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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the Year Ended: October 31, 2005
 Commission
File Number: 0-27002
 International DisplayWorks, Inc.
  Delaware
    
    94-3333649(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 1613 Santa Clara Drive, Suite 100, Roseville, California
    
    95661(Address of principal executive offices)
    
    (Zip Code)
 (916) 797-6800
  
  o þ
 o þ
 þ o
 þ
  þ o
  o þ




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TABLE OF CONTENTS
 PagePART IITEM 1. BUSINESS
    
    
    1ITEM 2. PROPERTIES.
    
    
    14ITEM 3. LEGAL PROCEEDINGS.
    
    
    15ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
    
    
    15PART IIITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
    
    
    15ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
    
    
    16ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
    
    
    19ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    41ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    F-1ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE.
    
    
    43ITEM 9A. CONTROLS AND PROCEDURES.
    
    
    43ITEM 9B. OTHER INFORMATION
    
    
    46PART IIIITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
    
    
    46ITEM 11. EXECUTIVE COMPENSATION.
    
    
    50ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
    
    
    57ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
    
    
    60ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
    
    
    60PART IVITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    61SIGNATURES
    
    
    66EXHIBITS INDEXEXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32EXHIBIT 10.21EXHIBIT 10.22EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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PART I
 
 ITEM 1. BUSINESS
 With the exception of historical facts stated herein, the matters discussed in this report on
Form 10-K are forward-looking statements that involve risks and uncertainties that could cause
actual results to differ materially from projected results. Such forward looking statements
include, but are not necessarily limited to statements regarding anticipated levels of future
revenues and earnings from the operations of International DisplayWorks, Inc. and its subsidiaries,
(the Company, we, or us), projected costs and expenses related to our operations, liquidity,
capital resources, and availability of future equity capital on commercially reasonable terms.
Factors that could cause actual results to differ materially are discussed under Item 7 
Managements Discussion and Analysis of Financial Condition and Results of Operations  Risk
Factors. Readers of this report are cautioned not to put undue
reliance on forward-looking
statements, which, by their nature, are not reliable indicators of future performance. We disclaim
any intent or obligation to publicly update these forward-looking statements, whether as a result
of new information, future events or otherwise.
 Overview
    1




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Our Solution
   
    
    cost-effective STN, CSTN and TFT products;
    
    high quality components and supply chain management expertise;
    
    custom design and manufacturing expertise; and
    
    superior worldwide customer service and post-sales support.
 Our Strategy
  
    
    Target and establish close relationships with strong customers in key vertical markets:We
continue to establish and strengthen close relationships with leading customers that have
high-volume and multiple product needs. We target leading companies in high growth vertical
 2




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markets that we believe will benefit from our design and manufacturing services, and we seek
to develop multiple solutions for different product groups for those customers. Our close
working relationships with our customers and emphasis on global account management allow us to
understand and anticipate their needs and product roadmaps and enable us to offer complete
product life-cycle solutions that meet these needs. For example, recently a tier-one mobile
phone manufacturer chose us as one of a select group of suppliers to provide TFT display
modules for their mobile phones and since then we have started shipping modules to the
manufacturer for commercial sales and distribution.
 
    
    Introduce technologies that leverage our core competencies:We have recently introduced
technologies, such as TFT and CSTN, that add value to our customers products and leverage our
current design and manufacturing capabilities. The addition of these capabilities enables us
to target a larger addressable market and attract new customers. Our investments in
technologies are generally customer-driven and allow us to leverage our library of design,
manufacturing and assembly processes.
 
    
    Maximize utilization of manufacturing capacity:We believe that our manufacturing excellence
has been a key factor in our success in attracting and retaining customers. This enables us to
target customers that have the ability to place large volume repeat orders with us, thus
reducing our overhead absorption rates as we recover fixed capacity costs over a larger
revenue base and incur fewer order setup costs. We are promoting shortened lead times and
competitive pricing to win new high-volume business, thereby optimizing our manufacturing
capacity utilization.
 
    
    Utilize low-cost manufacturing in China:All of our manufacturing facilities are located in
China. We have recently added a second facility in Shenzhen and a third facility in Beijing.
China provides us with one of the lowest cost engineering and production work forces in the
world, which, in turn, allows us to pass on significant cost advantages to our customers and
provides us the platform to compete with others manufacturing in China and other low-cost
locations.
 
    
    Produce value-added custom electronic components and modules:We produce SFF LCDs and
modules, including custom designed modules, that are incorporated in different types of
electronic products. A majority of OEMs, ODMs and EMSs that buy SFF LCDs and modules require
them to be custom designed. Our design capabilities position us to meet our customers needs
for both custom design and manufacturing solutions. We believe that due to the specific
requirements of our customers in this market, design capabilities may be a barrier to entry
for competition.
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
    
    Produce high quality products at competitive prices:Given the price sensitive nature of our
industry, our goal is to manufacture high quality products at low cost for our customers. We
believe that the quality of our manufacturing services is central to maintaining customer
trust and loyalty, and we therefore strive to ensure that our design and production processes
are of world-class standards. We have consistently met the stringent quality demands of our
OEM customers. We are certified under ISO 9001, the International Organization for
Standardizations highest quality standards, in respect of our Shenzhen South Campus and
Beijing facilities. The Shenzhen South Campus facility is also QS9000 certified, which is the
established standard for the automotive industry, and ISO 14001 certified, the latest
recognized quality standard, which provides a structured basis for environmental management
and control. In addition, we recently passed an audit for the ISO/TS16949:2002 standard, which
is a single standard that combines the requirements of the four most common automotive
standards, in Europe and the U.S. We anticipate receiving certification for this standard in the
first half of 2006. We are in the process of obtaining certification for our new facility in
Shenzhen north campus, where we have installed the color line we
purchased in July 2004. In
addition to maintaining customer trust and loyalty, we believe that superior quality is
necessary to maintaining high manufacturing yields, which in turn enables us to be cost
competitive.
 
    
    Develop improved production techniques in collaboration with customers:We collaborate with
our customers early in the design cycle to refine and improve the production methods employed
for complex, yet proven, production technologies. This allows us to focus our research and
development efforts on process improvements, strategically positioning us with our customers
in new product introductions. By helping our OEM and ODM customers enhance their product
designs, lower costs and improve yield, we are able to strengthen our relationships with them.
 
    
    Pursue strategic acquisitions and alliances:We intend to continue to evaluate acquisition
opportunities that we believe will increase our market share in our target markets, improve
our portfolio of intellectual property or strengthen our customer base. We intend to pursue
acquisitions or alliances with companies that have products or technologies that complement
our current products, enhance our technical capabilities and expand our service offerings.
Since 2004, we have completed two acquisitions, including an acquisition of a TFT and STN
facility in Beijing. We believe that pursuing a long-term strategy of vertical integration
through acquisitions and alliances and through internal development will allow us to control a
higher percentage of our costs of materials and can enable us to engage with our customers
earlier in the design cycle.
 Our Customers
  Vertical Markets
    
    Representative CustomersMobile phones.
    
    Kyocera, QualcommHandheld Games.
    
    Hasbro
 4




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Vertical Markets
    
    Representative CustomersThermostats
    
    Honeywell, United Technologies/Carrier,White RogersPoint of Sale
    
    Hypercom, Mars, TeroakaPortable Media Players
    
    Creative Technology, SanDiskMedical Devices
    
    Abbott Labs, Omron, PhilipsEMS
    
    Flextronics, JabilWhite Goods
    
    Ecowater, LG Electronics, WhirlpoolOffice Equipment
    
    EriccsonAutomotive
    
    Denso, Motorola,
Panasonic,Visteon
   
    
    Reduction of total production cost;
    
    Access to leading technologies;
    
    Acceleration of time-to-market; and
    
    Reduction of capital investment and shifting of fixed costs to variable costs.
  Corporate Information
  5




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Industry Overview
 Displays
 Display Technology
   6




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Display Markets
    7




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Industry Structure
   Our Products and Services
   Our Design and Manufacturing Capabilities
  8




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
    
    Chip on Glass, or COG.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.
 
    
    Chip on Board, or COB.COB is a technology that utilizes wire bonding
to connect large-scale integrated circuits directly to printed circuit
boards. We use COB in the assembly of consumer products such as
calculators, personal organizers and electronic appliances.
 
    
    Tape Automated Bonding with Anisotropic Conductive Film, or TAB with
ACF.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.
 
    
    Fine Pitch Heat Seal Technology or FPHS.FPHS technology allows us to
connect LCD displays to printed circuit boards produced by COB that
enables very thin connections. This method is highly specialized and
is used in the production of finished products such as PDAs.
 
    
    Surface Mount Technology or SMT.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 appliances.
 Environmental Laws
  9




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Suppliers
   Competition
  .
 Quality Control
  10




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Sales and Marketing
  Seasonality
  Backlog
  11




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a.
    
    for cancellations 0 to 30 days prior to scheduled delivery date, the purchaser
must pay the full purchase price;b.
    
    for cancellations between 31- and 90 days prior to the scheduled delivery date,
the purchaser must pay the full purchase price for all finished goods and for cost of
all work in process, all raw materials in inventory associated with that order, and all
cancellation and restocking charges of our vendors that we may incur;c.
    
    for cancellations between 91 and 120 days from the scheduled delivery date,
the purchaser must pay the costs for all work in process, all raw materials in
inventory associated with the invoice, and all non-cancellable part orders or
cancellation and restocking charges from our vendors that we may incur;d.
    
    for cancellations more than 120 days from the scheduled delivery date, the
purchaser must pay for all unique raw materials in inventory, and all non-cancellable
part orders or cancellation and restocking charges from our vendors that we may incur.
   Research and Development
  12




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Intellectual Property
  Geographic Markets
  Revenues (in thousands)
    
    Fiscal Period Ended October 312005
    
    
    2004
    
    
    2003United States
    
    $
    29,484
    
    
    $
    19,472
    
    
    $
    10,693China (including Hong Kong)
    
    
    13,456
    
    
    
    8,440
    
    
    
    4,916Asia (excluding Hong Kong
and China)
    
    
    33,397
    
    
    
    10,152
    
    
    
    4,538Europe
    
    
    8,592
    
    
    
    7,051
    
    
    
    1,690Other
    
    
    3,349
    
    
    
    1,119
    
    
    
    878$
    88,278
    
    
    $
    46,234
    
    
    $
    22,715
 Long-lived
Assets (in thousands)
 2005
    
    
    2004United States
    
    $
    110
    
    
    $
    112China (including Hong Kong)
    
    
    26,921
    
    
    
    16,306Asia (excluding Hong Kong
and China)
    
    
    
    
    
    
    Europe
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    $
    27,031
    
    
    $
    16,418
 Employees
  13




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WHERE YOU CAN FIND MORE INFORMATION
  
 ITEM 2. PROPERTIES.
   14




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ITEM 3. LEGAL PROCEEDINGS.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
   15




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Low
    
    
    HighFiscal 2005:Fourth Quarter (to October 31)
    
    $
    4.97
    
    
    $
    7.54Third Quarter (to July 31)
    
    $
    7.01
    
    
    $
    9.75Second Quarter (to April 30)
    
    $
    8.00
    
    
    $
    10.65First Quarter (to January 31)
    
    $
    5.20
    
    
    $
    9.85
 Low
    
    
    HighFiscal 2004:Fourth Quarter (to October 31)
    
    $
    2.66
    
    
    $
    5.75Third Quarter (to July 31)
    
    $
    3.00
    
    
    $
    6.15Second Quarter (to April 30)
    
    $
    2.40
    
    
    $
    6.94First Quarter (to January 31)
    
    $
    0.49
    
    
    $
    2.99
 Dividends
  Recent Sales of Unregistered Securities
  Repurchases of Stock
  
 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
  16




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October 31,
    
    
    October 31,
    
    
    October 31,
    
    
    October 31,2002
    
    
    October 31, 20012005 (twelve
    
    
    2004 (twelve
    
    
    2003 (twelve
    
    
    (twelve
    
    
    (tenmonths)
    
    
    months)
    
    
    months)
    
    
    months)
    
    
    months)Net sales
    
    $
    88,278
    
    
    $
    46,234
    
    
    $
    22,715
    
    
    $
    20,806
    
    
    $
    14,658Cost of goods sold
    
    
    72,618
    
    
    
    36,123
    
    
    
    17,600
    
    
    
    15,730
    
    
    
    11,468Gross Profit
    
    
    15,660
    
    
    
    10,111
    
    
    
    5,115
    
    
    
    5,076
    
    
    
    3,190Operating expenses:General and administrative
    
    
    7,693
    
    
    
    5,403
    
    
    
    3,487
    
    
    
    4,036
    
    
    
    4,071Selling, marketing and customer service
    
    
    2,750
    
    
    
    2,096
    
    
    
    1,524
    
    
    
    1,440
    
    
    
    1,231Engineering, advanced design and
product management
    
    
    877
    
    
    
    625
    
    
    
    593
    
    
    
    691
    
    
    
    901Litigation settlement(1)
    
    
    
    
    
    
    625
    
    
    
    
    
    
    
    
    
    
    
    Impairment of machinery
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    270
    
    
    
    Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,287
    
    
    
    Total operating expenses
    
    
    11,320
    
    
    
    8,749
    
    
    
    5,604
    
    
    
    11,724
    
    
    
    6,203Operating income (loss)
    
    
    4,340
    
    
    
    1,362
    
    
    
    (489
    )
    
    
    (6,648
    )
    
    
    (3,013
    )Other income (expenses):Interest
    
    
    (681
    )
    
    
    (396
    )
    
    
    (389
    )
    
    
    (464
    )
    
    
    (530
    )Loss on investment
    
    
    9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income :
    
    
    
    
    
    
    108
    
    
    
    70
    
    
    
    170
    
    
    
    972(672
    )
    
    
    (288
    )
    
    
    (319
    )
    
    
    (294
    )
    
    
    442Income
(loss) before income taxes
    
    
    3,668
    
    
    
    1,074
    
    
    
    (808
    )
    
    
    (6,942
    )
    
    
    (2,571
    )Income tax benefit
    
    
    (99
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    $
    3,767
    
    
    $
    1,074
    
    
    $
    (808
    )
    
    $
    (6,942
    )
    
    $
    (2,571
    )Net income (loss) per shareBasic
    
    $
    0.12
    
    
    $
    0.04
    
    
    $
    (0.04
    )
    
    $
    (0.36
    )
    
    $
    (0.14
    )Diluted
    
    $
    0.12
    
    
    $
    0.04
    
    
    $
    (0.04
    )
    
    $
    (0.36
    )
    
    $
    (0.14
    )Weighted average number of shares used
in computing per share amountsBasic
    
    
    31,388,406
    
    
    
    25,647,763
    
    
    
    19,448,718
    
    
    
    19,207,246
    
    
    
    19,192,611Diluted
    
    
    32,710,238
    
    
    
    27,511,228
    
    
    
    19,448,718
    
    
    
    19,207,246
    
    
    
    19,192,611
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October 31,
    
    October 31,
    
    October 31,
    
    October
    
    October2005
    
    2004
    
    2003
    
    31, 2002
    
    31, 2001Consolidated Balance Sheet Data
Cash and cash equivalents
    
    $
    9,258
    
    
    $
    10,186
    
    
    $
    1,178
    
    
    $
    1,556
    
    
    $
    982Net current assets from
continuing operations
    
    
    41,489
    
    
    
