
    
    1,755
    
    
    
    2,955
    
    
    
    1,038
    
    
    
    1,293
    
    
    
    (1,675
    )
    
    
    987
    
    
    
    590
  Three months endedJune 30,
    
    September 30
    
    December 31
    
    March 312007
    
    2008
    
    2009
    
    2007
    
    2008
    
    2009
    
    2007
    
    2008
    
    2009
    
    2007
    
    2008
    
    2009Net sales
    
    $
    31,689
    
    
    $
    38,452
    
    
    $
    35,039
    
    
    $
    35,715
    
    
    $
    38,414
    
    
    $
    32,238
    
    
    $
    39,002
    
    
    $
    35,416
    
    
    $
    37,101
    
    
    $
    30,373
    
    
    $
    31,524
    
    
    $
    27,357Gross profit
    
    
    8,446
    
    
    
    6,762
    
    
    
    5,901
    
    
    
    8,865
    
    
    
    6,698
    
    
    
    3,522
    
    
    
    8,754
    
    
    
    7,923
    
    
    
    6,413
    
    
    
    5,208
    
    
    
    5,050
    
    
    
    4,330Operating
income (loss)
    
    
    3,866
    
    
    
    3,304
    
    
    
    1,310
    
    
    
    3,973
    
    
    
    1,681
    
    
    
    (1,663
    )
    
    
    4,016
    
    
    
    3,033
    
    
    
    878
    
    
    
    1,837
    
    
    
    652
    
    
    
    220Net income (loss)
    
    
    3,403
    
    
    
    3,111
    
    
    
    1,293
    
    
    
    3,597
    
    
    
    1,755
    
    
    
    (1,675
    )
    
    
    3,605
    
    
    
    2,955
    
    
    
    987
    
    
    
    1,562
    
    
    
    1,038
    
    
    
    590
  Impact of Inflation
  33




---



##### Table of Contents



Exchange Rates
       Liquidity and Capital Resources
   34




---



##### Table of Contents



Payments due by period (in thousands)Period from
    
    Period from
    
    PeriodYear ending
    
    April 1, 2010
    
    April 1, 2012
    
    afterMarch 31,
    
    to March 31,
    
    to March 31,
    
    March 31,Contractual obligations
    
    Total
    
    2010
    
    2012
    
    2014
    
    2014Long-term bank borrowing
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital (finance) lease
obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease payments
    
    
    154
    
    
    
    136
    
    
    
    18
    
    
    
    
    
    
    
    Capital expenditures
    
    
    346
    
    
    
    212
    
    
    
    134
    
    
    
    
    
    
    
    Purchase obligations
    
    
    5,854
    
    
    
    5,854
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    6,354
    
    
    $
    6,202
    
    
    $
    152
    
    
    $
    
    
    
    $
    
 Off Balance Sheet Arrangements
  Critical Accounting Policies and Recent Changes in Accounting Standards
  35




---



##### Table of Contents



ITEM
6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 Directors and Senior Management
  Name
    
    Age
    
    Position(s) with CompanyRichard Pui Hon Lau
    
    
    64
    
    
    Chairman of the Board of DirectorsFranki Shing Fung Tse
    
    
    45
    
    
    Chief Executive OfficerChin Pang Li
    
    
    63
    
    
    Executive Director of Manufacturing and Administration for PlasticOperations and Member of the Board of DirectorsHung-Hum Leung
    
    
    63
    
    
    Non-Executive Director and Member of Audit CommitteeAllen Yau-Nam Cham
    
    
    62
    
    
    Non-Executive Director and Chairman of Audit CommitteeWing-Ki Hui
    
    
    63
    
    
    Non-Executive Director and Member of Audit CommitteeBetty Ching Han Lam
    
    
    47
    
    
    Chief Financial Officer
 Richard PUI HON Lau
 Franki SHING FUNG Tse.
 CHIN PANG Li.
 Hung-Hum Leung.
 Allen Yau-Nam Cham
 Wing-Ki Hui.
 Betty CHING HAN Lam.
 36




---



##### Table of Contents



Compensation of Directors and Executive Officers
 Executive Officers
  
    
    excludes amounts paid by the Company or its subsidiaries as dividends to directors
and executive officers in their capacity as shareholders of the Company during the year
ended March 31, 2009; and
    
    includes compensation amounts paid to one former director and executive officer and
two other executive officers, all of whom we lost at different dates during the year
ended March 31, 2009.
  Directors
  Board Practices
 .
 Audit Committee
  Other Committees; NASDAQ Compliance
  37




---



##### Table of Contents



Employees
  Share Ownership of Directors and Senior Management
  Employee Stock Option Plans
     38




---



##### Table of Contents



ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 Major Shareholders
  Number of sharesbeneficially owned (1)Name of beneficial owner or identity of group
    
    Amount
    
    PercentRichard Pui Hon Lau
    
    
    1,716,045
    (2)
    
    
    10.6Chin Pang Li
    
    
    1,520,750
    (3)
    
    
    9.4Royce & Associates, Inc.
    
    
    836,771
    (4)
    
    
    5.3Franki Shing Fung Tse
    
    
    *
    
    
    
    *Betty Ching Han Lam
    
    
    *
    
    
    
    *Hung-Hum Leung
    
    
    
    
    
    
    Allen Yau-Nam Cham
    
    
    
    
    
    
    Wing-Ki Hui
    
    
    
    
    
    
    
 
 *
    
    Less than 1%.(1)
    
    Based on 15,790,810 shares outstanding on June 30, 2009. However, in accordance with Rule
13d-3(d)(1) under the Securities Exchange Act of 1934, shares not outstanding but which are
the subject of currently exercisable options have been considered outstanding for the purpose
of computing the percentage of outstanding shares owned by the listed person holding such
options, but are not considered outstanding for the purpose of computing the percentage of
shares owned by any of the other listed persons.(2)
    
    Consists of 1,346,545 held of record by Mr. Lau and options to purchase 369,500 shares
granted to Mr. Lau under the Companys stock option plans. Mr. Laus options are exercisable
at a weighted average exercise price of $10.39 per share until April 8, 2019.(3)
    
    Consists of 1,151,250 held of record by Mr. Li and options to purchase 369,500 shares granted
to Mr. Li under the Companys stock option plans. Mr. Lis options are exercisable at a
weighted average exercise price of $10.39 per share until April 8, 2019.(4)
    
    Based on Amendment No. 8 to Schedule 13G filed with the SEC on January 23, 2009. Change in the Percentage Ownership Held by Major Shareholders
  39




---



##### Table of Contents



Percentage Ownership at June 30,(1)2007
    
    2008
    
    2009Richard Pui Hon Lau(2)
    
    
    25.3
    
    
    
    10.2
    
    
    
    8.5Chin Pang Li(2)
    
    
    24.0
    
    
    
    9.0
    
    
    
    7.3Royce & Associates, Inc.
    
