##### Table of Contents



---

---

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---



Form 20-F

|      |  |                                                                                               
|----- |  | ----------------------------------------------------------------------------------------------
|[   ] |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

|    |  |                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended December 31, 2003

or

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-16673



---



Nam Tai Electronics, Inc.

(Exact name of registrant as specified in its charter)


British Virgin Islands(Jurisdiction of incorporation or organization)

116 Main Street
3rd Floor
Road Town, Tortola
British Virgin Islands(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:
Common Shares, $0.01 par value per share

Securities registered pursuant to Section 12(g) of the Act: NONE

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE

As of December 31, 2003, there were 41,231,272 common shares of the
registrant outstanding.

Indicate by check mark whether the registrant: (i) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (ii) has been subject to
such filing requirements for the past 90 days. Yes [X]
  No [   ]

Indicate by check mark which financial statement item the registrant has
elected to follow: Item 17. [   ]
  Item 18. [X]



---

---





---

TABLE OF CONTENTS



|                                                   |                                                                                       |  |  |  |  |  |  | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                                            
|                                                   | Item 1. Identity of Directors, Senior Management and Advisors                        
|                                                   | Item 2. Offer Statistics and Expected Timetable                                      
|                                                   | Item 3. Key Information                                                              
|                                                   | Item 4. Information on the Company                                                   
|                                                   | Item 5. Operating and Financial Review and Prospects                                 
|                                                   | Item 6. Directors, Senior Management and Employees                                   
|                                                   | Item 7. Major Shareholders and Related Party Transactions                            
|                                                   | Item 8. Financial Information                                                        
|                                                   | Item 9. The Listing                                                                  
|                                                   | Item 10. Additional Information                                                      
|                                                   | Item 11. Quantitative and Qualitative Disclosure About Market Risk                   
|                                                   | Item 12. Description of Securities Other Than Equity Securities                      
|PART II                                           
|                                                   | Item 13. Defaults, Dividend Arrearages and Delinquencies                             
|                                                   | Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
|                                                   | Item 15. Controls and Procedures                                                     
|                                                   | Item 16. [Reserved]                                                                  
|                                                   | Item 16 A. Audit Committee Financial Expert                                          
|                                                   | Item 16 B. Code of Ethics                                                            
|                                                   | Item 16 C. Principal Accountant Fees and Services                                    
|                                                   | Item 16 D. Purchases of Equity Securities by the Issuer and Affiliated Purchasers    
|PART III                                          
|                                                   | Item 17. Financial Statements                                                        
|                                                   | Item 18. Financial Statements                                                        
|                                                   | Item 19 Exhibits                                                                     
|SIGNATURES                                        
|EXHIBIT INDEX                                     
|Memorandum & Articles of Association June 26, 2003
|Agmt between Sony Ericsson & Nam Tai March 20, '02
|Agmt between Nam Tai(Shenzhen) & Sony Sept 15, '03
|Agmt between Sony Ericsson & Nam Tai (Shenzhen)   
|Purchase Agmt between Citigroup & Nam Tai         
|Agmt between Omnivision & Namtai July 15 '03      
|Agmt between JIC Technology & Glory Gate June'03  
|Agmt Amend. between Sony Ericsson & Nam Tai Jan'03
|Sale & Purchase Agmt JIC & Zastron March 10 '03   
|Sale & Purchase Agmt between Zastron & JIC March03
|Agmt among Toshiba, Nam Tai, and Zastron, Jan 27  
|Agmt between Sony Ericsson & Nam Tai Jan 10 2003  
|Agmt between Sony Ericsson & Nam Tai Jan 10 2003  
|Basic Agmt between JCT Wireless & Nam Tai Jan '03 
|Basic Agmt between Optrex & Nam Tai Jan 1 2003    
|Basic agmt and two memo on Sept. 8, 2003          
|Agmt between Sony Computer & Nam Tai Sept 15 2003 
|Service Agmt between Sony Ericsson & Namtai 2003  
|Construction Agmt between Namtai & Takasago 2003  
|Investment Agmt & Shareholders Agmt Dec 9 2003    
|Supplemental Agmt Jan 2, 2004                     
|Agmt between Frontier Profit & NamTai March 10, 04
|Diagram of Subsidiaries (See p25-27 of Report)    
|Certification                                     
|Certification                                     
|Code of ethics                                    
|Independent Auditors' Consent Match 10 2004       
|Certification pursuant to Section 906             
|Certification pursuant to Section 906             



---



##### Table of Contents



TABLE OF CONTENTS

|           |  |                                                                                               |  |  |    | 
|---------- |  | --------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I     |  |                                                                                               |  |  |    | 
|Item 1.    |  | Identity of Directors, Senior Management and Advisors  Not applicable                        |  |  | 3  | 
|Item 2.    |  | Offer Statistics and Expected Timetable  Not applicable                                      |  |  | 3  | 
|Item 3.    |  | Key Information                                                                               |  |  | 3  | 
|Item 4.    |  | Information on the Company                                                                    |  |  | 14 | 
|Item 5.    |  | Operating and Financial Review and Prospects                                                  |  |  | 30 | 
|Item 6.    |  | Directors, Senior Management and Employees                                                    |  |  | 46 | 
|Item 7.    |  | Major Shareholders and Related Party Transactions                                             |  |  | 51 | 
|Item 8.    |  | Financial Information                                                                         |  |  | 53 | 
|Item 9.    |  | The Listing                                                                                   |  |  | 57 | 
|Item 10.   |  | Additional Information                                                                        |  |  | 57 | 
|Item 11.   |  | Quantitative and Qualitative Disclosure about Market Risk                                     |  |  | 64 | 
|Item 12.   |  | Description of Securities Other than Equity Securities  Not applicable                       |  |  | 64 | 
|PART II    |  |                                                                                               |  |  |    | 
|Item 13.   |  | Defaults, Dividend Arrearages and Delinquencies  Not applicable                              |  |  | 65 | 
|Item 14.   |  | Material Modifications to the Rights of Security Holders and Use of Proceeds  Not applicable |  |  | 65 | 
|Item 15.   |  | Controls and Procedures                                                                       |  |  | 65 | 
|Item 16.   |  | [Reserved]                                                                                    |  |  | 65 | 
|Item 16 A. |  | Audit Committee Financial Expert                                                              |  |  | 65 | 
|Item 16 B. |  | Code of Ethics                                                                                |  |  | 65 | 
|Item 16 C. |  | Principal Accountant Fees and Services                                                        |  |  | 66 | 
|Item 16 D. |  | Purchase of Equity Securities by the Issuer and Affiliated Purchasers                         |  |  | 66 | 
|PART III   |  |                                                                                               |  |  |    | 
|Item 17.   |  | Financial Statements  Not applicable                                                         |  |  | 67 | 
|Item 18.   |  | Financial Statements                                                                          |  |  | 67 | 
|Item 19.   |  | Exhibits                                                                                      |  |  | 68 | 

SIGNATURES AND CERTIFICATIONS

Consents of Independent Accountants (to incorporation of their report on Financial Statements into the
Companys Registration Statements on Forms F-3 and S-8)

This Annual Report on Form 20-F contains forward-looking statements. These
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those anticipated in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in the section entitled Risk Factors
under Item 3. Key Information.

Readers should not place undue reliance on forward-looking statements,
which reflect managements view only as of the date of this Report. The Company
undertakes no obligation to publicly revise these forward-looking statements to
reflect subsequent events or circumstances. Readers should also carefully
review the risk factors described in other documents the Company files from
time to time with the Securities and Exchange Commission.

FINANCIAL STATEMENTS AND CURRENCY PRESENTATION

The Company prepares its consolidated financial statements in accordance
with accounting principles generally accepted in the United States of America
and publishes its financial statements in United States dollars.

2



---



##### Table of Contents















PART I

Unless the context otherwise requires, all references in this annual
report, or Report, to Nam Tai, or we, or our, or us, and the Company refer to
Nam Tai Electronics, Inc. and its consolidated subsidiaries and their
respective predecessors. References to dollars or $ are to United States
dollars.

Item 1.Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2.Offer Statistics and Expected Timetable

Not applicable.

Item 3.Key Information

Selected Financial Data

Our historical consolidated financial statements are prepared in
accordance with generally accepted accounting principles in the United States
and are presented in U.S. dollars. The following selected statements of income
data for each of the three years in the period ended December 31, 2003 and the
balance sheet data as of December 31, 2002 and 2003 are derived from our
consolidated financial statements and notes thereto included in this Report.
The selected statements of income data for each of the two years in the period
ended December 31, 1999 and 2000 and the balance sheet data as of December 31,
1999, 2000 and 2001 were derived from our audited financial statements, which
are not included in this Report. The following data should be read in
conjunction with the Section of the Report entitled Item 5. Operating and
Financial Review and Prospects and our consolidated financial statements
including the related footnotes. All reference to numbers of common
shares, per share data and stock option data have been adjusted to give effect to a
three-for-one stock split effective on June 30, 2003 on a retroactive basis and
for the purposes of earnings per share calculation, all references to numbers of
common shares, and per share data have been adjusted to reflect an issuance of
a stock dividend to shareholders at a ratio of one dividend share for every ten
shares, or a ten-for-one stock dividend, effective on November 7, 2003.

Year ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003(in thousands except per share data)Consolidated statements of income data:Net sales  third parties
    
    $
    145,054
    
    
    $
    207,456
    
    
    $
    212,934
    
    
    $
    228,167
    
    
    $
    385,524Net
sales  related party
    
    
    
    
    
    
    6,232
    
    
    
    21,072
    
    
    
    7,849
    
    
    
    20,782Total net sales
    
    
    145,054
    
    
    
    213,688
    
    
    
    234,006
    
    
    
    236,016
    
    
    
    406,306Cost of sales
    
    
    120,074
    
    
    
    182,096
    
    
    
    203,974
    
    
    
    197,956
    
    
    
    340,016Gross profit
    
    
    24,980
    
    
    
    31,592
    
    
    
    30,032
    
    
    
    38,060
    
    
    
    66,290Operating costs and expenses:Selling, general and administrative
    
    
    14,913
    
    
    
    17,646
    
    
    
    21,974
    
    
    
    17,983
    
    
    
    24,866Research and development
    
    
    2,624
    
    
    
    3,489
    
    
    
    2,954
    
    
    
    2,686
    
    
    
    4,037Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    339
    
    
    
    Non-recurring income
    
    
    (848
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    16,689
    
    
    
    21,135
    
    
    
    24,928
    
    
    
    21,008
    
    
    
    28,903Income from operations
    
    
    8,291
    
    
    
    10,457
    
    
    
    5,104
    
    
    
    17,052
    
    
    
    37,387Equity in income (loss) of affiliated companies
    
    
    1,146
    
    
    
    (189
    )
    
    
    1,867
    
    
    
    10,741
    
    
    
    498Other income (expenses)  net
    
    
    2,494
    
    
    
    13,853
    
    
    
    2,709
    
    
    
    (6,043
    )
    
    
    5,525Interest expense
    
    
    (192
    )
    
    
    (165
    )
    
    
    (178
    )
    
    
    (790
    )
    
    
    (121
    )Write-off of investment in an unconsolidated
subsidiary
    
    
    (1
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes and minority interests
    
    
    11,738
    
    
    
    23,956
    
    
    
    9,502
    
    
    
    20,960
    
    
    
    43,289Income taxes benefit (expense)
    
    
    60
    
    
    
    33
    
    
    
    (227
    )
    
    
    (773
    )
    
    
    (399
    )Income before minority interests
    
    
    11,798
    
    
    
    23,989
    
    
    
    9,275
    
    
    
    20,187
    
    
    
    42,890Minority interests
    
    
    
    
    
    
    12
    
    
    
    (230
    )
    
    
    (164
    )
    
    
    (1,067
    )Income after minority interests
    
    
    11,798
    
    
    
    24,001
    
    
    
    9,045
    
    
    
    20,023
    
    
    
    41,823Discontinued operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,979Net income
    
    $
    11,798
    
    
    $
    24,001
    
    
    $
    9,045
    
    
    $
    20,023
    
    
    $
    43,802Earnings per share:Basic
    
    $
    0.38
    
    
    $
    0.80
    
    
    $
    0.27
    
    
    $
    0.57
    
    
    $
    1.09Diluted
    
    $
    0.38
    
    
    $
    0.78
    
    
    $
    0.26
    
    
    $
    0.57
    
    
    $
    1.07Weighted average shares:Basic
    
    
    30,783
    
    
    
    30,077
    
    
    
    33,905
    
    
    
    34,885
    
    
    
    40,336Diluted
    
    
    31,075
    
    
    
    30,938
    
    
    
    34,298
    
    
    
    35,430
    
    
    
    40,839


3



---



##### Table of Contents



|                                                             |  |                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|------------------------------------------------------------ |  | --------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                             |  | At December 31,
|                                                             |  |                
|                                                             |  | 1999            |         | 2000 |  | 2001 |         | 2002 |  | 2003
|                                                             |  |                 |         |      |  |      |         |      |  |     
|                                                             |  | (in thousands) 
|Consolidated balance sheet data:                             |  |                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents                                    |  | $               | 54,215  |      |  | $    | 58,896  |      |  | $    | 58,676  |  |  | $ | 82,477  |  |  | $ | 61,827  | 
|Working capital                                              |  |                 | 61,265  |      |  |      | 89,568  |      |  |      | 83,982  |  |  |   | 87,408  |  |  |   | 96,801  | 
|Property, plant and equipment  net                          |  |                 | 44,717  |      |  |      | 44,599  |      |  |      | 70,414  |  |  |   | 75,914  |  |  |   | 77,647  | 
|Total assets                                                 |  |                 | 158,747 |      |  |      | 208,370 |      |  |      | 224,573 |  |  |   | 275,086 |  |  |   | 297,695 | 
|Short-term debt, including current portion of long-term debt |  |                 | 6,949   |      |  |      | 1,523   |      |  |      | 3,687   |  |  |   | 14,970  |  |  |   | 3,004   | 
|Long-term debt, less current portion                         |  |                 |        |      |  |      |        |      |  |      | 12,860  |  |  |   | 2,812   |  |  |   | 1,688   | 
|Total debt                                                   |  |                 | 6,949   |      |  |      | 1,523   |      |  |      | 16,547  |  |  |   | 17,782  |  |  |   | 4,692   | 
|Shareholders equity                                         |  |                 | 125,568 |      |  |      | 162,364 |      |  |      | 169,351 |  |  |   | 202,128 |  |  |   | 217,118 | 
|Common Shares                                                |  |                 | 264     |      |  |      | 306     |      |  |      | 312     |  |  |   | 360     |  |  |   | 412     | 
|Total dividend per share                                     |  |                 | 0.11    |      |  |      | 0.45    |      |  |      | 0.13    |  |  |   | 0.49    |  |  |   | 1.00    | 

Risk Factors

We may from time to time make written or oral forward-looking statements.
Written forward-looking statements may appear in this document and other
documents filed with the Securities and Exchange Commission, in press releases,
in reports to shareholders, on our website, and other documents. The Private
Securities Reform Act of 1995 contains a safe harbor for forward-looking
statements on which the Company relies in making such disclosures. In
connection with this safe harbor, we are hereby identifying important factors
that could cause actual results to differ materially from those contained in
any forward-looking statements made by us or on our behalf. Any such
statements are qualified by reference to the following cautionary statements:

Risks Related to Our Business

We are dependent on a few large customers, the loss of any of which could
substantially harm our business and operating results.

Historically, a substantial percentage of our sales have been to a small
number of customers. During the years ended December 31, 2001, 2002 and 2003,
sales to our customers accounting for 10% or more of our net sales aggregated
approximately 44.1%, 60.2% and 46.7%, respectively, of our net sales. The loss
of Epson Precision (HK) Ltd., Sony Ericsson Mobile Communications AB or Toshiba
Matsushita Display Technology Co. Ltd., each of which accounted for more than
10% of our net sales during 2003, or a substantial reduction in orders from any
of them, would materially and adversely impact our business and operating
results.

Our quarterly and annual operating results are subject to significant fluctuations from a wide variety of factors.

Our quarterly and annual operating results are affected by a wide variety
of factors that could materially and adversely affect our business and
operating results during any period. This could result from any one or a
combination of factors, such as:



| |  |  | the timing, cancellation or postponement of orders,                                                                                                               
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the type of product and related margins,                                                                                                                          
|
| |  |  | our customers announcement and introduction of new products or new generations of products,                                                                      
|
| |  |  | the life cycles of our customers products,                                                                                                                       
|
| |  |  | our timing of expenditures in anticipation of future orders,                                                                                                      
|
| |  |  | our effectiveness in managing manufacturing processes, including,
interruptions or slowdowns in production and changes in cost and
availability of components, and
|
| |  |  | the mix of orders filled.                                                                                                                                         

The volume and timing of orders received during a quarter are difficult to
forecast. From time to time, our customers encounter uncertain and changing
demand for their products. Customers generally order based on their forecasts.
If demand falls below such forecasts or if customers do not control inventories
effectively, they may reduce, cancel or postpone shipments of orders.

4



---



##### Table of Contents



As a consequence of any of the above factors, results of operations in any
period should not be considered indicative of results to be expected in any
future period, and fluctuations in operating results may also result in
fluctuations in the market price of our common shares. Our results of
operations in future periods may fall below the expectations of public market
analysts and investors. This failure to meet expectations could cause the
trading price of our common shares to decline substantially.

Cancellations or delays in orders could materially and adversely affect our gross margins and operating income.

Sales to our original equipment manufacturer, or OEM, customers are
primarily based on purchase orders we receive from time to time rather than
firm, long-term purchase commitments. Although it is our general practice to
purchase raw materials only upon receiving a purchase order, for certain
customers we will occasionally purchase raw materials based on such customers
rolling forecasts. Further, during times of potential component shortages we
have purchased, and may continue to purchase, raw materials and component parts
in the expectation of receiving purchase orders for products that use these
components. In the event actual purchase orders are delayed, are not received
or are cancelled, we would experience increased inventory levels or possible
write-down of raw material inventory that could materially and adversely
affect our business and operating results. In 2001, we wrote down inventory for
$3.8 million for slow-moving raw materials relating to cancelled, reduced or
delayed orders. Subsequently, we were able to use some of these raw materials
in production or we received compensation for the unused raw materials from
certain of our customers, and the gain of $2.0 million was recorded in cost of
sales during 2002.

If we are unable to produce our new
products in a high-quality and
cost-effective manner, our gross margins and business and operating results
could be materially and adversely affected.

We have experienced increased costs associated with developing advanced
manufacturing techniques to produce our complex products on a mass scale and at
a low cost. This has negatively impacted our gross margins. For example, our
initial production runs of liquid crystal display, or LCD, modules experienced
low production yields and other inefficiencies. We have commenced production of
radio frequency, or RF, modules, thin film transistor, or TFT, modules, color
LCD modules and complementary metal oxide semiconductor, or CMOS, sensor
modules, in relation to which we have relatively limited manufacturing
experience. We expect that a substantial portion of our growth will come from
our manufacture of these products. While we expect and plan for such increased
costs in our new product manufacturing cycle, we cannot precisely predict the
time and expense required to overcome initial problems and to ensure
reliability and high quality at an acceptable cost. The increased costs and
other difficulties associated with manufacturing RF modules, TFT modules, color
LCD modules, CMOS sensor modules and other new products could have a negative
impact on our future gross margins. In addition, even if we develop
capabilities to manufacture new products, there can be no guarantee that a
market will exist for such products or that such products will adequately
respond to market trends. If we invest resources to develop capabilities to
manufacture new products, like the investment in our new factory, for which a
market does not develop, our business and operating results would be seriously
harmed. Even if the market for our services grows, it may not grow at an
adequate pace.

Our inability to utilize capacity at our new factory could materially and adversely affect our business and operating results.

In order to expand production capacity, we intend to use approximately $40
million to construct and equip a new factory consisting of approximately
250,000 square feet on land adjacent to our principal manufacturing facilities
in Shenzhen, Peoples Republic of China, or China. Construction began in
September 2003, and we expect it to be completed by the end of the fourth
quarter in 2004. For the year ended December 31, 2003, we spent $1.2 million on
this construction. Once our new factory is completed, we will have committed
substantial expenditures and resources constructing and equipping this
factory but cannot guarantee that we will fully utilize such additional
capacity. Our factory utilization is dependent on our success in providing
manufacturing services for new or other products that we intend to produce at
that factory, including image capturing devices and their modules, such as CMOS
sensor modules, RF modules, TFT and color LCD modules and handset assemblies
for cellular phones, at a price and volume sufficient to absorb our increased
overhead expenses. Demand for contract manufacturing of these products may not
be as high as we expect, and we may fail to realize the expected benefit from
our investment in our new factory.

We face increasing competition, which has had an adverse effect on our margins.

Competition in the electronics manufacturing services, or EMS, industry is
intense and is characterized by price erosion, rapid technological change, and
competition from major international companies. This intense competition has
resulted in pricing pressures, lower sales and reduced margins. Over the last several years our margins
have declined substantially, from 17.2% in 1999 to approximately 16.3% in
2003. Continuing competitive pressures could materially and adversely affect
our business and operating results.

5



---



##### Table of Contents



We may not be able to compete successfully with our competitors, many of which
have substantially greater resources than we do.

The electronics manufacturing services we provide are available from many
independent sources as well as from our current and potential customers with
in-house manufacturing capabilities. Our EMS competitors include Celestica,
Inc., Flextronics International Ltd., Hon Hai Precision Industry Co., Ltd.,
Jabil Circuit, Inc., Sanmina-SCI Corporation and Solectron Corporation. Our
principal competitors in the manufacture of our traditional product lines of
calculators, personal organizers and linguistic products include Kinpo
Electronics, Inc. and Inventec Co. Ltd. Our competitors in the manufacturing of
image capturing devices and their modules include Lite-On Technology
Corporation, The Primax Group and Logitech, Inc. Our competitors in the
manufacturing of RF modules include Wavecom and WKK International (Holdings)
Ltd. We have numerous competitors in the telecommunication, subassemblies and
components product lines, including Philips, Samsung and Varitronix. Many of
our competitors have greater financial, technical, marketing, manufacturing,
regional shipping capabilities and logistics support and personnel resources
than we do. As a result, we may be unable to compete successfully with these
organizations in the future.

We must spend substantial amounts to maintain and develop advanced
manufacturing processes and engage additional engineering personnel in order to
attract new customers and business.

We operate in rapidly changing industries. Technological advances, the
introduction of new products and new manufacturing and design techniques could
materially and adversely affect our business unless we are able to adapt to
those changing conditions. As a result, we are continually required to commit
substantial funds for, and significant resources to, engaging additional
engineering and other technical personnel and to purchase advanced design,
production and test equipment.

Our future operating results will depend to a significant extent on our
ability to continue to provide new manufacturing solutions that compare
favorably on the basis of time to introduction, cost, and performance with the
manufacturing capabilities of OEMs and competitive third-party suppliers. Our
success in attracting new customers and developing new business depends on
various factors, including:



| |  |  | utilization of advances in technology;                                             
| | - |  | -----------------------------------------------------------------------------------
|
| |  |  | development of new or improved manufacturing processes for our customers products;
|
| |  |  | delivery of efficient and cost-effective services; and                             
|
| |  |  | timely completion of the manufacture of new products.                              

We generally have no written agreements with suppliers to obtain components and
our margins and operating results could suffer from increases in component
prices.

We are typically responsible for purchasing components used in
manufacturing products for our customers. We generally do not have written
agreements with our suppliers of components. This typically results in our
bearing the risk of component price increases because we may be unable to
procure the required materials at a price level necessary to generate
anticipated margins from the orders of our customers. Accordingly, increases in
component prices could materially and adversely affect our gross margins and
operating results.

Our business and operating results would be materially and adversely affected
if our suppliers of needed components fail to meet our needs.

At various times, we have and continue to experience shortages of some of
the electronic components that we use, and suppliers of some components lack
sufficient capacity to meet the demand for these components. In some cases,
supply shortages and delays in deliveries of particular components have
resulted in curtailed production, or delays in production, of assemblies using
that component, which contributed to an increase in our inventory levels and
reduction in our gross margins. We expect that shortages and delays
in deliveries of some components will continue. If we are unable to obtain
sufficient components on a timely basis, we may experience manufacturing
delays, which could harm our relationships with current or prospective
customers and reduce our sales. We also depend on a small number of suppliers
for certain of the components that we use in our business. For example, we
purchase most of our integrated circuits from Toshiba Corporation and Sharp
Corporation and certain of their affiliates. If we were unable to continue to
purchase components from these limited source suppliers, our business and
operating results would be materially and adversely affected.

6



---



##### Table of Contents



Factors affecting the electronics industry in general and our customers in particular could harm our operations.

Most of our sales are to customers in the electronics industry, which is
subject to rapid technological change, product obsolescence and short product
life cycles and has suffered from an industry-wide slowdown since 2000. The
factors affecting the electronics industry in general, or any of our major
customers or competitors in particular, could have a material adverse effect on
our business and operating results. Our success will depend to a significant
extent on the success achieved by our customers in developing and marketing
their products, including their products that use RF modules, color
straight-twisted nematic, or STN, LCD modules, TFT modules and CMOS sensor
modules, some of which may be new and untested. If our customers products
become obsolete, fail to gain widespread commercial acceptance or become the
subject of intellectual property disputes, this could harm our business and
operating results.

Future acquisitions or strategic investments may not be successful and may harm our operating results.

An important element of our strategy is to review prospects for
acquisition or strategic investments that would complement our existing
companies and products, augment our market coverage and distribution ability or
enhance our technological capabilities.

Future acquisitions or strategic investments could have a material adverse
effect on our business and operating results because of:



| |  |  | possible charges to operating results for purchased technology,
restructuring or impairment charges related to goodwill or amortization
expenses associated with intangible assets,
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | potential increase in our expenses and working capital requirements
and the incurrence of debt and contingent liabilities,                                                         
|
| |  |  | difficulties in successfully integrating any acquired operations,
technologies, customers products and businesses with our operations,                                             
|
| |  |  | diversion of our capital and managements attention to other business concerns,                                                                                                    
|
| |  |  | risks of entering markets or geographic areas in which we have limited prior experience, or                                                                                        
|
| |  |  | potential loss of key employees of acquired organizations or inability to hire key employees necessary for expansion.                                                              

For example, in 1998, we made a provision for, and subsequently wrote off,
our entire $10.0 million investment in Albatronics (Far East) Company
Limited, or Albatronics.

Our customers are dependent on shipping companies for delivery of our products
and interruptions to shipping could materially and adversely affect our
business and operating results.

Typically, we sell our products F.O.B. Hong Kong and our customers are
responsible for the transportation of products from Hong Kong to their final
destinations. Our customers rely on a variety of carriers for product
transportation through various world ports. A work stoppage, strike or shutdown
of one or more major ports or airports could result in shipping delays
materially and adversely affecting our customers, which in turn could have a
material adverse effect on our business and operating results. Similarly, an
increase in freight surcharges due to rising fuel costs or general price
increases could materially and adversely affect our business and operating
results.

7



---



##### Table of Contents



Because our operations are international, we are subject to significant
worldwide political, economic, legal and other uncertainties.

We are incorporated in the British Virgin Islands and have subsidiaries
incorporated in the Cayman Islands, Hong Kong and
China. We have administrative offices in Hong Kong and our Peoples Republic of
China, or PRC, headquarters are located in Macao, China. We manufacture all of
our products in China. As of December 31, 2003, approximately 76.5% of the net
book value of our total fixed assets is located in China. We sell our products
to customers in Hong Kong, North America, Europe, Japan, China and Southeast
Asia. Our international operations may be subject to significant political and
economic risks and legal uncertainties, including:



| |  |  | changes in economic and political conditions and in governmental policies,    
| | - |  | ------------------------------------------------------------------------------
|
| |  |  | changes in international and domestic customs regulations,                    
|
| |  |  | wars, civil unrest, acts of terrorism and other conflicts,                    
|
| |  |  | changes in tariffs, trade restrictions, trade agreements and taxation,        
|
| |  |  | difficulties in managing or overseeing foreign operations, and                
|
| |  |  | limitations on the repatriation of funds because of foreign exchange controls.

The occurrence or consequences of any of these factors may restrict our
ability to operate in the affected region and decrease the profitability of our
operations in that region.

Our operating results could be negatively impacted by seasonality.

Historically, our sales and operating results have been affected by
seasonality. Sales of calculators, personal organizers and linguistic products
are typically higher during the second and third quarters in anticipation of
the start of the school year and the Christmas buying season. Similarly, our
consumer services for electronics products have historically been lower in the
first quarter from both the closing of our factories in China for the Chinese
New Year holidays and the general reduction in sales following the holiday
season. These sales patterns may not be indicative of future sales performance.