    28,504
    
    
    
    9,264
    
    
    
    6,618
    
    
    
    5,950Property, plant and equipment, net
    
    
    27,031
    
    
    
    16,418
    
    
    
    4,796
    
    
    
    5,197
    
    
    
    6,389Total assets
    
    
    68,782
    
    
    
    44,922
    
    
    
    14,060
    
    
    
    11,815
    
    
    
    18,058Current liabilities
    
    
    33,424
    
    
    
    15,718
    
    
    
    7,959
    
    
    
    6,093
    
    
    
    5,861Long-term debt and capital lease
obligations, net of current
portion
    
    
    5
    
    
    
    70
    
    
    
    1,877
    
    
    
    1,280
    
    
    
    807Stockholders equity
    
    
    35,353
    
    
    
    29,134
    
    
    
    4,224
    
    
    
    4,442
    
    
    
    11,390
 SELECTED QUARTERLY CONSOLIDATED FINANCIAL DATA
(In thousands)
 Diluted
    
    
    BasicNet
    
    
    Earnings
    
    
    EarningsEarnings
    
    
    (Loss) Per
    
    
    (Loss) PerSales
    
    
    Gross Profit
    
    
    (Loss)
    
    
    Share
    
    
    Share2005First Quarter
    
    
    18,086
    
    
    
    3,643
    
    
    
    1,015
    
    
    $
    0.03
    
    
    $
    0.03Second Quarter
    
    
    22,637
    
    
    
    4,120
    
    
    
    1,473
    
    
    
    0.05
    
    
    
    0.05Third Quarter
    
    
    23,600
    
    
    
    4,137
    
    
    
    984
    
    
    
    0.03
    
    
    
    0.03Fourth Quarter
    
    
    23,955
    
    
    
    3,760
    
    
    
    295
    
    
    
    0.01
    
    
    
    0.01Total
    
    
    88,278
    
    
    
    15,660
    
    
    
    3,767
    
    
    $
    0.12
    
    
    $
    0.122004First Quarter
    
    $
    9,766
    
    
    $
    2,378
    
    
    $
    621
    
    
    $
    0.03
    
    
    $
    0.02Second Quarter
    
    
    10,589
    
    
    
    2,168
    
    
    
    (449
    )
    
    
    (0.02
    )
    
    
    (0.02
    )Third Quarter
    
    
    11,620
    
    
    
    2,434
    
    
    
    370
    
    
    
    0.01
    
    
    
    0.01Fourth Quarter
    
    
    14,259
    
    
    
    3,131
    
    
    
    532
    
    
    
    0.02
    
    
    
    0.02Total
    
    $
    46,234
    
    
    $
    10,111
    
    
    $
    1,074
    
    
    $
    0.04
    
    
    $
    0.042003First Quarter
    
    $
    5,084
    
    
    $
    1,455
    
    
    $
    24
    
    
    $
    
    
    
    $
    Second Quarter
    
    
    4,667
    
    
    
    910
    
    
    
    (628
    )
    
    
    (0.03
    )
    
    
    (0.03
    )Third Quarter
    
    
    5,864
    
    
    
    1,280
    
    
    
    (314
    )
    
    
    (0.02
    )
    
    
    (0.02
    )Fourth Quarter
    
    
    7,100
    
    
    
    1,470
    
    
    
    110
    
    
    
    0.01
    
    
    
    0.01Total
    
    $
    22,715
    
    
    $
    5,115
    
    
    $
    (808
    )
    
    $
    (0.04
    )
    
    $
    (0.04
    )
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
 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 believes, considers, intends, expects, may, will, should, forecast, or
anticipates, or the negative equivalents of those words or comparable terminology, and by
discussions of strategies that involve risks and uncertainties. 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 Risk Factors. This section should be read in conjunction with
our consolidated financial statements.
  Overview
   Background and Corporate History
  19




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Factors and Trends Affecting our Operations
  
    
    Product cycles in the consumer electronics industry and other target markets.
Our success depends almost entirely upon the widespread market acceptance of our
customers products. Any significant slowdown in the demand for their products
would adversely affect our business. Our business depends on the electronics
industry, which is subject to rapid technological change, short product life cycles
and margin pressures. The electronics industry has been cyclical and subject to
significant downturns characterized by diminished product demand, production
over-capacity, and accelerated erosion of average selling prices. Economic
conditions affecting the electronics industry in general or our major customers may
adversely affect our operating results.
    
    Currency fluctuations. Although we transact business predominantly in U.S. and
Hong Kong dollars, we collect a portion of our revenue and incur approximately 30%
of our total spending, such as payroll, land rent, electrical power, depreciation
and other costs associated with running our facilities in China, in RMB. Adverse
movements between the selling currency and the RMB would have a material impact on
our profitability. The RMB has been broadly stable against U.S. dollar in the past
three years, but recently China announced that the RMB would be pegged to a basket
of currencies, making it possible for the RMB to rise and fall relative to the U.S.
dollar. We cannot predict with certainty future exchange rates and thus their
impact on our operating results.
    
    Economic factors affecting the P.R.C. Our cost structure is subject to
fluctuations from inflationary pressures in China and other geographic regions
where we conduct business. China is currently experiencing dramatic growth in its
economy. This growth may lead to continued pressure on wages and salaries that may
exceed increases in productivity. In addition, this presence may not be compensated
for, and may be exacerbated, by currency movements. We are also exposed to movement
in commodity prices, particularly the cost of electrical power for our
manufacturing facilities.
    
    Yield rate. Although increases in labor costs and other charges may impact cost
of sales, our yield rate is one of the most significant factors affecting our
manufacturing operations and results.
    
    Supply shortages and delays. As our industry experiences an overall upswing in
its economic cycle, we are increasingly exposed to possible supply shortages of
certain key components for which alternative sources are not always available. We
do not have long-term supply contracts with the majority of our suppliers or for
specific components. This generally serves to reduce our commitment risk but does
expose us to supply risk and price increases that we may not be able to pass on to
our customers. In some cases, supply shortages and delays in delivery have resulted
in curtailed production or delays in production, which contribute to an increase in
inventory levels, a delay in revenues and a loss of profit.
    
    Sales, development and qualification cycles in our target industries. Factors
specific to certain industries also have an impact on our sales cycles. In
particular, those customers who operate in or supply to the medical and automotive
industries require longer sales cycles as qualification processes are longer and
more rigorous,
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often requiring extensive field audits. Customers who operate in the mobile devices
industry also require strict qualification requirements. This requires us to make
significant investments of time and resources well before our customers introduce
their products and before we can be sure that our efforts will generate any
significant sales or that we will even recover our initial investment of time and
resources. These lengthy and challenging sales cycles may mean that it could take
longer before our sales and marketing efforts result in revenue, if they do at all,
and may have adverse effects on our operating results, financial condition, cash
flows and stock price.
 Critical Accounting Policies and Estimates
  Business Combinations
  Revenue Recognition
 Revenue Recognition in Financial Statements.
 
    
    Persuasive evidence of an arrangement exists,
    
    Delivery has occurred or services have been rendered,
    
    Price to the customer is fixed or determinable, and
    
    Collectability is reasonably assured.
  22




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Accounts Receivable
  Inventories
  23




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Stock Based Compensation
 Accounting for
Stock-Based Compensation  Transition and Disclosure
 Accounting for
Stock-Based Compensation
 Income Taxes
  Results
of Operations   Comparison of the year ended October 31, 2005 to the year ended October 31, 2004
 Net sales
 24




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Cost of goods sold 
 General and administrative expenses
 Sales, marketing, and customer service
 Engineering, advanced design and project management expenses
 Interest expense
 25




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Other income
 Income tax benefits 
 Net income
 Comparison of the year ended October 31, 2004 to the year ended October 31, 2003
 Net Sales
 Cost
of goods sold 
 General and administrative expenses
 Sales, marketing, and customer service
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Engineering, advanced design and project management expenses th
 Litigation Settlement
 Interest expense
 Other income
 Net income
 Liquidity and Capital Resources
  27




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Contractual Obligations
    
    Payments Due by PeriodTotal
    
    

Less
than 
1
year
    
    
    1-3 years
    
    
    4-5 years
    
    

After
5 
yearsLong Term Debt
    
    $
    2,469
    
    
    $
    2,469
    
    
    
    
    
    
    
    
    
    
    
    Operating Leases
    
    
    7,012
    
    
    
    796
    
    
    
    1,476
    
    
    
    1,361
    
    
    
    3,379Capital Leases
    
    
    81
    
    
    
    76
    
    
    
    5
    
    
    
    
    
    
    
    Total Contractual Cash
Obligations
    
    $
    9,562
    
    
    $
    3,341
    
    
    $
    1,481
    
    
    $
    1,361
    
    
    $
    3,379
 28




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RISK FACTORS
 Investing in our common stock involves a high degree of risk. You should carefully
consider the following risk factors and all other information contained in this prospectus
supplement, the accompanying prospectus and the documents incorporated herein, before purchasing
our common stock. The risks and uncertainties described below are not the only ones facing us.
Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial,
also may become important factors that affect us.
If any of the following risks occur, our business, financial condition or results of operations
could be materially and adversely affected. In that case, the trading price of our common stock
could decline, and you could lose some or all of your investment.
 Risks Related to Our Business
 Our operating results may fluctuate significantly from period to period, which could cause our
stock price to decline.
  
    
    the timing and size of orders, which can be influenced by our customers inventory
levels;
    
    the volume of orders relative to our capacity;
    
    delays in delivery of components or raw materials by our suppliers, which could
cause delays in our delivery of products to our customers during any given period;
    
    delays in our product sales, design and qualification processes, which vary widely
in length based upon customer requirements;
    
    decreases in our yield rate;
    
    product introductions and market acceptance of new products or new generations of
products;
    
    evolution in the life cycles of customers products;
    
    effectiveness in managing manufacturing processes;
    
    changes in cost and availability of labor and components;
    
    product mix;
    
    pricing and availability of competitive products and services;
    
    possible seasonality of end market products, such as handheld games, as the
percentage of our business in those markets grows;
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
    
    the timing of the Chinese New Year relative to the end of our fiscal quarter; and
    
    changes or anticipated changes in economic conditions.
  A few customers and applications account for a significant portion of our sales.
  We do not have long-term purchase commitments from our customers and may have to rely on customer
forecasts.
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Adverse trends in the electronics industry may negatively affect our operating results.
  We are subject to lengthy development periods and product acceptance cycles.
   We are subject to particularly lengthy sales cycles in some markets.
  Our component and materials suppliers may fail to meet our needs.
  31




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Failure to optimize our manufacturing potential and cost structure could materially and adversely
affect our business and operating results.
   We may not be able to efficiently integrate the operations, products and technologies from our
acquisitions with our existing operations, products and technologies.
  32




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Our independent registered public accounting firm may decline to attest on the adequacy of our
internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of
2002.
  We face intense competition, and many of our competitors have substantially greater resources than
we do.
  33




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.
 Our customers may decide to design or manufacture the products that they currently purchase from
us.
  We depend on the market acceptance of the products of our customers.
  We extend credit to our customers and may not be able to collect all receivables due to us.
  34




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Products we manufacture may contain design or manufacturing defects, which could result in reduced
demand for our services and customer claims.
  We could become involved in intellectual property disputes.
  We may develop new products that may not gain market acceptance.
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We must effectively manage our growth.
  
    
    enhance our operational, financial and management systems;
    
    expand usage of our facilities and equipment; and
    
    successfully hire, train and motivate additional employees, including the technical
personnel necessary to operate our production facilities.
  If we do not retain our key management personnel, our business will suffer.
  We may not be able to retain, recruit and train adequate management and production personnel.
  36




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The growth of our business depends on our ability to finance new products and services.
  
    
    research and development activities on existing and potential product solutions;
    
    additional engineering and other technical personnel;
    
    advanced design, production and test equipment; and
    
    technological changes in manufacturing processes.
  From time-to-time, we may seek additional equity or debt financing and may not be able to secure
this financing at acceptable terms.
  We may need to produce higher-end products to remain competitive.
  Potential strategic alliances may not achieve their objectives.
  37




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We are at risk for potential product liability claims not covered by insurance from our
discontinued snowboard business.
  Risks Related to International Operations
 We are dependent on our Chinese manufacturing operations.
  The Chinese legal system has inherent uncertainties that could impair our ability to enforce the
agreements governing our operations or otherwise adversely affect our business.
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Because our operations are international, we are subject to significant worldwide political,
economic, legal and other uncertainties.
   39




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##### Table of Contents



We face risks associated with international trade and currency exchange.
   Changes to Chinese tax laws and heightened efforts by the Chinese tax authorities to increase
revenues could subject us to greater taxes.
   We are at risk of incremental taxation due to transfer pricing.
  We are exposed to risks related to the availability and price of electricity.
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We are exposed to the limit on the availability of water.
  Future outbreaks of severe acute respiratory syndrome or other communicable diseases may have a
negative impact on our business and operating results.
  Our results could be harmed if compliance with new environmental regulations becomes too
burdensome.
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Currency Fluctuations
  41




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Interest Rate Risk
  Inflation Risk
   42




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 TABLE OF CONTENTS
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Financial StatementsConsolidated Balance Sheets as of October 31, 2005 and 2004
    
    
    F-3Consolidated Statements of Operations for the year
ended October 31, 2005, the year ended October 31, 2004
and the year ended October 31, 2003
    
    
    F-4Consolidated Statements of Stockholders Equity for the year
ended October 31, 2005, the year ended October 31, 2004
and the year ended October 31, 2003
    
    
    F-5Consolidated Statements of Cash Flows for the year
ended October 31, 2005, the year ended October 31, 2004
and the year ended October 31, 2003
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-8Supplementary Information
    
    
    F-35
 F-1




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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 Board of Directors and Shareholders
International DisplayWorks, Inc.
      