    
    8.1
    
    
    
    8.6
    
    
    
    5.3
    (3)Chi Wai Leung(2)
    
    
    24.1
    
    
    
    8.4
    
    
    
    
    (4)Leesha Holdings Ltd.(2)
    
    
    22.8
    
    
    
    
    
    
    
    Wellington Management Company, LLP
    
    
    10.6
    
    
    
    11.4
    
    
    
    
    (5)FMR Corp./ Edward C. Johnson 3d/ Abigail P. Johnson
    
    
    6.0
    
    
    
    5.5
    
    
    
    
    (6)Micropower Enterprises Limited
    
    
    7.6
    
    
    
    
    
    
    
    
 
 (1)
    
    Based on 15,143,730, 15,790,810 and 15,790,810 shares outstanding on June 30, 2007, 2008 and
2009, respectively. However, in accordance with Rule 13d-3(d)(1) under the Securities Exchange
Act of 1934, common shares not outstanding but which are the subject of currently exercisable
options have been considered outstanding for the purpose of computing the percentage of
outstanding common shares owned by the listed person holding such options, but are not
considered outstanding for the purpose of computing the percentage of common shares owned by
any of the other listed persons.(2)
    
    Leesha Holding Ltd. is an investment holding company organized as an International Business
Company under the laws of the British Virgin Islands. Messrs. Lau, Li and Leung, who are its
directors, wholly own Leesha in equal shares. Among other investments, Leesha owned 3,453,750
common shares of Deswell, which were transferred to Leesha by Messrs. Lau, Li and Leung
shortly after Deswells initial public offering in 1996. On September 14, 2007, Leesha
declared a dividend to its shareholders of all 3,453,750 common shares of Deswell,
distributing 1,151,250 shares of the Company to each of Messrs. Lau, Li and Leung.
Accordingly, effective when Leesha distributed its Deswell shares, the beneficial ownership of
Leesha in Deswell, and the attribution of such ownership to each of Messrs. Lau, Li and Leung,
as Leeshas directors and principal shareholders, terminated.(3)
    
    Based on Amendment No. 8 to Schedule 13G filed with the SEC on January 23, 2009.(4)
    
    Mr. Leung retired as Executive Director of Engineering for Plastic Operations and a member of
Deswells Board of Directors effective on January 1, 2009 and Deswell has been advised that
since his retirement through June 30, 2009, Mr. Leung, through open market sales, has reduced
his holdings of Deswell shares to below five percent.(5)
    
    Based on Amendment No. 7 to Schedule 13G filed with the SEC on January 12, 2009.(6)
    
    Based on Amendment No. 6 to Schedule 13G filed with the SEC on February 17, 2009, which
disclosed that the reporting person reduced its holdings to less than five percent.  Related Party Transactions
   40




---



##### Table of Contents



ITEM 8. FINANCIAL INFORMATION
 Financial Statements
  Legal Proceedings
  Exports Sales
  Dividend Policy
  
    
    2007 aggregating $9,720,000, $2,089,000 of which was based on results for the last
quarter of the year ended March 31, 2006 and $7,631,000 of which was based on results
for the first three quarters of the year ended March 31, 2007;
    
    2008 aggregating $9,523,000, $2,574,000 of which was based on results for the last
quarter of the year ended March 31, 2007 and $6,949,000 of which was based on results
for the first three quarters of the year ended March 31, 2008; and
    
    2009 aggregating $3,790,000, $1,895,000 of which was based on results for the last
quarter of the year ended March 31, 2008 and $1,895,000of which was based on results
for the first three quarters of the year ended March 31, 2009.
  
 ITEM 9. THE OFFER AND LISTING
   Year Ended March 31,
    
    High
    
    Low2009
    
    $
    7.65
    
    
    $
    1.122008
    
    
    13.04
    
    
    
    6.002007
    
    
    12.50
    
    
    
    8.102006
    
    
    16.48
    
    
    
    9.002005
    
    
    18.167
    
    
    
    12.867
  41




---



##### Table of Contents



Quarter ended
    
    High
    
    LowMarch 31, 2009
    
    $
    1.90
    
    
    $
    1.27December 31, 2008
    
    
    3.82
    
    
    
    1.12September 30, 2008
    
    
    6.05
    
    
    
    3.00June 30, 2008
    
    
    7.65
    
    
    
    5.60March 31, 2008
    
    
    6.96
    
    
    
    6.07December 31, 2007
    
    
    7.47
    
    
    
    6.00September 30, 2007
    
    
    10.13
    
    
    
    9.24June 30, 2007
    
    
    13.04
    
    
    
    10.92
  Month ended
    
    High
    
    LowJune 30, 2009
    
    $
    3.59
    
    
    $
    2.66May 31, 2009
    
    
    2.65
    
    
    
    2.36April 30, 2009
    
    
    2.49
    
    
    
    1.75March 31, 2009
    
    
    1.80
    
    
    
    1.32February 29, 2009
    
    
    1.80
    
    
    
    1.51January 31, 2009
    
    
    1.90
    
    
    
    1.27
 
 ITEM 10. ADDITIONAL INFORMATION
 Share Capital
  Memorandum and Articles of Association
       42




---



##### Table of Contents




    
    Continue to be entitled to one vote for each whole share on all matters to be voted
upon by shareholders, including the election of directors;
    
    Continue not to have cumulative voting rights in the election of directors; and
    
    Continue to be entitled to receive dividends if and when declared by our board of
directors out of funds legally available under British Virgin Islands law.
    