Our results could be harmed if we have to comply with new environmental regulations.

Our operations create some environmentally sensitive waste that may
increase in the future depending on the nature of our manufacturing operations.
The general issue of the disposal of hazardous waste has received increasing
attention from the PRC national and local governments and foreign governments
and agencies and has been subject to increasing regulation. Our business and
operating results could be materially and adversely affected if we were to
increase expenditures to comply with environmental regulations affecting our
operations.

If there is an adverse outcome in a putative class action litigation that has
been filed against us, our business could be seriously harmed.

On March 11, 2003, we were served with a complaint in an action captioned
Michael Rocco v. Nam Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain directors are named as defendants. On or
about April 9, 2003, a second complaint was filed in an action captioned A.J. &
Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler
Action, and together with the Rocco Action, the Actions. The Actions have been
consolidated since July 2003 and purports to represent a putative class of
persons who purchased the common stock of Nam Tai from July 29, 2002 through
February 18, 2003. Plaintiffs in the Actions assert claims under Section 10(b)
of the Securities Exchange Act of 1934 and allege that misrepresentations
and/or omissions were made during the alleged class periods concerning the
partial reversal of an inventory provision and a charge to goodwill related to
Nam Tais LCD panels and transformers segment, or LPT segment. We have filed
a motion to dismiss the lawsuit and the putative class action has not been
certified as a class action by the court. In any event, our motion to dismiss
was heard in November 2003 and we are awaiting the judgment of the court
thereof. Nam Tai believes it has meritorious defenses and it intends to defend
the case vigorously. Nam Tai is aware of no other actions that have been filed
which relate to these matters. The ultimate outcome of this litigation cannot
be presently determined. However, this litigation could be very costly and
divert our managements attention and resources. In addition, we have no
insurance covering our liability, if any, or that of our officers and
directors, and we will have to pay the costs of defense. Any adverse determination in this
litigation could also subject us to significant liabilities, any or all of
which could materially and adversely affect our business and operating results.

8



---



##### Table of Contents



We are dependent on certain members of our senior management.

We are substantially dependent upon the services of Mr. Tadao Murakami,
our Chairman of the Board of Directors, Mr. Joseph Li, our Chief Executive
Officer and President, and Mr. M. K. Koo, our Chief Financial Officer. We have employment
agreements with each of Mr. Murakami, Mr. Koo and Mr. Joseph Li. Mr. Murakamis
employment may be terminated immediately and, pursuant to Mr. Koos and Mr.
Joseph Lis agreements, their employment may be terminated upon short notice.
Mr. Koos and Mr. Lis employment agreements provide that they may not compete
with our business nor solicit any of our customers or employees for a period of
six months following termination for any reason under the employment
agreements. Mr. Murakamis agreement does not have comparable provisions.
Accordingly, Mr. Murakami may engage in a business that is in competition with
us after his termination, which may have a material adverse effect on our
business and operating results. We maintain no key person insurance on these
individuals. The loss of the services of any of these officers could have a
material adverse effect on our business and operating results.

We may be unable to succeed in recovering on our judgment debts against Tele-Art.

We have two judgments in our favor against Tele-Art, Inc. awarded by The
High Court of Justice in the British Virgin Islands for approximately $35.0
million. Because Tele-Art, Inc. is in liquidation, we
may not realize the entire amount of our judgments, and the actual amount of
the recovery, if any, is uncertain and dependent on a number of factors. We may
incur substantial additional costs in pursuing our recovery, and such costs may
not be recoverable.

We could become involved in intellectual property disputes.

We do not have any patents, licenses, or trademarks material to our
business. Instead, we rely on trade secrets, industry expertise and our
customers sharing of intellectual property with us. We may be notified that we
are infringing patents, copyrights or other intellectual property rights owned
by other parties. In the event of an infringement claim, we may be required to
spend a significant amount of money to develop a non-infringing alternative or
to obtain licenses. We may not be successful in developing such an alternative
or obtaining a license on reasonable terms, if at all. Any litigation, even
without merit, could result in substantial costs and diversion of resources and
could materially and adversely affect our business and operating results.

We may not pay dividends in the future.

Although we have declared dividends during each of the last ten years, we
may not be able to declare them or may decide not to declare them in the
future. Our China subsidiaries are required to reserve 10% of profits for
future development, which may affect our ability to declare dividends. We will
determine the amounts of the dividends when they are declared and even if
dividends are declared in the future, we may not continue them in any future
period.

Risks Related to Our Operations in China, Hong Kong and Macao

Our manufacturing facilities are located in China and some of our subsidiaries and several of our customers and suppliers are located
in Hong Kong and China. Our PRC headquarters are located in Macao, China. As a
result, our operations and assets are subject to significant political,
economic, legal and other uncertainties associated with doing business in
China, Hong Kong and Macao, which are discussed in more detail below.

The Chinese government could change its policies toward, or even nationalize,
private enterprise, which could harm our business and operating results.

Over the past several years, the Chinese government has pursued economic
reform policies including the encouragement of private economic activities and
decentralization of economic regulation with a move towards a market
economy. The Chinese government may not continue to pursue these policies or may
significantly alter them to our detriment from time to time without notice.
Changes in policies by the Chinese government resulting in changes in laws,
regulations, or their interpretation, or the imposition of confiscatory
taxation, restrictions on currency conversion or imports and sources of supply
could materially and adversely affect our business and operating results. The
nationalization or other expropriation of private enterprises by the Chinese
government could result in the total loss of our investment in China.

9



---



##### Table of Contents



The Chinese legal system has inherent uncertainties that could materially and
adversely impact our ability to enforce the agreements governing our factories
and to do business.

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

Fire, severe weather, flood or earthquake could cause significant damage to our
facilities in China and disrupt our business operations.

Our products are manufactured exclusively at our factories located in
China. Fire fighting and disaster relief or assistance in China is not well
developed. Material damage to, or the loss of, our factories due to fire,
severe weather, flood, earthquake or other acts of God or cause may not be
adequately covered by proceeds of our insurance coverage and could materially
and adversely affect our business and operating results. In addition, any
interruptions to our business caused by such disasters could harm our business
and operating results.

Controversies affecting Chinas trade with the United States could harm our
results of operations or depress our stock price.

While China has been granted permanent most favored nation trade status in
the United States through its entry into the World Trade Organization,
controversies between the United States and China may arise that threaten the
status quo involving trade between the United States and China. These
controversies could materially and adversely affect our business by, among
other things, causing our products in the United States to become more
expensive resulting in a reduction in the demand for our products by customers
in the United States. Political or trade friction between the United States and
China, whether or not actually affecting our business, could also materially
and adversely affect the prevailing market price of our common shares.

Changes to Chinese tax laws and heightened efforts by the Chinese tax
authorities to increase revenues could subject us to greater taxes.

Under applicable Chinese law, we have been afforded a number of tax
concessions by, and tax refunds from, the Chinese tax authorities on a
substantial portion of our operations in China by reinvesting all or part of
the profits attributable to our Chinese manufacturing operations. However, the
Chinese tax system is subject to substantial uncertainties with respect to its
interpretation and enforcement. Following the Chinese governments program of
privatizing many state-owned enterprises, the Chinese government has oftempted
to augment its revenues through heightened tax collection efforts. Continued
efforts by the Chinese government to increase tax revenues could result in
decisions or interpretations of the tax laws by the Chinese tax authorities
that would increase our future tax liabilities or deny us expected concessions
or refunds. For example, the tax reform of reducing the VAT tax refund from 17%
to 13%, with effect from January 1, 2004, may affect our margins.

Our results have been affected by changes in currency exchange rates. Changes
in currency rates involving the Japanese yen, Hong Kong dollar or Chinese renminbi could increase our expenses.

Our financial results have been affected by currency fluctuations,
resulting in total foreign exchange losses of $62,000 during the year ended
December 31, 2003 and total foreign exchange losses of $345,000 during the year
ended December 31, 2002 and total foreign exchange gains of $530,000 during the
year ended December 31, 2001. We sell most of our products in United States
dollars and pay our expenses in United States dollars, Japanese yen, Hong Kong
dollars, and Chinese renminbi. While we face a variety of risks associated with
changes among the relative value of these currencies, we believe the most
significant exchange risk presently results from material purchases we make in Japanese yen. Approximately
16%, 8% and 16% of our material costs have been in yen during the years ended
December 31, 2001, 2002 and 2003, respectively, but sales made in yen accounted
for less than 11% of sales for each of the last three years. An appreciation of
yen against the U.S. dollar would increase our expenses when translated into
U.S. dollars and would materially and adversely affect our margins unless we
made sufficient sales in yen to offset against material purchases made in yen.

10



---



##### Table of Contents



Approximately less than 1% and 8% of our revenue and 13% and 12% of our
expenses were in Chinese renminbi and Hong Kong dollars, respectively, during
the year ended December 31, 2003. Approximately 4% and 10% of our revenues and
18% and 15% of our expenses were in Chinese renminbi and Hong Kong dollars,
respectively, during the year ended December 31, 2002. An appreciation of the
Chinese renminbi or Hong Kong dollar against the U.S. dollar would increase our
expenses when translated into U.S. dollars and could materially and adversely
affect our margins. In addition, a significant devaluation in the
Chinese renminbi or
Hong Kong dollar could harm our business if it destabilizes the economy of
China or Hong Kong, creates serious domestic problems or increases our
borrowing costs.

We have suffered losses from hedging against our currency exchange risk.

From time to time, we have attempted to hedge our currency exchange risk.
We did not engage in currency hedging transactions for fiscal year 2002 and
2003. We have experienced in the past and may experience in the future losses
as a result of currency hedging.

Political and economic instability in Hong Kong could harm our operations.

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

The spread of severe acute respiratory syndrome or similar illnesses may have a
negative impact on our business and operating results.

In March 2003, several economies in Asia, including Hong Kong and southern
China, where our operations are located, were affected by the outbreak of
severe acute respiratory syndrome, or SARS. Since January 2004, there has been
a total of six confirmed SARS cases in southern China, Taiwan and Singapore.
If there is a recurrence of a serious outbreak of SARS, it may adversely affect
our business and operating results. For example, the future SARS outbreak
could result in quarantines or closures to some of our factories if our
employees are infected with SARS and ongoing concerns regarding SARS,
particularly its effect on travel, could negatively impact our China-based
customers and suppliers and our business and operating results.

In addition, there has recently been an outbreak of avian influenza in
humans in both Thailand and Vietnam, which has proven fatal in some instances.
If such an outbreak were to spread to southern China, where our operation
facilities are located, it may adversely affect our business operating results.

Risks Related to Our Industry

We are exposed to general economic conditions. The current slowdown in the
technology products industry has affected and we expect it to continue to
affect our business and operating results adversely.

As a result of the economic downturn in the United States and
internationally, and reduced capital spending, sales to OEMs in the electronics
industry declined beginning in the second quarter of fiscal year 2001 and
continuing through 2002. Lower consumer

11



---



##### Table of Contents



demand and high customer inventory levels have resulted in the delay and
cancellation of orders for nearly all types of electronic products. As a result
of order cancellations in 2001, we were required to write-down slow-moving
inventory, which materially and adversely impacted our net income in 2001.
Although the industry experienced a recovery in 2003, we cannot assure that
this recovery is sustainable or that the industry will not further decline. If
the economic conditions in the United States or the other markets we serve
worsen or in the electronics and contract manufacturing businesses
particularly, or if a wider or global economic slowdown occurs, this could
materially and adversely impact our business and operating results.

The current economic downturn in the EMS industry could continue to have a
material adverse effect on our business and operating results.

In 2001 and 2002, the EMS industry was in an economic slowdown with an
uncertain outlook. Some of the major contract manufacturers and OEMs worldwide
had announced job reductions and plant closures aimed at reducing costs.
Industry analysts had reduced their projections of the future growth of the EMS
segment. Furthermore, Wall Street analysts had reduced earnings and revenue
estimates across the entire EMS sector and had reported that the EMS industry
had excess capacity. For example, the EMS industry in which we operate
experienced a decrease in demand in 2001 and 2002. Softening demand for our
products and services caused by the ongoing economic downturn was responsible
in part for a decline in our operating income in 2001, as well as our
write-down for slow-moving inventory. Although the industry experienced a
recovery in 2003, we cannot assure that this recovery is sustainable or that
the industry will not further decline.

The global economy may remain weak and market conditions continue to be
challenging in the EMS industry. As a result, individuals and companies may
continue delaying or reducing expenditures, including those for electronic
products. Further delays or reductions in spending in our industry in
particular, and economic weakness generally, could materially and adversely
affect our business and operating results.

Risks Related to Ownership of Our Common Shares

The market price of our shares will likely be subject to substantial price and volume fluctuations.

The markets for equity securities have been volatile and the price of our
common shares has been and could continue to be subject to wide fluctuations in
response to variations in operating results, news announcements, trading
volume, sales of common shares by our officers, directors and our principal
shareholders, customers, suppliers or other publicly traded companies, general
market trends both domestically and internationally, currency movements and
interest rate fluctuations. Certain events, such as the issuance of common
shares upon the exercise of our outstanding stock options could also materially
and adversely affect the prevailing market price of our common shares.

Further, the stock markets have recently experienced extreme price and
volume fluctuations that have affected the market prices of equity securities
of many companies and that have been unrelated or disproportionate to the
operating performance of such companies. These fluctuations may materially and
adversely affect the market price of our common shares.

The concentration of share ownership in our senior management allows them to
control or substantially influence the outcome of matters requiring shareholder
approval.

On March 1, 2004, members of our management and Board of Directors as a
group beneficially owned approximately 37.9% of our common shares. As a result,
acting together they may be able to control and substantially influence the
outcome of all matters requiring approval by our shareholders, including the
election of directors and approval of significant corporate transactions. This
ability may have the effect of delaying or preventing a change in control of
Nam Tai, or causing a change in control of Nam Tai that may not be favored by
our other shareholders.

Risks Related to Our Foreign Private Issuer Status

It may be difficult to serve us with legal process or enforce judgments against our management or us.

We are a British Virgin Islands holding corporation having our PRC
headquarters in Macao, China and some of our subsidiaries in Hong Kong. We have
appointed Stephen Seung, 2 Mott Street, Suite 601, New York, New York 10013 as our
agent upon whom process may be served in any action brought against us under
the securities laws of the United States. However, outside the United States,
it may be difficult for investors to enforce judgments against us obtained in
the United States in any of these actions, including actions based upon civil liability provisions of the Federal securities laws. In
addition, all of our officers and most of our directors reside outside the
United States and all of our assets, and the assets of those persons who reside
outside of the United States, are located outside of the United States. As a
result, it may not be possible for investors to effect service of process
within the United States upon those persons, or to enforce against those
persons or us judgments obtained in United States courts grounded upon the
liability provisions of the United States securities laws. There is substantial
doubt as to the enforceability against us or any of our directors and officers
located outside of the United States in original actions or in actions for
enforcement of judgments of United States courts of liabilities based solely on
the civil liability provisions of the securities laws of the United States.

12



---



##### Table of Contents



No treaty exists between Hong Kong or the British Virgin Islands and the
United States providing for the reciprocal enforcement of foreign judgments.
However, the courts of Hong Kong and the British Virgin Islands are generally
prepared to accept a foreign judgment as evidence of a debt due. An action may
then be commenced in Hong Kong or the British Virgin Islands for recovery of
this debt. A Hong Kong or British Virgin Islands court will only accept a
foreign judgment as evidence of a debt due if:



| |  |  | the judgment is for a liquidated amount in a civil matter;                                                                                                                                                                                                                                                                                                                                                           
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the judgment is final and conclusive and has not been stayed or satisfied in full;                                                                                                                                                                                                                                                                                                                                   
|
| |  |  | the judgment is not, directly or indirectly, for the payment of
foreign taxes, penalties, fines or charges of a like nature (in this
regard, a Hong Kong or British Virgin Islands court is unlikely to
accept a judgment for an amount obtained by doubling, trebling or
otherwise multiplying a sum assessed as compensation for the loss or
damage sustained by the person in whose favor the judgment was given);
|
| |  |  | the judgment was not obtained by actual or constructive fraud or
duress;                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | the foreign court has taken jurisdiction on grounds that are
recognized by the common law rules as to conflict of laws in Hong Kong
or the British Virgin Islands;                                                                                                                                                                                                                                                   
|
| |  |  | the proceedings in which the judgment was obtained were not contrary
to natural justice (i.e., the concept of fair adjudication);                                                                                                                                                                                                                                                                                    
|
| |  |  | the proceedings in which the judgment was obtained, the judgment
itself and the enforcement of the judgment are not contrary to the
public policy of Hong Kong or the British Virgin Islands;                                                                                                                                                                                                                        
|
| |  |  | the person against whom the judgment is given is subject to the
jurisdiction of the Hong Kong or the British Virgin Islands court; and                                                                                                                                                                                                                                                                               
|
| |  |  | the judgment is not on a claim for contribution in respect of damages
awarded by a judgment, which does not satisfy the criteria stated
previously.                                                                                                                                                                                                                                                                  

Enforcement of a foreign judgment in Hong Kong or the British Virgin
Islands may also be limited or affected by applicable bankruptcy, insolvency,
liquidation, arrangement, and moratorium or similar laws relating to or
affecting creditors rights generally, and will be subject to a statutory
limitation of time within which proceedings may be brought.

No treaty exists between Macao and the United States providing for the
reciprocal enforcement of foreign judgments. However, the courts of
Macao are generally prepared to accept a foreign judgment as evidence of a debt due. An
action may then be commenced in Macao for recovery of this debt. A Macao court
will only accept a foreign judgment as evidence of a debt due if:



| |  |  | there is no doubt to the authenticity of the judgment documents and the understanding of the judgment;                                    
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | pursuant to the law of the place of judgment, the judgment is final and conclusive;                                                       
|
| |  |  | the judgment was not obtained by fraud or the matter in relation to
the judgment is not within the exclusive jurisdiction of Macao courts;

13



---



##### Table of Contents





| |  |  | the judgment will not be challenged on the ground that the relevant
matter has been adjudicated by the Macao court, except matters which
have first been adjudicated by courts outside Macao;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | pursuant to the law of the place of the judgment, the defendant has
been summoned and the proceedings in which the judgment was obtained
were not contrary to natural justice; and           
|
| |  |  | the enforcement of the judgment will not cause any orders that may
result in apparent public disorder.                                                                                       

Enforcement of a foreign judgment in Macao may also be limited or affected
by applicable bankruptcy, insolvency, liquidation, arrangement, and moratorium
or similar laws relating to or affecting creditors rights generally, and will
be subject to a statutory limitation of time within which proceedings may be
brought.

Future issuances of preference shares could materially and adversely affect the
holders of our common shares or delay or prevent a change of control.

Our Board of Directors may amend our Memorandum and Articles of
Association without shareholder approval to create from time to time and issue
one or more classes of preference shares (which are analogous to preferred
stock of corporations organized in the United States). While currently no
preference shares are issued or outstanding, we may issue preference shares in
the future. Future issuance of preference shares could materially and adversely
affect the rights of the holders of our common shares or delay or prevent a
change of control.

Our status as a foreign private issuer exempts us from certain of the reporting
requirements under the Securities Exchange Act of 1934 and corporate governance
standards of the New York Stock Exchange, or NYSE, limiting the protections and
information afforded to investors.

We are a foreign private issuer within the meaning of rules promulgated
under the Securities Exchange Act of 1934. As such, we are exempt from certain
provisions applicable to United States public companies including:



| |  |  | the rules under the Securities Exchange Act of 1934 requiring the
filing with the Commission of quarterly reports on Form 10-Q, current
reports on Form 8-K or annual reports on Form 10-K;                                                                                                                                                                       
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | the sections of the Securities Exchange Act of 1934 regulating the
solicitation of proxies, consents or authorizations in respect of a
security registered under the Securities Exchange Act of 1934;                                                                                                                                                             
|
| |  |  | the provisions of Regulation FD aimed at preventing issuers from
making selective disclosures of material information; and                                                                                                                                                                                                                                        
|
| |  |  | the sections of the Securities Exchange Act of 1934 requiring
insiders to file public reports of their stock ownership and trading
activities and establishing insider liability for profits realized from
any short-swing trading transaction (i.e., a purchase and sale, or
sale and purchase, of the issuers equity securities within less than
six months).

In addition, because the Company is a foreign private issuer, certain of
the corporate governance standards of the NYSE that are applied to domestic
companies listed on that exchange may not be applied to us.

Because of these exemptions, investors are not afforded the same
protections or information generally available to investors holding shares in
public companies organized in the United States or traded on the NYSE.




Item 4.Information on the Company

History and Development of Nam Tai

Nam Tai Electronics, Inc. was founded in 1975 and moved its manufacturing
facilities to the Peoples Republic of China, or China, in 1980 to take
advantage of lower overhead costs, lower material costs and competitive labor
rates available and subsequently relocated to Shenzhen, China in order to
capitalize on opportunities offered in Southern China. We were reincorporated
as a limited liability International Business Company under the laws of the
British Virgin Islands in August 1987. Our principal manufacturing and design
operations are based in Shenzhen, China, approximately 30 miles from Hong Kong.
Our PRC headquarters are located in Macao, China. Some of our subsidiaries offices are located in Hong
Kong, which provides us access to Hong Kongs infrastructure of communication
and banking and facilitates management of our China operations and
transportation of our products out of China through the port of Hong Kong.

14



---



##### Table of Contents



Our corporate administrative matters are conducted in the British Virgin
Islands through our registered agent, McW. Todman & Co., McNamara Chambers,
P.O. Box 3342, Road Town, Tortola, British Virgin Islands. Our agent for
service of process in the United States is Stephen Seung, 2 Mott Street, Suite
601, New York, New York 10013. Our principal executive offices are located in
the British Virgin Islands at 116 Main Street, 3rd Floor, Road Town, Tortola,
British Virgin Islands, and the telephone number is (284) 494-7752.

In 1978,
Mr. Koo, the founder of the Company, began recruiting operating executives from the Japanese
electronics industry. These executives brought years of experience in Japanese
manufacturing methods, which emphasize quality, precision, and efficiency in
manufacturing. Senior management currently includes Japanese professionals who
provide technical expertise and work closely with both our Japanese component
suppliers and customers.

For a number of years, we specialized in manufacturing large-volume,
hand-held digital consumer electronic products and established a leading
position in electronic calculators and handheld organizers for OEMs such as
Texas Instruments Incorporated and Sharp Corporation. Over the years, we have
broadened our product mix to include a range of digital products for business
and personal use, as well as key components and subassemblies for
telecommunications and consumer electronic products. In August 1999, we
established Nam Tai Telecom (Hong Kong) Co. Ltd., which targets the expanding
market for telecommunications components including LCD modules as well as end
products, including cordless phones and family radio systems. Nowadays, color
and monochrome LCD modules to display information have become one of our major
products. Since December 2002, we have also produced RF modules for integration into
cellular phones and other hand-held consumer electronic products, such as
personal digital assistants, or PDAs, laptop computers and other products with
wireless connectivity. In 2003, we further diversified our product mix by
manufacturing CMOS sensor modules for integration into various image capturing
devices such as digital cameras for cellular phones, and home entertainment
products, flexible printed circuit, or FPC, subassemblies for integration into
various LCD modules, front light panels for handheld video game devices,
digital camera accessories for use with the cellular phones and home
entertainment products.

In September 2000, we acquired for $2.0 million a 5% indirect shareholding
in both TCL Mobile Communication (HK) Co., Ltd. and Huizhou TCL Mobile
Communication Co., Ltd., together known as TCL Mobile, through the
acquisition of 25% of the outstanding shares of Mate Fair Group Limited, or
Mate Fair, a privately held investment holding company incorporated in the
British Virgin Islands with a 20% shareholding interest in TCL Mobile. TCL
Mobile is engaged in manufacturing, distributing and trading of digital mobile
phones and accessories in China as well as overseas markets. In October 2002, we
began to provide TCL Mobile with mobile LCD modules used in its mobile phones.

In October 2000, we completed the acquisition of the J.I.C. Group (BVI)
Limited. The J.I.C. Group (B.V.I.) Limited and its subsidiaries, or
the J.I.C. Group, are principally engaged in the manufacture and marketing of transformers and
LCD panels, a key component for a variety of consumer electronic products. Of
the purchase price of $32.8 million, we paid $11.0 million in cash and issued
3.48 million of our common shares.

In November 2002, Mate Fair sold a portion of its equity interest in
Huizhou TCL Mobile Communication Co., Ltd. for which we received proceeds of
approximately $10.4 million, reducing our direct equity interest (held through
Mate Fair) in TCL Mobile to approximately 3%. In November 2002, we invested
$5.1 million of the proceeds in TCL International Holdings Limiteds 3%
convertible notes that are due in November 2005. In August 2003, we disposed
of those convertible notes to independent third parties and received proceeds of
approximately $5.03 million in cash. TCL International Holdings Limited is
another company in the TCL Group, which consists of the TCL Corporation and its
subsidiaries, and is publicly listed on The Stock Exchange of Hong Kong
Limited, or the Hong Kong Stock Exchange.

In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly
known as TCL Holdings Corporation Ltd.), for a consider of $12.0
million. TCL Corporation, an enterprise established in the PRC, is the parent
company of the TCL Group of companies. TCL Corporation changed from a limited
liability company to a company limited by shares in April 2002. In January
2004, TCL Corporation listed its A-shares on the Shenzhen Stock Exchange at
Chinese renminbi 4.26 (equivalent to $0.52) per A-share. The Companys interest in TCL
Corporation has since been diluted to 3.69% and represents 95.52 million
promoters shares of TCL Corporation after its initial public offering.

15



---



##### Table of Contents



In January 2002, we entered into a transaction which resulted in the
listing of a company holding J.I.C. Groups business on the Hong Kong Stock
Exchange. To effect the transaction, we entered into an agreement with the
liquidators of Albatronics, whose shares had been listed on the Hong Kong Stock
Exchange and which was placed into voluntary liquidation in August 1999. Under
the agreement, we agreed to transfer the J.I.C. Group into J.I.C. Technology
Company Limited, a new company, for a controlling interest in J.I.C. Technology
Company Limited. Albatronics listing status on the Hong Kong Stock Exchange was
withdrawn and J.I.C. Technology Company Limited was listed on the Hong Kong Stock
Exchange free from the liabilities of Albatronics. This arrangement was more
cost effective than using an initial public offering. For our contribution to
J.I.C. Technology Company Limited, we received a combination of ordinary and
preference shares, which are analogous to common stock and convertible
preferred stock, respectively, of companies organized under U.S. law and which
upon their full conversion, could result in us, the creditors and the Hong Kong
public owning approximately 92.9%, 5.8% and 1.3%, respectively, of the
outstanding ordinary shares of J.I.C. Technology Company Limited. On June 4,
2002, the reverse merger was completed and all the shares of Albatronics were
transferred to the liquidators for a nominal consideration. The preference
shares are non-redeemable, non-voting shares that rank pari passu with ordinary
shares of J.I.C. Technology Company Limited on the payment of dividends or
other distribution other than on a winding-up. No holder of preference shares
(including Nam Tai) may convert them if such conversion would result in the
minimum public float of 25%, which required under the Hong Kong Stock Exchange
Listing Rules, not being met. In August 2002, we acquired an additional
7,984,000 ordinary shares of J.I.C. Technology Company Limited for a cash consideration
of $437,000. During the period from June to November 2003, we disposed of a
total of 42,600,000 ordinary shares for cash consideration of $4.0 million. In
November 2003, we converted 175,100,000 preference shares into 170,000,000
ordinary shares of J.I.C. Technology Company Limited. As of December 31, 2003,
we held 263,900,688 ordinary shares of J.I.C. Technology Company Limited,
equivalent to 74.86% of issued ordinary shares, and 423,320,000 preference
shares. Upon full conversion of the preference shares owned, we will hold
approximately 88.39% of J.I.C. Technology Company Limited.

In January 2003, we invested $10.0 million for a 25% equity interest in
Alpha Star Investments Ltd., the ultimate holding company of JCT Wireless
Technology Limited, or JCT. JCT is engaged in the design, development and
marketing of wireless communication terminals and wireless application software
and is using us to manufacture wireless communication terminals and their
related modules for JCT. As of December 31, 2003, we recognized net sales of
$20.8 million to JCT for 2003.

In January 2003, we disposed of 20% of our equity interest in Namtek
Software Development Company Limited to a company that is owned by the
management of Namtek Software Development Company Limited for a cash
consideration of $160,000. As of the date of disposal, Namtek Software
Development Company Limited was fair valued at $3.3 million.

On January 23, 2003, the listing of our shares was transferred to the
NYSE from the NASDAQ National Market with symbol of NTE. On June 30, 2003, we
implemented a three-for-one stock split with both the stock size and market
price to be divided by three. As of December 31, 2003, there were 41,231,272
common shares outstanding.