 
 F-2




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INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (in thousands)
 October 31,
    
    
    October 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalentsCash in banks
    
    $
    8,875
    
    
    $
    8,187Cash in commercial paper
    
    
    
    
    
    
    1,999Cash in banks  restricted deposits
    
    
    383
    
    
    
    Total cash and cash equivalents
    
    
    9,258
    
    
    
    10,186Accounts receivable,
net of allowance for doubtful accounts of $36 and $101
    
    
    21,776
    
    
    
    11,378Inventory, net
    
    
    8,516
    
    
    
    5,780Prepaid expense and other current assets
    
    
    1,939
    
    
    
    1,160Total current assets
    
    
    41,489
    
    
    
    28,504Other assetsDeferred tax asset
    
    
    262
    
    
    
    Property, plant and equipment at cost, net
    
    
    27,031
    
    
    
    16,418Total assets
    
    $
    68,782
    
    
    $
    44,922LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    13,928
    
    
    $
    7,236Accrued liabilities
    
    
    3,998
    
    
    
    3,588Line of credit
    
    
    12,953
    
    
    
    4,398Current portion of long term debt
    
    
    2,545
    
    
    
    496Total current liabilities
    
    
    33,424
    
    
    
    15,718Long-term debt, net of current portion
    
    
    5
    
    
    
    70Total liabilities
    
    
    33,429
    
    
    
    15,788Commitments and contingenciesShareholders equityPreferred stock, par $0.001, 10,000,000 shares authorized,
none issued
    
    
    
    
    
    
    Common stock, par $0.001, 100,000,000 shares authorized
31,971,629 and 30,573,383 shares issued and outstanding
at October 31, 2005 and October 31, 2004 respectively
    
    
    32
    
    
    
    31Additional paid in capital
    
    
    67,424
    
    
    
    65,611Accumulated deficit
    
    
    (32,812
    )
    
    
    (36,579
    )Cumulative translation adjustment
    
    
    709
    
    
    
    71Total shareholders equity
    
    
    35,353
    
    
    
    29,134Total liabilities and shareholders equity
    
    $
    68,782
    
    
    $
    44,922
  F-3




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INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (in thousands, except Share and per share data)
 For the Years EndedOctober 31,
    
    
    October 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2003Net sales
    
    $
    88,278
    
    
    $
    46,234
    
    
    $
    22,715Cost of goods sold
    
    
    72,618
    
    
    
    36,123
    
    
    
    17,600Gross profit
    
    
    15,660
    
    
    
    10,111
    
    
    
    5,115Operating expenses:General and administrative
    
    
    7,693
    
    
    
    5,403
    
    
    
    3,487Sales, marketing and customer service
    
    
    2,750
    
    
    
    2,096
    
    
    
    1,524Engineering, advanced design and
product management
    
    
    877
    
    
    
    625
    
    
    
    593Litigation settlement
    
    
    
    
    
    
    625
    
    
    
    Total operating expenses
    
    
    11,320
    
    
    
    8,749
    
    
    
    5,604Operating income (loss)
    
    
    4,340
    
    
    
    1,362
    
    
    
    (489
    )Other income (expense):Interest expense
    
    
    (681
    )
    
    
    (396
    )
    
    
    (389
    )Other income
    
    
    9
    
    
    
    108
    
    
    
    70Total other income (expense)
    
    
    (672
    )
    
    
    (288
    )
    
    
    (319
    )Income (loss) before income taxes
    
    
    3,668
    
    
    
    1,074
    
    
    
    (808
    )Income tax
benefit
    
    
    (99
    )
    
    
    
    
    
    
    Net income (loss)
    
    $
    3,767
    
    
    $
    1,074
    
    
    $
    (808
    )Net income (loss) per common share:Net income
(loss)  basic
    
    $
    0.12
    
    
    $
    0.04
    
    
    $
    (0.04
    )Net income
(loss)  diluted
    
    $
    0.12
    
    
    $
    0.04
    
    
    $
    (0.04
    )Weighted average number of shares used in
computing share amounts:Basic
    
    
    31,388,406
    
    
    
    25,647,763
    
    
    
    19,448,718Diluted
    
    
    32,710,238
    
    
    
    27,511,228
    
    
    
    19,448,718
  F-4




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INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
 (in thousands, except share data)
 CumulativeCommon Stock
    
    Accumulated
    
    TranslationShares
    
    Amount
    
    Deficit
    
    Adjustment
    
    TotalBalance, November 1, 2002
    
    
    19,217,246
    
    
    $
    41,216
    
    
    $
    (36,845
    )
    
    $
    71
    
    
    $
    4,442Comprehensive lossNet loss
    
    
    
    
    
    
    
    
    
    
    (808
    )
    
    
    
    
    
    
    (808
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (808
    )Common stock options exercisedWarrants issued
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    
    
    
    
    74Stock issued
    
    
    1,767,667
    
    
    
    516
    
    
    
    
    
    
    
    
    
    
    
    516Balance, October 31, 2003
    
    
    20,984,913
    
    
    
    41,806
    
    
    
    (37,653
    )
    
    
    71
    
    
    $
    4,224Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    1,074
    
    
    
    
    
    
    
    1,074Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,074Common stock options exercised
    
    
    635,375
    
    
    
    302
    
    
    
    
    
    
    
    
    
    
    
    302Common stock warrants exercised
    
    
    1,051,760
    
    
    
    608
    
    
    
    
    
    
    
    
    
    
    
    608Warrants issued
    
    
    
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    85Stock issued
    
    
    7,901,335
    
    
    
    22,841
    
    
    
    
    
    
    
    
    
    
    
    22,841Balance October 31, 2004
    
    
    30,573,383
    
    
    
    65,642
    
    
    
    (36,579
    )
    
    
    71
    
    
    $
    29,134Comprehensive incomeNet income
    
    
    
    
    
    
    
    
    
    
    3,767
    
    
    
    
    
    
    
    3,767Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    638
    
    
    
    638Total comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,405Common stock options exercised
    
    
    801,500
    
    
    
    1,269
    
    
    
    
    
    
    
    
    
    
    
    1,269Common stock warrants exercised
    
    
    542,298
    
    
    
    331
    
    
    
    
    
    
    
    
    
    
    
    331Warrants issued
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Stock issued
    
    
    54,448
    
    
    
    214
    
    
    
    
    
    
    
    
    
    
    
    214Balance October 31, 2005
    
    
    31,971,629
    
    
    $
    67,456
    
    
    
    (32,812
    )
    
    
    709
    
    
    $
    35,353
  F-5




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##### Table of Contents



INTERNATIONAL DISPLAYWORKS, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (in thousands)
 For the Periods EndedOctober 31,
    
    October 31,
    
    October 31,2005
    
    2004
    
    2003Cash flows from operating activities:Net income
(loss)
    
    $
    3,767
    
    
    $
    1,074
    
    
    $
    (808
    )Adjustments to reconcile net income to net cash provided
by (used in) operating activities:Depreciation
    
    
    2,497
    
    
    
    910
    
    
    
    811Stock issued for services
    
    
    214
    
    
    
    58
    
    
    
    16Warrants issued for extension of debt terms
    
    
    
    
    
    
    
    
    
    
    29Foreign currency translation
    
    
    200
    
    
    
    
    
    
    
    Loss on disposal of fixed assets
    
    
    65
    
    
    
    9
    
    
    
    58Changes in operating assets and liabilities, net
of business combinations:Increase in accounts receivable
    
    
    (7,316
    )
    
    
    (7,118
    )
    
    
    (1,196
    )Increase in Inventories
    
    
    (736
    )
    
    
    (3,315
    )
    
    
    (1,005
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    307
    
    
    
    201
    
    
    
    (823
    )Increase in deferred tax assets
    
    
    (262
    )
    
    
    
    
    
    
    Increase in accounts payable
    
    
    4,006
    
    
    
    2,466
    
    
    
    1,700(Decrease) increase in accrued liabilities
    
    
    (439
    )
    
    
    1,952
    
    
    
    271Net cash
provided by (used in) operating activities
    
    
    2,303
    
    
    
    (3,763
    )
    
    
    (947
    )Cash flows from investing activities:Acquisitions of property, plant and equipment
    
    
    (4,708
    )
    
    
    (12,541
    )
    
    
    (491
    )Acquisition
of Three-Five (Beijing) Co., Ltd., net of cash acquired
    
    
    (8,282
    )
    
    
    
    
    
    
    Proceeds from disposal of property, plant and equipment
    
    
    51
    
    
    
    
    
    
    
    23Net cash used in investing activities
    
    
    (12,939
    )
    
    
    (12,541
    )
    
    
    (468
    )Cash flows from financing activities:Proceeds from issuance of common stock
    
    
    1,600
    
    
    
    23,693
    
    
    
    500Proceeds from issuance of warrants
    
    
    
    
    
    
    85
    
    
    
    45Proceeds from lines of credit, net
    
    
    8,555
    
    
    
    3,347
    
    
    
    46Proceeds on debt  related parties
    
    
    
    
    
    
    
    
    
    
    100Payment on debt  related parties
    
    
    
    
    
    
    (574
    )
    
    
    (100
    )(Payment) proceeds from debt
    
    
    (447
    )
    
    
    (1,239
    )
    
    
    446Net cash provided by financing activities
    
    
    9,708
    
    
    
    25,312
    
    
    
    1,037Decrease (increase) in cash and cash equivalents
    
    
    (928
    )
    
    
    9,008
    
    
    
    (378
    )Cash and cash equivalents at beginning of period
    
    
    10,186
    
    
    
    1,178
    
    
    
    1,556Cash and cash equivalents at end of period
    
    $
    9,258
    
    
    $
    10,186
    
    
    $
    1,178Supplemental disclosure:Cash paid for interest
    
    $
    681
    
    
    $
    396
    
    
    $
    389Cash paid for income taxes
    
    $
    
    
    
    $
    
    
    
    $
    Non-cash financing activities:Stock issued for services
    
    $
    214
    
    
    $
    58
    
    
    $
    16
  F-6




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##### Table of Contents



Current AssetsInventories
    
    $
    2,000Net due from
Three-Five (Beijing) Co., Ltd
    
    
    432Prepaid expenses and other current assets
    
    
    1,086Total current assets
    
    
    3,518Non-current assetsProperty, plant and equipment, at cost
    
    
    9,535Less: Excess of fair value of acquired assets over cost
    
    
    (2,341
    )7,194Current LiabilitiesMortgage payable and capitalized lease payable
    
    
    (2,430
    )Total current liabilities
    
    
    (2,430
    )Total assets acquired
    
    $
    8,282
 F-7




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##### Table of Contents



1.
    
    THE BUSINESSDescription of BusinessInternational DisplayWorks, Inc. (the Company), headquartered in Roseville, California,
was incorporated in the state of Delaware in July of 1999. On October 31, 2001, the Company
merged with its parent, Granite Bay Technologies, Inc., a California corporation.The Company, together with its subsidiaries, all of which are wholly owned, is engaged in
the design, manufacture and worldwide distribution of liquid crystal display (LCD) products
and are a supplier to several Fortune 500 companies, major Japanese and other Asian and
European corporations and smaller companies operating in a variety of end-markets. Our
product focus is on the small form factor (SFF) LCD market, which includes 7 displays or
smaller. Our customers include original equipment manufacturers (OEMs), original design
manufacturers (ODMs) and electronic manufacturing services providers (EMSs), collectively
referred as our customers, serving markets such as mobile phones, handheld games, portable
media players, medical devices, consumer electronics, and industrial and telecommunications
equipment.We assist our customers in the design and development of their products and provide full
turnkey manufacturing services. We offer a broad suite of services and solutions, including
outsourced design, component purchasing, electronic subassemblies and finished products
assembly, post-assembly testing and post-sales support. We provide value-added custom design
and manufacturing services, in which we design and develop products that are sold by our
customers to their end customers and markets using their brand names. We support a broad
product portfolio, with offerings in three SFF LCD technologies: monochrome super-twisted
nematic (STN), color super-twisted nematic (CSTN) and thin film transistor (TFT). In
addition, we support an extensive set of production techniques for manufacturing our SFF LCD
modules: surface mount (SMT), chip-on-board (COB), chip-on-glass (COG), chip-on-film (COF)
and tape carrier package (TCP). See also Our Products and Services section below.We believe that we compete successfully based on a variety of factors including product
quality, customer service, global account and sales coverage model, value-added design and
manufacturing services, and broad set of product offerings. In addition, we believe that our
China-based operations provide us with a competitive cost structure and access to a highly
educated engineering work force. Unlike many of our Asian competitors that are largely based
in Taiwan, Hong Kong, Japan and Korea but may have certain of their manufacturing operations
in China, we operate all of our product design, manufacturing, engineering support, front
end glass manufacturing and post-sales support operations in China. Our presence in China
and our customer-driven engineering focus allow us to closely monitor our manufacturing
resources for quality, as well as to align our design
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and manufacturing capabilities with our customers local manufacturing operations. Our
locally based personnel thus have the ability to work directly and collaboratively with the
growing number of China-based OEMs, ODMs and EMSs.The Companys manufacturing operations are in Shenzhen and Beijing, Peoples Republic of
China (PRC).2.
    
    LIQUIDITYThe Company and its subsidiaries generated net income of $3,767,000 during the period ended
October 31, 2005, $1,074,000 during the period ended October 31, 2004 and net losses of $808,000 during the period ended October 31, 2003. The Company and
its subsidiaries also have an accumulated deficit of $32,812,000, of which $23,833,000 is
from discontinued operations and $8,979,000 is from continuing operations.The Company requires capital to repay certain existing fixed obligations, and to provide for
additional working capital and investment in capital equipment if it is to grow in
accordance with its business plan. To this end in March 2005, the Company entered into a
new $20,000,000 credit line with Wells Fargo HSBC Trade Bank. The new line replaced an
existing asset-based line with Wells Fargo Business Credit and provides the Company up to
$15,000,000 in additional working capital with more favorable terms.Based on our cash balances, line of credit, expected capital expenditures, and forecasted
working capital, management believes we have adequate cash resources to fund operations at
their current levels for the foreseeable future. However, future cash forecasts are based
on assumptions regarding the performance of a new manufacturing line, and further
assumptions regarding working capital needs associated with increasing customer orders. To
fund the Companys anticipated growth it will be required to seek sources of additional
working capital. Actual requirements may be materially different than our forecasts.On October 31, 2005 the Company had debt falling due in 2006 of $2,545,000 and a further
amount due of $5,000 all of which is repayable in 2007.3.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 a.
    
    Principles of ConsolidationThe consolidated financial statements include the financial statements of International
DisplayWorks, Inc., and all of the following wholly-owned subsidiaries:
 
    
    International DisplayWorks (Hong Kong) Limited, (a Hong Kong company);
    
    IDW Technology (Shenzhen) Co., Ltd., (a PRC company);
    
    MULCD Microelectronics (Shenzhen) Co., Ltd (a PRC company)  merged with IDW
Technology (Shenzhen) Co., Ltd. in June 2005;
    
    International DisplayWorks Ltd., (a BVI company); and
    
    IDW (Beijing) Co., Ltd., (a PRC company) since acquisition on April 9, 2005.
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All significant intercompany accounts and transactions have been eliminated on
consolidation.b.
    
    Fiscal YearThe Company operates on a fiscal year which ends on October 31.c.
    
    Cash and Cash EquivalentsThe Company considers all highly liquid investments with maturity three months or less
from date of purchase to be cash equivalents. At October 31, 2005 there was
approximately $383,000 in cash as a restricted pledged to the bank as a
security deposit under Section 113 of the PRC customs law. There was no such restricted
cash as of October 31, 2004. At October 31, 2005 and 2004, $5,119,000 and $3,965,000,
respectively, of the Companys cash was held in foreign banks.d.
    
    Financial InstrumentsThe carrying amounts of cash and cash equivalents, accounts receivable, notes payable,
lines of credit and accounts payable approximate fair value due to the short-term
maturity of these instruments. The carrying amount of the mortgage debt also
approximates fair value due to the short-term maturity of the note. Because the
exchange rate of the RMB is no longer pegged to the United States Dollar, movements in
the RMB could affect these carrying values.e.
    
    Accounts Receivable, netTo establish our allowance for doubtful accounts, we perform credit evaluations of our
customers financial condition, along with analyzing past experience, and make
provisions for doubtful accounts based on the outcome of our credit valuations and
analysis. We evaluate the collectability of our accounts receivable based on specific
customer circumstances, current economic trends, historical experience with collections,
and the age of past due receivables. We believe the allowances that we have established
are adequate under the circumstances; however, a change in the economic environment or a
customers financial condition could cause our estimates of allowances and,
consequently, the provision for doubtful accounts, to change. Allowance for doubtful
accounts was $36,000 and $101,000 as of October 31, 2005 and 2004, respectively.f.
    