    The 2007 Charter did not change that
    
    all of common shares are equal to each other with respect to liquidation and
dividend rights;
    
    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; or
    
    holders of our common shares have no preemptive rights to purchase any additional,
unissued common shares.
 Objects and Purposes
  Directors
     Rights, Preferences and Restrictions of Authorized and Outstanding Shares and Changes to Rights of
Shareholders
   43




---



##### Table of Contents



Calling Annual General Meetings and Extraordinary General Meetings of Shareholders
     Limitations on Share Ownership
  Potential Anti-Takeover Deterrence
        Ownership Information
  44




---



##### Table of Contents



Differences from United States Law
  Material Contracts
    Taxation
 United States Federal Income Tax Consequences
  General
  
    
    a dealer in securities or currencies;
 45




---



##### Table of Contents




    
    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;
    
    certain former U.S. citizens and residents who have expatriated; or
    
    a person who receives our shares pursuant to the exercise of employee stock options
or otherwise as compensation.
 U.S. Holders
  
    
    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
  46




---



##### Table of Contents



Sale, Exchange or Other 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.
 Passive Foreign Investment Company (PFIC)
   47




---



##### Table of Contents



Non-U.S. Holders
  Distributions on Our Common Shares
  
    
    you conduct a trade or business in the United States and
    
    the distributions are effectively connected with the conduct of that trade or
business (and, if an applicable income tax treaty so requires as a condition for you to
be subject to U.S. federal income tax on a net income basis in respect of income from
our common shares, such distributions are attributable to a permanent establishment
that you maintain in the United States).
  Sale, Exchange or Other Disposition of Our Common Shares
  
    
    your gain is effectively connected with a trade or business that you conduct in the
United States (and, if an applicable income tax treaty so requires as a condition for
you to be subject to U.S. federal income tax on a net income basis in respect of gain
from the sale or other disposition of our common shares, such gain is attributable to a
permanent establishment maintained by you in the United States), or
    
    you are an individual Non-U.S. Holder and are present in the United States for at
least 183 days in the taxable year of the sale or other disposition, and certain other
conditions exist.
  48




---



##### Table of Contents



Backup Withholding and Information Reporting
  
    
    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.
  British Virgin Islands Tax Consequences
   
 ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Exchange Controls
    49




---



##### Table of Contents



Foreign Currency Risk
   EquivalentU.S. DollarHoldingsUnited States dollars
    
    
    13,695,000Chinese RMB
    
    
    7,395,000Hong Kong dollars
    
    
    2,002,000Macao dollars
    
    
    13,000Euro
    
    
    16,000Japanese yen
    
    
    11,000Pounds sterling
    
    
    2,000
  Interest Rate Risk
  
 ITEM
12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
  
 PART
II
 
 ITEM
13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
  
 ITEM
14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
  
 ITEM 15. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Report of Management on Internal Control over Financial Reporting
  50




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##### Table of Contents



Attestation Report of the Registered Public Accounting Firm
  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    51




---



##### Table of Contents



/s/ BDO LimitedBDO Limited  Remediation of Material Weaknesses in Internal Control Over Financial Report Identified in Fiscal 2008
   Changes in Internal Controls
   52




---



##### Table of Contents



ITEM
16. RESERVED
 
 ITEM
16A. AUDIT COMMITTEE FINANCIAL EXPERT
  
 ITEM
16B. CODE OF ETHICS
  
 ITEM
16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
   Year ended March 31,2008
    
    
    2009(In thousands)Audit fees (1)
    
    $
    244
    
    
    $
    226Audit-related fees(2)
    
    
    
    
    
    
    Tax fees(3)
    
    
    
    
    
    
    All other fees(4)
    
    
    
    
    
    
    $
    244
    
    
    $
    226
 
 (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 external auditor
reasonably can provide, and include the provision for consents relating to the review of
documents filed with the SEC.(2)
    
    There were no other audit-related fees billed by the principal accountant during the last two
fiscal years for assurance and related services that were reasonably related to the
performance of the audit not reported under Audit Fees above.(3)
    
    There were no tax fees billed by the principal accountant during the last two fiscal years.(4)
    
    There were no other fees billed by the principal accountant during the last two fiscal years
for products and services provided by BDO. Audit Committee Pre-approval Policies and Procedures
  
 ITEM
16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR THE AUDIT COMMITTEE.
  
 ITEM
16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATE PURCHASERS.
  53




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##### Table of Contents



ITEM
16F. CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT.
  
 ITEM
16G. CORPORATE GOVERNANCE.
  
 PART
III
 
 ITEM
17. FINANCIAL STATEMENTS
  
 ITEM
18. FINANCIAL STATEMENTS
  PageReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets
    
    F-2Consolidated Statements of Income and Comprehensive Income
    
    F-3Consolidated Statements of Shareholders Equity
    
    F-4Consolidated Statements of Cash Flows
    
    F-5Notes to Consolidated Financial Statements
    
    F-6
  54




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ BDO LimitedBDO Limited  F-1




---



##### Table of Contents



DESWELL INDUSTRIES, INC.
 
 CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands)
 March 31,2008
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    22,718
    
    
    $
    23,134Marketable securities (note 3)
    
    
    116
    
    
    
    100Accounts receivable, less allowances for doubtful amounts of $74 and $349
at March 31, 2008 and 2009, respectively
    
    
    21,397
    
    
    
    22,227Inventories (note 4)
    
    
    26,462
    
    
    
    21,445Assets held for sale (note 6)
    
    
    
    
    
    
    987Prepaid expenses and other current assets (note 5)
    
    
    3,205
    
    
    
    1,887Income taxes receivable
    
    
    3
    
    
    
    Total current assets
    
    
    73,901
    
    
    
    69,780Property, plant and equipment-net (note 6)
    
    
    65,885
    
    
    
    66,564Deferred income tax assets (note 9)
    
    
    230
    
    
    
    746Goodwill (note 7)
    
    
    391
    
    
    
    392Total assets
    
    $
    140,407
    
    
    $
    137,482LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    12,527
    
    
    $
    10,370Accrued payroll and employee benefits
    
    
    2,769
    
    
    
    2,473Customer deposits
    
    
    1,125
    
    
    
    1,460Other accrued liabilities (note 8)
    
    
    2,100
    
    
    
    2,167Income taxes payable
    
    
    629
    
    
    
    705Total current liabilities
    
    
    19,150
    
    
    
    17,175Commitments and contingencies (note 10)
    
    
    
    
    
    
    Shareholders equity:Common shares nil par value-authorized 30,000,000 shares,
shares issued and outstanding March 31, 2008  15,790,810;
March 31, 2009  15,790,810
    
    
    49,923
    
    
    
    49,923Additional paid-in capital
    
    
    7,709
    
    
    
    7,771Accumulated other comprehensive income
    
    
    3,734
    
    
    
    5,316Retained earnings
    
    
    59,891
    
    
    
    57,297Total shareholders equity
    
    
    121,257
    
    
    
    120,307Total liabilities and shareholders equity
    
    $
    140,407
    
    
    $
    137,482
  F-2




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(U.S. dollars in thousands, except per share data)
 Year ended March 31,2007
    
    2008
    
    2009Net sales
    
    $
    136,779
    
    
    $
    143,806
    
    
    $
    131,738Cost of sales
    
    
    105,506
    
    
    
    117,373
    
    
    
    111,570Gross profit
    
    
    31,273
    
    
    
    26,433
    
    
    
    20,168Selling, general and administrative expenses
    
    
    18,957
    
    
    
    19,601
    
    
    
    19,291Other income (expenses), net
    
    
    1,376
    
    
    
    1,838
    
    
    
    (132
    )Operating income
    
    
    13,692
    
    
    
    8,670
    
    
    
    745Non-operating income, net
    
    
    547
    
    
    
    521
    
    
    
    168Income before income taxes and minority interests
    
    
    14,239
    
    
    
    9,191
    
    
    
    913Income taxes (note 9)
    
    
    1,239
    
    
    
    104
    
    
    
    (282
    )Income before minority interests
    
    
    13,000
    
    
    
    9,087
    
    
    
    1,195Minority interests
    
    
    833
    
    
    
    228
    
    
    
    Net income
    
    
    12,167
    
    
    
    8,859
    
    
    
    1,195Other comprehensive incomeForeign currency translation adjustment
    
    
    670
    
    
    
    2,628
    
    
    
    1,582Comprehensive income
    
    $
    12,837
    
    
    $
    11,487
    
    
    $
    2,777Net income per share (note 2)Basic:Net income per share
    
    $
    0.81
    
    
    $
    0.57
    
    
    $
    0.08Weighted average common shares outstanding
(shares in thousands)
    
    
    14,956
    
    
    
    15,517
    
    
    
    15,791Diluted:Net income per share
    
    $
    0.81
    
    
    $
    0.57
    
    
    $
    0.08Weighted average common and potential common shares
(shares in thousands)
    
    
    15,048
    
    
    
    15,556
    
    
    
    15,805
  F-3




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(U.S. dollars in thousands, except per share data)
 AccumulatedCommon stock
    
    Additional
    
    otherShares
    
    
    
    
    
    paid-in
    
    comprehensive
    
    Retained
    
    Shareholdersoutstanding
    
    Amount
    
    capital
    
    income
    
    earnings
    
    equityBalance at March 31, 2006
    
    
    14,923,730
    
    
    
    41,254
    
    
    
    6,970
    
    
    
    436
    
    
    
    58,108
    
    
    
    106,768Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    820
    
    
    
    
    
    
    
    
    
    
    
    820Exercise of stock options
    
    
    115,000
    
    
    
    1,139
    
    
    
    (189
    )
    
    
    
    
    
    
    
    
    
    
    950Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    670
    
    
    
    
    
    
    
    670Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,167
    
    
    
    12,167Dividends ($0.65 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,720
    )
    
    
    (9,720
    )Balance at March 31, 2007
    
    
    15,038,730
    
    
    
    42,393
    
    
    
    7,601
    
    
    
    1,106
    
    
    
    60,555
    
    
    
    111,655Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    310Exercise of stock options
    
    
    120,000
    
    
    
    1,188
    
    
    
    (202
    )
    
    
    
    
    
    
    
    
    
    
    986Issue of common stock for
acquisition of additional
interest in a subsidiary
    
    
    632,080
    
    
    
    6,342
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,342Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,628
    
    
    
    
    
    
    
    2,628Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,859
    
    
    
    8,859Dividends ($0.61 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,523
    )
    
    
    (9,523
    )Balance at March 31, 2008
    
    
    15,790,810
    
    
    
    49,923
    
    
    
    7,709
    
    
    
    3,734
    
    
    
    59,891
    
    
    
    121,257Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    62Foreign currency translation
adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,582
    
    
    
    
    
    
    
    1,582Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,195
    
    
    
    1,195Dividends ($0.24 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,789
    )
    
    
    (3,789
    )Balance at March 31, 2009
    
    
    15,790,810
    
    
    
    49,923
    
    
    
    7,771
    
    
    
    5,316
    
    
    
    57,297
    
    
    
    120,307
  F-4




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
 Year ended March 31,2007
    
    2008
    
    2009Cash flows from operating activitiesNet income
    
    $
    12,167
    
    
    $
    8,859
    
    
    $
    1,195Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    5,274
    
    
    
    6,940
    
    
    
    7,264Impairment of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    176Loss (gain) on sale of property, plant and equipment
    
    
    (643
    )
    
    
    43
    
    
    
    216Unrealized holding (gain) loss on marketable securities
    
    
    57
    
    
    
    (9
    )
    