In June 2003, one of our subsidiaries, J.I.C. Technology Company Limited,
disposed of its transformers operation to a third party for a cash consideration
of $2.4 million. The gain from disposal of this discontinued operation amounted
to $2.0 million, net of $0.1 million shared by minority
interest.

In August 2003, we set up our PRC headquarters in Macao, due to our
continuous increase in investment in China. Macao, like Hong Kong, is a
special administrative region of the China and has recently introduced an
incentive program to attract investment in Macao.

In
November 2003, our common shares were listed in the Regulated
Unofficial Market (Freiverkehr) on the Frankfurt Stock Exchange, in Germany.
The stocks are being traded on Xetra, the Deutsche Borse AG electronic trading
system under the stock symbol of 884852.

In December 2003, we placed approximately $5.3 million into an escrow
account for an investment in Stepmind. The investment will be in two phases.
For the first phase, approximately $2.64 million, representing 7.66% of the
equity interest in Stepmind, was released to Stepmind in January 2004. The
second phase amounting to approximately $2.65 million will be released to
Stepmind in August 2004 subject to fulfillment of certain conditions. Upon
successful subscription of the shares in the second phase, our total investment
will represent 11.33% of the equity interest in Stepmind. Stepmind was founded
in July 2000 and is a fabless solutions and components supplier, developing
applications which require high performance and secured data links.

16



---



##### Table of Contents



Also refer to the section of this Report entitled Item 5. Operating and
Financial Review and Prospects for a further discussion of our investments and
acquisitions.

An important element of our strategy is to acquire companies that would
complement our existing products and services, augment our market coverage and
sales ability or enhance our technological capabilities. Accordingly, we may
acquire additional businesses, products or technologies in the future or make
investments in related businesses for strategic business purposes.

Capital Expenditures

Our principal capital expenditures and divestitures over the last three
years include the following:

|                                    |  |      |            |      |  |      |            |  |  |  |            | 
|----------------------------------- |  | ---- | ---------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                    |  | 2001 |            | 2002 |  | 2003
|                                    |  |      |            |      |  |     
|Property, plant and equipment (net) |  | $    | 36,013,000 |      |  |      | 18,485,000 |  |  |  | 17,053,000 | 

Our capital expenditures in 2003 included:



| |  |  | $6.0 million for machinery for manufacturing RF modules,                                      
| | - |  | ----------------------------------------------------------------------------------------------
|
| |  |  | $1.2 million for new factory expansion,                                                       
|
| |  |  | $0.4 million for machinery on FPC sub-assembly,                                               
|
| |  |  | $1.7 million for expansion of our high resolution color LCD module production capacity,       
|
| |  |  | $6.7 million for other capital equipment, and                                                 
|
| |  |  | $1.1 million for construction of new trade union building for the use of our workers in China.

Our major capital expenditures in 2002 included:



| |  |  | $12.3 million for new STN LCD panel production line, and 
| | - |  | ---------------------------------------------------------
|
| |  |  | $4.0 million for completion of the new factory expansion.

Our major capital expenditures in 2001 included:



| |  |  | $13.0 million for the purchase and interior improvements on 24,200
square feet of contiguous prime office space at Shun Tak Centre in the
Central district of Hong Kong,
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | $6.4 million for the purchase of new staff residences in Hong Kong,                                                                                                     
|
| |  |  | $5.5 million for the construction and machinery for a new 138,000
square foot five-story factory building within the Companys existing
manufacturing complex,          
|
| |  |  | $5.5 million for the purchase of new chip on glass production lines, and                                                                                                
|
| |  |  | $2.0 million for the additions to and improvement of the production facilities for producing LCD products.                                                              

In order to expand production capacity, we are building a new factory
consisting of approximately 250,000 square feet adjacent to our principal
manufacturing facilities in Shenzhen, China. The construction commenced in
September 2003 and we expect construction to be completed by the end of the
fourth quarter in 2004. We have budgeted $40.0 million to cover the cost of
construction and fixtures and equipment for the new factory, of which $1.2
million has already been spent in 2003. We plan to finance these improvements
to our manufacturing facilities from cash resources and banking facilities.

Other capital expenditures we have planned for 2004 include:

17



---



##### Table of Contents





| |  |  | $6.7 million for machinery for manufacturing RF modules,                                   
| | - |  | -------------------------------------------------------------------------------------------
|
| |  |  | $2.0 million for the expansion of our high resolution color LCD module production capacity,
|
| |  |  | $3.9 million for machinery for FPC subassembly, and                                        
|
| |  |  | $6.5 million for expansion of our LCD factory.                                             

Our plans for capital expenditures are subject to change from time to time
and could result from, among other things, our consummation of any significant
amount of additional acquisition or strategic investment opportunities, which
we regularly explore.

Business Overview

We are an electronics manufacturing and design services provider to a
select group of the worlds leading OEMs of telecommunications and consumer
electronic products. Through our electronics manufacturing services operations,
we manufacture electronic components and subassemblies, including LCD panels,
LCD modules, RF modules, FPC subassemblies and image
sensors. These components are used in numerous electronic products, including
cellular phones, laptop computers, digital cameras, copiers, fax machines,
electronic toys, handheld video game devices and microwave ovens. We also
manufacture finished products, including cellular phones, palm-sized PCs,
personal digital assistants, electronic dictionaries, calculators and digital
camera accessories for use with cellular phones.

We assist our OEM customers in the design and development of their
products and furnish full turnkey manufacturing services that utilize advanced
manufacturing processes and production technologies. Our services include
hardware and software design, component purchasing, assembly into finished
products or electronic subassemblies and post-assembly testing. These services
are value-added and assist us in obtaining new business but do not represent a
material component of our revenue. We also provide original design
manufacturing, or ODM, services, in which we design and develop proprietary
products that are sold by our OEM customers using their brand name.

We were founded in 1975 as an electronic products trading company based in
Hong Kong and shifted our focus to manufacturing of electronic products in
1978. We moved our manufacturing facilities to China in 1980 to take advantage
of lower overhead costs, lower material costs and competitive labor rates
available and subsequently relocated to Shenzhen, China in order to capitalize
on opportunities offered in Southern China. We were reincorporated as a limited
liability International Business Company under the laws of the British Virgin
Islands in August 1987. Our principal manufacturing and design operations are
based in Shenzhen, China, approximately 30 miles from Hong Kong. Our PRC
headquarters are located in Macao, China. Some of our subsidiaries
offices are located in Hong Kong, which provides us access to Hong Kongs
infrastructure of communication and banking and facilitates management of our
China operations and transportation of our products out of China through the
port of Hong Kong.

Our Customers

Historically, we have had substantial recurring sales from existing
customers. About 89.1% of our 2003 net sales came from customers that also used
our services in 2002. While we seek to diversify our customer base, a small
number of customers currently generate a significant portion of our sales.
Sales to our 10 largest customers accounted for 83.7%, 84.8% and 84.9% of our
net sales during the years ended December 31, 2001, 2002 and 2003,
respectively. Sales to customers accounting for 10% or more of our net sales in
the year ended December 31, 2001, 2002 or 2003 were as follows:

|                                              |  |              |      |      |  |      |      |   |  |  |      |  
|--------------------------------------------- |  | ------------ | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                              |  | Year ended  
|                                              |  | December 31,
|                                              |  |             
|                                              |  | 2001         |      | 2002 |  | 2003
|                                              |  |              |      |      |  |     
|Epson Precision (HK) Ltd.                     |  |              | 29.9 | %    |  |      | 32.2 | % |  |  | 24.8 | %
|Sony Ericsson Mobile Communications AB        |  |              | *    |      |  |      | 16.9 |   |  |  | 11.3 | %
|Texas Instruments Incorporated                |  |              | 14.2 |      |  |      | 11.1 |   |  |  | *    |  
|Toshiba Matsushita Display Technology
Co. Ltd |  |              | *    |      |  |      | *    |   |  |  | 10.6 | %



---

|* |  | Less than 10% of our total net sales.
|- |  | -------------------------------------

18



---



##### Table of Contents



Our largest OEM customers based on net sales during 2003 include the
following (listed alphabetically):

|                                                  |  |                                                                  
|------------------------------------------------- |  | -----------------------------------------------------------------
|Customer                                          |  | Products                                                         
|                                                  |  |                                                                  
|Appeal Telecom Co., Ltd                           |  | CMOS modules                                                     
|Canon Electronic Business Machines (H.K.) Co. Ltd |  | Electronic dictionaries and calculators                          
|Epson Precision (H.K.) Ltd.                       |  | LCD modules for cellular phones                                  
|Goyo Paper Working Co., Ltd                       |  | Game front light
panel assembly                                  
|Hitachi Media Electronics Co. Ltd(1)              |  | Transformers                                                     
|JCT Wireless Technology Limited                   |  | RF modules and cellular phones in semi-knocked down,
or SKD, form
|Kanda Tsushin Kogyo Co Ltd (affiliate of Fujitsu) |  | Caller ID function phones                                        
|Mobile Soft Tech, Ltd                             |  | Attached Camera                                                  
|Nanox Ltd.                                        |  | LCD panels for cordless phones and household appliances          
|Nishimura Musen Denki Co. Ltd(1)                  |  | Transformers                                                     
|Omnivision Technologies, Inc.                     |  | PC Camera, CMOS
sensor modules                                   
|Optrex Corporation                                |  | Assemblies for LCD modules                                       
|Seiko Instruments Inc.                            |  | Electronic dictionaries                                          
|Sharp Corporation                                 |  | Calculators, pocket computers and control panel modules          
|Sony Computer Entertainment Europe Limited        |  | Home entertainment products                                      
|Sony Corporation                                  |  | Electronic dictionaries                                          
|Sony Ericsson Mobile Communications AB            |  | Mobile phone digital camera accessories                          
|Stanley Electric (Asia Pacific) Ltd.              |  | LCD panels for car audio devices                                 
|Texas Instruments Incorporated                    |  | Calculators                                                      
|Toshiba Matsushita Display Technology Co.
Ltd.    |  | LCD modules for cellular phones                                  
|Wuxi Sharp Electronic Components
Co. Ltd          |  | Telecom printed
circuit board, or PCB, modules                   



---



|(1) |  | We sold our transformers operation to a third party in June 2003.
|--- |  | -----------------------------------------------------------------

At any given time, different customers account for a significant portion
of our business. Percentages of net sales to customers vary from quarter to
quarter and year to year and fluctuate depending on the timing of production
cycles for particular products.

Sales to our OEM customers are primarily based on purchase orders we
receive from time to time rather than firm, long-term purchase commitments from
our customers. Although it is our general practice to purchase raw materials
only upon receiving a purchase order, for certain customers we will
occasionally purchase raw materials based on such customers rolling forecasts.
Uncertain economic conditions and our general lack of long-term purchase
commitments with our customers make it difficult for us to accurately predict
revenue over the longer term. Even in those cases where customers are
contractually obligated to purchase products from us or repurchase unused
inventory from us, we may elect not to immediately enforce our contractual
rights because of the long-term nature of our customer relationships and for
other business reasons, and instead may negotiate accommodations with customers
regarding particular situations.

Our Products

The dollar amount (in thousands) and percentage of our net sales by
business segment and product category for the years ended December 31, 2001,
2002 and 2003 were as follows:

|                               |                               |   |                         |         |         |  |         |    |         |   |         |         |         |  |     |    |   |   |         |         |  |  |     |    |  
|------------------------------ | ----------------------------- | - | ----------------------- | ------- | ------- |  | ------- | -- | ------- | - | ------- | ------- | ------- |  | --- | -- | - | - | ------- | ------- |  |  | --- | -- | -
|                               |                               |   | Year ended December 31,
|                               |                               |   |                        
|                               |                               |   | 2001                    |         | 2002    |  | 2003   
|                               |                               |   |                         |         |         |  |        
|                               |                               |   | Dollars                 |         | Percent |  | Dollars |    | Percent |   | Dollars |         | Percent
|                               |                               |   |                         |         |         |  |         |    |         |   |         |         |        
|Consumer Electronic Products:  |                               |   |                         |         |         |  |         |    |         |   |         |         |         |  |     |    |   |   |         |         |  |  |     |   
|                               | Telecom component assembly(1) |   | $                       | 121,751 |         |  |         | 52 | %       |   | $       | 103,625 |         |  |     | 44 | % |   | $       | 236,812 |  |  |     | 58 | %
|                               | LCD consumer products         |   |                         | 73,596  |         |  |         | 32 |         |   |         | 94,207  |         |  |     | 40 |   |   |         | 124,128 |  |  |     | 31 |  
|                               | Software development services |   |                         | 2,701   |         |  |         | 1  |         |   |         | 2,923   |         |  |     | 1  |   |   |         | 4,041   |  |  |     | 1  |  
|LCD Panels and Transformers(2) |                               |   |                         |         |         |  |         |    |         |   |         |         |         |  |     |    |   |   |         |         |  |  |     |   
|                               | LCD panels                    |   |                         | 24,977  |         |  |         | 11 |         |   |         | 23,937  |         |  |     | 10 |   |   |         | 35,041  |  |  |     | 9  |  
|                               | Transformers(3)               |   |                         | 10,981  |         |  |         | 4  |         |   |         | 11,324  |         |  |     | 5  |   |   |         | 6,284   |  |  |     | 1  |  
|                               |                               |   |                         |         |         |  |         |    |         |   |         |         |         |  |     |    |   |   |         |         |  |  |     |   
|                               |                               | $ | 234,006                 |         |         |  | 100     | %  |         | $ | 236,016 |         |         |  | 100 | %  |   | $ | 406,306 |         |  |  | 100 | % 
|                               |                               |   |                         |         |         |  |         |    |         |   |         |         |         |  |     |    |   |   |         |         |  |  |     |   



---



|(1) |  | Included in component assembly are our sales from our manufacture of
rechargeable battery packs through a joint venture we had with Toshiba
Battery Co., Ltd. We sold our interest in the joint venture to a Toshiba
related company and ceased manufacturing rechargeable battery packs as of
April 30, 2002. Accordingly, revenue from sales of battery packs
was not
included after that date.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | LCD panels and components consist of products manufactured and sold by
our subsidiaries in the J.I.C. Group. We acquired the J.I.C. Group in 2000 and
their sales were consolidated with ours beginning on October 1, 2000.                                                                                                                                                                      
|   
|(3) |  | We sold our transformers operation to a third party in June 2003.                                                                                                                                                                                                                                                                                                                                

19



---



##### Table of Contents



Please refer to page F-34 of the
consolidated financial statements and Item 8.
Financial Information  Export Sales, which sets forth the information of net sales to customers by
geographic area.

Consumer Electronic Products

Component Assembly

We manufacture the following subassemblies and components:



| |  |  | Color and monochrome LCD modules to display information as part of
telecommunication products such as cellular phones and telephone
systems, appliances and office automation products, such as copiers and
facsimile machines. Our LCD modules could be manufactured for use in
most other hand-held consumer electronic devices, such as electronic
games and digital cameras.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | RF modules, which we began manufacturing in December 2002, for
integration into cellular phones. These modules could be manufactured
for use in most other hand-held consumer electronic products, such as
PDAs, laptop computers and other products with wireless connectivity.                                                                                                
|
| |  |  | CMOS sensor modules, which we began manufacturing in June 2003, for
integration into various image capturing devices such as digital
cameras
for cellular phones and home entertainment products.                                                                                                                                                                               
|
| |  |  | Cellular phones in SKD form.                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | FPC subassemblies, which we began manufacturing in March 2003 for integration into various LCD modules.                                                                                                                                                                                                                                                                         
|
| |  |  | Front light panels for handheld video game devices, which we began manufacturing in January 2003.                                                                                                                                                                                                                                                                               
|
| |  |  | 1.9 and 2.4 GHz high frequency cordless telephones, home feature phones, family radio systems and transceivers.                                                                                                                                                                                                                                                                 

LCD Consumer Products

The LCD-based consumer electronic products we manufacture are primarily finished products and include:



| |  |  | Digital camera accessories for use with the cellular phones and home entertainment products.                                       
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Electronic calculators that include basic function calculators,
desktop display style, scientific and advanced graphic calculators.
|
| |  |  | Digital management devices that include PDAs and electronic personal organizers.                                                   
|
| |  |  | Linguistic products, including
electronic dictionaries, spell checkers and language translators.                                   

Software Development Services

20



---



##### Table of Contents



We offer our OEM customers software development services principally for
the operation of electronic dictionary products, many of which are manufactured
by us, as well as personal organizers and MP3 devices. In addition to
generating revenue from our development services, our software design, which
typically occurs at the product design stage, often results in our providing
manufacturing services to the OEM assembly customers.

LCD Panels and Transformers

With the
acquisition of J.I.C. Group in October 2000, we began producing LCD
panels and transformers.

LCD Panels

LCD panels are information display components and are featured in numerous
electronics products, including watches, clocks, calculators, pocket games,
PDAs and cellular and wireless telephones. Currently, we use only a small
portion of the LCD panels in our assembly operations. We plan to increase the
volume of LCD panels we supply by approximately 50% to our assembly business in
2004.

Transformers

Transformers are generally used to increase or reduce the voltage of an
electric power supply to allow a particular part of electrical equipment to be
used. The transformers we produce are used in home appliances,
telecommunications equipment, computers and computer peripherals. We sold our
transformers operation to a third party in June 2003.

Our Manufacturing and Assembly Capabilities

We utilize the following production techniques:



| |  |  | Chip on Film,or COF, is an assembly method for bonding integrated
circuit chips and other components onto a flexible printed circuit. This
process allows for greater compression of the size of a product when
assembled enabling the production and miniaturization of small form
factor devices like cellular phones, PDAs, digital cameras and notebook
PCs. At December 31, 2003, we had two COF machines. These machines
connect the bump of Large Scale Integrated, or LSI, driver onto FPC
pattern with Anisotropic Conductive Film, or ACF, and mount chip
resister cap components to FPC through Surface Mount Technology, or
SMT,
is available. These COF machines have the ability to pitch fine to 40
micrometers and a total production capacity of up to 400,000 chips per
month.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Chip On Glass,or COG, is a process that connects integrated circuits
directly to LCD panels without the need for wire bonding. We apply this
technology to produce advanced LCD modules for high-end electronic
products, such as cellular phones and PDAs. At December 31, 2003, we had
13 COG lines. These machines provide an LCD, dimension of up to
200 millimeters (length) x 150 millimeters (width) x 2.8 millimeters
(height), a process time per chip of five seconds, a pin pitch fine to
50 micrometers and a total production capacity of up to 4,000,000 chips
per month.                                                                                                                                                                                                         
|
| |  |  | Chip On Board,or 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 linguistic products. At December
31, 2003, we had 48 COB machines. These machines are fully automatic
bonding machines and use ultrasonic mounting technology. The bonding
time, pressure, power and each wire loop are under machine programmable
control. These machines provide a high speed chip mounting time of per 2
millimeters wire per 0.25 second, a bond pad fine to 75 micrometers and
a total production capacity of up to 2,600,000 per month.                                                                                      
|
| |  |  | Outer Lead Bonding,or OLB, is an advanced technology used to connect
PCBs and large-scale integrated circuits with a large number of
connectors. We use this technology to manufacture complex miniaturized
products, such as high-memory PDAs. At December 31, 2003, we had three
OLB machines. The machines include multi-pinned Tape Carrier Packaged
Large Scale Integrated Circuit, or TCP LSIC, bonding which is up to 280
pins, which also provide ultra thin assembly with module thickness to
around one millimeter and high accuracy bonding with pin pitch to 100
micrometers. The total production capacity is 12,000 per month.                                                                                                                                                    

21



---



##### Table of Contents





| |  |  | Tape Automated Bonding with Anisotropic Conductive Film,or TAB with
ACF, is an advanced heat sealing technology that connects a liquid
crystal display component with an integrated circuit in very small LCD
modules, such as those used in cellular phones and pagers. At December
31, 2003, we had 27 systems of TAB with ACF machines. The
machines provide process time of 25 seconds per component, a pin pitch
fine to 200 micrometers and a total production capacity of up to
2,360,000 components per month.                                                                                                                                                                                                                                                                                                                                            
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Fine Pitch Heat Seal
Technology,or FPHS technology, allows us to
connect LCD displays to PCBs produced by COB and outer lead bonding that
enables very thin connections. This method is highly specialized and is
used in the production of finished products such as PDAs. At December
31, 2003, we had eight machines utilizing FPHS technology. The machines
provide a pin pitch fine to 260 micrometers and a total production
capacity of up to 268,000 per month.                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | Surface Mount Technology,or SMT, is a process by which electronic
components are mounted directly on both sides of a printed circuit
board, increasing board capacity, facilitating product miniaturization
and enabling advanced automation of production. We use SMT for products
such as electronic linguistic devices. At December 31, 2003, we had 21
SMT productions lines. The production time per chip ranges from 0.072
second per chip to 0.8 second per chip and high precision ranging from
+/-0.09 millimeter to +/-0.1 millimeter. The components size ranges from
0.6 millimeter (length) x 0.3 millimeter (width) to 55 millimeters
(length) x 55 millimeters (width). Ball Grid Array, or BGA, ball pitch
is 0.5 millimeter and ball diameter is 0.2 millimeter. The total
production capacity is 490,445,000 resistor capacitor chips per month.
|
| |  |  | Twisted Nematic LCDs,or TN
type LCD, is the most conventional and
economical and is suitable for most common LCDs used in devices like
calculators and watches. At December 31, 2003, we had two TN LCD lines.
The lines use 360 millimeter by 400 millimeter glass sheets and have a
total capacity of about 90,000 glass sheets per month.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  |  | Super-Twisted Nematic LCDs,or STN, type LCDs allow for clearer
visibility and wider viewing angle than TN-type LCDs. STN LCDs are
suitable for use in devices like pocket games and PDA personal digital
assistants. We began manufacturing these LCDs in the second quarter of
2002 and at December 31, 2003, we had one STN LCD line. It uses 360
millimeter by 400 millimeter glass sheets and has a capacity of about
40,000 to 50,000 glass sheets per month.                                                                                                                                                                                                                                                                                                                                                                                                

At December 31, 2003, we had three clean rooms at our principal
manufacturing facilities, which housed COF and COG capabilities for LCD module
manufacturing. We also had three clean rooms at another of our factories, which
are used to manufacture LCD panels. Of our six clean rooms at December 31,
2003, three were class ten thousand and three were class thousand.

Quality Control

We maintain strict quality control programs for our products, including
the use of total quality management, or TQM, systems and advanced testing and
calibration equipment. Our quality control personnel test the quality of
incoming raw materials and components. During the production stage, our quality
control personnel also test the quality work-in-progress at several points in
the production process. Finally, after the assembly stage, we conduct testing
of finished products. In addition, we provide office space at our principal
manufacturing facilities for representatives of our major customers to permit
them to monitor production of their products and we provide them with direct
access to our manufacturing personnel.

All of our manufacturing facilities are certified under ISO 9001 quality
standards, the International Organization for Standardizations,
or ISOs highest
standards. The ISO is a Geneva-based organization dedicated to the development
of worldwide standards for quality management guidelines and quality assurance.
ISO 9000, which was the first quality system standard to gain worldwide
recognition, requires a company to gather, analyze, document, monitor and make
improvements where needed. Our certification under an ISO 9001 quality standard
demonstrates that our manufacturing operations meet the most demanding of the
established world standards. Our principal manufacturing facilities are also
certified under an ISO 14001 quality standard, which was published in 1996 to
provide a structured basis for environmental management control.

Our Suppliers

We purchase thousands of different component parts from numerous
suppliers. We are not dependent upon any single supplier for any key component.
We purchase components from suppliers in Japan, China and elsewhere. We
generally base component orders on received purchase orders in an effort to
minimize our inventory risk by ordering components and products only to the
extent necessary although for certain customers we will occasionally purchase
raw materials based on such customers rolling forecasts.

22



---



##### Table of Contents



The major component parts we purchase include the following:



| |  |  | off-the-shelf and custom integrated circuits or chips, most of
which we purchase presently from Toshiba Corporation and Sharp
Corporation and certain of their affiliates;                                                                                                               
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | LCD panels, which are available from many manufacturers. In 2003, we
purchased LCD panels from Epson Hong Kong Ltd., Toshiba Matsushita
Display Technology Co. Ltd., Optrex Corporation and Sharp Corporation
for LCD panels and in the future we may produce some LCD supplies
internally;
|
| |  |  | CMOS sensor, which we purchase entirely from Omnivision Technologies
Inc.;                                                                                                                                                                                                                 
|
| |  |  | solar cells and batteries, which are standard off-the-shelf items
that we generally purchase in Hong Kong from agents of Japanese
manufacturers; and                                                                                                                                     
|
| |  |  | various mechanical components such as plastic parts, rubber keypads,
PCBs, indium tin oxide, or ITO, glass used in the production of LCD
panels, and packaging materials from various local suppliers in China.                                                                            

Whenever practical, we use domestic China suppliers who are often able to
provide items at low costs and with short lead times.

Certain components may be subject to limited allocation by certain of our
suppliers. During 2000, there was an industry-wide shortage of components in
the electronics industry as supply was unable to satisfy growing world demand.
In some cases, supply shortages and delays in deliveries of particular
components have resulted in curtailed production, or delays in production of
assemblies using scarce components. These supply shortages have contributed to
an increase in our inventory levels and reduction in our margins. We expect
that shortages and delays in deliveries of some components will continue. If we
are unable to obtain sufficient components on a timely basis, we may experience
manufacturing delays, which could harm our relationships with current or
prospective customers and reduce our sales.

The principal raw materials used by the Company are large scale integrated
circuits or LSI circuits (CMOS), Semiconductors, LCD panels and batteries. At times the
pricing and availability of these raw materials can be volatile, due to
numerous factors beyond the Companys control, including general economic
conditions, currency exchange rates, industry cycles, production levels or a
suppliers tight supply. In the past, we have asked our customers to share in
the increased costs of raw materials where such increased costs would adversely
affect the Companys business, results of operations and financial condition.
Our customers have generally agreed when so requested in the past. We cannot
assure you, however, that our customers will agree to share costs in the future
and that our business, results of operations and financial condition would not
be adversely affected by increased volatility of raw materials.

Production Scheduling

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

Once we and the OEM customer agree to the quotation for the development
costs and the unit cost, we begin the product development if we are engaged to
do so. This development period typically lasts less than six months, but may be
longer if software design is included. During this time we complete all molds,
tooling and software required to manufacture the product with the development
costs generally borne by our customer. Upon completion of the molds, tooling
and software, we produce samples of the product for the customers quality
testing, and, once approved, commence mass production of the product. We
recover the development costs in relation to molds, tooling and software from
our customers.

23



---



##### Table of Contents



The
production period usually lasts approximately six to twelve months. In
some cases, our customer handles all product design and development and engages
us only at the point of initial production. Typically, more advanced products
have shorter production runs. If total production quantities change, the OEM
customer often provides only limited notice before discontinuing orders for a
product. At any point in time we are in different stages of the development and
production periods for the various models under development or in production
for our OEM customers.

Generally, our production is based on purchase orders received from OEM
customers. Purchase orders are often supported by letters of credit or written
confirmation from the OEM customer and generally may not be cancelled once
confirmed without the mutual consent of the parties. Even in those cases where
customers are contractually obligated to purchase products from us or
repurchase unused inventory from us, we may elect not to immediately enforce
our contractual rights because of the long-term nature of our customer
relationships and for other business reasons, and instead may negotiate
accommodations with customers regarding particular situations.

We did not suffer a material loss resulting from the cancellation of OEM
customer orders in 2001 to 2003. In 2001, we wrote down our inventory
for $3.8 million for slow-moving raw materials relating to cancelled, reduced or
delayed orders. However, subsequently we were able to use some of these raw
materials in production or we received compensation for the unused raw
materials from certain of our customers, and the gain of $2.0 million was
recorded in cost of sales during 2002.

Sales and Marketing

We focus on developing close relationships with our customers at the
development and design phases and continuing throughout all stages of
production. We identify, develop and market new technologies that benefit our
customers and position us well as an EMS provider.

Sales and marketing operations are integrated processes involving direct
salespersons, project managers and senior executives. We direct our sales
resources and activities at several management and staff levels within our
customers and prospective customers. We receive unsolicited inquiries resulting
from word of mouth, from public relations activities, and through referrals
from current customers. We evaluate these opportunities against our customer
selection criteria and assign direct salespersons.

Seasonality

Historically, our sales and operating results are often affected by
seasonality. Sales of calculators, personal organizers and linguistic products
are often higher during the second and third quarters in anticipation of the
start of the school year and the Christmas buying season. Similarly, our
consumer services for electronics products have historically been lower in the
first quarter resulting from both the closing of our factories in China for the
Chinese New Year holidays and the general reduction in sales following the
holiday season. As we have diversified our services for complex components, we
expect that seasonality may be less of a factor affecting our business.