    InventoriesInventories are stated at the lower of cost or market. Cost is determined using either
weighted average-cost or standard cost basis. Costs included in the valuation of
inventory are labor, materials (including freight and duty) and manufacturing overhead.
Provisions are made for obsolete or slow-moving inventory based on management estimates.
Inventories are written down based on the difference between
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the cost of inventories and the net realizable value based upon estimates about future
demand from customers and specific customer requirements on certain projects.g.
    
    Property, Plant and EquipmentProperty, plant and equipment are recorded at cost less accumulated depreciation and any
provision for impairment. The cost of major improvements is capitalized whereas the
cost of maintenance and repairs is expensed in the period incurred. Gains and losses
from the disposal of property, plant and equipment are included in income/loss from
operations.All land in the PRC is owned by the PRC government. According to PRC law the government
may sell the right to use the land for a specified period of time. Thus all of the
Companys land holdings in the PRC are considered to be leasehold land and are amortized
on the straight-line basis over the respective term of the right to use the land. The
buildings on the land are also depreciated over the same period.Depreciation charges are calculated from the latter of date of acquisition or when the
asset is placed in service.Amortization of leasehold improvements is provided using the straight-line method over
the shorter of the expected useful life of the asset or the remaining lease term.Depreciation rates computed using the straight-line method is as follows:
 Land and Buildings
    
    30 yearsMachinery
    
    10 yearsFurniture, fixtures, and equipment
    
    5 yearsComputer equipment and software
    
    3 years
 h.
    
    Impairment or Disposal of Long-Lived AssetsIn August 2001, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standard (SFAS) No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets,that was applicable to financial statements issued for fiscal
years beginning after December 15, 2001. The FASBs new rules on asset impairment
supersede SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Ofand portions of Accounting Principles Board (APB)
Opinion No. 30, Reporting the Results for Operations.The statement requires a single
accounting model for long-lived assets to be disposed of and significantly changes the
criteria that would have to be met to classify an asset as held-for-sale. Classification
as held-for-sale is an important distinction since such assets are not depreciated and
are stated at the lower of fair value or carrying amount. The statement also requires
expected future operating losses from discontinued operations to be recorded in the
period(s) in which the losses are incurred, rather than as of the measurement date as
previously required. On November 1, 2002, the Company adopted SFAS No. 144. The
adoption of SFAS No. 144 did not have any significant impact on the financial position
and results of operations of the Company.
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i.
    
    Warranty CostsThe Company warrants its products against defects for ten days after delivery to
customers. As the Company manufactures custom products to customer specifications and
has not experienced significant returns, the Company does not anticipate it will incur a
material amount of warranty expense and therefore no provision has been made.j.
    
    Advertising and Promotion CostsAdvertising and promotion costs are expensed as incurred and are included in selling,
marketing and customer service expenses. Advertising expenses were approximately
$84,000, $70,000 and $44,000 for the periods ending October 31, 2005, 2004 and 2003,
respectively.k.
    
    Revenue RecognitionThe Company recognizes revenue from product sales in accordance with Staff Accounting
Bulletin (SAB) No. 104 Revenue Recognition in Financial Statements.SAB No. 104
requires that revenue be recognized 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
    
    Collectability is reasonably assured.
 Our standard terms provide that shipments are FOB from our manufacturing facility, and
title and risk of loss shift to the customer upon shipment, and there are no continuing
services other than delivery. Accordingly, we recognize revenue from the sale of our
products when the products are shipped from our factory. For certain customers the
Company maintains Supplier Managed Inventory (SMI). For these customers revenue is
recognized when the customer draws product from the storage hubs. For one customer the
Company uses ocean shipping to deliver product. Because of the length of time at sea
the Company recognizes this revenue when the product is delivered to the customers
freight forwarder at the port of entry. Sales revenue is recorded net of discounts,
rebates and prompt pay discounts. Returns and adjustments are booked as soon as they
have been assessed for validity. The Company does not provide an allowance for returns
at shipment because we make custom product which are customer specific, and no returns
are allowed. The Company warrants its product for replacement only in the event of
defects, and customers are required to notify us within 10 days of product receipt if
there is a defect. Historically, the Company has not experienced significant defects,
and replacements for defects are not material. The Company does not offer discounts,
and in limited circumstances rebates are offered on tooling expense after certain
revenue thresholds are met. Those minimal rebates, if any, are not material and
infrequent.
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l.
    
    Shipping and Handling CostsShipping and handling costs are expensed to cost of sales for material purchases and
delivery for finished products. During the periods ended October 31, 2005, 2004 and
2003, shipping and handling costs expensed to cost of sales were $2,329,000, $1,234,000
and $535,000, respectively.m.
    
    Income TaxesPursuant to Financial Accounting Standards Board (FASB) Statement of Financial
Standards (SFAS) No. 109, Accounting for Income Taxes, income taxes are recorded
based on current year amounts payable or refundable, as well as the consequences of
events that give rise to deferred tax assets and liabilities. We base our estimate of
current and deferred taxes on the tax laws and rates that are currently in effect in the
appropriate jurisdiction. Changes in laws or rates may affect the current amounts
payable or refundable as well as the amount of deferred tax assets or liabilities. At
October 31, 2005, we had approximately $14.1 million of net operating loss carry forward
available for use resulting in approximately $4.6 million of deferred tax assets. We
have provided a valuation allowance of 94% of the $4.6 million based on managements
estimation that these net operating losses are unlikely to be realized in the
foreseeable future.n.
    
    Stock Options and WarrantsSFAS No. 123, Accounting for Stock-Based Compensation, allows companies which have
stock-based compensation arrangements with employees to adopt a new fair value basis of
accounting for stock options and other equity instruments or to continue to apply the
existing accounting rules under APB Opinion No. 25, Accounting for Stock Issued to
Employees, but with additional financial statement disclosure. The Company continues
to account for stock-based compensation arrangements under APB Opinion No. 25. See also
the adoption of SFAS No. 148, Accounting for Stock-Based Compensation  Transition and
Disclosureat note 3(s).In December 2004, the FASB issued SFAS No. 123R that amends SFAS No. 123, Accounting for
Stock-Based Compensation, to require public entities (other than those filing as small
business issuers) to report stock-based employee compensation in their financial
statements. We will be required to comply with the provisions of SFAS No. 123R as of
November 1, 2005, the beginning of our next fiscal year. We currently do not record
compensation expense related to our stock-based employee compensation plans in our
financial statements. We currently make a pro-forma disclosure of the expense related to
our stock-based compensation plans (See footnote No. 3(s) to the financial statements).
The effect of adoption will be the expensing of the fair value of options granted
beginning November 1, 2005.
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o.
    
    Product Development CostsExpenditures associated with the development of new products and improvements to
existing products are expensed as incurred. Product development costs were
approximately $94,000, $69,000 and $13,000 for the periods ended October 31, 2005, 2004
and 2003, respectively.p.
    
    Net Earnings (Loss) per ShareBasic net earnings per common share is computed by dividing net earnings (loss)
applicable to common shareholders by the weighted-average number of common shares
outstanding during the period. Weighted-average numbers of shares outstanding at
October 31, 2005 were 31,388,406 basic and 32,710,238 diluted. Diluted shares include
common stock shares outstanding of 31,388,406, 1,040,166 common stock options
exercisable at October 31, 2005 and 281,666 common stock warrants exercisable at October
31, 2005. Diluted net earnings (loss) per common share is determined using the
weighted-average number of common shares outstanding during the period, adjusted for the
dilutive effect of common stock equivalents, consisting of shares that might be issued
upon exercise of common stock options. In periods where losses are reported, the
weighted-average number of common shares outstanding excludes common stock equivalents,
because their inclusion would be anti-dilutive. For the period ended October 31, 2003
the weighted-average number of common shares outstanding excludes common stock
equivalents of 3,936,481.q.
    
    Foreign CurrencyAll 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 translated at the exchange rates
existing on that date. Exchange differences are recorded in the consolidated statement
of operations. For the periods ended October 31, 2005, 2004 and 2003, the exchange
differences resulted in expenses of $9,000, $116,000 and $67,000, respectively.The Company and its subsidiaries have adopted the U.S. dollar, Hong Kong dollar and the
PRC Renminbi as their functional currencies. The financial statements of all
subsidiaries with functional currencies other than the U.S. dollar 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 rate between the Hong Kong dollar and the U.S. dollar has been pegged
(HK$7.80 to US$1.00) since October 1983. The exchange rate between the Renminbi and the
U.S. dollar is based on the prevailing market rate, which was
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approximately Renminbi 8.1 to US$1.00 at October 31, 2005 and Renminbi 8.3 to US$1.00 at
October 31, 2004 and 2003.r.
    
    Segment ReportingThe Company accounts for its segments pursuant to SFAS No. 131 Disclosures about
Segments of an Enterprise and Related Information. Operating segments, as defined in
SFAS No. 131, are components of an enterprise for which separate financial information
is available and is evaluated regularly by the Company in deciding how to allocate
resources and in assessing performance. The financial information is required to be
reported on the basis that it is used internally for evaluating the segment performance.
The Company believes it operates in only one segment.s.
    
    New Accounting PronouncementsIn December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based Compensation
 Transition and Disclosure.SFAS No. 148 amends SFAS No. 123 Accounting for
Stock-Based Compensation,to provide alternative methods of transition for a voluntary
change to the fair value-based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No.
123 to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the effect of
the method used on reported results. SFAS No. 148 is effective for fiscal years
beginning after December 15, 2002 (November 1, 2003 for the Company). The expanded
annual disclosure requirements and the transition provisions are effective for fiscal
years ending after December 15, 2002 (October 31, 2003 for the Company). Upon adoption
of SFAS No. 148, there was no impact on the Companys financial position, results of
operations, or cash flows.In December 2004, the FASB issued SFAS No. 123R that amends SFAS No. 123 Accounting for
Stock-Based Compensation,to require public entities (other than those filing as small
business issuers) to report stock-based employee compensation in their financial
statements. The Company will be required to comply with the provisions of SFAS No. 123R
as of November 1, 2005. The Company currently does not record compensation expense
related to its stock-based employee compensation plans in its financial statements.At October 31, 2005, the Company has four stock-based employee compensation plans, as
more fully described in note 11(b). The Company accounts for these plans under the
recognition and measurement principles of APB No. 25, Accounting for Stock Issued to
Employeesand related interpretations. 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. During the
periods ending October 31, 2005, 2004 and 2003, the Company recorded no compensation
expense related to its stock-based employee compensation plans.
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The following table illustrates the effect on net loss and loss per share as if the
Company had applied the fair value recognition provisions of SFAS No. 123, Accounting
for Stock-Based Compensation,to stock-based employee compensation.
 For the Years Ended October 31,2005
    
    
    2004
    
    
    2003Net income (loss) as reported
    
    $
    3,767
    
    
    $
    1,074
    
    
    $
    (808
    )Deduct: Total stock-based
employee compensation
expense determined under
fair value based method for
all awards.
    
    
    (807
    )
    
    
    (181
    )
    
    
    (65
    )Pro-forma net income (loss)
    
    $
    2,960
    
    
    $
    893
    
    
    $
    (873
    )Earnings per share:Basic  as reported
    
    $
    0.12
    
    
    $
    0.04
    
    
    $
    (0.04
    )Basic  pro-forma
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    (0.04
    )Diluted  as reported
    
    $
    0.12
    
    
    $
    0.04
    
    
    $
    (0.04
    )Diluted  pro-forma
    
    $
    0.09
    
    
    $
    0.03
    
    
    $
    (0.04
    )
 The Company has computed the value of all options granted during the periods ending
October 31, 2005, 2004 and 2003 using the Black-Scholes option-pricing model and the
following weighted average assumptions for grants for the periods ended:
 October
    
    October 31,
    
    October31, 2005
    
    2004
    
    31, 2003Risk-free interest rate
    
    
    3.6
    %
    
    
    3.7
    %
    
    
    3.7
    %Expected dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    0.0
    %Expected life (years)
    
    
    5
    
    
    
    5
    
    
    
    5Expected volatility
    
    
    66.5
    %
    
    
    100.7
    %
    
    
    92.4
    %
 Using the Black-Scholes methodology, the total value of options granted during the
periods ending October 31, 2005, 2004 and 2003 was $3,836,015, $1,033,515 and $90,955,
respectively, which would be amortized on a pro forma basis over the vesting period of
the options (typically four years). The weighted average fair value per share of
options granted during the periods ending October 31, 2005, 2004 and 2003 was $7.85,
$0.75 and $0.29, respectively.In December 2004, the FASB issued SFAS No. 153, Exchanges of Non-monetary Assets  an
amendment of APB Opinion No. 29. The guidance in APB Opinion No. 29, Accounting for
Non-monetary Transactions, is based on the principle that exchanges of non-monetary
assets should be measured based on the fair value of the assets exchanged. The guidance
in that Opinion, however, included certain exceptions to that principle. SFAS No. 153
amends APB Opinion 29 to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of non-monetary
assets that do not have commercial
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substance. A non-monetary exchange has commercial substance if the future cash flows of
the entity are expected to change significantly as a result of the exchange. The
provisions of FAS No. 123 are effective for non-monetary asset exchanges occurring in
fiscal periods beginning after September 15, 2005. The adoption of SFAS No. 153 is not
expected to have a material impact on our financial statements.In December 2004, the FASB issued Staff Position No. 109-2, Accounting and Disclosure
Guidance for the Foreign Earnings Repatriation Provision within the American Jobs
Creation Act of 2004 (FSP FAS 109-2) The American Jobs Creation Act of 2004 (AJCA)
provides for a special one-time tax deduction of 85% of certain foreign earnings that
are repatriated (as defined in the AJCA) in either an enterprises last tax year that
began before the enactment date, or the first tax year that begins during the one-year
period beginning on the date of enactment. FSP FAS 109-2 was effective upon its
issuance. The adoption of FSP FAS 109-2 is not expected to have a material impact on our
financial statements.In May 2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154
Accounting Changes and Error Correctionsa replacement of APB Opinion No. 20 and FASB
Statement No. 3 (SFAS No. 154). This Statement replaces APB Opinion No. 20,
Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim
Financial Statements, and changes the requirements for the accounting for and reporting
of a change in accounting principle. SFAS No. 154 applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting pronouncement
in the unusual instance that the pronouncement does not include specific transition
provisions. When a pronouncement includes specific transition provisions, those
provisions should be followed. SFAS No. 154 is effective for accounting changes and
corrections of errors made in fiscal years beginning after December 15, 2005. The
adoption of SFAS No. 154 is not expected to have a material impact on our financial
statements.In January 2003, the FASB issued FIN No. 46, Consolidation of Variable Interest
Entities (FIN 46) which is an interpretation of Accounting Research Bulletin No. 51,
Consolidated Financial Statements. FIN 46 requires a variable interest entity (VIE)
to be consolidated by a company that is considered to be the primary beneficiary of that
VIE. In December 2003, the FASB issued FIN No. 46 (revised December 2003),
Consolidation of Variable Interest Entities (FIN 46-R) to address certain FIN 46
implementation issues. The effective dates and impact of FIN 46 and FIN 46-R for the
Companys consolidated financial statements are as follows:
 1.
    