    
    16Impairment loss on goodwill
    
    
    
    
    
    
    317
    
    
    
    Stock-based compensation
    
    
    820
    
    
    
    310
    
    
    
    62Minority interests
    
    
    833
    
    
    
    228
    
    
    
    Deferred tax
    
    
    615
    
    
    
    (551
    )
    
    
    (517
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (2,745
    )
    
    
    (334
    )
    
    
    (918
    )Inventories
    
    
    (7,650
    )
    
    
    3,033
    
    
    
    4,923Prepaid expenses and other current assets
    
    
    36
    
    
    
    (345
    )
    
    
    1,306Income taxes receivable
    
    
    (130
    )
    
    
    127
    
    
    
    3Accounts payable
    
    
    4,979
    
    
    
    (3,338
    )
    
    
    (2,157
    )Accrued payroll and employee benefits
    
    
    1,331
    
    
    
    23
    
    
    
    (376
    )Customer deposits
    
    
    109
    
    
    
    342
    
    
    
    335Other accrued liabilities
    
    
    488
    
    
    
    594
    
    
    
    67Income taxes payable
    
    
    266
    
    
    
    179
    
    
    
    74Net cash provided by operating activities
    
    
    15,807
    
    
    
    16,418
    
    
    
    11,669Cash flows from investing activitiesPurchase of property, plant and equipment
    
    
    (7,812
    )
    
    
    (7,288
    )
    
    
    (7,402
    )Acquisition of minority interest in a subsidiary
    
    
    
    
    
    
    (414
    )
    
    
    Proceeds from sale of property, plant and equipment
    
    
    3,232
    
    
    
    333
    
    
    
    345Net cash used in investing activities
    
    
    (4,580
    )
    
    
    (7,369
    )
    
    
    (7,057
    )Cash flows from financing activitiesDividends paid
    
    
    (11,809
    )
    
    
    (9,523
    )
    
    
    (3,789
    )Dividends paid to minority shareholders of a subsidiary
    
    
    (582
    )
    
    
    
    
    
    
    Exercise of stock options
    
    
    950
    
    
    
    986
    
    
    
    Decrease in restricted cash
    
    
    649
    
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (10,792
    )
    
    
    (8,537
    )
    
    
    (3,789
    )Effect of exchange rate changes
    
    
    (1,255
    )
    
    
    (2,343
    )
    
    
    (407
    )Net increase/ (decrease) in cash and cash equivalents
    
    
    (820
    )
    
    
    (1,831
    )
    
    
    416Cash and cash equivalents, beginning of year
    
    
    25,369
    
    
    
    24,549
    
    
    
    22,718Cash and cash equivalents, end of year
    
    $
    24,549
    
    
    $
    22,718
    
    
    $
    23,134Supplementary disclosures of cash flow information:Cash paid during the year for:Interest
    
    $
    
    
    
    $
    
    
    
    $
    Income taxes
    
    $
    487
    
    
    $
    365
    
    
    $
    79Supplementary disclosures of significant non-cash transactions:Issuance of common stock in connection with acquisition of
additional 24% shareholding in a subsidiary
    
    $
    
    
    
    $
    6,342
    
    
    $
    Excess of acquisition cost over the fair value of acquired
net assets of additional shareholding of a subsidiary
    
    $
    
    
    
    $
    (1,314
    )
    
    $
    
  F-5




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 1. Organization and Basis of Financial Statements
       2. Summary of Significant Accounting Policies
 Principles
of consolidation
 Goodwill
 Cash and cash equivalents
 Marketable securities 
 Inventories 
 F-6




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 2. Summary of Significant Accounting Policies  continued
 Property, plant and equipment
 Leasehold land and buildings
    
    40  50 yearsPlant and machinery
    
    4  10 yearsFurniture, fixtures and equipment
    
    4  5 yearsMotor vehicles
    
    3  4 yearsLeasehold improvements
    
    the shorter of 5 years or the lease term
 Valuation of long-lived assets
 Revenue recognition
 Comprehensive income
 Allowance for doubtful account
 Shipping
and handling cost 
 Income taxes
  F-7




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 2. Summary of Significant Accounting Policies  continued
 Foreign currency translation
    Post-retirement and post-employment benefits
 Stock-based compensation
   2007
    
    2008
    
    2009Risk-free interest rate  weighted average
    
    
    5.22
    %
    
    
    3.63
    %
    
    
    2.90
    %Expected life of options  weighted average
    
    10 years
    
    10 years
    
    10 yearsStock volatility
    
    
    44.1
    %
    
    
    41.28
    %
    
    
    40.49
    %Expected dividend yield
    
    
    4.75
    %
    
    
    5.04
    %
    
    
    7.35
    %
  F-8




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 2. Summary of Significant Accounting Policies  continued
 Net income per share
  Year ended March 312007
    
    2008
    
    2009Net income
    
    $
    12,167
    
    
    $
    8,859
    
    
    $
    1,195Basic net income per share
    
    $
    0.81
    
    
    $
    0.57
    
    
    $
    0.08Basic weighted average common shares outstanding
    
    
    14,956
    
    
    
    15,517
    
    
    
    15,791Effect of dilutive securities  Options
    
    
    92
    
    
    
    39
    
    
    
    14Diluted weighted average common and potential common
shares outstanding
    
    
    15,048
    
    
    
    15,556
    
    
    
    15,805Diluted net income per share
    
    $
    0.81
    
    
    $
    0.57
    
    
    $
    0.08
  Use
of estimates 
 Fair
value of financial instruments 
 Recent changes in accounting standards
 F-9




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 2. Summary of Significant Accounting Policies  continued
      F-10




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 2. Summary of Significant Accounting Policies  continued
   3. Marketable Securities
  March 31,2008
    
    2009Cost
    
    $
    297
    
    
    $
    297Market value
    
    $
    116
    
    
    $
    100
    4. Inventories
  March 31,2008
    
    2009Raw materials
    
    $
    14,855
    
    
    $
    11,930Work in progress
    
    
    6,259
    
    
    