Transportation

Typically, we sell products F.O.B. Hong Kong, which means that our
customers are responsible for the transportation of finished products from Hong
Kong to their final destination. Transportation of components and finished
products to and from Shenzhen is by truck. Component parts purchased from Japan
are generally shipped by air. To date, we have not been materially affected by
any transportation problems. However, transportation difficulties affecting air
cargo or shipping, such as an extended closure of ports that
materially disrupts
the flow of our customers products into the United States, could materially and
adversely affect our sales and margins if, as a result, our customers delay or
cancel orders or seek concessions to offset expediting charges they incurred
pending resolution of the problems causing the port closures.

Competition

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

24



---



##### Table of Contents



The EMS services we provide are available from many independent sources as
well as from current and potential customers with in-house manufacturing
capabilities. Our EMS competitors include Celestica, Inc., Flextronics
International Ltd., Jabil Circuit, Inc., Sanmina-SCI Corporation, Hon Hai
Precision Industry Co., Ltd. and Solectron Corporation. Our principal
competitors in the manufacture of our traditional product lines of calculators,
personal organizers and linguistic products include Kinpo Electronics, Inc. and
Inventec Co. Ltd. Our principal competitors in the manufacture of image
capturing devices and the CMOS sensor modules are Lite-On Technology
Corporation, The Primax Group and Logitech, Inc. We have numerous competitors
in the telecommunications, subassemblies and components product lines,
including, Philips, Samsung and Varitronix.

Research and Development

We invest in research and development for manufacturing and assembly
technology that provide us with the potential to offer better and more
technologically advanced services to our OEM customers or assist us in working
with our OEM customers in the design and development of future products. We
plan to continue acquiring advanced design equipment and to enhance our
technological expertise through continued training of our engineers and further
hiring of qualified system engineers. These investments are intended to improve
the speed, efficiency and quality of our assembly processes.

In our ODM business, we are responsible for the design and development of

new products, the rights to which we own. We sell these products to OEM
customers to be marketed to end users under the customers brand names. To
date, we have successfully developed a number of electronic dictionaries,
cordless telephones and calculator products. Our efforts to expand or maintain
the ODM business may not be successful and we may not achieve material revenues
or profits from our efforts. To date, our ODM design activities have not been a
material portion of our research and development budget.

Patents, Licenses and Trademarks

We do not have any patents, licenses or trademarks on which our business
is substantially dependent. Instead, we rely on our trade secrets,
industry expertise and long-term relationships with our customers and
suppliers.

Organizational Structure

We are a
holding company for Nam Tai Investments Consultant (Macao Commercial
Offshore) Company Limited, Nam Tai Group Management Ltd., Nam Tai
Electronic & Electrical Products Limited, Nam Tai Telecom (Cayman) Company
Limited, Namtek Software Development Company Limited and J.I.C. Technology
Company Limited and their subsidiaries. The chart below illustrates the
organizational structure of the Company and our principal operating
subsidiaries at December 31, 2003.

25



---



##### Table of Contents



(ORGANISATION CHART OF NAM TAI GROUP)

Our significant operating entities are described below:

J.I.C. Technology Company Limited

J.I.C.
Technology Company Limited was formed in the Cayman Islands in January 2002 in connection with a reverse merger with Albatronics, of which we owned
slightly more than 50% of the outstanding capital stock. J.I.C. Technology
Company Limited was listed on the Hong Kong Stock Exchange in June 2002. We currently hold
74.86% of the ordinary shares of J.I.C. Technology Company Limited, and upon
full conversion of the preference shares we own, we would own approximately
88.39% of J.I.C. Technology Company Limited.

J.I.C. Enterprises (Hong Kong) Ltd.

J.I.C. Enterprises, incorporated in Hong Kong, was established in 1983 and
has been in the LCD business for almost 20 years. Originally a small trading
company for LCD panels and electronics products, J.I.C. Enterprises is now
strategically focused on the sales and marketing of LCD panels and is
responsible for customer relationship development.

Jetup Electronic (Shenzhen) Co., Ltd.

Jetup Electronic was incorporated in 1993 in China and handles the
manufacturing and processing works of LCD panels through its factory plants in
Baoan County, Shenzhen.

Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited

Nam Tai Macao was established in August 2003 in Macao, China as our PRC
headquarters, due to our continuous increase in investment in China. Macao,
like Hong Kong, is a special region of China and has recently introduced an
incentive program to attract investment in Macao. Its principal business is the provision of
management and sales co-ordination and marketing services to other group
companies.

26



---



##### Table of Contents



Nam Tai Group Management Limited

Nam Tai Group Management was established on March 9, 2001 in Hong Kong and
provides management services to other group companies.

Nam Tai Telecom (Cayman) Company Limited

Nam Tai Telecom (Cayman) Company Limited was incorporated in June 2003 in
the Cayman Islands, and is the holding company for Zastron Electronic
(Shenzhen) Company Limited.

Zastron Electronic (Shenzhen) Company Limited

Zastron Electronic (Shenzhen) Company Ltd. was organized as Zastron
Plastic & Metal Products (Shenzhen) Ltd. in March 1992 as a limited liability
company pursuant to the relevant laws of China. Zastron engaged in production
of metallic parts and PVC plastic products, much of which is used in products
manufactured in our principal manufacturing facilities. In August 2002, Zastron
Plastic & Metal Products (Shenzhen) Ltd. changed its name to Zastron Electronic
(Shenzhen) Co. Ltd. and the nature of business was expanded to include
manufacturing of telecommunication products and LCD modules and become one of
our principal manufacturing arms. In June 2002, Zastrons equity interest was
transferred from Nam Tai Electronic & Electrical Products
Limited (Hong Kong) to Nam Tai
Group Management Limited. In October 2002, Zastrons silk screening business
was transferred to Jieyao Electronics (Shenzhen) Co. Ltd., a former subsidiary
of J.I.C. Technology Company Limited and was sold in June 2003. In December
2002, the equity interest of Zastron was transferred from Nam Tai Group
Management Limited to Nam Tai Telecom (Hong Kong) Company Limited. In December
2003, the equity interest of Zastron was transferred from Nam Tai Telecom (Hong
Kong) Company Limited to Nam Tai Telecom (Cayman) Company Limited.

Nam Tai Electronic & Electrical Products Limited

Nam Tai Electronic & Electrical Products Limited was incorporated in June
2003 in the Cayman Islands, and is the holding company for Namtai Electronic
(Shenzhen) Co., Ltd.

Namtai Electronic (Shenzhen) Co., Ltd.

Namtai
Electronic (Shenzhen) Co., Ltd. was established as Baoan (Nam Tai)
Electronic Co. Ltd. in June 1989 as a contractual joint venture company with
limited liability pursuant to the relevant laws of China. The equity of Baoan
(Nam Tai) Electronic Co. Ltd. was owned 70% by Nam Tai Electronic & Electrical
Products Limited and 30% by a Chinese company. In 1992, the Chinese company
transferred all of its equity interest in the contractual joint venture to Nam
Tai Electronic & Electrical Products Limited and the company changed its name
to Namtai Electronic (Shenzhen) Co., Ltd. Namtai Electronic (Shenzhen) Co., Ltd.
became a wholly owned subsidiary of Nam Tai Electronic & Electrical Products
Limited. Namtai Electronic (Shenzhen) Co., Ltd. is one of our principal
manufacturing arms and is engaged in research and development, manufacturing
and assembling our electronic products in China. In December 2003, the equity
interest of Namtai Electronic (Shenzhen) Co., Ltd. was transferred from Nam Tai
Electronic & Electrical Products Limited (Hong Kong) to Nam Tai Electronic &
Electrical Products Limited (Cayman Islands).

Namtek Software Development Company Limited

Namtek Software Development Company Limited was incorporated in May 2002
in the Cayman Islands and was established as the holding company for Shenzhen
Namtek Co., Ltd.

Shenzhen Namtek Co., Ltd.

Shenzhen Namtek Co., Ltd. was organized in December 1995 as a limited
liability company pursuant to the relevant laws of China. Shenzhen Namtek Co.,
Ltd. commenced operations in early 1996 developing and commercializing software
for the consumer electronics industry, particularly for our customers and for
products we manufacture or we will manufacture in the future. At December 31,
2003, Shenzhen Namtek Co., Ltd employed approximately 77 software engineers and provides
the facilities and expertise to assist in new product development and research,
enabling us to offer our customers program design for microprocessors, enhanced
software design and development services, and strengthening our ODM
capabilities. In July 2002, Shenzhen Namtek Co., Ltd set up a branch office in Shanghai
for employing more expertise to assist in new product development and research.
As of December 31, 2003, Shenzhen Namtek Co., Ltds Shanghai office employed
approximately 11 software engineers.

27



---



##### Table of Contents



Namtek Japan Company Limited

Namtek Japan Company Limited was incorporated in June 2003 in Tokyo, Japan
and is the sales and marketing arm of software business of Namtek in Japan.

Property, Plant and Equipment

Our registered office and principal executive office in the British Virgin
Islands is located at McNamara Chambers, P.O. Box 3342, Road Town, Tortola.
Corporate administrative matters are conducted at this office through our
registered agent, McNamara Corporate Services Limited. We do not own any
property in the British Virgin Islands. The table below lists the locations,
square footage, principal use and lease expiration dates of the facilities used
in our principal operations.

|                                   |  |                |         |               |  |                           |  |          |      |                |  | 
|---------------------------------- |  | -------------- | ------- | ------------- |  | ------------------------- |  | -------- | ---- | -------------- |  | 
|                                   |  |                |         |               |  |                           |  |          |      | Owned or lease
|Location                           |  | Square Footage |         | Principal Use |  | expiration date(1)       
|                                   |  |                |         |               |  |                          
|Hong Kong                          |  |                | 24,200  |               |  | Offices                   |  | Owned(2)
|Macao                              |  |                | 1,782   |               |  | Offices                   |  |          | 2005 |               
|British Virgin Islands             |  |                | 300     |               |  | Offices                   |  |          | 2004 |               
|Principal Manufacturing Facilities |  |                | 300,800 |               |  | Manufacturing             |  |          | 2043 |               
|Shenzhen, China                    |  |                | 39,380  |               |  | Offices                   |  |          | 2043 |               
|                                   |  |                | 237,000 |               |  | Dormitories and cafeteria |  |          | 2043 |               
|                                   |  |                | 33,826  |               |  | Recreational              |  |          | 2043 |               
|Other facilities                   |  |                |         |               |  |                           |  |          |      |                |  | 
|Shenzhen, China                    |  |                | 151,738 |               |  | Manufacturing LCD panels  |  |          | 2004 |               
|                                   |  |                | 108,181 |               |  | Dormitories               |  |          | 2004 |               
|                                   |  |                | 2,875   |               |  | Dormitories               |  |          | 2004 |               
|Shekou, Shenzhen, China            |  |                | 6,650   |               |  | Software development      |  |          | 2004 |               
|Shanghai, China                    |  |                | 4,754   |               |  | Software development      |  |          | 2005 |               
|Tokyo, Japan                       |  |                | 904     |               |  | Software development      |  |          | 2005 |               



---

|(1) |  | Only the Chinese government and peasant collectives may own land in
China. Our principal manufacturing facilities are located on land in which
we have entered into a land lease agreement with the Chinese government
that gives us the right to use the land for 50 years. Based on our
understanding of the practice as it exists today, at the expiration of the
land lease we may be given the right to renew the lease. However, at the
end of the lease term, all improvements we have made will revert to the
government. For our other facilities, we have entered into factory
building lease agreements with peasant collectives or other companies for
10 years or less.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Although we own the office space, the land on which the building is
located is subject to a 75-year lease with the government that expires in
2055, with a right to renew for 75 more years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

In order to expand production capacity, we are building a new factory
consisting of approximately 250,000 square feet on portions of the vacant land
adjacent to our existing factory complex in Shenzhen, China. Construction began
in September 2003 and we expect it to be completed by the end of the fourth
quarter in 2004. After completion, the production capacity is expected to
increase from 40% to 60%. We have budgeted $40.0 million to cover the cost of
construction and fixtures and equipment for the new factory. As of December 31,
2003, the construction project has already incurred $1.2 million. We
currently plan to finance these improvements to our manufacturing facilities
from cash resources and banking facilities.

Hong Kong

In 2001, our Hong Kong offices relocated to 15/F, China Merchants Tower,
Shun Tak Centre, 168-200 Connaught Road, Central, Hong Kong. The office is
conveniently located above the ferry terminal and beside the highway,
permitting easy transportation by sea or by land to and from the manufacturing
facilities in Shenzhen. The purchase and renovation of the 24,200 square feet
of contiguous prime office space, including transaction fees, cost $13.0
million.

28



---



##### Table of Contents



As of December 31, 2003, we own four residential flats in Hong Kong purchased for total
consideration of $5,999,000. These properties are occupied by senior management
and form part of their compensation.

Until 1996, we owned approximately ten acres of land in Hong Kong carried
on our books at a cost of approximately $523,000. Between 1997 and 2003 we sold
approximately 7.7 acres of land for net proceeds of $7,281,000, realizing a
gain of $7,027,000. We plan to sell the remaining land and, pending the sale,
to continue to carry the land at cost of approximately $134,000.

Macao

In August 2003, we set up our PRC headquarters in Macao, China due to our
continuous increase in investment in China. Macao, like Hong Kong, is a special
administrative region of China and has recently introduced an incentive
program to attract investment in Macao.

Shenzhen, China

Principal Manufacturing Facilities

Our principal manufacturing facilities are located in Baoan County,
Shenzhen, China. The lease for this land was purchased for approximately $2.45
million in December 1993 and has a term of 50 years. This facility consists of
160,000 square feet of manufacturing space, 39,000 square feet of offices,
212,000 square feet of new dormitories, 26,000 square feet of full service
cafeteria and recreation facilities and a swimming pool. The total cost of this
addition to our complex, excluding land, was approximately $21.8 million. In
November 2000, we began construction of another addition to our factory
complex. We completed construction in October 2002, adding a new five-story
factory with 138,000 square feet of production facilities, including one floor
for assembling, one floor of office space, one floor for warehouse use and two
floors of class thousand clean room facilities. Prior to this addition, we
had only one floor of class ten thousand clean room facilities at our factory
complex. As of December 31, 2002, we had spent $9.1 million to complete the
construction of the new facility. With the new addition, we had approximately
626,000 square feet of manufacturing space at our principal manufacturing
complex as of December 31, 2002, with only minimal additions in 2003.

In July 1999, we purchased a vacant lot of approximately 280,000 square
feet (approximately 6.5 acres) bordering our current manufacturing
complex located in Shenzhen, China at a cost of approximately $1.2 million. We
are building another factory consisting of approximately 250,000 square feet.
Construction has began in September 2003 and we expect it to be completed by
the end of the fourth quarter in 2004. We have budgeted $40.0 million to cover
the cost of construction and fixtures and equipment for the new factory, of
which $1.2 million has already been spent in 2003. We currently plan to finance
these improvements to our manufacturing facilities from cash resources and
banking facilities.

LCD Factory

Our LCD
factory was leased since 1997 and has about 151,738 square
feet of manufacturing space. The facility produces LCD panels to the
specifications of our OEM customers and has an average monthly output of 12 to
14 million pieces. The lease of the facility will expire on
August 31, 2004.
In October 2003, Jetup Electronic (Shenzhen) Co. Ltd. entered into a tenancy
agreement for new factory premises and plans to replace its existing factory
premises in order to expand its manufacturing facilities to cope with future
development. Also located in Baoan County, Shenzhen, China, the new factory
premises, including dormitories, are about 600,000 square feet which are two
times the size of the existing factory premises. Jetup Electronic (Shenzhen)
Co. Ltd. plans to move into the new factory premises in the third
quarter of 2004. The
existing factory premises will then be returned to the landlord.

Software Development

We currently lease three offices in which we conduct software development.
Our Shekou, Shenzhen, China office has approximately 8,931 square feet, which
we lease under two one-year leases expiring in August and September 2004,
respectively. The monthly rental is approximately $6,017. Our Shanghai, China
office, has approximately 4,754 square feet, which we lease under a three-year
lease expiring in July 2005. The monthly rental is approximately $4,033. In
July 2003, we opened an office in Tokyo, Japan to further expand our sales and
marketing team in Japan for our software development business. The Tokyo office
has approximately 904 square feet, which we lease under a two-year lease
expiring in June 2005. The monthly rental is approximately $1,900.

29



---



##### Table of Contents






Item 5.Operating and Financial Review and Prospects

Except for statements of historical facts, this section contains
forward-looking statements involving risks and uncertainties. You can identify
these statements by forward-looking words including expect, anticipate,
believe, seek, estimate, intends, should, or may. Forward-looking
statements are not guarantees of our future performance or results and our
actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under the section of this Report entitled Item 3. Key Information  Risk
Factors. This section should be read in conjunction with our Consolidated
Financial Statements included as Item 18 of this Report.

Operating Results

Overview

We are an electronics manufacturing and design services provider to OEMs of
telecommunications and consumer electronic products. Through our EMS
operations, we manufacture electronic components and subassemblies, including
LCD panels, LCD modules, RF modules, FPC subassemblies and image sensors. These
components are used in numerous electronic products, including cellular phones,
laptop computers, digital cameras, copiers, fax machines, electronic toys,
handheld video game devices and microwave ovens. We also manufacture finished
products, including cellular phones, palm-sized PCs, PDAs, electronic
dictionaries, calculators and digital camera accessories for use with cellular
phones.

We assist our OEM customers in the design and development of their
products and furnish full turnkey manufacturing services that utilize advanced
manufacturing processes and production technologies. Our services include
hardware and software design, component purchasing, assembly into finished
products, or electronic subassemblies and post-assembly testing. These services
are value-added and assist us in obtaining new business but do not represent a
material component of our revenue. We also provide ODM services, in which we
design and develop proprietary products that are sold by our OEM customers
using their brand name.

Net Sales and Cost of Sales

We derive our net sales principally from manufacturing services that we
provide to OEMs of telecommunications and consumer electronic products. The
market for the products we manufacture is generally characterized by declining
unit prices and short product life cycles. Sales to our OEM customers are
primarily based on purchase orders we receive from time to time rather than
firm, long-term purchase commitments from our customers. We recognize sales,
net of product returns and warranty costs, typically at the time of product
shipment or, in some cases, as services are rendered.

A substantial percentage of our net sales are to a small number of
customers. During the years ended December 31, 2001, 2002 and 2003, sales to
our ten largest customers were 83.7%, 84.8% and 84.9% of our net sales,
respectively. Furthermore, our customers accounting for 10% or more of our net
sales aggregated approximately 44.1%, 60.2% and 46.7% of our total sales,
respectively, for the same three-year period. The loss of any of our largest
customers or a substantial reduction in orders from any of them would
materially and adversely affect our business and operating results.

We plan to continue to leverage on our solid customer relationships and to
expand our business. During 2003, we were able to expand our product line to
higher margin products and we were able to benefit from the increase in
production capacity from the commencement of operation of our new factory
premises.

For LCD Consumer Products, we will continue to focus on educational
products, cellular phone accessories and home entertainment products. In 2004,
we will begin delivery of new products, like bluetooth headsets for cellular
phones and new home entertainment products, in addition to the Eyetoy USB Cameras for
Playstation 2.

For Telecom Component Assembly, we will continue to focus on high end
color LCD modules and CMOS sensor modules. We shall seek opportunities to
expand our product line and customer base for these products.

We plan to relocate our existing production facility for the LPT segment to new factory premises. It is expected that the relocation to the new factory
premises will be completed in the third quarter of 2004. The new premises,
which are about 600,000 square feet, are two times the size of the existing
factory premises. This new factory will provide room for future expansion of
production capacity. We intend to spend approximately $6.5 million for this
relocation and finance this amount with a combination of internal resources and bank
financing.

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

We did not suffer a material loss resulting from the cancellation of OEM
customer orders in 2001 to 2003. In 2001 however, we wrote down our inventory
for $3.8 million to cost of sales for slow-moving raw materials relating to
cancelled, reduced or delayed orders. Subsequently, we were able to use some of
these raw materials in production or we received compensation for the unused
raw materials from certain of our customers, and the gain of $2.0 million
was recorded in cost of sales during 2002.

30



---



##### Table of Contents



Gross Margins

Our gross margins and operating income generally improve during periods of
high-volume and high-capacity utilization in our manufacturing facilities and
decline during periods of low-volume and low-capacity utilization. Over the
last several years our gross profit margins have declined
substantially, from 17.2% in 1999 to 14.8% in 2000 and 12.8% in 2001
before increasing to 16.1% in 2002 and 16.3% in 2003. The
$3.8 million inventory write-down in
2001 has reduced the gross margin by 1.7% in 2001 and our subsequent gain of
$2.0 million recorded in cost of sales during 2002, as discussed above,
increased our gross margin by 0.8% for 2002.

An increased mix of more complex products that generally have relatively
high material costs as a percentage of total unit costs has historically been a
factor that has adversely affected our gross margins. This is the primary
reason for the decline in our gross margins between 1999 and 2001. During this
period, we diversified our product mix from predominantly low complexity
electronic products, including calculators and electronic dictionaries, to
include more complex components and subassemblies, like LCD modules and RF
modules. We believe our gross margin improved in 2002 and 2003 as a result of
the experience we acquired in manufacturing these more complex products as we
changed our strategic focus. Despite the lower gross margin on more complex
products, we believe that the opportunity for growth in the demand for these
complex products justifies the shift in our strategic focus. Furthermore, we
believe that the experience in manufacturing processes and know-how that we have developed
from producing more complex products are a competitive advantage for us
relative to many of our competitors.

The increased costs associated with developing advanced manufacturing
techniques to produce complex products on a mass scale and at a low cost have
also negatively impacted our gross margins. For example, in our initial
production runs of LCD modules and RF modules we experienced low production
yields and other inefficiencies that caused our gross margin to decrease.
Although we believe we have improved the efficiency and quality of our
manufacturing processes relating to LCD modules and RF modules, we may not be
able to improve or maintain our gross margin for these products. Furthermore,
in January 2003, we began to produce color and TFT LCD modules, each a complex
component used in a variety of devices. The increased costs associated with
manufacturing these products and other new complex products could have a
negative impact on our future gross margins. The complex manufacturing
processes involved in the production of complex products is also capital
intensive, thereby increasing our fixed overhead costs.

Income Taxes

Under current BVI law, our income is not subject to taxation.
Subsidiaries operating in Hong Kong and the PRC are subject to income taxes as
described below, and our subsidiary operating in Macao is exempted from income
taxes. This would be valid unless the Macao government changes its
policy towards offshore companies.

Under
current Cayman Islands law, Nam Tai Telecom (Cayman) Company Limited, Nam
Tai Electronic & Electrical Products Limited and Namtek Software Development
Company Limited are not subject to profit tax as they have no business
operations.

31



---



##### Table of Contents



The provision for current income taxes of the subsidiaries operating in
Hong Kong has been calculated by applying the current rate of taxation of 16%
for 2001 and 2002 and 17.5% for 2003 to the estimated taxable income earned in
or derived from Hong Kong during the applicable period.

The basic corporate tax rate for Foreign Investment Enterprises in China,
such as our China subsidiaries, is currently 33% (30% state tax and 3% local
tax). However, because all of our China subsidiaries are located in Shenzhen
and are involved in production operations, they qualify for a special reduced
state tax rate of 15%. In addition, the local tax authorities in the regions in
which our subsidiaries operate in Shenzhen are not currently assessing any
local tax. Moreover, several of our China subsidiaries are entitled to certain
tax benefits and certain of our China subsidiaries have qualified for tax
refunds as a result of reinvesting their profits earned in previous years in
China for a minimum period of five years.

Efforts by the Chinese government to increase tax revenues could result in
decisions or interpretations of the tax laws by the Chinese tax
authorities that are unfavorable to us and which increase our future tax liabilities, or
deny us expected refunds. Changes in Chinese tax laws or their interpretation
or application may subject us to additional Chinese taxation in the future.

Our effective tax rates were 2%, 4% and 1% for 2001, 2002 and 2003,
respectively. The significant factors that cause our effective tax rates to
differ from the applicable statutory rates of 15% were as follows:

|                                                                                      |  |      |    |      |  |      |     |    |  |  |    |   
|------------------------------------------------------------------------------------- |  | ---- | -- | ---- |  | ---- | --- | -- |  |  | -- | --
|                                                                                      |  | 2001 |    | 2002 |  | 2003
|                                                                                      |  |      |    |      |  |     
|Applicable statutory tax rates                                                        |  |      | 15 | %    |  |      | 15  | %  |  |  | 15 | % 
|Effect of (income) loss for which no income tax
benefit/expense is receivable/payable |  |      | 0  | %    |  |      | (4  | %) |  |  | (2 | %)
|Tax holidays and incentives                                                           |  |      | (8 | %)   |  |      | (3  | %) |  |  | (5 | %)
|Effect of PRC tax concessions, giving rise to no PRC tax
liability                    |  |      | (6 | %)   |  |      | (10 | %) |  |  | (8 | %)
|Others                                                                                |  |      | 1  | %    |  |      | 6   | %  |  |  | 1  | % 
|                                                                                      |  |      |    |      |  |      |     |    |  |  |    |   
|Effective tax rates                                                                   |  |      | 2  | %    |  |      | 4   | %  |  |  | 1  | % 
|                                                                                      |  |      |    |      |  |      |     |    |  |  |    |   

Strategic Investments

An important element of our strategy is to make investments in companies
that provide the potential to complement our existing products and services,
become new customers, augment our market coverage and sales ability, enhance
our technological capabilities and expand our service offerings. We account for
investments of less than 20% under the cost method and we account for
investments between 20% and 50% under the equity method. Our material
investments over the last five years include:

Stepmind. In December 2003, we placed approximately $5.3 million into an
escrow account for an investment in Stepmind. The investment will be in two
phases. For the first phase, approximately $2.64 million, representing 7.66%
of the equity interest in Stepmind, was released to Stepmind in January 2004.
The second phase amounting to $2.65 million will be released to Stepmind in
August 2004 subject to fulfillment of certain conditions. Upon successful
subscription of the shares in the second phase, our total investment will
represent 11.33% of the equity interest in Stepmind. Stepmind was founded in
July 2000 and is a fabless solutions and components supplier, developing
applications which require high performance and secured data links.

Alpha Star/JCT Wireless.In January 2003, we invested $10.0 million for a
25% equity interest in Alpha Star Investments Ltd., the ultimate holding
company of JCT. JCT is engaged in the design, development and marketing of
wireless communication terminals and wireless application software and is using
us to manufacture wireless communication terminals and their related modules.

TCL Group.Over the period from September 2000 through November 2002, we
made three investments in the TCL Group of companies and disposed of some
portions of the investment in 2002 and 2003, respectively. The TCL Group of
companies is a leading OEM for numerous consumer electronic and
telecommunications products in the domestic Chinese market.



| |  |  | In September 2000, we made a strategic investment of $2.0 million to
acquire a 5% indirect equity interest (through a 25% direct equity
interest in Mate Fair) in both TCL Mobile Communication (HK) Co., Ltd.
and Huizhou TCL Mobile Communication Co., Ltd., together known as TCL
Mobile. TCL Mobile is engaged in manufacturing, distributing and trading
of digital mobile phones and accessories in China and overseas markets.
In October 2002, we began to provide TCL Mobile with LCD modules used in
its mobile phones.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32



---



##### Table of Contents





| |  |  | In January 2002, we acquired a 6% equity interest in TCL Corporation
(formerly known as TCL Holdings Corporation Ltd.), the parent of the TCL
Group of companies, for approximately $12.0 million.                                                                                                                                                                                                
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In November 2002, Mate Fair sold a portion of its equity interest in
Huizhou TCL Mobile Communication Co. Ltd. for which we received proceeds
of approximately $10.4 million, reducing our direct equity interest
(held through Mate Fair) in TCL Mobile to approximately 3%.                                                                                                                     
|
| |  |  | In November 2002, we invested $5.1 million in 3% convertible notes of
TCL International Holdings Limited that are due in November 2005. TCL
International Holdings Limited is another company in the TCL Group and
is publicly listed on the Hong Kong Stock Exchange. Those convertible
notes of TCL International Holdings Limited were disposed in August 2003
for approximately $5.03 million.

Deswell Industries.In September 2000, we purchased 500,000 common shares
in Deswell Industries Inc., a Nasdaq-listed company, representing approximately
9% of the outstanding shares of Deswell at the time of the purchase for an
aggregate of $7.5 million. Deswell is a manufacturer of injection-molded
plastic parts and components, electronic products and subassemblies and
metallic molds and accessory parts for OEMs and contract manufacturers. During
the first quarter of 2002, we sold our Deswell shares in the open market for
aggregate proceeds of $10.1 million.