    Special purpose entities (SPEs) created prior to
February 1, 2003. The Company must apply either the provisions of FIN 46
or early adopt the provisions of FIN 46-R at the end of the first interim
or annual reporting period ending after December 15, 2003. The Company has
determined that it has no SPEs.2.
    
    Non-SPEs created prior to February 1, 2003. The
Company is required to adopt FIN 46-R at the end of the first interim or
annual reporting period ending after March 15, 2004, November 1, 2004.
While not required, the
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Company could elect to adopt FIN 46 or FIN 46-R for these non-SPEs as of the
end of the first interim or annual reporting period ending after December
15, 2003. Management does not believe that the adoption of this provision
will have a material effect on the Companys financial position, results of
operations or cash flows.3.
    
    All entities, regardless of whether a SPE, that were
created subsequent to January 31, 2003. The Company is required to apply
the provisions of FIN 46 unless management elects to early adopt the
provisions of FIN 46-R as of the first interim or annual reporting period
ending after December 15, 2003. If the Company does not elect to early
adopt FIN 46-R, then the Company is required to apply FIN 46-R to these
entities as of the end of the first interim or annual reporting period
ending after March 15, 2004. The Company has not entered into any material
joint venture or partnership agreements subsequent to January 31, 2003 and
the Company has not expect to enter into any such material agreements
during the first interim period ended January 31, 2004. If the Company
enters into any significant joint venture and partnership agreements in the
future that would require consolidation under FIN 46 or FIN 46-R, it could
have a material impact on the Companys future consolidated financial
statements.
 In April 2003, FASB issued SFAS No. 149, Amendments of Statement 133 on Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including derivatives embedded in other
contracts and hedging activities. SFAS No. 149 amends SFAS No. 133 for decisions
made by the FASB as part of its Derivatives Implementation Group process. SFAS No.
149 also amends SFAS No. 133 to incorporate clarifications of the definition of a
derivative. SFAS No. 149 is effective for contracts entered into or modified and
hedging relationships designated after June 30, 2003. The provisions of SFAS No.
149 are not expected to have a material impact on the Companys financial position,
results of operations, or cash flows.In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires that an issuer classifies a financial instrument that is within its scope
as a liability (or an asset in some circumstances). SFAS No. 150 was effective for
financial instruments entered into or modified after May 31, 2003, and otherwise was
effective for the Companys fourth quarter of 2003. The adoption of SFAS No. 150
has not had a material impact on the Companys financial position, results of
operations, or cash flows.
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t.
    
    Reclassifications
  u.
    
    Use of EstimatesThe preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of any contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting
period. On an on-going basis, we evaluate our estimates and judgments, including
those related to bad debts, inventories, fixed assets, income taxes, and any
contingencies. We base our estimates on historical experience and on various other
assumptions that we believe are reasonable under the circumstances. The results form
the basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results could differ from
those estimates.
 4.
    
    INVENTORIESInventories consisted of the following at October 31 (in thousands):
 2005
    
    
    2004Finished goods
    
    $
    1,220
    
    
    
    917Work-in-progress
    
    
    2,156
    
    
    
    1,820Raw materials
    
    
    5,369
    
    
    
    3,510Less: reserve for obsolete inventory
    
    
    (229
    )
    
    
    (467
    )$
    8,516
    
    
    $
    5,780
 5.
    
    PREPAID EXPENSES AND OTHER CURRENT ASSETSPrepaid expenses and other current assets consisted of the following at October 31 (in
thousands):
 2005
    
    
    2004Prepaid expenses
    
    $
    622
    
    
    $
    259Advances to suppliers
    
    
    811
    
    
    
    447PRC VAT recoverable
    
    
    43
    
    
    
    145Other
    
    
    463
    
    
    
    309$
    1,939
    
    
    $
    1,160
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##### Table of Contents



6.
    
    PROPERTY, PLANT AND EQUIPMENTProperty, plant and equipment consisted of the following at October 31 (in thousands):
 2005
    
    
    2004Land and buildings
    
    $
    4,356
    
    
    $
    1,185Furniture, fixtures and equipment
    
    
    3,072
    
    
    
    2,503Machinery
    
    
    21,883
    
    
    
    14,476Leasehold improvements
    
    
    4,967
    
    
    
    410Construction in progress
    
    
    113
    
    
    
    1,85734,391
    
    
    
    20,431Less accumulated depreciation
    
    
    (7,360
    )
    
    
    (4,013
    )$
    27,031
    
    
    $
    16,418
 Depreciation expense totaled $2,497,000, $910,000 and $811,000 for the periods ended
October 31, 2005, 2004 and 2003, respectively.As of October 31, 2004, the Company had purchased $8.7 million of machinery related to its
new color line which had been delivered but not placed into service as of year end.As of October 31, 2005, the Company had outstanding
purchase commitments of $576,465 for
capital equipment.As of October 31, 2005, the Company has capital leases for software and maintenance
equipment in the amount of $70,000 and $11,000, respectively. As of October 31, 2005, the
Company has capital lease assets for software and maintenance equipment with net book value in the amount of $177,397. The accumulated amortization related to these capital leases are
$14,988 and $1,688 for October 31, 2005 and 2004 respectively.7.
    
    ACCRUED LIABILITIESAccrued liabilities consisted of the following at October 31 (in thousands):
 2005
    
    
    2004Accrued payroll and related liabilities
    
    $
    1,599
    
    
    $
    1,335Accrued staff expenses
    
    
    168
    
    
    
    190Accrued inventory purchases
    
    
    410
    
    
    
    27Accrued royalties
    
    
    
    
    
    
    38Accrued PRC government management fees
    
    
    112
    
    
    
    72Accrued asset acquisition costs for
new LCD line equipment and
construction retention
    
    
    422
    
    
    
    1,560Accrued utilities
    
    
    277
    
    
    
    Other accrued liabilities
    
    
    938
    
    
    
    366Total accrued liabilities
    
    $
    3,926
    
    
    $
    3,588
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##### Table of Contents



8.
    
    LONG-TERM DEBTLoans and notes payable consisted of the following at October 31 (in thousands, except
interest payments):
 October 31,
    
    
    October 31,2005
    
    
    2004Mortgage loan, at a variable yearly
interest rate that ranges from 7.9% to
8.3% to be repaid in three annual
installments, collateralized by the
three factory buildings in Shenzhen,
PRC. There are two equal additional
installments due in June 2004 and June
2005.
    
    
    
    
    
    
    403Mortgage loan, at yearly interest rate
of 6.138%, due on April 30, 2006,
collateralized by the factory building
in Beijing, PRC.
    
    
    2,469
    
    
    
    Capitalized Lease, term twenty four
months, payable in eight quarterly
installments of $23,260 beginning
October 1, 2004
    
    
    70
    
    
    
    163Capitalized Lease, term 36 months,
payable in 36 installments, interest
rate 8.01%, collateralized by
maintenance equipment located in Beijing
, PRC
    
    
    11
    
    
    
    2,550
    
    
    
    566Less: current portion
    
    
    (2,545
    )
    
    
    (496
    )$
    5
    
    
    $
    70
  Year EndingOctober 31,
    
    Total2006
    
    $
    2,5452007
    
    
    5$
    2,550
 In June of 2001 and as amended in June 2002, the Company, through its wholly owned
subsidiary, IDWT, entered into a mortgage on the three buildings located at its
manufacturing facility in Shenzhen, PRC. The amount borrowed was RMB 10,000,000,
approximately $1,200,000 at prevailing exchange rates, for three years at a variable
interest rate that ranged from 7.9% to 8.3% during the year, scheduled to be repaid in three
annual installments, the first due in June 2003. Having made the final installment on this
mortgage in June 2005, at October 31, 2005 mortgage was paid in full.
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##### Table of Contents



In April of 2005, the Company, through its wholly owned subsidiary, IDW Beijing, entered
into a mortgage on its factory building located in Beijing, PRC. The amount borrowed was
RMB 20,000,000, approximately $2,469,000 at prevailing exchange rates for one year at an
interest rate of 6.138%, scheduled to be repaid in April 2006.9.
    
    LINES OF CREDITOn March 30, 2005, as subsequently amended, the Company entered into a $20,000,000 line of
credit collateralized by IDWs accounts receivable, inventory, equipment, and intangibles.
The agreement was for twelve months at an interest rate of 0.5% above the prime rate or
LIBOR plus 3.00% (7.25% at October 31, 2005). The agreement contains certain ratio and net
income covenants. At October 31, 2005 the company was out of compliance with these
covenants. The Company has obtained a waiver from its bank for all the covenant compliance
issues. As of October 31, 2005 the Company had approximately $12,953,000 currently due on
the facility and had available approximately $7,047,000 for use under this facility, subject
to the terms of the agreement. This line replaced the Companys previously existing lines.
Subsequent to year end on December 22, 2005 the Company signed an amendment to the credit
agreement dated March 30, 2005 to amend the covenants to the agreement to provide more
flexibility.10.
    
    COMMITMENTS AND CONTINGENCIES
 a.
    
    Lease ObligationsThe Company leases premises under various operating leases. The Company is currently
obligated under the following significant operating leases:
 i.
    
    In November, 2004 the Company entered into a 63 month lease for
office space in Roseville, California. The lease commences on May 1, 2005 and
expires on July 31, 2010 with two three-year extension options. The payment
terms range from $10,800 per month to $12,000 per month over the term of the
lease. There are Three free months rent occurring in the 7th
14th and 21st months.ii.
    
    In February 2005 the Company entered into a 1-year lease for
office space in Hong Kong. The payment terms are $11,600 per year.iii.
    
    The Company has entered into a lease agreement for a workers
dormitory in Shenzhen, PRC. The lease on the workers dormitory expires on May
1, 2020 and costs $239,000 per year. The expense recorded in fiscal years
ended October 31, 2005 and 2004 was offset by rental income of $23,500 and
$85,000, respectively.iv.
    
    The Company has entered into various lease agreements for
individual employee quarters in Shenzhen, PRC. The lease terms of these quarters
range from six to sixty months. The yearly lease payments range from $1,300 to
$23,700. During the fiscal year ended October 31, 2004, the Company
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##### Table of Contents



entered into nineteen of the aforementioned leases with terms of between two and
twelve months and yearly lease payments of between $1,500 and $5,600.v.
    
    In November 2002 the Company entered into a one-year lease at an
annual cost of $ 40,900 for housing accommodation for an officer of the Company.
In August 2004 the lease term was extended to July 2005 and has now expired.vi.
    
    In July 2004 the Company entered into a ten-year lease agreement
for additional factory and dormitory space in Shenzhen, PRC. The lease expires
on August 31, 2014 and costs $289,300 per year. The lease has an option to renew
for an additional ten years at the same terms and lease rate. The expense
recorded in the fiscal year ended October 31, 2004 and 2004 was $285,100 and
$47,000, respectively. The expense recorded in the fiscal year ended October 31,
2005 was offset by rental income of $13,400.vii.
    
    In July 2005 the Company entered into a five-year lease for office
space in Scottsdale, Arizona. The lease commenced on September 1, 2005 and
expires on August 31, 2010 with an early termination provision exercisable after
thirty-six months. The payment terms are approximately $27,700 per year for the
first three years and approximately $30,300 per year for the remaining two years.viii.
    
    Prior to our acquisition of Three-Five Systems (Beijing) in
2005, the Company found
out that the land use permit for our Beijing facility previously obtained by
Three-Five Systems (Beijing) from the local district government was improperly issued
because the district government did not have authority to issue the permit. The
permit needs to be issued by the Beijing government, not the district government,
and the Company has requested that the Beijing government issue a proper permit. Despite
our efforts, there have been delays in the Beijing Land Bureau due to
implementation of recent land reform laws in China. The Company does not expect that these
land permit issues will negatively impact our operations. Subsequent to year
end, the Company accepted an offer from the Beijing Land Bureau to settle the
matter for RMB 170,136 (approximately US$21,000).
 The following is a schedule of future minimum lease payments under non-cancelable
operating leases as of October 31, 2005 (in thousands):
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##### Table of Contents



Minimum Lease
    
    Sublease
    
    Net LeaseCommitments
    
    Income
    
    Commitments2006
    
    
    806
    
    
    
    (10
    )
    
    
    7962007
    
    
    770
    
    
    
    
    
    
    
    7702008
    
    
    706
    
    
    
    
    
    
    
    7062009
    
    
    700
    
    
    
    
    
    
    
    7002010
    
    
    661
    
    
    
    
    
    
    
    661Thereafter
    
    
    3,379
    
    
    
    
    
    
    
    3,379$
    7,022
    
    
    
    (10
    )
    
    
    7,012
 For the periods ended October 31, 2005, 2004 and 2003, rental expense was $809,000,
$515,000 and $365,000, respectively.b.
    
    Legal MattersFrom time to time, the Company is involved in routine litigation in the normal course of
business. Management is not aware of any outstanding litigation involving the Company.c.
    
    Purchase CommitmentsThe Company enters into forward purchase commitments in the normal course of business in
anticipation of orders from customers not all of which are matched by contracts from
customers. The Company believes that such commitments will be required for future
production or could be cancelled without material cost.
 11.
    
    STOCKHOLDERS EQUITY
 a.
    
    Issuance of Common StockIn November 2004 the Company issued 2,500 shares of the Companys common stock to a
consultant as total compensation for services rendered to the Companys procurement
department. The issuance of the shares was recorded on the Companys books as an
expense. The shares were issued at a value of $5.45 per share, fair market value on the
date of the agreement.In January 2005 the Company issued 51,948 shares of the Companys common stock in
accordance with the employment agreement of the Companys Chairman and CEO as a signing
bonus at a share price of $3.85, the fair market value as of the date of the agreement.
The expense related to the issuance of these shares was accrued on the Companys books
in the fiscal year ended October 31, 2004.During the fiscal year ended October 31, 2005, the Company issued 542,298 shares of the
Companys common stock as a result of warrant exercises. The shares were issued at
exercise prices ranging from $0.16 to $1.75 per share. 419,298 shares of the securities
issued by exercise of warrants were registered under Form S-1 with the Securities and
Exchange Commission on February 18, 2004. The remaining 123,000
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##### Table of Contents



shares were not registered under the Securities Act of 1933, as amended, and therefore
fall under the restrictions of Rule 144 of The Securities Act of 1933, as amended.The following is a summary of the status of all of the Companys warrants issued as of
October 31, 2005, 2004 and 2003 and changes during the periods ended on those dates:
 Weighted AverageNumber Of Shares
    
    
    Exercise PriceWarrants outstanding at
October 31, 2002
    
    
    1,234,861
    
    
    $
    0.73Granted
    
    
    458,437
    
    
    
    0.25Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Warrants outstanding at
October 31, 2003
    
    
    1,693,298
    
    
    $
    0.60Granted
    
    
    206,666
    
    
    
    2.28Exercised
    
    
    (1,051,760
    )
    
    
    0.58Cancelled
    
    
    (19,240
    )
    
    
    1.24Warrants outstanding at
October 31, 2004
    
    
    828,964
    
    
    $
    1.02Granted
    
    
    Exercised
    
    
    (542,298
    )
    
    
    0.61Cancelled
    
    
    (5,000
    )
    
    
    0.75Warrants Outstanding
October 31, 2005
    
    
    281,666
    
    
    $
    1.82October 31, 2005
    
    
    281,666
    
    
    $
    1.82October 31, 2004
    
    
    828,964
    
    
    $
    1.02October 31, 2003
    
    
    1,693,298
    
    
    $
    0.60
 b.
    