    4,941Finished goods
    
    
    5,348
    
    
    
    4,574$
    26,462
    
    
    $
    21,445
 F-11




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 5. Prepaid Expenses and Other Current Assets
  March 31,2008
    
    2009Value added tax receivable
    
    $
    1,396
    
    
    $
    886Deposit for purchase of plant and equipment
    
    
    286
    
    
    
    249Rental and utility deposit
    
    
    43
    
    
    
    50Advance to suppliers
    
    
    896
    
    
    
    182Prepayment
    
    
    215
    
    
    
    443Others
    
    
    369
    
    
    
    77$
    3,205
    
    
    $
    1,887
 6. Property, Plant and Equipment
  March 31,2008
    
    2009At cost:Land and buildings
    
    $
    34,236
    
    
    $
    34,700Plant and machinery
    
    
    45,068
    
    
    
    40,617Furniture, fixtures and equipment
    
    
    21,839
    
    
    
    24,414Motor vehicles
    
    
    2,917
    
    
    
    2,263Leasehold improvements
    
    
    6,357
    
    
    
    4,767Total
    
    
    110,417
    
    
    
    106,761Less: accumulated depreciation and amortization
    
    
    (45,488
    )
    
    
    (41,632
    )Less: impairment
    
    
    
    
    
    
    (61
    )64,929
    
    
    
    65,068Construction in progress
    
    
    956
    
    
    
    1,611Less: impairment
    
    
    
    
    
    
    (115
    )956
    
    
    
    1,496Net book value
    
    $
    65,885
    
    
    $
    66,564
  March 31,2008
    
    2009Land use right of state-owned land and buildings erected thereon (a)
    
    $
    28,580
    
    
    $
    30,532Long term leased land and buildings erected thereon (b)
    
    
    4,169
    
    
    
    4,168Other buildings (c)
    
    
    1,487
    
    
    
    $
    34,236
    
    
    $
    34,700
 F-12




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 6. Property, Plant and Equipment  continued
 
 (a)
    
    The land use rights of state-owned land and buildings erected thereon represent land and
buildings located in China with lease terms of 50 years expiring in 2050.(b)
    
    Long term leased land and buildings erected thereon represent land and buildings on
collectively-owned land located in China on which an upfront lump-sum payment has been made for the
right to use the land and building for a term of 50 years to 2053. Dongguan Chang An Xiaobian
District Co-operation, the lessor, is the entity to whom the collectively-owned land has been
granted. According to existing China laws and regulations, collectively-owned land is not freely
transferable unless certain application and approval procedures are fulfilled by the Dongguan Chang
An Xiaobian District Co-operation to change the legal form of the land from collectively-owned to
state-owned. As of March 31, 2009, the Company is not aware of any steps being taken by the
Dongguan Chang An Xiaobian District Co-operation for such application.(c)
    
    Other buildings represent factory premises located in China purchased by the Company with lease
term of 30 years expiring 2018. These factory premises are classified as assets held for sale
under current assets at March 31, 2009 as the management plans to dispose them shortly. 7. Goodwill
  March 31,Acquisitions
    
    2008
    
    2009Electronic division
    
    $
    393
    
    
    $
    393Metallic division
    
    
    317
    
    
    
    317Foreign exchange differences
    
    
    (2
    )
    
    
    (1
    )Impairment  metallic division
    
    
    (317
    )
    
    
    (317
    )$
    391
    
    
    $
    392
 8. Other Accrued Liabilities
  March 31,2008
    
    2009Accrued expenses
    
    $
    1,013
    
    
    $
    1,164Commission expenses
    
    
    260
    
    
    
    239Value added tax payable
    
    
    
    
    
    
    53Others
    
    
    827
    
    
    
    711$
    2,100
    
    
    $
    2,167
 F-13




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 9. Income Taxes
  Year ended March 31,2007
    
    2008
    
    2009Hong Kong
    
    $
    (1
    )
    
    $
    (1
    )
    
    $
    (5
    )China and others
    
    
    14,240
    
    
    
    9,192
    
    
    
    918$
    14,239
    
    
    $
    9,191
    
    
    $
    913
       F-14




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 9. Income Taxes  continued
      Year ended March 31,2007
    
    2008
    
    2009Current tax Hong Kong
    
    $
    9
    
    
    $
    
    
    
    $
     China
    
    
    615
    
    
    
    654
    
    
    
    234Deferred tax
    
    
    615
    
    
    
    (550
    )
    
    
    (516
    )$
    1,239
    
    
    $
    104
    
    
    
    ($282
    )
 F-15




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 9. Income Taxes  continued
  Year ended March 31,2007
    
    2008
    
    2009Provision for income taxes at statutory tax rate in China
    
    $
    3,837
    
    
    $
    2,988
    
    
    $
    227Effect of different tax rate in various jurisdictions
    
    
    212
    
    
    
    
    
    
    
    (1
    )Tax holidays and concessions
    
    
    (351
    )
    
    
    (89
    )
    
    
    Effect of income for which no income tax is chargeable
    
    
    (3,007
    )
    
    
    (3,204
    )
    
    
    (145
    )Net change in valuation allowances
    
    
    264
    
    
    
    (16
    )
    
    
    (15
    )Under (over) provision of income tax in previous year
    
    
    273
    
    
    
    477
    
    
    
    (348
    )Others
    
    
    11
    
    
    
    (52
    )
    
    
    Effective tax
    
    $
    1,239
    
    
    $
    104
    
    
    $
    (282
    )
  March 312008
    
    2009Deferred tax assetNet operating loss carry forwards
    
    $
    478
    
    
    $
    550Provision of employee benefits
    
    
    
    
    
    
    308Depreciation and amortization
    
    
    
    
    
    
    93Others
    
    
    
    
    
    
    28Less: Valuation allowances
    
    
    (248
    )
    
    
    (233
    )Net deferred tax asset
    
    $
    230
    
    
    $
    746
  10. Commitments and Contingencies
   Years ending March 312010
    
    $
    1362011
    
    
    18Total minimum lease payments
    
    $
    154
  F-16




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 11. Employee Benefits
  12. Stock Option Plan
   Year ended March 31,2007
    