The following details the impact of our strategic investments on our
income statements for each of the years ended 2001, 2002 and 2003:

|                                                                                  |  |      |       |      |  |                |        |   |  |   |       | 
|--------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | -------------- | ------ | - |  | - | ----- | 
|                                                                                  |  | 2001 |       | 2002 |  | 2003          
|                                                                                  |  |      |       |      |  |               
|                                                                                  |  |      |       |      |  | (in thousands) |        |   |  |  
|Cost Investments                                                                  |  |      |       |      |  |                |        |   |  |   |       | 
|Included in other income:                                                         |  |      |       |      |  |                |        |   |  |   |       | 
|Deswell                      Realized gain on disposal of marketable securities   |  | $    |      |      |  | $              | 642    |   |  | $ |      | 
|Deswell                      Unrealized gain on marketable securities             |  |      | 1,568 |      |  |                |       |   |  |   |      | 
|Deswell                      Dividend income received from marketable securities  |  |      | 525   |      |  |                | 114    |   |  |   |      | 
|TCL Corporation       Dividend income received from investment                    |  |      |      |      |  |                | 803    |   |  |   | 1,696 | 
|Huizhou TCL             Dividend income received from investment                  |  |      |      |      |  |                |       |   |  |   | 2,018 | 
|                                                                                  |  |      |       |      |  |                |        |   |  |   |       | 
|                                                                                  |  | $    | 2,093 |      |  | $              | 1,559  |   |  | $ | 3,714 | 
|                                                                                  |  |      |       |      |  |                |        |   |  |   |       | 
|Equity Investments                                                                |  |      |       |      |  |                |        |   |  |   |       | 
|Included in equity in (loss) income of affiliated companies:                      |  |      |       |      |  |                |        |   |  |   |       | 
|Mate Fair                                                                         |  |      |       |      |  |                |        |   |  |   |       | 
|Share of results                                                                  |  | $    | 2,020 |      |  | $              | 10,741 |   |  | $ |      | 
|Amortization of goodwill                                                          |  |      | (153  | )    |  |                |       |   |  |   |      | 
|                                                                                  |  |      |       |      |  |                |        |   |  |   |       | 
|                                                                                  |  | $    | 1,867 |      |  | $              | 10,741 |   |  | $ |      | 
|                                                                                  |  |      |       |      |  |                |        |   |  |   |       | 
|Alpha Star Investments Limited                                                    |  |      |       |      |  |                |        |   |  |   |       | 
|Share of results                                                                  |  | $    |      |      |  | $              |       |   |  | $ | 498   | 
|                                                                                  |  |      |       |      |  |                |        |   |  |   |       | 
|Equity in (loss) income of affiliated companies                                   |  | $    | 1,867 |      |  | $              | 10,741 |   |  | $ | 498   | 
|                                                                                  |  |      |       |      |  |                |        |   |  |   |       | 
|Included in other income:                                                         |  |      |       |      |  |                |        |   |  |   |       | 
|Mate Fair                 Release of unamortized goodwill of affiliated companies |  | $    |      |      |  | $              | (520   | ) |  | $ |      | 
|                                                                                  |  |      |       |      |  |                |        |   |  |   |       | 
|                                                                                  |  | $    | 1,867 |      |  | $              | 10,221 |   |  | $ | 498   | 
|                                                                                  |  |      |       |      |  |                |        |   |  |   |       | 

Toshiba Joint Venture

In March 2000, we formed a joint venture with Toshiba Battery Company Ltd.
called BPC (Shenzhen) Co., Ltd., or BPC, to manufacture rechargeable lithium
ion battery packs at our manufacturing complex in Shenzhen, China. Toshiba
Battery Company Ltd. owned a 13% interest in BPC and we owned the balance of
BPC for a cash investment of $1.3 million. During 2000 and 2001 and from
January 1 to April 30, 2002, we recognized net sales of $6.2 million, $21.1
million, and $7.8 million, respectively, from Toshiba and its related
companies. In 2002, we sold our 87% joint venture interest in BPC and a related
manufacturing license to a Toshiba related company for an aggregate of $2.9
million, resulting in a gain of $77,000.

33



---



##### Table of Contents



Based on the 2001 full year results of BPC, we estimate that the sale of
BPC will result in a reduction of annual revenues of approximately $21.1
million and a reduction in profits of $1.3 million. We further estimate that
the BPC sale will result in a reduction
of annual operating expenses of approximately $600,000. Future cash flows
from operations will decline by approximately $1.7 million a year.

J.I.C. Group

We
acquired the J.I.C. Group in October 2000 for $32.8 million. We paid a
portion of the purchase price to the seller by issuing approximately 3.48
million of our common shares and paid $11.0 million in cash. The
J.I.C. Group is
principally engaged in the manufacture and marketing of transformers and LCD
panels, a key component for a variety of consumer electronic products. We
accounted for the acquisition of the J.I.C. Group under the purchase method of
accounting and the results of the J.I.C. Groups operations have been consolidated
with our results since the date of its acquisition.

In June 2002, through a reverse merger, we arranged for the listing of the
J.I.C. Group on the Hong Kong Stock Exchange. To effect the listing, we entered
into an agreement with the liquidators of Albatronics to effect the
restructuring proposal of Albatronics and the listing of J.I.C. Technology
Company Limited as this arrangement was more cost effective than using an
initial public offering.

Due to
the reverse merger, our effective interest in the J.I.C. Group was
reduced from 100% to 92.9%. As a result of this reduction in interest during
2002, we has released unamortized goodwill of $1.5 million, representing 7.1%
of the goodwill that had previously been recorded upon purchasing the
J.I.C. Group
in October 2000. The release of unamortized goodwill is included as part of
the loss on the reverse merger of the J.I.C. Group.

In August 2002, we acquired an additional 7,984,000 ordinary shares of
J.I.C. Technology Company Limited for a cash consideration of $437,000,
resulting in additional goodwill of $253,000. As of December 31, 2002, we held
93.97% of effective interest in J.I.C. Group, which represented 74.78% of the
existing ordinary shares and 93.97% of the outstanding ordinary shares upon
full conversion of the 598,420,000 preference shares.

During the period from June to November 2003, we disposed of a total of
42,600,000 ordinary shares of J.I.C. Technology Company Limited for cash consideration of $4.0 million. The disposal resulted in a net gain on partial
disposal of a subsidiary of $1.8 million and the releasing of unamortized
goodwill of $1.2 million. The release of unamortized goodwill is netted off
with the gain on the partial disposal of a subsidiary. In November 2003, we
converted 175,100,000 preference shares into 170,000,000 ordinary shares of
J.I.C. Technology Company Limited. As of December 31, 2003, we held
263,900,688 ordinary shares of J.I.C. Technology Company Limited, equivalent to
74.86% of issued ordinary shares, and 423,320,000 preference shares. Upon full
conversion of preference shares owned, we will hold approximately
88.39% of J.I.C. Technology Company Limited.

In June 2003, in order to concentrate its effort on its LCD panels
reporting unit, J.I.C. Technology Company Limited disposed its
transformers reporting unit to a third party for a cash consideration of $2.4 million. Sales
of the transformers reporting unit for the years ended December 31, 2001, 2002
and 2003 were $11.0 million, $11.3 million and $6.3 million, respectively, and
were insignificant compared to the sales as a whole. The net income from this
discontinued operation for the years ended December 31, 2001 and 2002 were also
immaterial. In 2003, the net income from discontinued operation represented the
gain of $2.0 million, being the proceeds from the disposal
less the carrying value of the net assets of the transformers
reporting unit, and minority interests. Excluding this gain, the
basic and diluted earnings per share for the year ended
December 31, 2003 would have been $1.04 and $1.02 respectively.

Operating Segments

Our operations are generally organized in two segments, Consumer
Electronics Products, or CEP, and LCD panels and transformers, or LPT. The
activities of our LPT segment relate primarily to our J.I.C. subsidiary that we
acquired in October 2000.

Consumer Electronics Products.Our CEP segment is primarily engaged in
the manufacture and assembly of electronic components, subassemblies and
finished products for OEMs of electronic and telecommunications products. The
electronic components and subassemblies that our CEP segment produces are
primarily LCD modules used in a wide variety of consumer electronic products
including cellular phones, PDAs digital
cameras, handheld video game devices and microwave ovens. In December 2002, our
CEP segment also began producing RF modules, used in cellular phones and other
electronic devices with wireless features. In September 2003, our CEP segment
further started manufacturing of cellular phones in SKD form. The finished
products that our CEP segment assembles include digital camera accessories for
cellular phones and home entertainment products, like Playstation 2, handheld
electronic calculators, dictionaries and linguistic products. Within our CEP
segment, we also provide software development services to our OEM customers.

34



---



##### Table of Contents



LCD Panels and Transformers.Our LPT segment manufactures LCD panels for
use in numerous electronic products, including watches, clocks, calculators,
pocket games, PDAs and cellular and wireless telephones. The transformers
produced by our LPT segment are used in home appliances, telecommunications
equipment, computers and computer peripherals. We sold our transformer
operations in June 2003 for cash consideration of $2.4 million and realized a
gain of $2.0 million, net of $0.1 million shared by
minority interest.

Seasonality

Historically, our sales and operating results are often affected by
seasonality. Sales of calculators, personal organizers and linguistic products
are often higher during the second and third quarters in anticipation of the
start of the school year and the Christmas buying season. Similarly, our
consumer services for electronics products have historically been lower in the
first quarter resulting from both the closing of our factories in China for the
Chinese New Year holidays and the general reduction in sales following the
holiday season. As we have diversified our services for complex components, we
expect that seasonality may be less of a factor affecting our business.

Application of Critical Accounting Policies

The preparation of our financial statements and related disclosures in
conformity with generally accepted accounting principles in the United States
requires management to make estimates and judgments that affect our reported
amounts of assets and liabilities, revenues and expenses and related
disclosures of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates and assumptions based upon historical experience and
various other factors and circumstances. Management believes that our estimates
and assumptions are reasonable under the circumstances; however, actual results
may vary from these estimates and assumptions under different future
circumstances. We have identified the following critical accounting policies
that affect the more significant judgments and estimates used in the
preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue from product sales in accordance with Staff
Accounting Bulletin (SAB) No. 101 Revenue Recognition in Financial
Statements. SAB No. 101 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  
|
| |  |  | collectibility is reasonably assured.                

Generally, we do not provide our customers with the right of return
(except for quality), price protection, rebates or discounts. There are no
customer acceptance provisions associated with our products, other than for
quality. All sales are based on firm customer orders with fixed terms and
conditions, which generally cannot be modified. This requires us to assess at
the point of delivery whether these criteria have been met. Upon making such
assessment, revenue is recognized.

Inventory Reserves

Our inventories are stated at the lower of cost or market value. We
determine cost on the first-in, first-out basis. Our industry is characterized
by rapid technological change, short-term customer commitments and rapid
changes in demand, as well as many other market considerations. We
write down
inventory based on our regular reviews of inventory quantities on hand and the
latest forecasts of product demand and production requirements from our
customers. Generally, for our CEP reporting unit, we order inventory from our
suppliers based on firm customer orders for product that is unique to each
customer. The inventory is utilized in production as soon as all the necessary
components are received.

35



---



##### Table of Contents



The only reason that inventory would not be utilized within six months is
if a specific customer deferred or cancelled an order. As the inventory is
typically unique to each customers product it is unusual for us to be able to
utilize the inventory for other customers products. Therefore, our policy is to
negotiate with the customer for the disposal of such inventory that remains
unused for six months. We do not generally write down as these customers are held to their
purchase commitments. However, there are cases where customers are
contractually obligated to purchase the unused inventory from us but we may
elect not to immediately enforce such contractual right for business reasons.
In this connection, we will consider writing down for these inventory items
which remain unused for over six months at our own cost. We determine if the inventory can be utilized in other
products before writing down the inventory.

For our LPT reporting unit, due to the nature of the business, LPT
customers do not always place orders far enough in advance to enable us to
order inventory from suppliers based on firm customer orders. Nonetheless, we
review our inventory balance on a regular basis and wrote all
inventory over six months old.

We derive information concerning our customers inventory levels through
constant communications with our significant customers. Customers that see
indications of high inventory levels will communicate this fact to us and we
will attempt to delay our production if we are able to reduce our own order
commitments. Our ability to reduce orders from suppliers depends on the terms,
conditions and timing of the request.

In 2001, we wrote down our inventory for $3.8 million for slow-moving raw
materials relating to cancelled, reduced or delayed orders. However,
subsequently, we were able to use some of these raw materials in production in
2002 or we received compensation for the unused raw materials from certain of
our customers, and the gain of $2.0 million was recorded in cost of sales
during 2002.

Goodwill

The excess of the purchase price over the fair value of net assets
acquired is recorded on our consolidated balance sheet as goodwill. Prior to
January 1, 2002, we amortized goodwill to expense on a straight-line basis over
various periods ranging from 4 to 15 years.

In June 2001, the FASB issued Statement of Financial Accounting Standard
(SFAS) No. 142, Goodwill and Other Intangible Assets.This statement
provides that goodwill and other intangible assets with indefinite lives will
not be amortized, but will be tested for impairment at the reporting unit level
on an annual basis. A reporting unit is an operating segment or one level below
an operating segment (i.e. a component) as defined in SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information.A component of an
operating segment is a reporting unit if the component constitutes a business
for which discrete financial information is available and segment management
regularly reviews the operating results of that component. Through May 2002, we
operated in two reporting units, which were the operating segments of CEP and
LPT. Beginning in June 2002 we segregated our LPT segment into two reporting
units: LCD panels and transformers. In June 2003, we sold our transformer
operations.

We evaluate the goodwill for impairment in two steps: (1) we identify
potential impairment by comparing the fair value of a reporting unit with its
carrying amount, including goodwill and (2) we measure the amount of goodwill
loss by comparing the implied fair value of the reporting unit goodwill with
the carrying amount of that goodwill and recognizing a loss by the excess of
the latter over the former. We measure the fair value of a reporting unit based
on the quoted market prices, if available, internal models based on present
value of future cash flows or independent valuations. The estimation
of fair value requires that we make judgments concerning future cash
flows and appropriate discount rates. Our estimate of the fair value
of goodwill could change over time based on a variety of factors,
including the actual operating performance of the underlying
reporting units.

SFAS No. 142 was effective for fiscal years beginning after December 15,
2001. We adopted SFAS No. 142 on January 1, 2002. Upon adoption of SFAS No.
142, we evaluated goodwill for impairment at the reporting unit level and
determined that there was no impairment at January 1, 2002. Later in 2002, we
determined that goodwill was impaired by $339,000 related to Micro Business
Systems Industries Company Limited (MBS). All remaining and future acquired
goodwill will be subject to an annual impairment test on December 31st of each
year or earlier if indications of a potential impairment exist. As of
December 31, 2003, we completed our annual impairment evaluation and determined that
there was no impairment.

Income Taxes

We provide for all taxes based on profits whether due at year end or
estimated to become due in future periods but based on profits earned to date.
However, under the current tax legislation in the PRC, we have reasonable
grounds to believe that income taxes paid

36



---



##### Table of Contents



by Namtai Electronic (Shenzhen) Co.,
Ltd., Zastron Electronic (Shenzhen) Co., Ltd (formerly known as Zastron Plastic
& Metal Products (Shenzhen) Ltd), Shenzhen Namtek Co. Ltd. and Jetup
Electronic (Shenzhen) Co., Ltd. in respect of any year would be refunded after
the profits earned in that year are reinvested in the business by way of
capital injection. PRC taxes paid by subsidiaries during the year are recorded as amounts recoverable at the
balance sheet date when we intend to file an application for reinvestment of
profits and a refund is expected unless there is an indication from the PRC tax
authority that the refund will be refused.

We provide deferred income taxes using the asset and liability method.
Under this method, we recognize deferred income taxes for all significant
temporary differences and classified as current or non-current based upon the
classification of the related asset or liability in the financial statements.
We provide a valuation allowance to reduce the amount of deferred tax assets if
it is considered more likely than not that some portion, or all, of the
deferred tax asset will not be realized.

Investments

We apply the equity method of accounting for investments in affiliates
when we have the ability to exercise a significant influence, which is normally
indicated by a 20% to 50% interest in those entities. Under the equity method,
original investments are recorded at cost and adjusted by our share of
undistributed earnings or losses of these entities. Non-marketable investments
in which we have a less than 20% interest and in which we do not have the
ability to exercise significant influence over the investee are accounted for
using the cost method and are initially recorded at cost and periodically
reviewed for impairment. Income from these investments are recognized to the
extent of dividends received and gains or losses are recognized upon
disposition or impairment of the investments.

Accruals and Provisions for Loss Contingencies

We make provisions for all loss contingencies when information available
to us prior to the issuance of the financial statements indicates that it is
probable that an asset had been impaired or a liability had been incurred at
the date of the financial statements and the amount of loss can be reasonably
estimated.

For provisions or accruals related to litigations, we make provisions
based on information from legal counsels and the best estimation of
management. As discussed in Note (19b) to our consolidated
financial statements, we are involved in various legal proceedings and contingencies. We have recorded a liability for the Tele-Art matter in
accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (FAS 5).
FAS 5 requires a liability to be recorded based on our estimate of the probable cost of the resolution of a contingency.
The actual resolution of this contingency may differ from our estimates. If the contingency were settled for an amount greater than our estimate,
a future charge to income would result. Likewise, if the contingency were settled for an amount that is less than our estimate,
a future credit to income would result.

Operating Results

The following table presents selected consolidated financial information
stated as a percentage of net sales for the years ended December 31, 2001,
2002, and 2003 (certain amounts may not calculate due to rounding and amounts
may not add due to rounding).

|                                                         |  |      |       |      |  |       |       |     |  |     |       |       |  |     |       |     |  |       |       |    |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|-------------------------------------------------------- |  | ---- | ----- | ---- |  | ----- | ----- | --- |  | --- | ----- | ----- |  | --- | ----- | --- |  | ----- | ----- | -- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                                         |  | 2001 |       | 2002 |  | 2003 
|                                                         |  |      |       |      |  |      
|                                                         |  | CEP  |       | LPT  |  | Total |       | CEP |  | LPT |       | Total |  | CEP |       | LPT |  | Total
|                                                         |  |      |       |      |  |       |       |     |  |     |       |       |  |     |       |     |  |      
|Net sales                                                |  |      | 100.0 | %    |  |       | 100.0 | %   |  |     | 100.0 | %     |  |     | 100.0 | %   |  |       | 100.0 | %  |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | %
|Cost of sales                                            |  |      | (88.3 | )    |  |       | (81.0 | )   |  |     | (87.2 | )     |  |     | (83.4 | )   |  |       | (86.5 | )  |  |  | (83.9 | ) |  |  | (83.7 | ) |  |  | (83.7 | ) |  |  | (83.7 | )
|                                                         |  |      |       |      |  |       |       |     |  |     |       |       |  |     |       |     |  |       |       |    |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Gross profit                                             |  |      | 11.7  |      |  |       | 19.0  |     |  |     | 12.8  |       |  |     | 16.6  |     |  |       | 13.5  |    |  |  | 16.1  |   |  |  | 16.3  |   |  |  | 16.3  |   |  |  | 16.3  |  
|Selling, general and administrative expenses             |  |      | (8.3  | )    |  |       | (15.2 | )   |  |     | (9.4  | )     |  |     | (7.4  | )   |  |       | (8.6  | )  |  |  | (7.6  | ) |  |  | (5.7  | ) |  |  | (9.5  | ) |  |  | (6.1  | )
|Research and development expenses                        |  |      | (1.4  | )    |  |       | (0.6  | )   |  |     | (1.2  | )     |  |     | (1.1  | )   |  |       | (1.5  | )  |  |  | (1.1  | ) |  |  | (1.0  | ) |  |  | (1.2  | ) |  |  | (1.0  | )
|Impairment of goodwill                                   |  |      |      |      |  |       |      |     |  |     |      |       |  |     | (0.2  | )   |  |       |      |    |  |  | (0.2  | ) |  |  |      |   |  |  |      |   |  |  |      |  
|                                                         |  |      |       |      |  |       |       |     |  |     |       |       |  |     |       |     |  |       |       |    |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Income from operations                                   |  |      | 2.0   |      |  |       | 3.2   |     |  |     | 2.2   |       |  |     | 7.9   |     |  |       | 3.4   |    |  |  | 7.2   |   |  |  | 9.6   |   |  |  | 5.5   |   |  |  | 9.2   |  
|Equity in income of affiliated companies                 |  |      | 0.9   |      |  |       |      |     |  |     | 0.8   |       |  |     | 5.4   |     |  |       |      |    |  |  | 4.6   |   |  |  | 0.1   |   |  |  |      |   |  |  | 0.1   |  
|Other income (expense)                                   |  |      | 0.5   |      |  |       | 5.1   |     |  |     | 1.2   |       |  |     | (2.4  | )   |  |       | (3.4  | )  |  |  | (2.6  | ) |  |  | 1.8   |   |  |  | (3.0  | ) |  |  | 1.4   |  
|Interest expense                                         |  |      | (0.1  | )    |  |       | (0.0  | )   |  |     | (0.1  | )     |  |     | (0.4  | )   |  |       | (0.2  | )  |  |  | (0.3  | ) |  |  |      |   |  |  | (0.3  | ) |  |  |      |  
|                                                         |  |      |       |      |  |       |       |     |  |     |       |       |  |     |       |     |  |       |       |    |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Income (loss) before income taxes and
minority interests |  |      | 3.3   |      |  |       | 8.3   |     |  |     | 4.1   |       |  |     | 10.5  |     |  |       | (0.2  | )  |  |  | 8.9   |   |  |  | 11.6  |   |  |  | 2.2   |   |  |  | 10.7  |  
|Income taxes benefit (expense)                           |  |      | (0.1  | )    |  |       | (0.2  | )   |  |     | (0.1  | )     |  |     | (0.4  | )   |  |       | (0.2  | )  |  |  | (0.3  | ) |  |  | (0.1  | ) |  |  |      |   |  |  | (0.1  | )
|                                                         |  |      |       |      |  |       |       |     |  |     |       |       |  |     |       |     |  |       |       |    |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Income (loss) before minority interests                  |  |      | 3.2   |      |  |       | 8.1   |     |  |     | 4.0   |       |  |     | 10.1  |     |  |       | (0.4  | )  |  |  | 8.6   |   |  |  | 11.5  |   |  |  | 2.2   |   |  |  | 10.6  |  
|Minority interests                                       |  |      | (0.1  | )    |  |       |      |     |  |     | (0.1  | )     |  |     |      |     |  |       | (0.1  | )  |  |  | (0.1  | ) |  |  | (0.2  | ) |  |  | (0.5  | ) |  |  | (0.3  | )
|                                                         |  |      |       |      |  |       |       |     |  |     |       |       |  |     |       |     |  |       |       |    |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Income after minority interests                          |  |      | 3.1   |      |  |       | 8.1   |     |  |     | 3.9   |       |  |     | 10.1  |     |  |       | (0.5  | )  |  |  | 8.5   |   |  |  | 11.3  |   |  |  | 1.7   |   |  |  | 10.3  |  
|Discontinued Operation                                   |  |      |      |      |  |       |      |     |  |     |      |       |  |     |      |     |  |       |      |    |  |  |      |   |  |  |      |   |  |  | 4.8   |   |  |  | 0.5   |  
|                                                         |  |      |       |      |  |       |       |     |  |     |       |       |  |     |       |     |  |       |       |    |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  
|Net income (loss)                                        |  |      | 3.1   | %    |  |       | 8.1   | %   |  |     | 3.9   | %     |  |     | 10.1  | %   |  |       | (0.5  | )% |  |  | 8.5   | % |  |  | 11.3  | % |  |  | 6.5   | % |  |  | 10.8  | %
|                                                         |  |      |       |      |  |       |       |     |  |     |       |       |  |     |       |     |  |       |       |    |  |  |       |   |  |  |       |   |  |  |       |   |  |  |       |  

Year ended December 31, 2003 Compared to Year ended December 31, 2002

Net
Sales.Our net sales increased significantly by 72.2% to $406.3
million for 2003 compared to $236.0 million for 2002. Sales in the CEP segment
increased by 81.8% to $365.0 million for 2003 compared to $200.8 million for
2002. The increase was primarily attributable to sales of the component
assembly products of approximately $236.8 million in 2003
compared to $103.6
million in 2002, an increase of $133.2 million.

37



---



##### Table of Contents



This increase was mainly as a
result of an increase in sales of telecom LCD and PCB modules and the launch of
new products in 2003 like RF modules, SKD handset, Front Light Panel
Assembly, and flash light for cellular phones. In addition, we also experienced increased sales in the LCD consumer products
segment. Sales of LCD consumer products amounted to approximately $124.1 million in
2003 compared to $94.2 million in 2002, an increase of $29.9 million. This increase was mainly driven by the PC camera, which was first launched in 2003.

Sales in the LPT segment increased by 17.2% to $41.3 million for 2003
compared to $35.3 million for 2002. The primary reason for the increase in
sales was the increase in the sales of LCD panels of approximately $35.0
million for 2003 compared to $23.9 million for 2002, which was partially offset
by a decrease in the sales of transformers due to the disposal of the
transformers
operation in June 2003.

Gross Profit.Our gross profit increased by 74.2% to $66.3 million for
2003 compared to $38.1 million for 2002. Our gross profit margin also increased
slightly in 2003 to 16.3% from 16.1% in 2002.

Gross profit in the CEP segment increased 78.8% to $59.6 million, or 16.3%
of net sales, for 2003 compared to $33.3 million, or 16.6% of net sales, for
2002. The primary reason for this increase was the increase in sales as
described above in explanation of fluctuation of Net Sales. We were also
able to keep our product gross margin relatively stable in 2003. The increase
in gross profit margin was offset by the gain of a $2.0 million due to recovery
of inventory written down to cost of sales in 2002. In addition to
these specific factors, our gross profit margin increased in 2003 due to our ability
to negotiate advantageous price terms with certain of our suppliers and our
focus on reducing overhead costs.

Gross profit in the LPT segment increased 41.9% to $6.7 million, or 16.3%
of net sales, for 2003 compared to $4.8 million, or 13.5% of net sales, for
2003. This increase in gross profit in the LPT segment was as a result of
increases in sales proportion of high margin products and the disposal of the
transformers operation in June 2003. The impact of the discontinued operations
of transformers on gross profit contribution was insignificant as the margin of
transformers products was low.

Selling, general and administrative expenses.SG&A expenses for 2003
increased approximately $6.9 million to $24.9 million, or 6.1% of net sales,
from $18.0 million, or 7.6% of net sales, in 2002.

SG&A expenses in the CEP segment increased 39.9% to $20.9 million, or 5.7%
of net sales, for 2003 compared to $14.9 million, or 7.4% of net sales, for
2002. This increase was primarily due to an approximately $4.9 million increase
in salaries and benefits expenses, due to an increase in headcount, an
approximately 10% increase in salary for certain employees and $3.7 million
incentive bonus due to the implementation of a new incentive bonus scheme in
January 2003, which was calculated based on operating profit, as well as a $0.8
million increase in selling expenses, which was primarily due to more sales
commission paid as sales increased.

SG&A expenses in our LPT segment also increased in 2003 to $4.0 million,
or 9.5% of net sales, from $3.0 million, or 8.6% of net sales, in 2002. The
increase in SG&A expenses in our LPT segment in 2003 was primarily related to
salaries and benefits expenses as a result of the implementation of a new
incentive bonus program scheme in January 2003 and hence $0.2 million in incentive bonuses incurred during 2003 and general expenses due to an increase in business
activities.

Our SG&A expenses include provisions for bad debt expenses, which
decreased from $138,000 in 2002 to $91,000 in 2003. On a segment basis, the
provision for bad debt expenses decreased in the CEP segment from $89,000 in
2002 to zero in 2003 and increased in the LPT segment from $49,000 in 2002 to
$91,000 in 2003. For the CEP segment, the decrease in allowance has
been attributable to the implementation of tighter credit controls.
For the LPT segment, the increase in the allowance was due to the
increase in accounts receivable and a resulting increase in our general
provision due to a delay in payment from some customers.

Research and development expenses.Research and development expenses for
2003 increased to $4.0 million, or 1.0% of net sales, from $2.7 million, or
1.1% of net sales, in 2002. On a segment basis, research and development
expenses increased in the CEP segment by $1,385,000, or 64.1%, due to an
increase in staff related to the expansion of our production capacity and the
products we manufacture.

Goodwill impairment.In 2002, we determined that $339,000 of unamortized
goodwill related to our 1999 acquisition of a telecommunications company was
impaired as the technology of the acquired company had become obsolete.