    Stock Option PlansThe Company maintains the 1990 Employee Equity Incentive Plan for selected executives,
employees and directors. The Plan permitted the granting of options for terms not to
exceed ten years from the date of grant. The options generally vest ratably over a
four-year period and are exercisable subject to terms established in the plan document.
The exercise price of the options granted under the Plan must be equal to or greater
than the fair market value of the shares on the date of grant for incentive stock
options and not less than 85 percent of the fair market value for nonqualified stock
options. The exercise price of the options granted by the Company has generally been
equal to or greater than fair market value at the date of grant. There were 352,500
options exercised for the year ended October 31, 2005, 8,166 options cancelled in the
plan in the year ended October 31, 2004 and 25,000
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##### Table of Contents



options cancelled in the plan in the year ended October 31, 2003. This Plan has now
expired and no new options are available for grant.In September 2000, the Company established the 2000 Employee Equity Incentive Plan for
certain key employees of the Company. The Plan also permits the granting of stock
options, restricted stock awards, stock appreciation rights, stock units and other stock
grants to certain persons with a relationship with the Company, including agents,
consultants, advisors, independent contractors, sales representatives, distributors,
principals and retail distribution outlets for the Companys products. The Plan
provides for up to 1,632,800 shares of stock that are authorized for issuance. The
price of each share of stock covered by an option shall not be less than 100% of the
fair value of the Companys common stock on the date of grant. Each option certificate
shall have an exercise period of six months to ten years. There were 254,800 options
granted, 387,000 options exercised and 26,500 options cancelled during the year ended
October 31, 2005; 375,000 options granted, 238,375 options exercised and 19,131 options
cancelled during the year ended October 31, 2004; and 536,006 options granted and
205,000 options cancelled during the year ended October 31, 2003.In October 1999, the Company established the 1999 Stock Option Plan for Non-Employee
Directors. This Plan provides for the issuance of up to 300,000 shares of the Companys
common stock to existing Directors and, in the case of extra services or duties, past
directors. Unless otherwise provided in the option grant, the options vest over the
year following the date of grant and expire after the later of five years after the date
of grant or five years after termination as a Director. During the year ended October
31, 2005 there were 59,000 options exercised; during the year ended October 31, 2004
there were 165,000 options exercised and 11,432 cancelled; and during the year ended
October 31, 2003 there were 6,000 options granted under the plan.In March 2005, the Company established the 2005 Equity Incentive Plan. The purpose of
this Plan is to provide incentives to attract retain and motivate Eligible Persons whose
present and potential contributions are important to the success of Company, or a
Subsidiary of Company, by offering them an opportunity to participate in Companys
future performance through awards of Options, Restricted Stock, Stock Appreciation
Rights, and Stock Bonuses. The plan is an Evergreen plan. During the year ended
October 31, 2005, 601,000 options were awarded under the plan. No options were
exercised or cancelled.From fiscal 1999 to 2004 the board had granted 1,235,000 options to various current and
former directors at exercise prices ranging from $0.50 to $3.85 that are not part of
compensation plans. No compensation expense was recorded for these options for the
periods ended October 31, 2005, 2004, and 2003. During the year ended October 31, 2005,
3,000 of these options were exercised.The following is a summary of the status of all of the Companys stock option plans as
of October 31, 2005, 2004 and 2003 and changes during the periods ended on those dates:
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##### Table of Contents



WeightedNumber
    
    
    AverageOf Shares
    
    
    Exercise PriceOptions outstanding at
October 31, 2002
    
    
    1,654,848
    
    
    $
    1.00Granted
    
    
    542,006
    
    
    
    0.26Exercised
    
    
    
    
    
    
    Cancelled
    
    
    (242,250
    )
    
    
    0.70Options outstanding at
October 31, 2003
    
    
    1,954,604
    
    
    $
    0.78Granted
    
    
    1,375,000
    
    
    
    3.97Exercised
    
    
    (635,375
    )
    
    
    0.46Cancelled
    
    
    (38,729
    )
    
    
    2.04Options outstanding at
October 31, 2004
    
    
    2,655,500
    
    
    
    2.57Granted
    
    
    855,800
    
    
    
    7.85Exercised
    
    
    (801,500
    )
    
    
    1.58Cancelled
    
    
    (26,500
    )
    
    
    4.92Options outstanding
October 31, 2005
    
    
    2,683,300
    
    
    $
    4.52Options exercisable at :October 31, 2005
    
    
    1,040,166
    
    
    $
    2.86October 31, 2004
    
    
    1,034,501
    
    
    $
    1.70October 31, 2003
    
    
    1,157,098
    
    
    $
    1.18
 During the fiscal year ended October 31, 2005, the Company issued 801,500 shares as
a result of stock options exercised. The shares were issued at exercise prices ranging
from $0.15 to $5.45. The shares were issued under the Companys stock option plans.The following table summarizes information about stock options outstanding and
exercisable at October 31, 2005:
 Number of
    
    Weighted
    
    Weighted
    
    Number of
    
    Weightedshares
    
    average
    
    average
    
    shares
    
    averageoutstanding at
    
    remaining
    
    exercise
    
    exercisable at
    
    exerciseRange of
    
    October 31,
    
    contractual life
    
    price per
    
    October 31,
    
    price perexercise price
    
    2005
    
    (years)
    
    share
    
    2005
    
    share$0.15-$0.25
    
    
    12,000
    
    
    
    2.12
    
    
    $
    0.15
    
    
    
    12,000
    
    
    $
    0.15$0.25-$0.35
    
    
    378,250
    
    
    
    2.69
    
    
    $
    0.32
    
    
    
    297,000
    
    
    $
    0.31$0.36-$0.55
    
    
    110,750
    
    
    
    1.08
    
    
    $
    0.36
    
    
    
    120,750
    
    
    $
    0.41$0.81-$1.20
    
    
    20,000
    
    
    
    0.11
    
    
    $
    0.85
    
    
    
    20,000
    
    
    $
    0.85$1.81-$2.70
    
    
    69,000
    
    
    
    3.26
    
    
    $
    2.50
    
    
    
    32,500
    
    
    $
    2.50$2.71-$4.00
    
    
    1,025,000
    
    
    
    5.76
    
    
    $
    3.84
    
    
    
    262,500
    
    
    $
    3.85$4.01-$6.00
    
    
    267,500
    
    
    
    3.92
    
    
    $
    4.95
    
    
    
    207,916
    
    
    $
    4.94$6.01-$8.00
    
    
    340,000
    
    
    
    4.50
    
    
    $
    7.39
    
    
    
    25,000
    
    
    $
    6.01$8.01-$10.00
    
    
    460,800
    
    
    
    4.29
    
    
    $
    8.68
    
    
    
    62,500
    
    
    $
    8.652,683,300
    
    
    
    4.43
    
    
    $
    4.52
    
    
    
    1,040,166
    
    
    $
    2.86
 c.
    
    Stock Warrants
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##### Table of Contents



The Company, from time-to-time has issued stock warrants as payment for fees, interest,
and services rendered. For the periods ended October 31, 2005, 2004 and 2003, the
Company had outstanding warrants to purchase 281,666, 828,964 and
1,693,298 shares of
common stock, respectively. All warrants are exercisable at a weighted average price
per share of $1.82, have a term of five years and are exercisable immediately or over
the term of the related note if any. For the period ended October 31, 2005 no warrants
were issued, 542,298 were exercised and 5,000 were cancelled. For the period ended
October 31, 2004, 206,666 warrants were issued, 1,051,760 warrants were exercised and
19,240 warrants were cancelled. For the periods ended October 31, 2003, 458,437
warrants were issued, no warrants to purchase common stock were exercised and none
lapsed.
 12.
    
    INCOME TAXESIncome before provision (benefit) for income taxes is attributable to the following
geographic locations for the periods ended October 31 (in thousands):
 October 31, 2005
    
    
    October 31, 2004United States
    
    $
    (1,060
    )
    
    $
    (1,110
    )Foreign
    
    
    4,727
    
    
    
    2,184Income before provision
(benefit) for income taxes
    
    $
    3,667
    
    
    $
    1,074
 The income tax expense (benefit) consists of the following (in thousands):
 2005
    
    2004Current:U.S. Federal
    
    $
    54
    
    
    
    State
    
    
    18
    
    
    
    Foreign
    
    
    91
    
    
    
    163
    
    
    
    Deferred:Federal
    
    
    (294
    )
    
    
    State
    
    
    (50
    )
    
    
    Foreign
    
    
    82
    
    
    
    (262
    )
    
    
    Income tax expense (benefit)
    
    $
    (99
    )
    
    
    
 The reconciliation between the actual income tax expense and income tax computed by
applying the statutory U.S. Federal and State, PRC and Hong Kong income tax rates to
earnings before provision for income taxes for the periods ended October 31, 2005, 2004,
2003 are as follows (amounts in thousands):
 October 31,
    
    
    October 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2003Pre-tax profit (loss)
    
    $
    3,667
    
    
    $
    1,074
    
    
    $
    (808
    )Computed Federal income tax benefit at 34.0%
    
    
    1,247
    
    
    
    365
    
    
    
    (275
    )
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##### Table of Contents



October 31,
    
    
    October 31,
    
    
    October 31,2005
    
    
    2004
    
    
    2003Computed state income tax benefit at 8.4%,
net of federal income benefit
    
    
    (63
    )
    
    
    (65
    )
    
    
    (47
    )Effect of difference between Hong Kong and
PRC tax rates and U.S. Federal and state
tax rates
    
    
    (827
    )
    
    
    (341
    )
    
    
    161Alternative Minimum Tax
    
    
    72
    
    
    
    
    
    
    
    Other permanent differences
    
    
    (266
    )
    
    
    529
    
    
    
    (234
    )Change in valuation allowance
    
    
    (262
    )
    
    
    488
    
    
    
    395Income tax expense/(benefit)
    
    $
    (99
    )
    
    $
    
    
    
    $
    
 The tax effects of temporary differences that give rise to significant portions of
deferred tax assets and deferred tax liabilities at October 31, 2005 and 2004 are presented
below (amounts in thousands):
 2005
    
    
    2004Deferred tax assets:Net operating loss (NOL) carry forwards
    
    $
    4,049
    
    
    $
    3,996Depreciation and amortization
    
    
    167
    
    
    
    (77
    )Allowance for doubtful accounts receivable
    
    
    
    
    
    
    Inventory obsolescence
    
    
    
    
    
    
    2Accrued expenses
    
    
    352
    
    
    
    302Total gross deferred tax assets
    
    
    4,568
    
    
    
    4,223Less valuation allowance
    
    
    (4,306
    )
    
    
    (4,223
    )Net deferred tax asset
    
    $
    262
    
    
    $
    
 SFAS 109 provides for the recognition of deferred tax assets if it is more likely than
not that those deferred tax assets will be realized. Management reviews deferred tax assets
periodically for recoverability and makes estimates and judgments regarding the expected
geographic sources of taxable income in assessing the need for a valuation allowance to
reduce deferred tax assets to their estimated realizable value. During the fourth quarter of
FYE 2005, the company reversed the valuation allowance related to certain deferred tax
assets and as a result recognized an net income tax benefit of $262,000.As of October 31, 2005, the Company had an estimated
federal and California net operating loss carryovers of approximately $8,191,066 and $6,565,290 respectively. If
unutilized the federal loss carryovers will start expiring in 2020 and the California losses
will start expiring in 2012. The Company believes that some of these net operating losses
may be subject to limitations resulting from ownership changes.PRC Taxation:The fiscal tax year end of the PRC subsidiaries is December 31. The tax rate for both
companies is 15%. On May 30, 2005, MULCD is merged into IDWT with IDWT as the surviving
entity. The consolidated loss carry forward for these two entities as of
 F-29




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December 31, 2005 is $2.3 million. IDW Beijing had loss carryovers of approximately $3.6
million as of October 31, 2005Hong Kong Taxation:As of October 31, 2005, IDW Hong Kong has utilized its entire loss carryover which was its
only deferred tax asset. Moreover, IDW Hong Kong is in a net deferred tax liability
position as of October 31, 2005.13.
    
    RETIREMENT PLANSThe Company maintains the IDW 401(k) Plan (the Plan) under the provisions of Section
401(k) of the Internal Revenue Code. The Plan covers substantially all full-time U.S.
employees. At its option, the Company can make discretionary matching contributions. To
date, the Company has not made such a contribution.For its Hong Kong employees, the Company currently contributes approximately $9,000 per year
to a Mandatory Provident Fund (MPF) under the laws of the Hong Kong Special Administrative
Region of the PRC.14.
    
    RELATED PARTY TRANSACTIONSDuring the fiscal year ended October 31, 2005, the
Company entered into a consulting agreement with Steve Kircher, the
Companys former CEO and Chairman, who as of October 31, 2005,
was the Companys largest shareholder. The agreement provided
Mr. Kircher consulting fees of $150,000 for the period
November 1, 2004 through October 31, 2005. Services
provided by Mr. Kircher include advice to the Company related to
capital markets and China expertise. This agreement was renewed for
fiscal year 2005 for $75,000.15.
    
    SEGMENT AND GEOGRAPHIC INFORMATIONThe Company produces displays or display modules for end products of OEMs manufacturers and
hence operates in one segment. However, the Company has four major geographic territories
where it sells and distributes essentially the same products. The geographic territories
are the United States, China (including Hong Kong), Asia (excluding Hong Kong and China),
and Europe. The following represents geographical data for continuing operations (in
thousands).
 Revenues
(In thousands)
    
    Fiscal Year Ended October 312005
    
    
    2004
    
    
    2003United States
    
    $
    29,484
    
    
    $
    19,472
    
    
    $
    10,693China (including Hong Kong)
    
    
    13,456
    
    
    
    8,440
    
    
    
    4,916Asia (excluding Hong Kong and China)
    
    
    33,397
    
    
    
    10,152
    
    
    
    4,538Europe
    
    
    8,592
    
    
    
    7,051
    
    
    
    1,690Other
    
    
    3,349
    
    
    
    1,119
    
    
    
    878$
    88,278
    
    
    $
    46,234
    
    
    $
    22,715
 F-30




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##### Table of Contents



Long-lived Assets
    
    2005
    
    
    2004United States
    
    $
    110
    
    
    $
    112China (including Hong Kong)
    
    
    26,921
    
    
    
    16,306Asia (excluding Hong Kong and China)
    
    
    
    
    
    
    Europe
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    $
    27,031
    
    
    $
    16,418
 Major CustomersSales to one customer for the periods ended October 31, 2005, 2004 and 2003, accounted for
approximately 8%, 16% and 29%, respectively of total sales. This
customer represented 3%, 3%
and 5% of the Companys accounts receivable at October 31,
2005, 2004 and 2003, respectively.
Customers representing over 10% of net sales were Creative Technologies Ltd.,
Flextronics International Ltd. and Honeywell International, Inc.
These three customers represented 18%, 15% and 11% of our net sales
and 6%, 17%, and 18% of our accounts receivable for the fiscal year
ended October 31, 2005.16.
    