    2008
    
    2009Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedNumber
    
    average
    
    Number
    
    average
    
    Number
    
    averageof stock
    
    exercise
    
    of stock
    
    exercise
    
    of stock
    
    exerciseoptions
    
    price
    
    options
    
    price
    
    options
    
    priceOutstanding at beginning of the year
    
    
    644,000
    
    
    $
    14.10
    
    
    
    1,029,000
    
    
    $
    11.91
    
    
    
    1,119,000
    
    
    $
    11.14Granted during the year
    
    
    500,000
    
    
    
    8.26
    
    
    
    210,000
    
    
    
    5.71
    
    
    
    190,000
    
    
    
    1.34Exercised during the year
    
    
    (115,000
    )
    
    
    8.26
    
    
    
    (120,000
    )
    
    
    8.26
    
    
    
    
    
    
    
    Canceled or expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (243,000
    )
    
    
    12.03Outstanding and exercisable at the end of the year
    
    
    1,029,000
    
    
    
    11.91
    
    
    
    1,119,000
    
    
    
    11.14
    
    
    
    1,066,000
    
    
    
    9.19Range of exercise price per share
    
    $8.26 to $14.10
    
    
    $5.71 to $14.10
    
    
    $1.34 to $14.10
   F-17




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 13. Operating Risk
 Concentrations
of Credit Risk and Major Customers
 Percentage of net salesYear ended March 31,2007
    
    2008
    
    2009N&J Company Limited
    
    
    *
    
    
    
    11.8
    %
    
    
    28.6
    %Digidesign, Inc.
    
    
    13.3
    %
    
    
    17.0
    %
    
    
    12.7
    %VTech Telecommunications Limited
    
    
    12.7
    %
    
    
    *
    
    
    
    *Inter-Tel Incorporated
    
    
    *
    
    
    
    10.2
    %
    
    
    *Peavey Electronic Corp.
    
    
    10.4
    %
    
    
    *
    
    
    
    *Line 6 Manufacturing
    
    
    15.1
    %
    
    
    14.3
    %
    
    
    *
 
 *
    
    Less than 10%   Percentage ofaccounts receivableMarch 31,2008
    
    2009Largest receivable balances
    
    
    60.0
    %
    
    
    61.0
    %
  Country
risk
 14. Fair Value of Financial Instruments
  15. Segment Information
   F-18




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 15. Segment Information  Continued
  Year ended March 31,2007
    
    
    2008
    
    
    2009Net
    
    
    Intersegment
    
    
    Profit
    
    
    Net
    
    
    Intersegment
    
    
    Profit
    
    
    Net
    
    
    Intersegment
    
    
    Profisales
    
    
    Sales
    
    
    (loss)
    
    
    sales
    
    
    Sales
    
    
    (loss)
    
    
    sales
    
    
    Sales
    
    
    (loss)Segment:Injection molded plastic parts
    
    $
    59,587
    
    
    $
    150
    
    
    $
    10,554
    
    
    $
    58,858
    
    
    $
    28
    
    
    $
    7,049
    
    
    $
    75,838
    
    
    $
    2,437
    
    
    $
    1,553Electronic products
    
    
    77,970
    
    
    
    2,969
    
    
    
    3,551
    
    
    
    85,494
    
    
    
    3,940
    
    
    
    2,412
    
    
    
    57,859
    
    
    
    724
    
    
    
    29Metallic parts
    
    
    2,341
    
    
    
    
    
    
    
    134
    
    
    
    3,422
    
    
    
    
    
    
    
    (270
    )
    
    
    1,202
    
    
    
    
    
    
    
    (669
    )Segment total
    
    $
    139,898
    
    
    $
    3,119
    
    
    $
    14,239
    
    
    $
    147,774
    
    
    $
    3,968
    
    
    $
    9,191
    
    
    $
    134,899
    
    
    $
    3,161
    
    
    $
    913Reconciliation to consolidated
totals:Sales eliminations
    
    
    (3,119
    )
    
    
    (3,119
    )
    
    
    
    
    
    
    (3,968
    )
    
    
    (3,968
    )
    
    
    
    
    
    
    (3,161
    )
    
    
    (3,161
    )
    
    
    Consolidated totals:Net sales
    
    $
    136,779
    
    
    $
    
    
    
    
    
    
    
    $
    143,806
    
    
    $
    
    
    
    
    
    
    
    $
    131,738
    
    
    $
    Income before income taxes
and minority interests
    
    
    
    
    
    
    
    
    
    $
    14,239
    
    
    
    
    
    
    
    
    
    
    $
    9,191
    
    
    
    
    
    
    
    
    
    
    $
    913
 Year ended March 31,2007
    
    2008
    
    2009Interest
    
    
    Interest
    
    
    Interest
    
    
    Interest
    
    
    Interest
    
    
    Interestincome
    
    
    expenses
    
    
    income
    
    
    expenses
    
    
    income
    
    
    expensesSegment:Injection molded plastic parts
    
    $
    436
    
    
    $
    
    
    
    $
    458
    
    
    $
    
    
    
    $
    215
    
    
    $
    Electronic products
    
    
    91
    
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    12
    
    
    
    Metallic parts
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated total
    
    $
    527
    
    
    $
    
    
    
    $
    507
    
    
    $
    
    
    
    $
    227
    
    
    $
    
 Year ended March 31,2007
    
    2008
    
    2009Depreciation
    
    
    
    
    
    
    
    
    
    
    Depreciation
    
    
    
    
    
    
    
    
    
    
    DepreciationIdentifiable
    
    
    Capital
    
    
    and
    
    
    Identifiable
    
    
    Capital
    
    
    and
    
    
    Identifiable
    
    
    Capital
    
    
    andassets
    
    
    expenditure
    
    
    amortization
    
    
    assets
    
    
    expenditure
    
    
    amortization
    
    
    assets
    
    
    expenditure
    
    
    amortizationSegment:Injection molded
plastic parts
    
    $
    93,633
    
    
    $
    7,080
    
    
    $
    4,064
    
    
    $
    96,463
    
    
    $
    5,050
    
    
    $
    5,613
    
    
    $
    101,497
    
    
    $
    6,648
    
    
    $
    5,834Electronic products
    
    
    45,108
    
    
    