38



---



##### Table of Contents



Income from Operations.Income from operations increased by approximately
$20.3 million to $37.4 million, or 9.2% of net sales, for 2003 compared to
$17.1 million, or 7.2% of net sales, for 2002. On a segment basis, the
operating income of our CEP segment
increased $19.2 million to $35.1 million, or 9.6% of net sales, in 2003
compared to $15.9 million, or 7.9% of net sales, in 2002. The operating income
of our LPT segment increased $1.1 million to $2.3 million, or 5.5% of net
sales, for 2003 compared to $1.2 million, or 3.4% of net sales, in 2002. This
increase in operating income is attributable to the increase in gross profit
described above.

Equity in Income of Affiliated Companies.Equity in income of affiliated
companies was $0.5 million in 2003 compared to $10.7 million in 2002. The
income in 2003 represents our share of the net earnings of our proportional 25%
investment in Alpha Star Investments Limited for the twelve months end December
31, 2003. The income in 2002 represents our proportional share of the net
earnings of our 25% investment in Mate Fair.

Other Income/(Expense), net.Other income, net, during the year ended
December 31, 2003 was $5.5 million. This amount included
dividend income of $2.0 million from our indirect investment in Huizhou TCL
Mobile Communication Co., Ltd, dividend income of $1.7 million from TCL
Corporation, $1.8 million of gain on partial disposal of
interest in our J.I.C.
Group and income of $0.5 million related to the recovery of a non-trade
receivable which had been written off previously. This income was partially
offset by a $0.3 million bank charge during 2003.

Interest Expense.Interest expense decreased to $121,000 for 2003
compared to $790,000 for 2002. The decrease in interest expenses is the result
of the early repayment of a $12.9 million bank loan in January 2003.

Income Taxes.Income tax expenses decreased to $399,000 for 2003 compared
to $773,000 for the prior year. The decrease is primarily the result of our
receipt of tax refunds for several of our PRC entities for taxes paid in
previous years.

Minority Interest.Minority interest increased $903,000, or 550.6%, to
$1,067,000 in 2003 from $164,000 in 2002. Minority interest in 2003 included
$211,000 from the minority shareholders share of profits of
J.I.C. Group for the
year ended December 31, 2003, $560,000 from the minority shareholders share of
profits of Mate Fair for the year ended December 31, 2003, and $296,000 from
the minority shareholders share of profits of Namtek Software Development
Company Ltd. for the year ended December 31, 2003.

Discontinued Operation.Discontinued operation in 2003 represents $2.0
million gain on disposal of our entire transformers operation, net of
$0.1 million shared by minority interest.

Net Income.Net income increased by $23.8 million, or 118.8%, to $43.8
million or 10.8% of net sales, for 2003 compared to $20.0 million, or 8.5% of
net sales, for 2002. Net income of $43.8 million for 2003
represents $41.8 million income from normal operation, and
$2.0 million income from discontinued operation. Diluted
earnings per share for 2003 of $1.07 ($1.09 basic) was contributed by
$1.02 ($1.04 basic) from normal operations, and $0.05 ($0.05 basic)
from discontinued operation. This resulted in diluted earnings per share for 2003 of
$1.07 ($1.09 basic) compared to $0.57 ($0.57 basic) for 2002. Net income for
the CEP segment increased 103.3% to $41.1 million for 2003 compared to $20.2
million for 2002. The increase in CEPs net income is the result of higher
sales, higher gross profit margin, and the increase in other income, which was
offset by the decrease in equity in income from affiliated companies and
increased general and administrative expenses described above. Net income for
the LPT segment increased by $2.9 million, or 1513.6%, to a income of $2.7
million in 2003 compared to net loss of $191,000 for 2002. The increase in the
LPT segments net income is the result of the $2.0 million gain from the
disposal of the transformers operation, net of $0.1 million shared by minority interest, in June 2003, increase in sales and
higher gross profit margin.

Year ended December 31, 2002 Compared to Year ended December 31, 2001

Net Sales.Our net sales remained flat, increasing by 0.9%, to $236.0
million for 2002 compared to $234.0 million for 2001. Sales in the CEP segment
increased by 1.4% to $200.8 million for 2002 compared to $198.0 million for
2001. The primary reason for the increase was sales of digital camera
accessories for cellular phones that we first produced in 2001 of approximately
$39.8 million in 2002 compared to only $3.2 million in 2001, an increase of
$36.6 million. This increase was partially offset by the sale of our joint
venture interest in BPC (Shenzhen) Co., Ltd. to a Toshiba related company on
April 30, 2002, resulting in a decrease in our sales of approximately $13.2
million in 2002 as compared to sales in 2001. We also experienced decreased
sales in 2002 of calculators, personal digital assistants and linguistics
products and LCD modules of $9.6 million, $6.7 million and $3.5 million,
respectively, as compared to levels in 2001. We believe that these decreases
resulted from pricing pressures and the completion of the lifecycle or
obsolescence of certain of these products that were not replaced by comparable
devices.

39



---



##### Table of Contents



Sales in the LPT segment decreased by 1.9% to $35.3 million for 2002
compared to $36.0 million for 2001. The primary reason for the decrease in
sales was the reduction in LCD panel selling prices caused by market
competition, which was partially offset by an increase in the number of LCD
panels sold.

Gross Profit.Our gross profit increased by 26.7%, to $38.1 million for
2002 from $30.0 million for 2001. Our gross profit margin also increased in
2002 to 16.1% from 12.8% in 2001. Before the inventory write-down of $3.8
million in 2001 for slow-moving raw materials relating to cancelled, returned
or delayed orders and our gain of $2.0 million recorded in cost of sales during
2002 discussed below, our consolidated gross margin was 14.5% in 2001 and
15.3% in 2002.

Gross profit in the CEP segment increased by 43.7% to $33.3 million, or
16.6% of net sales, for 2002 compared to $23.2 million, or 11.7% of net sales,
for 2001. The primary reason for this increase was our inventory
write-down in
2001 of $3.8 million for slow-moving raw materials relating to cancelled,
reduced or delayed orders within the CEP segment that was recorded in our cost
of sales. In 2002, we were able to use some of these raw materials in
production or we received compensation for the unused raw materials from
certain of our customers, resulting in our gain of $2.0 million to cost of sales in 2002. For the inventory that we were able to use,
we sold the related products to customers at our normal prices. Also contributing to the increase in gross
profit in 2002 is a $300,000 charge to our cost of sales in 2001 related to
employee severance charges for direct labor in the CEP segment. In addition to
these specific factors, our gross profit increased in 2002 due to our ability
to negotiate advantageous price terms with certain of our suppliers and our
focus on reducing overhead costs.

Gross profit in the LPT segment decreased by 30.7% to $4.8 million, or
13.5% of net sales, for 2002 compared to $6.8 million, or 19.0% of net sales,
for 2001 as a result of lower selling prices for LCD panels driven by increased
competition as well as increased depreciation charges in relation to a new STN
LCD panel line that commenced operations in June 2002.

Selling, general and administrative expenses.SG&A expenses for 2002
decreased approximately $4.0 million to $18.0 million, or 7.6% of net sales,
from $22.0 million, or 9.4% of net sales, in 2001.

SG&A expenses in the CEP segment decreased by 9.6% to $14.9 million, or
7.4% of net sales, for 2002 compared to $16.5 million, or 8.3% of net sales,
for 2001. This decrease was driven primarily by our cost realignment and
tightened cost controls that reduced salaries and benefits to $6.0 million from
$8.1 million in 2001. Our salaries and benefits expense in 2001 included
$700,000 of restructuring expenses primarily related to severance for certain
administrative positions that we eliminated. The decreases in our CEP segment
were partially offset by increases in selling expenses of $600,000 due to
implementation of a new commission incentive program in January 2002.

SG&A expenses in our LPT segment also decreased in 2002 to $3.0 million,
or 8.6% of net sales, from $5.5 million, or 15.2% of net sales, in 2001. The
decrease in SG&A expenses in our LPT segment in 2002 is primarily related to
terminating the amortization of goodwill as a result of our adoption of the new
accounting rule, SFAS No. 142, effective January 1, 2002. During the year ended
December 31, 2001, our amortization of goodwill in the LPT segment was
approximately $1.6 million. SG&A expenses in our LPT segment were also lower in
2002 due to a stock option compensation expense of $839,000 in 2001, but none
in 2002.

Our SG&A expenses include provisions for bad debt expenses, which
increased from $86,000 in 2001 to $138,000 in 2002. On a segment basis, the
provision for bad debt expenses increased in the CEP segment from $55,000 in
2001 to $89,000 in 2002 and increased in the LPT segment from $31,000 in 2001
to $49,000 in 2002. Our policy for the allowance for doubtful amounts is to
provide for all invoices that are 30 days overdue from their original credit
terms and for which settlement is not assured. The increase in the allowance
was due to the increase in accounts receivable and a resulting increase in our
general provision and a delay in payment from some customers.

Research and development expenses.Research and development expenses for
2002 decreased to $2.7 million, or 1.1% of net sales, from $3.0 million, or
1.2% of net sales, in 2001. On a segment basis, research and development
expenses decreased in the CEP segment by $584,000, or 21.3%, due to a reduction
in related staff, which was partially offset by an increase in the LPT segment
of $316,000 in relation to the addition of a new STN LCD line for the
development of new products, including LCD panels for TCL Mobile.

40



---



##### Table of Contents



Goodwill impairment.In 2002, we determined that $339,000 of unamortized
goodwill related to our 1999 acquisition of a telecommunications company was
impaired as the technology of the acquired company had become obsolete.

Income from Operations.Income from operations increased by approximately
$11.9 million to $17.1 million, or 7.2% of net sales, for 2002 compared to $5.1
million, or 2.2% of net sales, for 2001. On a segment basis, the operating
income of our CEP segment increased $12.0 million to $15.9 million, or 7.9% of
net sales, in 2002 compared to $3.9 million, or 2.0% of net sales, in 2001.
This increase in operating income is attributable to the increase in gross
profit and decrease in SG&A expenses and R&D expenses described above. The
operating income of our LPT segment remained constant at $1.2 million in both
2002 and 2001.

Equity in Income of Affiliated Companies.Equity in income of affiliated
companies was $10.7 million in 2002 compared to $1.9 million in 2001. The
income in 2002 includes $8.6 million, which represents our share of the gain
from the sale by Mate Fair of a portion of its interest in TCL Mobile, and $2.1
million for our proportional share of the net earnings of our 25% investment in
Mate Fair for the five months ended May 31, 2002.

Other Income/(Expense), net.Other expense, net, during the year ended
December 31, 2002 was $6.0 million. This amount included expenses of $5.2
million for our provision of legal contingencies related to the liquidation of
Tele-Art Inc., $2.7 million of loss related to the creation of a minority
interest in our J.I.C. Group subsidiary, including the release of unamortized
goodwill, $1.4 million of legal and professional fees related to
the J.I.C.
minority interest transaction, $610,000 of finance charges related to the early
repayment of a $12.9 million fixed term loan, $520,000 for release of
unamortized goodwill of an affiliated company, Mate Fair, $307,000 of finance
charges and $771,000 of miscellaneous expenses primarily related to
non-operating legal fees. These expenses were partially offset by gains of
$3.3 million related to the partial recovery of a judgment debt in the Tele-Art
case, net of expenses, $917,000 of dividend income primarily from our indirect
investment in TCL Corporation, $799,000 of interest income and $642,000 of
realized gain from the disposal of marketable securities. The costs of
defending the recently announced securities class action litigation could
substantially increase our expenses in future periods and any adverse
determination could be significant.

Interest Expense.Interest expenses increased to $790,000 for 2002
compared to $178,000 for 2001. The increase in interest expenses was the result
of $15 million in long-term debt that we obtained in the fourth quarter of 2001
and $4.5 million obtained in the second quarter of 2002.

Income Taxes.Income tax expenses of $773,000 for 2002 compares to
$227,000 for 2001. The increase was primarily the result of not receiving tax
refunds for two of our PRC entities for taxes paid in previous years that we
have normally been eligible to receive in the past.

Minority Interest.Minority interest decreased $66,000, or 28.7%, to
$164,000 in 2002 from $230,000 in 2001. Minority interest in 2002 included
$107,000 from the minority shareholders share of profits of BPC from January
1, 2002 through April 30, 2002, the date we sold BPC and $57,000 from the
minority shareholders share of profits of J.I.C. Group from June 4, 2002, the
date of listing on the Hong Kong Stock Exchange, through December 31, 2002.
Minority interest in 2001 represented an entire year of the minority
shareholders share of BPCs profit.

Net Income.Net income increased by $11.0 million, or 121.4%, to $20.0
million or 8.5% of net sales, for 2002 compared to $9.0 million, or 3.9% of net
sales, for 2001. This resulted in diluted earnings per share for 2002 of $0.57
($0.57 basic) compared to $0.26 ($0.27 basic) for 2001. Net income for the CEP
segment increased 230% to $20.2 million for 2002 compared to $6.1 million for
2001. The increase in CEPs net income is the result of a higher gross profit
margin, the increase in equity in income from affiliated companies, and
decreased general and administrative expenses described above. Net income for
the LPT segment decreased by $3.1 million or 106.6% to a loss of $191,000
compared to net income of $2.9 million for 2001. The net loss position in year
2002 for the LPT segment was the result of lower gross profit margin, and the
release of unamortized goodwill as described above.

Liquidity and Capital Resources

Liquidity

We have financed our growth and cash needs to date primarily from
internally generated funds, proceeds from the sale of our strategic
investments, sales of our stock and bank debt. We do not use off-balance sheet
financing arrangements, such as securitization of receivables or obtaining
access to assets through special purpose entities, as sources of liquidity. Our
primary uses of cash have been to fund expansions and upgrades of our
manufacturing facilities, to make strategic investments in potential customers
and suppliers and to fund increases in inventory and accounts receivable
resulting from increased sales.

41



---



##### Table of Contents



We had positive net working capital of $96.8 million at December 31, 2003
compared to positive net working capital of $87.4 million at December 31, 2002.
We believe that our cash flows from operations, our current cash balance and
funds available under our working capital and credit facilities will be
sufficient to meet our working capital needs and planned capital expenditures
for the next 12 months.

Net cash provided by operating activities was $41.2 million in 2003. Cash
provided by operating activities in 2003 was primarily attributable to net
income of $43.8 million plus depreciation and amortization expense of $12.3
million, offset by the gain on disposal of a transformers operation,
net of minority interests of $2.0 million and
gain on the partial disposal of our JIC Group for $1.8 million. Our working
capital related to operating activities net of the effect of the disposal of a
subsidiary decreased, driven by an increase of $11.1 million in accounts
receivables, $6.1 million in other receivables and prepaid expenses, $2.7
million in the amount due from a related party and $8.5 million in inventories,
which was offset by increases in accounts payable of $18.0 million, and other
payables and accrued expenses of $1.2 million.

Our inventories increased in 2003 as a result of our anticipation of
increases in sales. Accounts receivable increased due to an increase in sales
in the fourth quarter relative to sales in the prior year period. The increase
in prepaid expenses and other receivables was mainly due to a $3.1 million
increase in deposits for the acquisition of property, plant and equipment
related to our business operation. Accounts payable increased due to increased
inventory purchases. Accrued expenses increased due to the provision of an
incentive bonus in this year.

Net cash provided by operating activities was $39.5 million in 2002. Cash
provided by operating activities in 2002 was primarily attributable to net
income of $20.0 million plus depreciation and amortization expense of $10.6
million, dividend income from affiliated companies of $10.5 million and the
non-cash loss on the reverse merger transaction related to our JIC Group of
$2.7 million, non-cash equity in income of affiliated companies of $10.7
million, release of unamortized goodwill of affiliated companies of $520,000,
realized gain on marketable securities of $642,000 and non-cash shares
redemption and dividend withheld in settlement of a receivable of $3.5 million.
Our working capital related to operating activities net of the effect of the
disposal of a subsidiary also decreased, driven by an increase of $17.0 million
in accounts payable and accrued expenses and $10.1 million of proceeds from
marketable securities, offset by increases in accounts receivable of $8.5
million and inventory of $7.6 million.

Our inventory increased in 2002 as a result of our anticipation of
increases in sales. Accounts receivable increased due to increased sales in the
fourth quarter relative to sales in the prior year period. The increase in
accrued expenses was primarily related to a $5.2 million provision for legal
contingencies. Accounts payable increased due to support for higher inventory
levels. The proceeds from marketable securities relates to the disposal of our
holdings in Deswell Industries, Inc. during 2002.

Net cash used in investing activities was $18.6 million in 2003. Cash used
in investing activities primarily related to our $10.0 million and $0.4 million
strategic investments in Alpha Star Investments Limited and iMagic Infomedia
Technology Limited, respectively, and $5.3 million prepayment for long term
investment in Stepmind, as well as capital expenditures of $17.1 million,
offset by $2.6 million proceeds on disposal of property, plant and equipment,
$2.4 million proceeds on disposal of transformers operation to a third party,
$4.0 million proceeds on partial disposal of our J.I.C. Group, and $5.0 million
proceeds on disposal of convertible notes of TCL International Holdings Ltd.

Net cash used in investing activities was $33.8 million in 2002. Cash used
in investing activities primarily related to our $12.0 million strategic
investment in TCL Corporation and $5.1 million in convertible notes of TCL
International Holdings Ltd., as well as capital expenditures of $18.5 million,
offset by proceeds of $1.7 million related to the disposal of our joint venture
interest in BPC. Our capital expenditures in 2002 included a $12.3 million new
STN LCD panel production line and $4.0 million for completion of the new
factory expansion.

In the past three years, we have invested significant amounts of cash to
expand our manufacturing capacity and to upgrade our equipment to produce
increasingly complex products. We believe that we will continue to make
significant cash investments in the future to broaden our manufacturing
capabilities and increase our capacity. In this regard, we intend to spend
approximately $40.0 million to construct and equip another factory consisting
of approximately 250,000 square feet on land adjacent to our principal
manufacturing facilities in Shenzhen, China, of which $1.2 million has already
been spent in 2003.

42



---



##### Table of Contents



Net cash used in financing activities was $43.3 million in 2003. Cash used
in financing activities for 2003 primarily resulted from $37.8 million paid to
shareholders as dividends and $14.0 million bank loans repayment offset by $8.5 million
received from the exercise of options.

Net cash provided by financing activities was $18.1 million for 2002. Cash
provided by financing activities for 2002 primarily resulted from net proceeds
of $36.5 million received from the exercise of options and warrants and $4.5
million received from a four-year variable rate term loan, offset by $16.7
million paid to shareholders as dividends, $2.7 million for the repayment of
bank loans and $3.5 million for the repurchase of our common shares pursuant to
our share buy-back program.

Except as discussed above, there are no material transactions,
arrangements and relationships with unconsolidated affiliated entities that are
reasonably likely to affect liquidity.

For the years ended December 31, 2002 and 2003, the Company has made
guarantees for debt, loans and credit facilities held by various wholly owned
subsidiaries aggregating to a maximum guarantee of $62,616,000 and $49,756,000,
respectively. The terms of the guarantees correspond with the terms of the
underlying debt, loan and credit facility agreements.

Capital Resources

In July 2003, we filed a registration statement on Form F-3 with the
Securities and Exchange Commission relating to a proposed offering of 9,000,000
common shares, of which 6,000,000 common shares were to be offered by us and
3,000,000 common shares were to be offered by selling shareholders. We
intended to use a portion of the net proceeds to construct and equip a new
factory of approximately 250,000 square feet adjacent to our principal
manufacturing facilities in Shenzhen, China. We intended to use the balance of
the net proceeds for working capital and other general corporate purposes.

In September 2003, we withdrew the registration statement. Despite our
capital expenditures proceeding as scheduled, we believe that our cash on hand,
future cash generated from operation, together with other income and
outstanding banking facilities, should be sufficient for both our
long-term and
short-term capital needs.

As of December 31, 2003, we had $61.8 million in cash and cash
equivalents, consisting of cash and short-term deposits, compared to $82.5
million at December 31, 2002. Our short-term debt was $3.0 million and $15.0
million at December 31, 2003 and December 31, 2002, respectively.

At December 31, 2003, we had in place general banking facilities with two
financial institutions aggregating $62.3 million. The maturity of these
facilities is generally up to 90 days. These banking facilities are guaranteed
by us and there is an undertaking not to pledge any assets to any other banks
without the prior consent of our bankers. However, these covenants do not have
any impact on our ability to undertake additional debt or equity financing.
Interest rates are generally based on the banks reference lending rates. Our
facilities permit us to obtain overdrafts, lines of credit for forward exchange
contracts, letters of credit, import facilities, trust receipt financing,
shipping guarantees and working capital. No significant commitment fees are
required to be paid for the banking facilities. These facilities are subject to
annual review and approval. As of December 31, 2003, we had utilized
approximately $8.3 million under such general credit facilities and had
available unused credit facilities of $54.0 million.

We had a seven-year term loan in October 2001 totaling $15.0 million at a
fixed interest rate of 5.05% in the first four years and at a rate of 1% over
the Singapore Interbank Money Market Offer Rate for the following three years.
The loan was secured by a property with net book value of $11.4 million. At
December 31, 2002, the bank loan had an outstanding balance of
$12,860,000. On
January 3, 2003, we repaid the entire outstanding balance due to the bank,
resulting in a finance charge on early repayment of $610,000, which was
expensed in 2002.

As of
December 31, 2003, we had bank borrowing of $2.8 million, including the
current portion of $1.1 million, compared to bank borrowing of $16.8 million, including
the current portion of $14.0 million at December 31, 2002.

Our bank borrowing as of December 31, 2003 represents unsecured long-term bank borrowing of
$4.5 million that we obtained in May 2002. This bank borrowing has a term of four years
and bears interest of 1.5% over three-month LIBOR (with a cap at 7.5%), with
principal repayments of $281,250 due on a quarterly basis.

43



---



##### Table of Contents



A summary of our contractual obligations and commercial commitments as of
December 31, 2003 is as follows:

|                         |  |                        |             |      |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |           |  |  |          |           | 
|------------------------ |  | ---------------------- | ----------- | ---- |  | ---- | ---------- | ---- |  | ---- | --------- | ---- |  | ---------- | --------- |  |  | - | --------- |  |  | - | --------- |  |  | -------- | --------- | 
|                         |  | Payments due by period
|                         |  |                       
|                         |  |                        |             |      |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |           |  |  | 2009 and
|Contractual obligation   |  | Total                  |             | 2004 |  | 2005 |            | 2006 |  | 2007 |           | 2008 |  | thereafter
|                         |  |                        |             |      |  |      |            |      |  |      |           |      |  |           
|Long-term
bank borrowing |  | $                      | 2,813,000   |      |  | $    | 1,125,000  |      |  | $    | 1,125,000 |      |  | $          | 563,000   |  |  | $ |          |  |  | $ |          |  |  | $        |          | 
|Operating leases         |  |                        | 8,885,000   |      |  |      | 1,045,000  |      |  |      | 1,037,000 |      |  |            | 988,000   |  |  |   | 1,070,000 |  |  |   | 1,087,000 |  |  |          | 3,658,000 | 
|Capital expenditures     |  |                        | 34,161,000  |      |  |      | 34,161,000 |      |  |      |          |      |  |            |          |  |  |   |          |  |  |   |          |  |  |          |          | 
|Purchase obligations     |  |                        | 54,543,000  |      |  |      | 54,543,000 |      |  |      |          |      |  |            |          |  |  |   |          |  |  |   |          |  |  |          |          | 
|                         |  |                        |             |      |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |           |  |  |          |           | 
|Total                    |  | $                      | 100,402,000 |      |  | $    | 90,874,000 |      |  | $    | 2,162,000 |      |  | $          | 1,551,000 |  |  | $ | 1,070,000 |  |  | $ | 1,087,000 |  |  |          | 3,658,000 | 
|                         |  |                        |             |      |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |           |  |  |          |           | 

There are no material restrictions (including foreign exchange controls)
on the ability of our non-China subsidiaries to transfer funds to us in the
form of cash dividends, loans, advances or product or material purchases. With
respect to our China subsidiaries, with the exception of a requirement that 10%
of profits be reserved for future developments, there are no restrictions on

the payment of dividends and the removal of dividends from China once all taxes
are paid and assessed and losses, if any, from previous years have been made
good. In the event that dividends are paid by our China subsidiaries, such
dividends will reduce the amount of reinvested profits and accordingly the
refund of taxes paid will be reduced to the extent of tax applicable to profits
not reinvested.

Impact of Inflation

Inflation and deflation in China and Hong Kong has not had a material
effect on our past business. During times of inflation, we have generally been
able to increase the price of its products in order to keep pace with
inflation.

Exchange Controls

There are no exchange control restrictions on payments of dividends,
interest, or other payments to nonresident holders of our securities or on the
conduct of our operations in Hong Kong and Macao, where the offices of some of
our subsidiaries are located, or in the British Virgin Islands, where
we are incorporated. Other jurisdictions in which we conduct operations may
have various exchange controls. With respect to our China subsidiaries, with
the exception of a requirement that 10% of profits be reserved for future
developments, there are no restrictions on the payment of dividends and the
removal of dividends from China once all taxes are paid and assessed and
losses, if any, from previous years have been made good. We believe such
restrictions will not have a material effect on our liquidity or cash flows.

Recent changes in accounting standards

In January 2003, the FASB issued Interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities. FIN 46 requires that if a
business enterprise has a controlling financial interest in a variable interest
entity, the assets, liabilities and results of the activities of the variable
interest entity should be included in consolidated financial statements of the
business enterprise. FIN 46 (Revised) applies immediately to variable interest
entities created after January 31, 2003. For variable interest entities
created or acquired prior to February 1, 2003, the provisions of FIN 46
(Revised) are effective beginning January 1, 2004. The adoption of FIN 46
(Revised) is not expected to have a material impact on the Companys financial
position, results of operation, or cash flows.

In April 2003, the 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 did not 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 classify a financial instrument
that is within its scope as a liability (or an asset in some circumstances).
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective for the third quarter of 2003.
The adoption of SFAS No. 150 did not have a material impact on the Companys
financial position, results of operations, or cash flows.

44



---



##### Table of Contents



QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Currency Fluctuations

We sell a majority of our products in U.S. dollars and pay for our
material components in Japanese yen, U.S. dollars, Hong Kong dollars, and
Chinese renminbi. We pay labor costs and overhead expenses in Chinese renminbi, the
currency of China (the basic unit of which
is the yuan), Hong Kong dollars and Japanese yen. The exchange rate of the
Hong Kong dollar to the U.S. dollar has been fixed by the Hong Kong government
since 1983 at approximately HK$7.80 to US$1.00, through the currency issuing
banks in Hong Kong and accordingly has not in the past presented a currency
exchange risk. This could change in the future if those in Hong Kong arguing
for a floating currency system prevail in the ongoing debate over whether to
continue to peg the Hong Kong dollar to the US dollar.

We believe our most significant foreign exchange risk results from
material purchases made in Japanese yen. Approximately 16%, 8% and 16% of our
material costs have been in Japanese yen during the years ended December 31,
2001, 2002, and 2003. Sales made in Japanese yen account for less than 11% of
sales for the years ended December 31, 2001, 2002 and 2003. Our business and
operating results could be materially and adversely affected in the event of a
severe increase in the value of the Japanese yen to the US dollar at a time
when our sales made in Japanese yen are insufficient to cover our material
purchases in Japanese yen.

Beginning on December 1, 1996, the Chinese renminbi became fully convertible under
the current accounts. There are no restrictions on trade-related foreign
exchange receipts and disbursements in China. Capital account foreign exchange
receipts and disbursements are subject to control, and organizations in China
are restricted in foreign currency transactions that must take place through
designated banks.

We may elect to hedge our currency exchange risk when we judge such action
may be required. In an attempt to lower the costs of expenditures in foreign
currencies, we will periodically enter into forward contracts or option
contracts to buy or sell foreign currency(ies) against the U.S. dollar through
one of our banks. As a result, we may suffer losses resulting from the
fluctuation between the buy forward exchange rate and the sell forward exchange
rate, or from the price of the option premium.

At December 31, 2003 we held no option or future contracts and during the
year we did not purchase or sell any commodity or currency options. We are
continuing to review our hedging strategy and there can be no assurance that we
will not suffer losses in the future as a result of hedging activities.

Foreign Currency Risk

As of December 31, 2003 we had no open forward contracts or option
contracts to purchase or sell foreign currencies.