    ACQUISITION OF THREE-FIVE SYSTEMS (BEIJING) CO., LTD.On April 8, 2005 the Company, through its wholly owned subsidiary International DisplayWorks
(Hong Kong) Ltd, acquired 100% of the outstanding shares of Three-Five Systems (Beijing)
located in Beijing, PRC where it has a long-term land
lease and owns the building in which it assembles thin film transistor (TFT) and
super-twist nematic (STN) displays. The acquisition provides the Company with increased
capacity, a faster qualification to market with TFT products due to the fact that the
factory is already qualified with certain customers an increase to the Companys customer
base. The acquisition, which was accounted for by the purchase method of accounting,
consisted of an $8 million cash payment, a $0.3 million of expenses, the assumption of $2.4
million in debt and an earn-out provision based on specific revenue targets. Management
believes that the specific revenue targets will not be met, therefore there has been no
provision for the earn-out made in the financial statements for the period ended October 31,
2005. As part of the acquisition the Company recorded a $2 million value for inventory
acquired. Under the terms of the agreement the Company may use up to $2 million of the
inventory on hand, valued at market prices. Existing inventory used in excess of the $2
million will be purchased from Three-Five (Beijing) at current market value. The Company is
under no obligation to purchase inventory in excess of the recorded $2 million. At October
31, 2005 the Company had consumed $2.3 million of the inventory on hand at acquisition
valued at market prices and has accrued a liability for the $0.3 million in excess of the $2
million acquired at acquisition.The following table summarizes the fair values of the assets acquired. The acquisition was
accounted for using the purchase method of accounting, as required by Statement of Financial
Accounting Standard No. 141, Business Combinations.Under this method of accounting, the
Company allocated the purchase price to the fair value of assets acquired. Management has
used their best estimates to determine that the book value of the assets
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##### Table of Contents



acquired as recorded on the books and records of Three-Five
(Beijing) is fairly stated. There
has not been an independent valuation of the value of these assets. The excess of fair
value of the acquired assets over cost was accounted for by a write-down on pro-rata bases
of the long-lived assets that were purchased. The Company paid the purchase price from its
existing credit facility with Wells Fargo HSBC Trade Bank N.A. and cash generated from
operations.
 Current AssetsInventories
    
    $
    2,000Net due from
Three-Five (Beijing)
    
    
    432Prepaid expenses and other current assets
    
    
    1,086Total current assets
    
    
    3,518Non-current assetsProperty, plant and equipment, at cost
    
    
    9,535Less: Excess of fair value of acquired assets over cost
    
    
    (2,341
    )7,194Current LiabilitiesMortgage payable and capitalized lease payable
    
    
    (2,430
    )Total current liabilities
    
    
    (2,430
    )Total assets acquired
    
    $
    8,282
 The unaudited pro-forma combined statements of operations for the twelve-month period ended
October 31, 2005 includes the results of operations (November 1, 2004 through April 8, 2005)
of Three-Five Systems (Beijing) and the results of operations (November 1, 2004
through October 31, 2005) of International DisplayWorks, Inc. and its subsidiaries.
International DisplayWorks, Inc. began consolidating Three-Five
Systems (Beijing) in its consolidated financial statements from April 9, 2005.The unaudited pro-forma combined statement of operations for the twelve-month period ended
October 31, 2004 includes the profit and loss statement of Three-Five Systems (Beijing)
for the twelve months ended December 31, 2004 and the statement of operations of
International DisplayWorks, Inc. and its subsidiaries for the fiscal year ended October 31,
2004.In both presentations, the pro-forma revenues, net income
(loss), and per share data include eliminations representing the intercompany sales and
royalty payments that Three-Five Systems (Beijing) made to its parent, Three-Five
Systems, Inc., and its subsidiaries which were not acquired in this transaction.
International DisplayWorks, Inc. does not plan to sell to these entities and will not be
liable for royalty payments to them in the future.
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Year Ended October 312005
    
    2004(unaudited)
    
    (unaudited)Proforma revenues
    
    $
    96,742
    
    
    $
    61,762Proforma income (loss)
    
    $
    2,579
    
    
    $
    (1,528
    )Earnings (loss) per share  basic  proforma
    
    $
    0.08
    
    
    $
    (0.06
    )Earnings (loss) per share  diluted  proforma
    
    $
    0.08
    
    
    $
    (0.06
    )
 The proforma information should be read in conjunction with the
related historical information. The information is not necessarily
indicative of the operational results that would have occurred if the
acquisition had been consummated on the dates indicated nor is it
necessarily indicative of future results or financial position of the
combined enterprise. The unaudited proforma combined condensed
financial information does not reflect any adjustments to conform
accounting practices or to reflect any cost savings or other
synergies anticipated as a result of the acquisition. F-33




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17.
    
    QUARTERLY CONSOLIDATED FINANCIAL DATA (UN-AUDITED)The following financial information reflects all normal recurring adjustments that are, in
the opinion of management, necessary for a fair statement of the results of the interim
periods. The quarterly results for the years ended October 31, 2005, 2004 and 2003 are set
forth in the following table:
 Diluted
    
    
    BasicNet
    
    
    Earnings
    
    
    EarningsEarnings
    
    
    (Loss) Per
    
    
    (Loss) PerSales
    
    
    Gross Profit
    
    
    (Loss)
    
    
    Share
    
    
    Share2005First Quarter
    
    
    18,086
    
    
    
    3,643
    
    
    
    1,015
    
    
    $
    0.03
    
    
    $
    0.03Second Quarter
    
    
    22,637
    
    
    
    4,120
    
    
    
    1,473
    
    
    
    0.05
    
    
    
    0.05Third Quarter
    
    
    23,600
    
    
    
    4,137
    
    
    
    984
    
    
    
    0.03
    
    
    
    0.03Fourth Quarter
    
    
    23,955
    
    
    
    3,760
    
    
    
    295
    
    
    
    0.01
    
    
    
    0.01Total
    
    
    88,278
    
    
    
    15,660
    
    
    
    3,767
    
    
    $
    0.12
    
    
    $
    0.122004First Quarter
    
    $
    9,766
    
    
    $
    2,378
    
    
    $
    621
    
    
    $
    0.03
    
    
    $
    0.02Second Quarter
    
    
    10,589
    
    
    
    2,168
    
    
    
    (449
    )
    
    
    (0.02
    )
    
    
    (0.02
    )Third Quarter
    
    
    11,620
    
    
    
    2,434
    
    
    
    370
    
    
    
    0.01
    
    
    
    0.01Fourth Quarter
    
    
    14,259
    
    
    
    3,131
    
    
    
    532
    
    
    
    0.02
    
    
    
    0.02Total
    
    $
    46,234
    
    
    $
    10,111
    
    
    $
    1,074
    
    
    $
    0.04
    
    
    $
    0.042003First Quarter
    
    $
    5,084
    
    
    $
    1,455
    
    
    $
    24
    
    
    $
    
    
    
    $
    Second Quarter
    
    
    4,667
    
    
    
    910
    
    
    
    (628
    )
    
    
    (0.03
    )
    
    
    (0.03
    )Third Quarter
    
    
    5,864
    
    
    
    1,280
    
    
    
    (314
    )
    
    
    (0.02
    )
    
    
    (0.02
    )Fourth Quarter
    
    
    7,100
    
    
    
    1,470
    
    
    
    110
    
    
    
    0.01
    
    
    
    0.01Total
    
    $
    22,715
    
    
    $
    5,115
    
    
    $
    (808
    )
    
    $
    (0.04
    )
    
    $
    (0.04
    )
 F-34




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SUPPLEMENTARY INFORMATION
 F-35




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Balance at
    
    
    Charged to
    
    
    Deductions
    
    
    Balancebeginning
    
    
    costs and
    
    
    (provisions
    
    
    at EndDescription
    
    of Period
    
    
    Expenses
    
    
    write-offs)
    
    
    of PeriodOctober 31, 2003Allowance for
doubtful accounts
    
    $
    341
    
    
    $
    6
    
    
    $
    (307
    )
    
    $
    40Allowance for obsolete
inventory
    
    $
    369
    
    
    $
    142
    
    
    
    
    
    
    $
    511Deferred tax asset
    
    $
    3,307
    
    
    $
    397
    
    
    $
    
    
    
    $
    3,704October 31, 2004Allowance for
doubtful accounts
    
    $
    40
    
    
    $
    82
    
    
    $
    (21
    )
    
    $
    101Allowance for
obsolete inventory
    
    $
    511
    
    
    $
    24
    
    
    $
    (68
    )
    
    $
    467Deferred tax asset
    
    $
    3,704
    
    
    $
    519
    
    
    $
    
    
    
    $
    4,223October 31, 2005Allowance for
doubtful accounts
    
    $
    101
    
    
    $
    3
    
    
    $
    (68
    )
    
    $
    36Allowance for
obsolete inventory
    
    $
    467
    
    
    
    
    
    
    $
    (238
    )
    
    $
    229Deferred tax asset
    
    $
    4,223
    
    
    $
    345
    
    
    $
    (262
    )(a)
    
    $
    4,306
  F-36




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND
FINANCIAL DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES.
  Managements Report on Internal Control over Financial Reporting
   
    
    pertain to the maintenance of records, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our assets;
    
    provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and Directors; and
 43




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
    
    provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of our assets that could
have a material effect on our consolidated financial statements.
  Internal Control  Integrated
Framework.
   44




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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
 Board of Directors and Shareholders
International DisplayWorks, Inc.
       
 
 45




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ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10  DIRECTORS AND OFFICERS OF THE REGISTRANT
 Directors
  Director
    
    AgeThomas A. Lacey
    
    
    47Ronald A. Cohan
    
    
    64Mark A. Christensen
    
    
    46Glenn E. Neland
    
    
    57D. Paul Regan
    
    
    59
 
 (1)
    
    Mr. Kircher resigned as Chairman on January 3, 2005 and Mr.
Lacey was appointed as Chairman.(2)
    
    Mr. Genovese resigned as a director on September 6, 2005.(3)
    
    Mr. Nyman resigned as a director on December 13, 2005. Thomas A. Lacey
 Ronald A. Cohan
 46




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Mark
A. Christensen
 Glenn E. Neland
 D. Paul Regan
 47




---



##### Table of Contents



Executive Officers
  NAME
    
    AGE
    
    POSITION WITH THE COMPANYThomas A. Lacey(1)
    
    
    47
    
    
    Chairman and Chief Executive OfficerJeffrey G. Winzeler
    
    
    45
    
    
    Chief Financial OfficerAlan M. Lefko
    
    
    58
    
    
    Vice President Finance and Corporate Secretary
 
 (1)
    
    For biographical information regarding Mr. Lacey, see
Directors above. 48




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Jeffrey G. Winzeler
 Alan M. Lefko
  Key Employees
 Bradley J. Ferrell
 Audit Committee
  49




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##### Table of Contents



Audit Committee Financial Expert
  Compliance with Section 16 of the Securities Exchange Act of 1934
  Code of Ethics
  
 ITEM 11. EXECUTIVE COMPENSATION.
 Compensation Summary
  50




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##### Table of Contents



Summary Compensation Table
 Other
    
    
    SecuritiesName and
    
    
    
    
    
    Salary
    
    

    Bonus
    
    
    Compensation
    
    
    UnderlyingPrincipal Position
    
    Period
    
    
    $
    
    
    $
    
    
    $
    
    
    OptionsThomas A. Lacey,
    
    
    2005
    
    
    $
    300,000
    
    
    $
    204,500
    
    
    
    
    
    
    
    Chairman and Chief
    
    
    2004
    
    
    $
    18,269
    
    
    $
    200,000
    
    
    
    
    
    
    
    1,000,000Executive Officer
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jeffrey G. Winzeler ,
    
    
    2005
    
    
    $
    110,833
    
    
    $
    61,334
    
    
    
    
    
    
    
    100,000Chief Financial Officer and
    
    
    2004
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Chief Operating Officer(1)
    
    
    2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Alan M. Lefko,
    
    
    2005
    
    
    $
    110,000
    
    
    $
    12,000
    
    
    $
    6,000
    (2)
    
    
    10,000Vice President of Finance
    
    
    2004
    
    
    $
    105,000
    
    
    $
    19,372
    
    
    $
    6,000
    (2)
    
    
    2003
    
    
    $
    90,000
    
    
    $
    3,001
    
    
    $
    6,000
    (2)
    
    
    27,000Philip D. Gregory,
    
    
    2005
    
    
    $
    111,539
    
    
    
    
    
    
    $
    16,089
    (3)Vice President of
    
    
    2004
    
    
    $
    150,000
    
    
    $
    37,500
    
    
    $
    19,489
    (3)
    
    
    Manufacturing
    
    
    2003
    
    
    $
    150,000
    
    
    
    
    
    
    $
    20,236
    (3)
    
    
    102,000Bradley J. Ferrell,
    
    
    2005
    
    
    $
    135,000
    
    
    $
    23,000
    
    
    
    
    
    
    
    50,000V.P. Sales and Marketing
    
    
    2004
    
    
    $
    116,667
    
    
    $
    30,000
    
    
    
    
    
    
    
    2003
    
    
    $
    80,000
    
    
    $
    22,000
    
    
    
    
    
    
    
    52,000
 
 Footnotes: (1)
    
    Mr. Winzeler was hired as Chief Financial Officer on January 5, 2005.(2)
    
    Represents vehicle allowance.(3)
    
    Represents housing & subsistence allowance for the PRC. Mr. Gregory retired on June 30, 2005.
 Option Grants in 2005
  51




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Options/SAR
Grants in Last Fiscal Year
 Percent of
    
    
    
    
    
    
    
    
    
    
    Potential RealizableNumber of
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    Value at Assumed AnnualSecurities
    
    
    Options
    
    
    
    
    
    
    
    
    
    
    Rates of Stock PriceUnderlying
    
    
    Granted to
    
    
    Exercise
    
    
    
    
    
    
    AppreciationOptions
    
    
    Employees
    
    
    Price
    
    
    Expiration
    
    
    For Option TermsName
    
    Granted
    
    
    in Fiscal Year
    
    
    Per Share
    
    
    Date
    
    
    5%
    
    
    10%Thomas A. Lacey
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Jeffery G. Winzeler
    
    
    100,000
    
    
    
    11.7
    %
    
    $
    7.85
    
    
    
    01/05/2010
    
    
    $
    1,001,881
    
    
    $
    1,264,250Alan M. Lefko
    
    
    10,000
    
    
    
    1.2
    %
    
    $
    9.25
    
    
    
    02/16/2010
    
    
    $
    118,056
    
    
    $
    148,972Philip D. Gregory
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bradley J. Ferrell
    
    
    25,000
    
    
    
    5.8
    %
    
    $
    0.33
    
    
    
    08/26/2008
    
    
    $
    10,529
    
    
    $
    13,28725,000
    
    
    
    
    
    
    $
    3.85
    
    
    
    09/07/2009
    
    
    $
    122,842
    
    
    $
    155,012
   
    
    Multiplying the number of shares of common stock subject to a given
option by the exercise price;
    
    Assuming that the aggregate stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table for the
entire five-year term of the option; and
    
    Subtracting from that result the aggregate option exercise price.
 Fiscal Year End Option Values
  52




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Aggregated Option/SAR Exercises in Last Fiscal Year and  FY-End Option/SAR Values
 Shares
    
    
    
    
    
    
    Number of Securities
    
    
    Value of UnexercisedAcquired
    
    
    
    
    
    
    Underlying Unsecured
    
    
    In-The-Money Optionson
    
    
    Value
    
    
    Options at October 31, 2005
    
    
    at October 31, 2005Name
    
    Exercise
    
    
    Realized ($)
    
    
    Exercisable
    
    
    Unexercisable
    
    
    Exercisable
    
    
    UnexercisableThomas A. Lacey
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    750,000
    
    
    $
    1,472,500
    
    
    $
    4,175,500Jeffery G. Winzeler
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    
    
    
    
    Alan M. Lefko
    
    
    50,000
    
    
    $
    434,000
    
    
    
    25,000
    
    
    
    10,000
    
    
    $
    147,250
    
    
    
    Philip Gregory
    
    
    60,000
    
    
    $
    520,800
    
    
    
    117,000
    
    
    
    25,000
    
    
    $
    689,130
    
    
    $
    147,250Bradley J. Ferrell
    
    
    43,375
    
    
    $
    389,459
    
    
    
    43,125
    
    
    
    12,500
    
    
    $
    254,006
    
    
    $
    73,625
 Compensation of Directors
   Employment Agreements
  53




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Executive Officer Incentive Plan
  Aggregated Option Exercises in Last Fiscal Year and Ten-Year Options/SAR Re-pricings
  Compensation Committee Interlocks and Insider Participation
  Compensation Committee Report on Executive Compensation
   Base Salary
  54




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Annual Incentives
  Stock Incentive Compensation
     55




---



##### Table of Contents



Respectfully Submitted,
Compensation Committee of
International DisplayWorks, Inc.Ronald A. Cohan
Mark A. Christensen
Glenn Neland
 Comparison of Cumulative Total Return on Investment
   56




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##### Table of Contents



Total Return To Shareholders
(Includes reinvestment of dividends)
 ANNUAL RETURN PERCENTAGEYear
Ending October 31,Company / Index
    
    
    
    
    

2001
    

2002
    

2003
    

2004
    

2005International Displayworks Inc.
    