    595
    
    
    
    903
    
    
    
    42,583
    
    
    
    1,994
    
    
    
    1,048
    
    
    
    34,885
    
    
    
    637
    
    
    
    1,229Metallic parts
    
    
    2,279
    
    
    
    137
    
    
    
    307
    
    
    
    1,540
    
    
    
    244
    
    
    
    279
    
    
    
    1,067
    
    
    
    117
    
    
    
    201Segment totals
    
    $
    141,020
    
    
    $
    7,812
    
    
    $
    5,274
    
    
    $
    140,586
    
    
    $
    7,288
    
    
    $
    6,940
    
    
    $
    137,449
    
    
    $
    7,402
    
    
    $
    7,264Reconciliation to
consolidated
totals:Elimination of
receivables
from intersegments
    
    
    (520
    )
    
    
    
    
    
    
    
    
    
    
    (570
    )
    
    
    
    
    
    
    
    
    
    
    (359
    )
    
    
    
    
    
    
    Goodwill not
allocated to
segments
    
    
    710
    
    
    
    
    
    
    
    
    
    
    
    391
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    Consolidated totals
    
    $
    141,210
    
    
    $
    7,812
    
    
    $
    5,274
    
    
    $
    140,407
    
    
    $
    7,288
    
    
    $
    6,940
    
    
    $
    137,482
    
    
    $
    7,402
    
    
    $
    7,264
 F-19




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##### Table of Contents



DESWELL INDUSTRIES, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(U.S. dollars in thousands, except per share data)
 15. Segment Information  Continued
  March 312007
    
    2008
    
    2009Net salesUnited States of America
    
    $
    57,968
    
    
    $
    67,302
    
    
    $
    42,100China
    
    
    53,573
    
    
    
    53,231
    
    
    
    69,617United Kingdom
    
    
    14,379
    
    
    
    13,055
    
    
    
    13,925Hong Kong
    
    
    4,670
    
    
    
    2,486
    
    
    
    1,762Europe
    
    
    971
    
    
    
    2,227
    
    
    
    2,438Others
    
    
    5,218
    
    
    
    5,505
    
    
    
    1,896Total net sales
    
    $
    136,779
    
    
    $
    143,806
    
    
    $
    131,738
  March 312007
    
    2008
    
    2009Hong Kong and Macao
    
    $
    41,749
    
    
    $
    37,800
    
    
    $
    38,745China
    
    
    98,751
    
    
    
    102,216
    
    
    
    98,345Total identifiable assets
    
    $
    140,500
    
    
    $
    140,016
    
    
    $
    137,090Goodwill
    
    
    710
    
    
    
    391
    
    
    
    392Total assets
    
    $
    141,210
    
    
    $
    140,407
    
    
    $
    137,482
 16. Subsequent Event
  F-20




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##### Table of Contents



ITEM 19. EXHIBITS
  ExhibitNo.
    
    Description1.1
    
    Memorandum and Articles of Association (as amended and restated on 13th December,
2007) (incorporated by reference to Exhibit 1.1 to Deswells Registration Statement on Form
8-A filed with the SEC on December 31, 2007).2.1
    
    Form of common share certificate (incorporated by reference to Exhibit 4.1 of Amendment No.
1 to Deswells Registration Statement on Form F-1 filed with the SEC on July 13, 1995).4.1
    
    2001 Stock Option Plan (incorporated by reference to Exhibit A to the Companys Proxy
Statement for its 2001 Annual Meeting of Stockholders filed with the SEC under cover of Form
6-K on December 12, 2001.)4.2
    
    2003 Stock Option Plan of Deswell Industries, Inc. (as adopted August 20, 2003 and amended
August 1, 2005 and August 17, 2007) (incorporated by reference to Exhibit A to the Companys
Proxy Statement filed with the Securities and Exchange Commission on Form 6-K on September
11, 2007).4.3
    
    Stock Purchase Agreement dated as of August 17, 2007 by and among Lee Shu Kwan (S. K. Lee),
Tam Man Chi (M. C. Tam), shareholders of Integrated International Ltd., and Deswell
Industries, Inc. (incorporated by reference to Exhibit 4.3 of Deswells Annual Report on
Form 20-F for the year ended March 31, 2008 filed with the SEC on September 17, 2008).4.4
    
    Sale and Purchase Agreement dated as of August 5, 2009 by and between Jetcrown Industrial
(Shenzhen) Co., Ltd., as assignor, and an unrelated third party, as assignee, to sell real property in
Shekou, Shenzhen, China that was formerly used for Deswells plastic injection molding
operations for RMB50,000,000 (approximately $7.3 million, based on an exchange rate of
1:6.8309 on August 5, 2009 as reported on http://forex-history.net).*8.1
    
    Diagram of the Companys operating subsidiaries and affiliates  (see page 19 of this report)11.1
    
    Code of Ethics (incorporated by reference to Exhibit 11.1 of registrants Form 20-F for the
year ended March 31, 2004, filed with the SEC on July 16, 2004)12.1
    
    Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under
the Securities Exchange Act of 193412.2
    
    Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under
the Securities Exchange Act of 193413.1
    
    Certification Pursuant To 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act Of 200214.1
    
    Consent of BDO Limited to incorporation of its report on the Companys consolidated
financial statements into Registrants Registration Statements on Form S-8.
 
 *
    
    The agreement is written in Chinese and an English Summary is included in accordance with Form
20-F Instructions to Exhibits and Rule 12b-12 (d) under the Exchange Act). 55




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##### Table of Contents



SIGNATURES
  DESWELL INDUSTRIES, INC.By:
    /s/ Franki S. F. TseFranki S. F. Tse,Chief Executive Officer