Cash on hand at December 31, 2003 of $61,827,000 was held in the following
currencies.

|                      |  |                   |            | 
|--------------------- |  | ----------------- | ---------- | 
|                      |  | Equivalent       
|                      |  | U.S. Dollar      
|                      |  | Holdings         
|                      |  |                  
|                      |  | December 31, 2003
|                      |  |                  
|Japanese yen          |  |                   | 2,915,000  | 
|United States dollars |  |                   | 51,193,000 | 
|Hong Kong dollar      |  |                   | 5,783,000  | 
|Chinese renminbi      |  |                   | 1,935,000  | 
|Macao Pataca          |  |                   | 1,000      | 

Interest Rate Risk

Short-term interest rate risk

Our interest expenses and income are sensitive to changes in interest
rates. All of our cash reserves and short-term borrowings are subject to
interest rate changes. Cash on hand of $61.8 million as of December 31, 2003
was invested in short-term interest bearing investments having a maturity of
three months or less. As such, interest income will fluctuate with changes in
short term interest rates. In 2003, we had $788,000 in interest income and
$121,000 in interest expense.

As of December 31, 2003, we had utilized approximately $8.3 million of our credit
facilities, including $1,879,000 in short-term notes payable resulting in
minimal interest rate risk.

45



---



##### Table of Contents



Long-term interest rate risk

As of
December 31, 2003, we had $2.8 million in long-term bank
borrowing including
the current portion of $1.1 million.

Our long
term bank borrowing was
obtained in May 2002, has a term of four years and bear interest at a rate of
1.5% over three months LIBOR repayable in 16 quarterly installments of
$281,250 beginning August 2002. The initial amount of this term
loan was $4.5 million and the outstanding balance as of December 31, 2003 was
$2.8 million.

We obtained a seven-year $15.0 million term loan in the fourth quarter of
2001 with a fixed rate of interest of 5.05% for the first four years and 1%
over the SIBOR rate for the last three years. The term loan had an outstanding
balance of $12.9 million as of December 31, 2002. We repaid this term loan on
January 3, 2003.

The potential effect of a hypothetical 1% increase in interest rates for
2003 indebtedness would be insignificant to our cash flows and net income.




Item 6.Directors, Senior Management and Employees

Directors and Senior Managers

Our current directors and senior management and their ages as of February
29, 2004 are as follows:

|                          |  |     |    |                       |  |                                                                                                            
|------------------------- |  | --- | -- | --------------------- |  | -----------------------------------------------------------------------------------------------------------
|Name                      |  | Age |    | Position with Nam Tai
|                          |  |     |    |                      
|Tadao Murakami            |  |     | 60 |                       |  | Chairman of the Board and member of the Board of Directors                                                 
|Joseph Li                 |  |     | 52 |                       |  | Chief Executive Officer, President                                                                         
|M. K. Koo                 |  |     | 59 |                       |  | Chief Financial Officer and member of the Board of Directors                                               
|Guy Bindels               |  |     | 43 |                       |  | Research & Development Director                                                                            
|George Shih               |  |     | 47 |                       |  | Chief Operating Officer                                                                                    
|Karene Wong               |  |     | 40 |                       |  | Chairman of the Board of Namtai Electronic and Electrical
Products Limited and Namtai Electronic (Shenzhen)
|Patinda Lei               |  |     | 37 |                       |  | Chairman of the Board of Zastron Electronic                                                                
|Lee Kwok Wai, Patrick     |  |     | 39 |                       |  | Managing Director of Zastron Electronic                                                                    
|L. P. Wang                |  |     | 47 |                       |  | Assistant Managing Director of Zastron Electronic                                                          
|Chen Yee, William         |  |     | 45 |                       |  | Managing Director of Namtai Electronic (Shenzhen)                                                          
|Kazuhiro Asano            |  |     | 52 |                       |  | Managing Director of Namtek Software                                                                       
|Seitaro Furukawa          |  |     | 62 |                       |  | Chairman of the Board of J.I.C. Technology Company Limited                                                 
|Ivan Chui                 |  |     | 45 |                       |  | Managing Director of J.I.C. Enterprises (HK) Limited                                                       
|Charles Chu               |  |     | 47 |                       |  | Member of the Board of Directors                                                                           
|Peter R. Kellogg          |  |     | 61 |                       |  | Member of the Board of Directors                                                                           
|Stephen Seung             |  |     | 57 |                       |  | Member of the Board of Directors and Secretary                                                             
|Dr. Wing Yan
(William) Lo |  |     | 43 |                       |  | Member of the Board of Directors                                                                           
|Mark Waslen               |  |     | 43 |                       |  | Member of the Board of Directors                                                                           

Tadao Murakami.Mr. Murakami has served Nam Tai in various executive
capacities since 1984. He became our Secretary and a Director in December 1989.
Since June 1989, he has been employed as the President of our Hong Kong
subsidiary. In July 1994, Mr. Murakami succeeded Mr. Koo as
President and, in
June 1995, became our Chief Executive Officer until September 1998. Mr.
Murakami assumed the position of Vice-Chairman in January 1996, and Chairman
from September 1998 until March 1, 2001 and again starting February 1, 2002. He
is in charge of our manufacturing and marketing operations. Mr. Murakami
studied technology in Japan Electronic Technology College in 1964.

Joseph
Li.Mr. Li, co-founder of the J.I.C. Group, has served in various
senior executive positions since we acquired the J.I.C. Group in October 2000. Mr.
Li assumed the position of Chief Executive Officer in May 2002. Mr. Li has
directed J.I.C. Groups business development since founding
J.I.C. Group in 1980. Mr.
Li resigned as a member of the Board of Directors in July 2003.

M.K. Koo.Mr. Koo has served as Chairman of the Board of Nam Tai and its
predecessor companies from inception until September 1998. He then
became our Senior
Executive Officer, responsible for corporate strategy, finance and
administration and also serves as the Companys Chief
Financial Officer. In addition to his current roles as Chief Financial Officer
and a director, he remains responsible for mergers and acquisitions, and
administrative matters. Mr. Koo received his Bachelors of Laws degree from
National Taiwan University in 1970.

46



---



##### Table of Contents



Guy
Bindels.Mr. Bindels took up the post of Research and Development
Director of Nam Tai Group in March 2003. He is responsible for the research
and development activities of the group. He has worked with the research and
development unit of
Alcatel for 19 years before joining Nam Tai. He obtained a
Masters Degree in
Electronics Engineering in June 1983 from the Government Department for
National Education in France.

George Shih.Mr. Shih took up the post of Chief Operating Officer
of Nam Tai Group in June 2003. He is responsible for ensuring the smooth
operation of manufacturing services of the group. Before joining Nam Tai, he
had 19 years of experience in electronics manufacturing services in various
management roles with Solectron Corporation. Mr. Shih has obtained a
Bachelors Degree in Materials Science and Engineering from National Tsing Hua University,
Taiwan in 1978. In 1980, he also obtained a Masters Degree in Industrial
Engineering from University of Texas, USA. He further obtained a
Masters Degree
in Electrical and Computer Engineering from University of Texas, USA in 1983.

Karene Wong.Ms. Wong joined us in March 1989 and was promoted to
Managing Director of our subsidiary Nam Tai Electronic & Electrical Products
Ltd. on January 1, 2001 and in September 2003, became the Chairman of the Board
of Namtai Electronic (Shenzhen) Co. Ltd.. Before joining us, Ms. Wong was
Assistant to the Sales Manager at Wright Joint & Co. Ltd. Ms. Wong is
responsible for our sales and marketing operations and supporting employee
recruitment and training.

Patinda Lei.Ms. Lei assumed the position of Managing Director of our
subsidiary Nam Tai Telecom (Hong Kong) Company Limited since June 2002 and in
September 2003, became the Chairman of the Board of Zastron Electronic
(Shenzhen) Co. Ltd. Ms. Lei has worked with Nam Tai Group for eight years
specializing in promoting, generating and monitoring sales revenues on various
high-end electronics products. Ms. Lei graduated from the Science University of
Tokyo in 1990, majoring in Industrial Engineering.

Lee Kwok Wai, Patrick. Mr. Lee took up the post of Managing Director
of Zastron Electronic (Shenzhen) Co. Ltd. in February 2004. He is responsible
for managing the overall operation of Zastron Electronic (Shenzhen) Co. Ltd.
Before joining Zastron Electronic (Shenzhen) Co. Ltd., he has worked for Nokia
for 10 years covering engineering, manufacturing operation and general
management. His first career after graduation was of Technophone where he
started his engineering career. He had worked with Technophone for
four years
before it was acquired by Nokia. He obtained his Bachelors Degree in Electrical
and Electronic Engineering from University of Surrey, England in 1989 and a
Masters Degree in Advanced Manufacturing Systems from Brunel University, England
in 1997.

L.P. Wang.Mr. Wang assumed the position of Managing Director of our
subsidiary Zastron Electronic (Shenzhen) Co. Ltd. from August 2002 to February
2004. Mr. Wang has since resumed the position of Assistant Managing Director of
Zastron Electronic (Shenzhen) Co. Ltd. He has more than 23 years of experience
in the electronics industry. He joined Nam Tai in 1997 as production
engineering manager and was promoted to vice managing director in 2002. He was
further promoted to Managing Director of Zastron Electronics (Shenzhen) Co.
Ltd. in August of the same year. Prior to joining Nam Tai, Mr. Wang held
several management positions in various companies in Taiwan and China. Mr. Wang
graduated from Chinese Military Academy in Taiwan.

Chen Yee, William.Mr. Chen assumed the post of Managing Director of Nam
Tai Electronic (Shenzhen) Co. Ltd. in September 2003. Before joining Nam Tai,
he had 15 years of experience in plant and production management with Jabil
Circuits (China) Limited, Dongguan Nokia Mobile Phones Limited, China and
Marine Engine Rebuilders, Inc., Philippines. He obtained a Bachelors Degree in
Industrial Psychology from Far Eastern University in Philippines in 1982 and a
Masters Degree in Business Administration from University of Southern
Queensland, Australia in 1999.

Kazuhiro Asano.Mr. Asano assumed the position of Managing Director of
our subsidiary Namtek Software Development Co. Ltd. in June 2002. Mr. Asano
joined Nam Tai in 1995 as a general manager and was promoted to Managing
Director of Shenzhen Namtek Company Limited in 1997. In his current position,
he is responsible for the overall corporate management and business development
for our software business. Prior to joining Nam Tai, Mr. Asano was the general
manager of Seiko Instruments Inc., a private Japanese consumer electronics
company, and was responsible for its electronic dictionary division. Mr. Asano
graduated from Tsuyama Government Industrial College, Japan with a degree in
electrical engineering in 1972.

Seitaro Furukawa.Mr. Furukawa assumed the position of Chairman of the
Board and Managing Director of our subsidiary J.I.C. Technology Company Limited
in March 2002. He has extensive experience in international operational
management. He held

47



---



##### Table of Contents



management positions in the Japan offices of General
Electric, Admiral International Company and Thompson CSF. After joining the
J.I.C. Group in 1992 as a Managing Director, he assumed responsibility for
production management and monitoring daily operations of the LCD plant in
Shenzhen. Mr. Furukawa received his Bachelors of English Literature degree from
Aoyama University in 1965 and his Bachelors of Technology and Metallurgy degree
from Kogakuin University in 1967.

Ivan Chui.Mr. Chui is the co-founder and Managing Director of our
subsidiary J.I.C. Enterprises (Hong Kong) Ltd. Mr. Chui has
directed J.I.C.
Groups marketing activities since founding J.I.C. Group in 1980.

Charles Chu.Mr. Chu originally served as a Director from November 1987
to September 1989. He was reappointed a Director in November 1992. Since July
1988, Mr. Chu has been engaged in the private practice of law in Hong Kong. Mr.
Chu serves on our audit committee. Mr. Chu received his Bachelors of Laws degree
and Post-Graduate Certificate of Laws from the University of Hong Kong in 1980
and 1981, respectively.

Peter R. Kellogg.Mr. Kellogg was elected to our Board of Directors in
June 2000. Mr. Kellogg was a Senior Managing Director of Spear, Leeds &
Kellogg, a registered broker-dealer in the United States and a specialist firm
on the New York Stock Exchange until the firm merged with Goldman Sachs in 2000
when Mr. Kellogg became a Senior Advisory Director. Mr. Kellogg served on our
audit committee until July 8, 2003. Mr. Kellogg is also a member of the Board
of the Ziegler Companies.

Stephen Seung.Mr. Seung was appointed a Director of Nam Tai in 1995. Mr.
Seung is an attorney and a C.P.A. and has been engaged in the private practice
of law in New York since 1981. Mr. Seung received a B.S. degree in Engineering
from the University of Minnesota in 1969, an M.S. degree in Engineering from
the University of California at Berkeley in 1971, an MBA degree from New York
University in 1973 and a J.D. degree from New York Law School in 1979. Mr.
Seung acts as our authorized agent in the United States and serves on our audit
committee until October 2003. With effect from October 15, 2003, Mr. Seung
also assumed the role of Secretary of the Company.

Dr. Wing Yan (William) Lo. Dr. Lo was elected to our Board of Directors at
our annual meeting of shareholders on July 8, 2003. Dr. Lo is currently the
Executive Director and Vice President of China Unicom Ltd., a
telecommunications operator in China that is listed on both the Hong Kong and
New York Stock Exchanges. Dr. Lo is currently also the non-executive Chairman
of WPP Greater China, a division of WPP Group plc., a communications services
group having its shares listed on both the London Stock Exchange and the Nasdaq
National Market. From 1998 to 1999, Dr. Lo was the chief executive appointment at
Citibank. Dr. Lo was the founding Managing Director of Hongkong Telecom IMS
Ltd. Dr. Lo holds an M. Phil. degree in molecular pharmacology and a Ph.D.
degree in genetic engineering, both from Cambridge University, England. He is
also member of the Board of the Hong Kong Applied Science and Technology
Research Institute and the Hong Kong Jockey Club Institute of Chinese Exchange.
In 1998, Dr. Lo was appointed as a Justice of the Peace of Hong Kong. Dr. Lo
serves on our audit committee.

Mark Waslen. Mr. Waslen was elected to our Board of Directors in July
2003 and currently serves on the audit committee acting as Chairman.
Previously, Mr. Waslen was employed with Nam Tai during the periods 1990 to
1995 and June 1998 to October 1999 in various capacities including Financial
Controller, Secretary and Treasurer. Mr. Waslen has been employed with various
accounting firms including Peat Marwick Thorne, Deloitte Touche Tohmatsu and
is currently employed with BME + Partners Chartered Accountants. Mr. Waslen is
a C.F.A., C.A. and a C.P.A. and received a Bachelors of Commerce (Accounting
Major) from the University of Saskatchewan in 1982.

No family relationship exists among any of the named directors, executive
officers or key employees. No arrangement or understanding exists between any
of our directors or executive officers and any other person pursuant to which
any director or executive officer was elected as a director or executive
officer of Nam Tai. Directors are elected each year at our annual meeting of
shareholders and serve until their successors take office or until their death,
resignation or removal. Executive officers serve at the pleasure of the Board
of Directors.

Compensation of Directors and Senior Managers

The aggregate compensation we and our subsidiaries paid during the year
ended December 31, 2003 to all directors and officers as a group for services
in all capacities was approximately $2.74 million, including compensation in
the form of housing in Hong Kong for our Chairman of the Board, our Chief
Executive Officer and President, and our Chief Financial Officer.

48



---



##### Table of Contents



Directors who are not employees of Nam Tai nor any of its subsidiaries are
paid $3,000 per month for services as a director, $750 per meeting attended in
person and $500 per meeting attended by telephone. In addition they are
reimbursed for all reasonable expenses incurred in connection with their
services as a director.

Members of our key staff are eligible for annual cash bonuses based on
their performance and that of the division in which they are assigned for the
relevant period. Key staff members of a division will be entitled to share up
to 15% of the operating income from that
division during the year. Our executive officers in charge of the business
unit recommend the participating staff members and the amount, if any, to be
allocated from the divisions profit pool to an eligible individual.

According
to the relevant laws and regulations in the PRC, we are
required to contribute 8% to 9% of the stipulated salary set by the
local government of Shenzhen, the PRC, to the retirement benefit
schemes to fund the retirement benefits of our employees. Our
principal obligation with respect to these retirement
benefit schemes is to make the required contributions under the
scheme. No forfeited contributions may be used by us to
reduce the existing level of contributions.

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

The cost of our contribution to the staff retirement
plans in Hong Kong, Macao and PRC amounted to $561,000, $617,000 and
$982,000 for
the years ended December 31, 2001, 2002 and 2003, respectively.

In August 1990, we fixed compensation for loss of office at $500,000 for
Mr. M.K. Koo and $300,000 for Mr. Tadao Murakami. We also fixed the age of
retirement for directors, including Messrs. Koo and Murakami, at age 65 years.
We have accrued the entire $800,000 on account of this compensation for loss of
office.

Board Practices

All directors hold office until our next annual meeting of shareholders,
which generally is in June of each calendar year, or until their respective
successors are duly elected and qualified or their positions are earlier
vacated by resignation or otherwise. All executive officers are appointed by
the Board and serve at the pleasure of the Board. There are no director service
contracts providing for benefits upon termination of employment. Our Board of
Directors has determined, effective December 31, 2002, to grant future options
under our stock option plans only to our outside, non-employee directors.

Audit Committee

Nam Tai has established an audit committee whose primary duties consist of
reviewing, acting on and reporting to the Board of Directors with respect to
various auditing and accounting matters, including the selection of auditors,
the scope of the annual audits and the fees to be paid to the auditors and the
performance of the independent auditors and accounting practices. The audit
committee currently consists of three independent non-executive directors,
Messrs. Waslen, Chu and Lo. Mr. Waslen, who was elected by the full Board of
Directors, currently acts as the Chairman of the Audit Committee

Meetings

Meetings of the audit committee, as chaired by the Chairman of Audit
Committee, shall be held at least once per quarter with external and internal
auditors.

Authority and Duties

The audit committee shall assist the Board of Directors in fulfilling is
oversight and monitoring responsibilities.

The duties of the audit committee are to:



| |  |  | review the financial reports and other financial
information provided by the Company to any governmental body or
the public;                                 
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | review the Companys system of internal controls
regarding financial, accounting, legal compliance and ethics
that management and the Board have established;
|
| |  |  | review the Companys auditing, accounting and
financial reporting processes generally;                                                                       

49



---



##### Table of Contents





| |  |  | review and approve all related-party transactions
on an on-going basis for the review of potential conflict of
interest situations where appropriate;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | review the independence, qualification and
performance of independent auditor and internal audit function;                                           
|
| |  |  | prepare an audit committee report as required by the
SEC to be included in the companys annual proxy statement;                                     
|
| |  |  | review and reassess the adequacy of the Audit Committee Charter on an annual basis;                                                                  
|
| |  |  | authorize investigations into any matters within the Committees scope of responsibilities; and                                                      
|
| |  |  | perform such other functions as assigned by law or the Board.                                                                                        

The audit committee last met on February 5, 2004.

The Compensation Committee of the Board of Directors determines the
salaries and incentive compensation of the officers of Nam Tai (other than
Messrs. Murakami and Koo, whose salaries are decided each year by our
Boards outside directors), provides recommendations for the salaries and
incentive compensation of all employees and consultants and administers various
compensation, stock and benefit plans of Nam Tai. The Compensation Committee
consists of Messrs. Murakami and Koo.

The Investment Committee of the Board of Directors may make strategic
investments in companies of amounts less than $5 million with approval of other
members of the Board. The Investment Committee consists of Messrs. Murakami and
Koo.

Options of Directors and Senior Management

The following table provides information concerning options owned by our
current Directors and Senior Management at March 1, 2004. All
share numbers
subject to options and exercise price per share have been adjusted to give
effect to a three-for-one stock split effective on June 30, 2003 and a
ten-for-one stock dividend effective on November 7, 2003.

|                      |  |               |        |           |  |            |         |  |  |  |           | 
|--------------------- |  | ------------- | ------ | --------- |  | ---------- | ------- |  |  |  | --------- | 
|                      |  | Number of     |        |           |  |            |         |  |  | 
|                      |  | common shares |        | Exercise  |  |            |         | 
|                      |  | subject to    |        | Price ($) |  | Expiration
|Name                  |  | options       |        | per share |  | Date      
|                      |  |               |        |           |  |           
|Tadao Murakami        |  |               |       |           |  |            |        |  |  |  |          | 
|Joseph Li             |  |               |       |           |  |            |        |  |  |  |          | 
|M. K. Koo             |  |               |       |           |  |            |        |  |  |  |          | 
|Guy
Bindels           |  |               |       |           |  |            |        |  |  |  |          | 
|George Shih           |  |               |       |           |  |            |        |  |  |  |          | 
|Karene Wong           |  |               |       |           |  |            |        |  |  |  |          | 
|Patinda Lei           |  |               |       |           |  |            |        |  |  |  |          | 
|Lee Kwok Wai, Patrick |  |               |       |           |  |            |        |  |  |  |          | 
|L. P. Wang            |  |               |       |           |  |            |        |  |  |  |          | 
|Chen Yee, William     |  |               |       |           |  |            |        |  |  |  |          | 
|Kazuhiro Asano        |  |               |       |           |  |            |        |  |  |  |          | 
|Seitaro Furukawa      |  |               |       |           |  |            |        |  |  |  |          | 
|Ivan Chui             |  |               |       |           |  |            |        |  |  |  |          | 
|Charles Chu           |  |               | 16,500 |           |  |            | 16.8182 |  |  |  | 7/8/2006  | 
|Peter R. Kellogg      |  |               | 16,500 |           |  |            | 4.3945  |  |  |  | 6/22/2004 | 
|                      |  |               | 16,500 |           |  |            | 6.0155  |  |  |  | 4/30/2005 | 
|                      |  |               | 16,500 |           |  |            | 16.8182 |  |  |  | 7/8/2006  | 
|Stephen Seung         |  |               | 16,500 |           |  |            | 16.8182 |  |  |  | 7/8/2006  | 
|Wing Yan (William) Lo |  |               | 16,500 |           |  |            | 16.8182 |  |  |  | 7/8/2006  | 
|Mark Waslen           |  |               |       |           |  |            |        |  |  |  |          | 

Please
refer to page 52 of this Report, which sets forth the shareholding
information of each of the director and senior management of the Company.

50



---



##### Table of Contents



Employee Stock Option and Incentive Plan

Our 1993 and 2001 stock option plans provide for the grant of stock options
to directors, employees, (including officers) and consultants. The terms and
conditions of individual grants may vary subject to the following: (i) the
exercise price of incentive stock options may not normally be less than market
value on the date of grant; (ii) the term of incentive stock options may not
exceed ten years from the date of grant; (iii) the exercise price of an option
cannot be altered once granted; and (iv) every non-executive director who is
not our employee shall, on an annual basis upon their election to the Board of
Director at the Annual General Meeting, be automatically granted 16,500
options, with an exercise price equal to 100% of the fair market value of the
common shares on the date of grant. At March 1, 2004, options to
purchase 108,550 shares were outstanding under our Stock Options Plans and
1,904,869 shares were available for future grant under them.

Our Board of Directors has determined, effective December 31, 2002, to
grant future options under our stock option plans only to our non-employee
directors. Thereafter, incentive compensation paid to management and other key
employees was in the form of either cash bonuses or stock options.

Employees

As of
December 31, 2003, we employed 4,476 persons on a full-time basis, of
which 4,385 were employed in China, 62 were employed in Hong Kong, 24 were
employed in Macao, 4 were employed in Japan and 1 was employed in the British
Virgin Islands. Of these employees, approximately 3,415 were engaged in
manufacturing, approximately 1,061 were engaged in administrative, research and
development, quality control, engineering and marketing positions, and the
balance in supporting jobs such as security, janitorial, food and medical
services.

As of December 31, 2002, we employed 4,246 persons on a full-time basis,
of which 4,173 were employed in China and 73 were employed in Hong Kong. Of
these employees, approximately 2,915 were engaged in manufacturing,
approximately 1,331 were engaged in administrative, research and development,
quality control, engineering and marketing positions, and the balance in
supporting jobs such as security, janitorial, food and medical services.

As of December 31, 2001, we employed 3,947 persons on a full-time basis,
of which 3,866 were employed in China and 81 were employed in Hong Kong. Of
these employees, approximately 2,728 were engaged in
manufacturing, approximately 1,096 were engaged in administrative, research and
development, quality control, engineering and marketing positions, and the
balance in supporting jobs such as security, janitorial, food and medical
services.

We are not a party to any material labor contracts. The nature of our
arrangement with our manufacturing employees is such that we can increase or
reduce staffing levels without significant difficulty, cost or penalty.
Although we have experienced no significant labor stoppages and believe
relations with our employees are satisfactory, this situation may not continue
in the future, and any labor difficulties could lead to increased costs and/or
interruptions in our production.

It is the practice of one of our subsidiaries to enter into a collective
agreement with its trade union. The collective agreement usually sets out the
minimum standard for the wages, working hours and other benefits of the
workers. The current collective agreement between our subsidiary and its trade
union expires on April 17, 2004 and will be renewed.




Item 7.Major Shareholders and Related Party Transactions

The following table sets forth certain information known to us regarding
the beneficial ownership of our common shares as of March 1, 2004, by:



| |  |  | each person (or group within the meaning of Section 13(d)(3) of the
Securities Exchange Act of 1934) known by us to own beneficially 5% or
more of our common shares; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | each of our current directors and senior management.
| | - |  | ----------------------------------------------------

We are not directly owned or controlled by another corporation or by any
foreign government, natural or legal person.

51



---



##### Table of Contents



|                                 |  |                              |           |         |  |  |      | 
|-------------------------------- |  | ---------------------------- | --------- | ------- |  |  | ---- | 
|                                 |  | Shares beneficially(1) owned
|                                 |  |                             
|Name                             |  | Number                       |           | Percent
|                                 |  |                              |           |        
|M. K. Koo                        |  |                              | 5,316,386 |         |  |  | 12.9 | 
|Peter R. Kellogg                 |  |                              | 5,246,680 | (2)     |  |  | 12.7 | 
|I.A.T. Reinsurance Syndicate Ltd |  |                              | 4,676,100 | (2)     |  |  | 11.3 | 
|Li
& Chui Holdings (B.V.I.) Ltd. |  |                              | 2,935,087 |         |  |  | 7.1  | 
|Joseph Li                        |  |                              | 3,013,957 | (3)     |  |  | 7.3  | 
|Ivan Chui                        |  |                              | 2,980,957 | (4)     |  |  | 7.2  | 
|Tadao Murakami                   |  |                              | 1,849,225 |         |  |  | 4.5  | 
|Guy
Bindels                      |  |                              |          |         |  |  |     | 
|George Shih                      |  |                              |          |         |  |  |     | 
|Karene Wong                      |  |                              | 34,100    |         |  |  | *    | 
|Patinda Lei                      |  |                              | 26,400    |         |  |  | *    | 
|Lee Kwok Wai, Patrick            |  |                              | 935       |         |  |  | *    | 
|L. P. Wang                       |  |                              | 600       | (5)     |  |  | *    | 
|Chen Yee, William                |  |                              |          |         |  |  |     | 
|Kazuhiro Asano                   |  |                              |          |         |  |  |     | 
|Seitaro Furukawa                 |  |                              |          |         |  |  |     | 
|Charles Chu                      |  |                              | 69,000    | (6)     |  |  | *    | 
|Stephen Seung                    |  |                              | 69,800    | (7)     |  |  | *    | 
|Wing Yan (William) Lo            |  |                              | 16,500    | (8)     |  |  | *    | 
|Mark Waslen                      |  |                              | 10,000    |         |  |  | *    | 



---

|*   |  | Less than 1%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Pursuant to the rules of the Securities and Exchange Commission, shares
of common shares that an individual or group has a right to acquire within
60 days pursuant to the exercise of options are deemed to be outstanding
for the purpose of computing the percentage ownership of such individual
or group, but are not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person shown in the table.
Percentage of ownership is based on 41,231,272 common shares outstanding
as of March 1, 2004.
|   
|(2) |  | Mr. Kellogg holds directly 521,080 common shares and options to purchase
49,500 common shares exercisable within 60 days of March 1, 2004.
Indirectly, through I.A.T. Reinsurance Syndicate Ltd., Mr. Kellogg holds
4,676,100 common shares. I.A.T. Reinsurance Syndicate Ltd. is a Bermuda
corporation of which Mr. Kellogg is the sole holder of voting stock. Mr.
Kellogg disclaims beneficial ownership of these shares.                                                                                                                   
|   
|(3) |  | Includes shares held of record by Li & Chui Holdings (B.V.I.) Limited for
which Mr. Li shares investment and voting control with Mr. Chui. These are
the same shares shown in the table for Ivan Chui.                                                                                                                                                                                                                                                                                                                                         
|   
|(4) |  | Includes shares held of record by Li & Chui Holdings (B.V.I.) Limited for
which Mr. Chui shares investment and voting control with Mr. Li. These are
the same shares shown in the table for Joseph Li.                                                                                                                                                                                                                                                                                                                                         
|   
|(5) |  | Includes 600 common shares that are registered to Tsai Sue Wan, Jean, Mr.
Wangs wife, as to which Mr. Wang disclaims beneficial ownership.                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(6) |  | Includes options to purchase 16,500 common shares exercisable within 60
days of March 1, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(7) |  | Includes options to purchase 16,500 common shares exercisable within 60
days of March 1, 2004, and 20,300 common shares that are registered to
Violet Seung, Mr. Seungs wife, as to which Mr. Seung disclaims beneficial
ownership.                                                                                                                                                                                                                                                                                                           
|   
|(8) |  | Consists of options to purchase common shares exercisable within 60 days of
March 1, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(9) |  | All the share numbers have been adjusted to give effect to a
three-for-one stock split effective on June 30, 2003 and a ten-for-one
stock dividend effective on November 7, 2003.                                                                                                                                                                                                                                                                                                                                                              

All of the holders of our common shares have equal voting rights with
respect to the number of common shares held. As of March 1, 2004, there were
approximately 808 holders of record of our common shares. According to
information supplied by our transfer agent, 774 holders of record with
addresses in the United States held 30,822,026 of our outstanding common
shares.