    
    
    
    
    
    -33.33
    
    
    
    -43.33
    
    
    
    200.00
    
    
    
    960.78
    
    
    
    8.87S&P SmallCap 600 Index
    
    
    
    
    
    
    -7.02
    
    
    
    -3.78
    
    
    
    33.58
    
    
    
    16.78
    
    
    
    15.27S&P Electrical Components & Equipment
    
    
    
    
    
    
    -31.61
    
    
    
    -1.78
    
    
    
    37.17
    
    
    
    18.34
    
    
    
    14.51
 INDEXED RETURNS2000
    

Year
Ending October 31,(BaseCompany / Index
    

Period)
    

2001
    

2002
    

2003
    

2004
    

2005International Displayworks Inc.
    
    
    100
    
    
    
    66.67
    
    
    
    37.78
    
    
    
    113.33
    
    
    
    1202.22
    
    
    
    1308.89S&P SmallCap 600 Index
    
    
    100
    
    
    
    92.98
    
    
    
    89.47
    
    
    
    119.51
    
    
    
    139.56
    
    
    
    160.88S&P Electrical Components & Equipment
    
    
    100
    
    
    
    68.39
    
    
    
    67.17
    
    
    
    92.14
    
    
    
    109.04
    
    
    
    124.85
 
 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
 Equity Compensation Plan Information
 Compensation Plan Table
  57




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##### Table of Contents



Number ofsecuritiesremaining availableNumber of
    
    
    
    
    
    
    for future issuancesecurities to be
    
    
    
    
    
    
    under equityissued upon
    
    
    Weighted-average
    
    
    compensation plansexercise of
    
    
    exercise price of
    
    
    (excludingoutstanding
    
    
    outstanding
    
    
    securitiesoptions, warrants
    
    
    options, warrants
    
    
    reflected in columnand rights
    
    
    and rights
    
    
    (a))Plan category
    
    (a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    1,964,966
    
    
    $
    4.39
    
    
    
    2,276,467Equity compensation
plans not approved
by security holders
    
    
    1,000,000
    
    
    $
    3.85
    
    
    
    Total
    
    
    2,964,966
    
    
    $
    4.21
    
    
    
    2,276,467
 Equity Compensation Plans Not Approved by Security Holders
  Principal Stockholders
   58




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##### Table of Contents



Number ofName of Beneficial Owner
    
    Shares(1)
    
    Percent(2)Stephen C.
Kircher
6000 Greystone Place
Granite Bay, CA 95746
    
    
    2,700,923
    (3)
    
    
    8.1
    %The Pinnacle
Fund, L.P.
4965 Preston Park Blvd., Suite 240
Plano, Texas 75093
    
    
    2,474,000
    (3)
    
    
    7.4
    %Jeff Winzeler
    
    
    4,500
    
    
    
    *Alan Lefko
    
    
    54,200
    
    
    
    *Bradley
Ferrell
    
    
    43,125
    
    
    
    *Philip
Gregory
    
    
    117,000


    
    
    *Ronald Cohan
    
    
    227,000
    (6)
    
    
    *Thomas A. Lacey
    
    
    304,948
    (7)
    
    
    *Mark A. Christensen
    
    
    40,000
    (8)
    
    
    *D. Paul Regan
    
    
    25,000
    (9)
    
    
    *Glenn E. Neland
    
    
    25,000
    (9)
    
    
    *All directors and executive officers
as a group (9 persons)
    
    
    840,773
    
    
    
    2.5
    %
 
 Footnotes:*
    
    Does not exceed 1% of the class.(1)
    
    Beneficial Ownership is defined pursuant to Rule 13d-3 of the Exchange Act, and generally
means any person who directly or indirectly has or shares voting or investment power with
respect to a security. A person shall be deemed to be the beneficial owner of a security if
that person has the right to acquire beneficial ownership of the security within 60 days,
including, but not limited to, any right to acquire the security through the exercise of any
option or warrant or through the conversion of a security. Any securities not outstanding
that are subject to options or warrants shall be deemed to be outstanding for the purpose of
computing the percentage of outstanding securities of the class owned by that person, but
shall not be deemed to be outstanding for the purpose of computing the percentage of the class
owned by any other person.(2)
    
    Based on 32,045,629 shares of the Companys common stock outstanding at December 25, 2005,
plus that number of shares subject to options and warrants exercisable within 60 days of
December 1, 2005 owned by each individual or group of individuals.(3)
    
    Based on shares reported on Form 13G/A filed December 31, 2004 by the Pinnacle Fund, L.P. and
Form 13G filed February 14, 2005 by Mr. Kircher.(4)
    
    Includes options to purchase 117,000 shares. 59




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##### Table of Contents



(6)
    
    Includes 34,000 shares and options to purchase 30,000 shares held directly, 147,000 shares
owned by The Cohan Trust, 8,000 shares held in trust for Mr.
Cohans daughter and 8,000 shares held in trust for Mr. Cohans son. Mr. Cohan disclaims
ownership of the shares of his children.(7)
    
    Includes 54,948 shares and options to purchase 250,000 shares.(8)
    
    Includes 15,000 shares and options to purchase 25,000 shares(9)
    
    Includes options to purchase 25,000 shares.
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
  
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
 Relationship with Independent Auditors
  Audit Fees
  Audit-Related Fees
  Tax Fees
  60




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##### Table of Contents



All Other Fees
   
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 (a)
    
    The following documents are filed as part of this report:
 (1)
    
    Financial Statements (see Item 8.)
 
    
    Report of Independent Registered Public Accounting Firm
(Grant Thornton)
    
    Consolidated Balance Sheets  October 31, 2005 and October
31, 2004
    
    Consolidated Statements of Operations  Years Ended October
31, 2005, October 31, 2004 and October 31, 2003
    
    Consolidated Statements of Stockholders Equity  Years Ended
October 31, 2005, October 31, 2004 and October 31, 2003
    
    Consolidated Statements of Cash Flows  Years Ended October
31, 2005, October 31, 2004 and October 31, 2003
    
    Notes to Consolidated Financial Statements
 (2)
    
    Financial Statement Schedules
 
    
    Schedule II  Valuation and Qualifying Accounts (accounts not
required or not material have been omitted)
 (3)
    
    Exhibits
 Exhibit No.
    
    Description2.1
    
    
    Agreement and Plan of Merger merging Morrow Snowboards, Inc. into Granite Bay Technologies,
Inc. (1)2.2
    
    
    Agreement and Plan of Merger merging Granite Bay Technologies, Inc. into International
DisplayWorks, Inc.(2)3.1
    
    
    Certificate of Incorporation (2)3.2
    
    

Bylaws(7)
 61




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##### Table of Contents



Exhibit No.
    
    Description4.3
    
    

Forms
of Warrant (11)4.4
    
    

Forms
of Placement Agent Warrant (12)10.1
    
    
    Forms of Warrant (3)10.2
    
    
    Morrow Snowboards, Inc. Employee Equity Incentive Plan as amended and restated February 13,
1997 (4)10.3
    
    
    Form of Nonqualified Stock Option Agreement (3-4)10.4
    
    
    Form of Incentive Stock Option Agreement (3-4)10.5
    
    
    Form of Indemnification Agreement (3-4)
 62




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##### Table of Contents



Exhibit No.
    
    Description10.6
    
    
    Supplemental Deed and Charge dated February 1, 2000, between International DisplayWorks (Hong
Kong) Ltd. and International DisplayWorks, Inc., as Chargors, and Vikay Industrial Ltd. (in
Judicial Management) and Vikay Industrial (Hong Kong) Ltd. as Chargees (16)10.7
    
    

2000 Equity Incentive Plan for Non-Employee Directors (6)10.8
    
    

Stock Option Agreements [Form of] (8)10.9
    
    

Employment Contract with Ian Bebbington (9)10.10
    
    

Manufacturing
Agreement (10)10.11
    
    

Form
of Common Stock Purchase Agreement (11)10.12
    
    

Form
of Promissory Note (11)10.13
    
    

Form of Securities Purchase Agreement (12)10.14
    
    

Form of Registration Rights Agreement (12)10.15
    
    
    Memorandum of Understanding between Grand Pacific Optoelectronincs Corporation and
International DisplayWorks, Inc.
(13)10.16
    
    

Form
of Securities Purchase Agreement (14)10.17
    
    

Form
of Registration Rights Agreement (14)10.18
    
    
    Asset Purchase Agreement by and between International DisplayWorks (Hong Kong) Limited and
Grand Pacific Petrochemical Corporation dated June 24, 2004
(15)10.19
    
    

Employment
Letter Agreement with Thomas A. Lacey dated September 7, 2004 (16)10.20
    
    
    Purchase Agreement dated March 30, 2005, as amended, with Three-Five Systems, Inc.(18)10.21
    
    
    Form of Credit Agreement by and between Wells Fargo HSBC Trade Bank and International
DisplayWorks, Inc.10.22
    
    
    Form of Amendment No.1 to Credit Agreement by and between Wells Fargo HSBC Trade Bank and
International DisplayWorks, Inc.14
    
    
    Code
of Ethics (17)21
    
    
    International DisplayWorks (Hong Kong) Ltd. Organized in Hong Kong; MULCD Microelectronics
(Shenzhen) Company Ltd., organized in PRC; IDW Technology (Shenzhen) Company, Ltd., organized
in PRC23.1
    
    
    Consent of Grant Thornton31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act31.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act32
    
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act
 63




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##### Table of Contents



(1
    )
    
    Incorporated herein by reference from the Companys Current Report on Form 8-K dated
November 6, 2000 (File
No. 0-753683).(2
    )
    
    Incorporated by reference from the Companys Current Report on Form 8-K dated October 31,
2001 (File No. 0-27002).(3
    )
    
    Incorporated herein by reference from the Companys registration statement on Form S-1 (File
No. 33-97800).(4
    )
    
    Incorporated by reference from the Companys Proxy Statement for the meeting held on May 22,
1997 (File No. 000-27002).(5
    )
    
    Incorporated herein by reference from the Companys 1995 Annual Report on Form 10-K (File No.
0-27002).(6
    )
    

Incorporated
by reference from the Companys Current Report on Form 8-K
filed on January 31,
2000 (File No. 0-27002).(7
    )
    
    Incorporated by reference from the Companys current report on Form 8-K filed on October 15,
1999 (File No. 000-27002).(8
    )
    
    Incorporated by reference from the Companys Annual Report on Form 10-K for the year ended
October 31, 2001 (File No 000-27002).(9
    )
    
    Incorporated by reference from the Companys registration statement on Form S-8 effective May
1, 2002 (File No. 333-87296).(10
    )
    
    Incorporated by reference from the Companys Annual Report on Form 10-K for the year ended
October 31, 2002 (File No 000-27002).(11
    )
    
    Incorporated by reference from the Companys current report on Form 8-K filed on April 24,
2003 (File No. 000-27002).(12
    )
    
    Incorporated by reference from the Companys current report on Form 8-K filed on October 10,
2003 (File No. 000-27002).(13
    )
    
    Incorporated by reference from the Companys current report on Form 8-K filed on December 30,
2003 (File No 000-27002).(14
    )
    
    Incorporated by reference from the Companys current report on Form 8-K filed on April 15,
2004 (File No 000-27002).(15
    )
    
    Incorporated by reference from the Companys current report on Form 8-K filed on May 13, 2004
(File No 000-27002).(16
    )
    
    Incorporated by reference from the Companys current report on Form 8-K filed on June 24,
2004 (File No 000-27002).(17
    )
    
    Incorporated by reference from the Companys registration statement on Form S-8 filed on
November 12, 2004 (File No. 333-120404).(18
    )
    
    As posted on the Companys website.
 64




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##### Table of Contents



(19
    )
    
    Incorporated by reference from the Companys current reports on Form 8-K filed on March 31,
2005 and June 27, 2005 (File No 000-27002)
 65




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##### Table of Contents



SIGNATURES
  INTERNATIONAL DISPLAYWORKS, INC.,
A Delaware corporationDated:
January 10, 2006
    
    By:
    
    /s/
Thomas A. LaceyThomas A. Lacey,
     Chief Executive Officer
     (Principal Executive Officer)By:
    
    /s/
Jeff WinzelerJeff Winzeler
     Chief Financial Officer
     (Principal Accounting Officer and Principal
     Financial Officer)
  By:
    
    /s/ Thomas A. Lacey
    
    Date: January 10, 2006Thomas A. Lacey, Chief
Executive Officer and Chairman
of the Board
(Principal Executive Officer)By:
    
    /s/ Jeff Winzeler
    
    Dated: January 10, 2006Jeff Winzeler, Chief Financial
Officer
(Principal Financial and 
Accounting Officer)By:
    
    /s/ Ronald A. Cohan
    
    Dated: January 10, 2006Ronald A. Cohan, Director
 66




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##### Table of Contents



By:
    
    /s/ Mark A. Christensen
    
    Dated: January 10, 2006Mark A. Christensen, DirectorBy:
    
    /s/ Glenn E. Neland
    
    Dated: January 10, 2006Glenn E. Neland, DirectorBy:
    
    /s/ D. Paul Regan
    
    Dated: January 10, 2006D. Paul Regan, Director
 67