52



---



##### Table of Contents



The following table reflects the percentage ownership of our common shares
beneficially owned by our major shareholders during the past three years:

|                                 |  |                         |      |           |  |          |      |  |  |  |      | 
|-------------------------------- |  | ----------------------- | ---- | --------- |  | -------- | ---- |  |  |  | ---- | 
|                                 |  | Percentage Ownership(1)
|                                 |  |                        
|                                 |  | February 28,            |      | March 31, |  | March 1,
|                                 |  | 2002                    |      | 2003      |  | 2004    
|                                 |  |                         |      |           |  |         
|M. K. Koo                        |  |                         | 29.2 |           |  |          | 18.9 |  |  |  | 12.9 | 
|Peter R. Kellogg                 |  |                         | 14.2 |           |  |          | 12.2 |  |  |  | 12.7 | 
|I.A.T. Reinsurance Syndicate Ltd |  |                         | 12.7 |           |  |          | 10.7 |  |  |  | 11.3 | 
|Li
& Chui Holdings (B.V.I.) Ltd. |  |                         | 10.6 |           |  |          | 8.7  |  |  |  | 7.1  | 
|Joseph Li                        |  |                         | 10.6 |           |  |          | 9.1  |  |  |  | 7.3  | 
|Ivan Chui                        |  |                         | 10.6 |           |  |          | 9.0  |  |  |  | 7.2  | 
|Tadao Murakami                   |  |                         | 8.9  |           |  |          | 6.0  |  |  |  | 4.5  | 



---

|(1) |  | Based on 30,779,820, 36,392,004 and 41,231,272 common shares outstanding
on February 28, 2002, March 31, 2003 and March 1, 2004, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

There are no arrangements that may, at a subsequent date, result in a change of
control of the Company.

Certain Relationships and Related Transactions

In January 2003, we invested $10.0 million for a 25% equity interest in
Alpha Star Investments Ltd., the ultimate parent of JCT.   JCT is engaged in the
design, development and marketing of wireless communication terminals and
wireless application software. In connection with our investment, Mr. Koo has
been appointed as a director to Alpha Star Investment Ltds Board of Directors.
We are manufacturing wireless communication terminals and related modules for
JCT. As part of our investment, Alpha Star Investment Ltd agreed to have us
manufacture the RF modules for at least 50 percent of the orders it, or any of
its subsidiaries, receives for RF modules provided we perform such manufacturing
services at a price comparable to the market. In March 2003, we agreed to
support JCT in the production of 1 million cellular phones by providing
assembling services and support for the manufacturing of LCD modules
and RF modules. As of December 31, 2003, we were owed
$2.7 million from JCT. For the year ended December 31, 2003, we recognized net
sales of $20.8 million to JCT and purchased raw materials of approximately $5.5
million from JCT and its related companies.

On February 16, 2004, by unanimous consent following resolutions without
meeting, the Board of Directors adopted a resolution for the sale of a
residential property located in Hong Kong by a wholly owned subsidiary of the
Company, Nam Tai Group Management Limited, to Mr. Tadao Murakami, Chairman of
the Board of Directors, for consideration of approximately $1.8 million,
which is similar to the original acquired cost and appraised market value of
the property as of January 31, 2004. The agreement for the sale of the
property was entered into between Nam Tai Group Management Limited and Mr.
Tadao Murakami on March 10, 2004.




Item 8.Financial Information

Financial Statements

Our
Consolidated Financial Statements are set forth under Item 18.
Financial Statements. From year end dated December 31, 2003 to our reporting
date of March 5, 2004 there has been no significant changes on our
consolidated Financial Statements, except subsequent events as shown under the
Financial Statement.

Change in Public Accountants

In May of 2002, upon consideration and to reduce our professional fees,
our Board of Directors, including our Audit Committee, recommended that HLB
Hodgson Impey Cheng replace Deloitte Touche Tohmatsu as our independent
auditors. This change was included in our proxy statement and approved by our
shareholders at our annual meeting on June 14, 2002. Deloitte Touche Tohmatsu
did not resign or refuse to stand for re-election, and none of Deloitte Touche
Tohmatsus reports on the financial statements for either of the two years
prior to the change and included in this Report contained an adverse opinion,
disclaimer, modification or qualification.

53



---



##### Table of Contents



In November 2002, HLB advised us that they could not meet our audit
requirements for the agreed fees and on a cost-effective basis because the
increasingly complex regulatory guidelines for the auditing of public companies
would require them to perform a significant portion of the final audit work
with personnel from a U.S. affiliate. HLB submitted their resignation
accordingly. There were no disagreements with HLB on any matter or accounting
principle, practice, financial statement disclosure, or auditing scope or
procedure.

In December 2002, in contemplation of our intention to list on the NYSE,
we sought a replacement firm with a strong U.S. and Asian presence and an
ability to handle our audit requirements. Accordingly, our Board of Directors
appointed Grant Thornton as our independent public accountants based on Grant
Thorntons ranking among accounting firms in the U.S. and our Boards belief
that Grant Thornton would be acceptable to our shareholders. The appointment of
Grant Thornton was accepted by our shareholders at our annual meeting held on
July 8, 2003. Accordingly, Grant Thornton issued the audited
account for 2002.

In
August 2003, we set up the PRCs headquarters in Macao, China, due to
our continuous increase in investment in PRC. Since Grant Thornton
does not have
an office in Macao and does not have a licence to handle Macao statutory tax
filings, Grant Thornton tendered its resignation as our auditors. Deloitte
Touche Tohmatsu, who had been our auditors from 1998-2001, was hired
to audit
for both 2002 and 2003. Deloitte Touche Tohmatsu has been appointed as our auditors as of
October 24, 2003. Grant Thornton will, however, continue to provide tax
advisory services to us, other than with respect to Macao.

Legal Proceedings

We are not a party to any legal proceedings other than routine litigation
incidental to our business and there are no material legal proceedings pending
with respect to our property, other than as described below.

Tele-Art Litigation

In June 1997, we filed a petition in the British Virgin Islands for the
winding up of Tele-Art, Inc. on account of an unpaid judgment debt owed to us.
The High Court of Justice granted an order to wind up Tele-Art, Inc. in July
1998 and the Eastern Caribbean Court of Appeal upheld the decision on January
25, 1999. On January 22, 1999, pursuant to our Articles of Association, we
redeemed and cancelled 415,500 (Note 1) shares of Nam Tai registered in the
name of Tele-Art, Inc. at a price of $3.73 per share to offset substantially
all of the judgment debt of $799,000 plus interest and legal costs totaling
approximately $1.7 million, including dividends that we had withheld and
credited against the judgment debt.

Following the completion of the redemption, we received notice that the
liquidator had obtained an ex-parte injunction preventing us from redeeming Nam
Tai shares beneficially owned by Tele-Art, Inc. On February 4, 1999, the
liquidator of Tele-Art, Inc. filed a further summons in the British Virgin
Islands on its behalf seeking, among other matters:



| |  |  | A declaration as to the respective priorities of the debts of
Tele-Art, Inc. to the Bank of China, us, and other creditors and their
respective rights to have their debts discharged out of the proceeds of
the Tele-Art, Inc.s Nam Tai shares;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | An order setting aside the redemption of 415,500 (Note 1) shares, and
ordering delivery of all shares in our possession or control of to the
liquidator; and                                                                                     
|
| |  |  | Payment of all dividends in respect of Tele-Art, Inc.s Nam Tai
shares.                                                                                                                                                                          

On March 26, 2001, we filed a summons seeking to remove the liquidator for
failing to act diligently in the performance of his duties and for knowingly
misleading the court. On September 3, 2002, the liquidator submitted a letter
of resignation prior to the scheduled removal hearing. A new liquidator was
appointed by the BVI court on July 11, 2003.

On July 5, 2002, upon our application, the court ordered the removal of
the liquidators ex-parte injunction and ordered an inquiry into damages. On
August 9, 2002, the court delivered a decision awarding us a judgment against
Tele-Art, Inc. for approximately $34.0 million. On August 12, 2002, we redeemed
and cancelled, pursuant to its Articles of Association, the remaining 509,181
(Note 2) shares beneficially owned by Tele-Art, Inc. at a price of $6.14 per
share. Including the dividends which we had withheld and credited against the
judgment, this offset a further $3.5 million, approximately, in judgment debts
owed to us by Tele-Art, Inc. We recorded the $3.3 million redemption net of
expenses as other income in 2002.

54



---



##### Table of Contents



On January 21, 2003, judgment was delivered on the liquidators February
4, 1999 summons declaring that the redemption and set off of dividends on the
415,500 (Note 1) shares be set aside and that all Tele-Art Inc. property
withheld by us be delivered to Tele-Art, Inc. in liquidation. The orders
granted in the judgment were substantially different from the relief sought in
the February 4, 1999 application. On February 4, 2003, we filed an application
for a stay of execution and leave to appeal the decision listing eight grounds
of appeal, which was granted on June 23, 2003. The case was heard on January
12, 2004 and the judgment was reserved.

Our legal representatives have advised us that we have real prospects of
success on appeal against the January 21, 2003 decision and we plan to
vigorously fight for such an outcome. However, due to the uncertainty of the
final outcome of the litigation as a result of the January 21, 2003 judgment
and in accordance with SFAS No. 5, Accounting for
Contingencies, we have recorded
a provision for $5.2 million as a component of accrued expenses pending a final determination of this matter by
the courts as of December 31, 2002, represented the then best estimate of the
net monetary expense we would incur if our appeal is unsuccessful and
the two judgment debts in the total amount of $38.0 million (including interest, costs, and related
expenses) is determined as having the lowest priorities in recovering from the
estate of Tele-Art Inc. As of November 7, 2003, apart from Nam Tai, a total of
four other creditors of Tele-Art, Inc., including Bank of China, had submitted
their proof of debt to the liquidator for the total claim amount of
approximately $3.4 million. Together with the outstanding legal charge as of
December 31, 2003, the total potential future obligation to us would
only be approximately $3.9 million. The 2002 provision for $5.2 million had
been reduced to $3.9 million in the fourth quarter of 2003. If our appeal is
successful and all legal matters related to Tele Art, Inc. are finalized,
including the final determination of other creditors position, then the
remaining portion of $3.9 million provision consequently will also be reversed
into income in the related period.

If our appeal is not successful, and the 1,017,149 (adjusted for
ten-for-one stock dividend) share redemption is set aside, we believe that
these shares would be sold by Tele-Art, Inc.s liquidator in the open market at
the market price prevailing at the time of sale. For example, if these shares
had been sold at the March 1, 2004 closing price of $28.09 per share, the
proceeds the liquidator would have realized before commissions, plus withheld
dividends of $518,000, would have been approximately $29.1 million for the
estate of Tele-Art, Inc. (in liquidation). Furthermore, according to the
information provided by existing liquidator as of November 7, 2003, the
estimated liabilities for all other unsecured creditors are approximately
$353,000. The Bank of China is claiming to be a secured creditor in the amount
of approximately $2.7 million, and the January 21, 2003 judgment found that the
Bank of China is secured and we are unsecured. We dispute that finding, and
among other matters, have argued that the proof of debt of Bank of China was
incomplete and invalid. The former liquidator is claiming to have incurred
approximately $383,000 in costs for work as the liquidator. Accordingly, if we
are not successful on our appeal of the January 21, 2003 judgment, we will seek
to recover our $38.0 million in judgment debts from the estate of Tele-Art, Inc. Accordingly, any amount
recovered from the state of Tele-Art Inc. in settlement of the claimed judgment
debt would be recognized as other income.

However,
there is no assurance that we may realize the entire
amount of our judgment debts as Tele-Art Inc. is in liquidation. The actual amount of the recovery, if any, is
uncertain, and is dependent on a number of factors including the value of our
shares when sold in the market, and the final determination of other creditors
positions. We plan to continue to pursue vigorously all legal alternatives
available to seek to recover the maximum amount of the outstanding debt from
Tele-Art, Inc. (in liquidation) as well as to pursue other parties that may
have assisted in any transfers of the assets from Tele-Art, Inc. We may incur
substantial additional costs in pursuing our recovery and such costs may not be
recoverable.

Note



|1. |  | Subsequent to November 7, 2003, the number of shares was adjusted to 457,050 to reflect the ten-for-one
stock dividend.
|-- |  | -----------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Subsequent to November 7, 2003, the number of shares was adjusted to 560,099 to reflect the ten-for-one
stock dividend.

Putative Class Actions

On March 11, 2003, we were served with a complaint in an action captioned
Michael Rocco v. Nam Tai, et al., 03 Civ. 1148 (S.D.N.Y.), or the Rocco Action.
In addition to Nam Tai, certain directors are named as defendants. On or about
April 9, 2003, a second complaint was filed in an action captioned A.J. &
Celine Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the Steigler
Action, and together with the Rocco Action, the Actions. The Actions have been
consolidated since July 2003 and purports to represent a putative class of
persons who purchased the common stock of Nam Tai from July 29, 2002 through
February 18, 2003. Plaintiffs in the Actions assert claims under Section 10(b)
of the Securities Exchange Act of 1934 and allege that misrepresentations
and/or omissions were made during the alleged class periods concerning the
partial reversal of an inventory provision and a charge to goodwill related to
Nam Tais LPT segment. We have filed a motion to dismiss the lawsuit and the
putative class action has not been certified as a class action by the court. In
any event, our motion to dismiss was heard in November 2003 and we are awaiting
the judgment of the court thereof. Nam Tai believes it has meritorious
defenses and intends to defend the case vigorously.

55



---



##### Table of Contents



Export Sales

Geographic Markets

Approximate percentages of net sales to customers by geographic area based
upon location of product delivery are set forth below for the periods
indicated:

|                                        |  |                         |     |      |  |      |     |   |  |  |     |  
|--------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                        |  | Year ended December 31,
|                                        |  |                        
|Geographic Areas                        |  | 2001                    |     | 2002 |  | 2003
|                                        |  |                         |     |      |  |     
|China (excluding Hong Kong)             |  |                         | 11  | %    |  |      | 12  | % |  |  | 25  | %
|Europe (excluding Estonia)              |  |                         | 10  |      |  |      | 18  |   |  |  | 21  |  
|Japan                                   |  |                         | 10  |      |  |      | 11  |   |  |  | 17  |  
|United States                           |  |                         | 15  |      |  |      | 14  |   |  |  | 14  |  
|Hong Kong                               |  |                         | 27  |      |  |      | 24  |   |  |  | 9   |  
|Estonia                                 |  |                         |    |      |  |      | 8   |   |  |  | 5   |  
|North America (excluding United States) |  |                         | 8   |      |  |      | 3   |   |  |  |    |  
|Korea                                   |  |                         | 10  |      |  |      | 7   |   |  |  | 6   |  
|Other                                   |  |                         | 9   |      |  |      | 3   |   |  |  | 3   |  
|                                        |  |                         |     |      |  |      |     |   |  |  |     |  
|                                        |  |                         | 100 | %    |  |      | 100 | % |  |  | 100 | %
|                                        |  |                         |     |      |  |      |     |   |  |  |     |  

Dividend Policy

We have paid an annual dividend for the last ten consecutive years. On
February 6, 2004, we announced that we were increasing our regular annual
dividend to $0.48 per share to be declared and paid quarterly commencing with
the first quarter 2004 dividend of $0.12 per share. The following table sets
forth the total cash dividends and dividends per share we have declared for
each of the five years in the period ended December 31, 2003, adjusted to give
effect to a three-for-one stock split effective on June 30, 2003.

|                                        |  |                         |       |      |  |      |        |      |  |      |       |  |  |   |        |  |  |   |        | 
|--------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ------ | ---- |  | ---- | ----- |  |  | - | ------ |  |  | - | ------ | 
|                                        |  | Year ended December 31,
|                                        |  |                        
|                                        |  | 1999                    |       | 2000 |  | 2001 |        | 2002 |  | 2003
|                                        |  |                         |       |      |  |      |        |      |  |     
|Total dividends declared (in
thousands) |  | $                       | 2,942 |      |  | $    | 12,190 |      |  | $    | 4,134 |  |  | $ | 17,056 |  |  | $ | 37,584 | 
|Regular dividends per share             |  | $                       | 0.11  |      |  | $    | 0.12   |      |  | $    | 0.13  |  |  | $ | 0.16   |  |  | $ | 0.20   | 
|Special dividends                       |  |                         |      |      |  |      | 0.33   |      |  |      |      |  |  |   | 0.33   |  |  |   | 0.80   | 
|                                        |  |                         |       |      |  |      |        |      |  |      |       |  |  |   |        |  |  |   |        | 
|Total dividends per share               |  | $                       | 0.11  |      |  | $    | 0.45   |      |  | $    | 0.13  |  |  | $ | 0.49   |  |  | $ | 1.00   | 
|                                        |  |                         |       |      |  |      |        |      |  |      |       |  |  |   |        |  |  |   |        | 

It is our general policy to determine the actual annual amount of future
dividends, if any, based upon our growth during the preceding year. Future
dividends, if any, will be in the form of cash or stock or a combination of
both. We may not be able to pay dividends in the future or may decide not to
declare them in any event. We will determine the amounts of the dividends when
they are declared and even if dividends are declared in the future we may not
continue them in any future period.

We declared special dividends in 2002 and 2003 for the reasons described
below:



| |  |  | In 2002, primarily as a result of a realized gain we made from our
sale of approximately one-third of our direct investment in Huizhou TCL
Mobile Communication Company Ltd.; and                                                   
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | In 2003, in celebration of our fifteenth anniversary since our
listing and IPO in 1988, our fifteenth consecutive year of
profitability, and the transfer of our shares from the NASDAQ National
Market to the NYSE in January 2003.

56



---



##### Table of Contents






Item 9.The Listing

Our
common shares are traded in the United States on the NYSE. On January
23, 2003, our common shares were listed on the NYSE under the symbol NTE.
Prior to that, our common shares were quoted on the Nasdaq National Market
under the symbol NTAI.

The following table sets forth the high and low closing sale prices for
our common shares for the quarters in the three-year period ended December 31,
2003, adjusted to give effect to a three-for-one stock split effective on June
30, 2003:

|               |  |      |      |      |  |           |      |      |  |         |         |           |  |      |      |     |  |           |      |         |  |  |         |  |  |   |       |  |  |         |       |  |  |  |           | 
|-------------- |  | ---- | ---- | ---- |  | --------- | ---- | ---- |  | ------- | ------- | --------- |  | ---- | ---- | --- |  | --------- | ---- | ------- |  |  | ------- |  |  | - | ----- |  |  | ------- | ----- |  |  |  | --------- | 
|               |  | 2001 |      | 2002 |  | 2003     
|               |  |      |      |      |  |          
|               |  |      |      |      |  |           |      |      |  | Average |         |           |  |      |      |     |  |           |      | Average |  |  |         |  |  |   |       |  |  | Average
|               |  |      |      |      |  |           |      |      |  | Daily   |         |           |  |      |      |     |  |           |      | Daily   |  |  |         |  |  |   |       |  |  | Daily  
|               |  |      |      |      |  |           |      |      |  | Trading |         |           |  |      |      |     |  |           |      | Trading |  |  |         |  |  |   |       |  |  | Trading
|               |  | High |      | Low  |  | Volume(1) |      | High |  | Low     |         | Volume(1) |  | High |      | Low |  | Volume(1)
|               |  |      |      |      |  |           |      |      |  |         |         |           |  |      |      |     |  |          
|First Quarter  |  | $    | 6.38 |      |  | $         | 4.04 |      |  |         | 133,887 |           |  | $    | 6.35 |     |  | $         | 5.15 |         |  |  | 153,210 |  |  | $ | 11.30 |  |  | $       | 7.92  |  |  |  | 363,270   | 
|Second Quarter |  |      | 5.00 |      |  |           | 4.08 |      |  |         | 74,195  |           |  |      | 7.73 |     |  |           | 6.10 |         |  |  | 143,827 |  |  |   | 14.13 |  |  |         | 6.94  |  |  |  | 288,459   | 
|Third Quarter  |  |      | 5.10 |      |  |           | 3.77 |      |  |         | 63,992  |           |  |      | 6.86 |     |  |           | 5.33 |         |  |  | 54,983  |  |  |   | 32.90 |  |  |         | 12.87 |  |  |  | 734,330   | 
|Fourth Quarter |  |      | 5.97 |      |  |           | 4.17 |      |  |         | 54,684  |           |  |      | 9.07 |     |  |           | 6.17 |         |  |  | 303,351 |  |  |   | 42.48 |  |  |         | 26.25 |  |  |  | 1,393,722 | 



---

|(1) |  | Determined by dividing the sum of the reported daily volume for the
quarter by the number of trading days in the quarter.
|--- |  | -------------------------------------------------------------------------------------------------------------------------

The following table sets forth the high and low closing sale prices for
each of the last five years ended December 31, adjusted to give effect to a
three-for-one stock split effective on June 30, 2003:

|                  |  |      |       |     |  |           |      |  |  |         |         | 
|----------------- |  | ---- | ----- | --- |  | --------- | ---- |  |  | ------- | ------- | 
|                  |  |      |       |     |  |           |      |  |  | Daily  
|                  |  |      |       |     |  |           |      |  |  | Trading
|Year ended        |  | High |       | Low |  | Volume(1)
|                  |  |      |       |     |  |          
|December 31, 2003 |  | $    | 42.48 |     |  | $         | 6.94 |  |  |         | 597,858 | 
|December 31, 2002 |  |      | 9.07  |     |  |           | 5.15 |  |  |         | 164,011 | 
|December 31, 2001 |  |      | 6.38  |     |  |           | 3.77 |  |  |         | 81,656  | 
|December 31, 2000 |  |      | 6.88  |     |  |           | 4.31 |  |  |         | 113,644 | 
|December 31, 1999 |  |      | 6.33  |     |  |           | 2.67 |  |  |         | 171,761 | 



---

|(1) |  | Determined by dividing the sum of the reported daily volume for the year
by the number of trading days in the year.
|--- |  | -------------------------------------------------------------------------------------------------------------------

The following table sets forth the high and low closing sale prices during
each of the most recent six months:

|                   |  |      |       |     |  |           |       |  |  |         |           | 
|------------------ |  | ---- | ----- | --- |  | --------- | ----- |  |  | ------- | --------- | 
|                   |  |      |       |     |  |           |       |  |  | Daily  
|                   |  |      |       |     |  |           |       |  |  | Trading
|Month ended        |  | High |       | Low |  | Volume(1)
|                   |  |      |       |     |  |          
|February 27, 2004  |  | $    | 33.75 |     |  | $         | 25.00 |  |  |         | 1,041,000 | 
|January 31, 2004   |  |      | 34.24 |     |  |           | 27.88 |  |  |         | 1,181,705 | 
|December 30, 2003  |  |      | 41.46 |     |  |           | 26.30 |  |  |         | 1,800,127 | 
|November 30, 2003  |  |      | 41.85 |     |  |           | 31.20 |  |  |         | 1,259,726 | 
|October 31, 2003   |  |      | 42.48 |     |  |           | 26.25 |  |  |         | 1,115,678 | 
|September 30, 2003 |  |      | 32.90 |     |  |           | 24.00 |  |  |         | 953.886   | 



---

|(1) |  | Determined by dividing the sum of the reported daily volume for the month
by the number of trading days in the month.
|--- |  | ---------------------------------------------------------------------------------------------------------------------

On
March 9, 2004, the last reported sale price of our common shares on
the NYSE was $25.17 per share. As of March 1, 2004, there were 808 holders
of record of our common shares.




Item 10.Additional Information

Share Capital

Our authorized capital consists of 200,000,000 common shares, $0.01 par
value per share. On June 20, 2003, we announced a three-for-one stock split
effective on June 30, 2003 and a ten-for-one stock dividend effective November 7,
2003. As of March 1, 2004, 41,231,272 common shares were outstanding.

57



---



##### Table of Contents



Memorandum and Articles of Association

Holders of our common shares are entitled to one vote for each whole share
on all matters to be voted upon by shareholders, including the election of
directors. Holders of our common shares do not have cumulative voting rights in
the election of directors. All of our common shares are equal to each other
with respect to liquidation and dividend rights. Holders of our common shares
are entitled to receive dividends if and when declared by our Board of
Directors out of funds legally available under British Virgin Islands law. In
the event of our liquidation, all assets available for distribution to the
holders of our common shares are distributable among them according to their
respective holdings. Holders of our common shares have no preemptive rights to
purchase any additional, unissued common shares. All of our outstanding common
shares are, and the newly issued common shares we are offering pursuant to
this prospectus, will be when issued and paid for, duly authorized,
validly issued and nonassessable. All of our outstanding common shares are, and
the newly issued common shares we are offering pursuant to this prospectus,
will be, registered rather than bearer shares.

Pursuant to our Memorandum and Articles of Association and pursuant to the
laws of the British Virgin Islands, our Board of Directors without shareholder
approval may amend our Memorandum and Articles of Association. This includes
amendments to increase or reduce our authorized capital stock. Our ability to
amend our Memorandum and Articles of Association without shareholder approval
could have the effect of delaying, deterring or preventing a change in control
of Nam Tai, including a tender offer to purchase our common shares at a premium
over the then current market price.

We have never had any class of stock outstanding other than our common
shares nor have we ever changed the voting rights with respect to our common
shares.

Our
registered office is at 3rd floor 116 Main Street, Road Town, Tortola,
British Virgin Islands and we have been assigned company number 3805. Our
object or purpose is to engage in any act or activity that is not prohibited
under British Virgin Islands law as set forth in Clause 4 of the Memorandum of
Association. As an International Business Company, and as set forth in Clause
6, we are prohibited from doing business with persons resident in the British
Virgin Islands, owning real estate in the British Virgin Islands, or accepting
banking deposits or contracts of insurance. We do not believe these
restrictions materially affect our operations.

Paragraph 60 of our Amended Articles of Association, or Articles, provides
that a director may be counted as one of a quorum in respect of any contract or
arrangement in which the director is materially interested or makes with the
Company; however, if the agreement or transaction cannot be approved by a
resolution of directors without counting the vote or consent of any interested
director, the agreement or transaction may only be validated by approval or
ratification by a resolution of the shareholders, who are referred under the
law of the British Virgin Islands as members. Paragraph 53 of the Articles
allows the directors to vote compensation to themselves in respect of services
rendered to us. Paragraph 69 of the Articles provides that the directors may by
resolution exercise all the powers on our behalf to borrow money and to
mortgage or charge our undertakings and property or any part thereof, to issue
debentures, debenture stock and other securities whenever we borrow money or as
security for any of our debts, liabilities or obligations or those of any third
party. These borrowing powers can be altered by an amendment to the Articles.
There is no provision in our Articles for the mandatory retirement of
directors; however, we have fixed 65 as the mandatory age of retirement for our
directors. Directors are not required to own our shares in order to serve as
directors.

Paragraph 85 of the Articles allows us to deduct from any shareholders
dividends amounts owing to us by that shareholder. Paragraph 13.1 provides that
we can redeem shares at fair market value from any shareholder against whom we
have a judgment debt.

Paragraph 12 of the Articles provides that without prejudice to any
special rights previously conferred on the holders of any existing shares, any
of our shares may be issued with such preferred, deferred or other special
rights or such restrictions, whether in regard to dividends, voting, return of
capital or otherwise as the directors may from time to time determine.

Paragraph 14 of the Articles provides that if at any time the authorized
share capital is divided into different classes or series of shares, the rights
attached to any class or series may be varied with the consent in writing of
the holders of not less than three fourths of the issued shares of any other
class or series of shares which may be affected by such variation.

Provisions in respect of the holding of general meetings and extraordinary
general meetings are set out in Paragraphs 27 to 46 of the Articles and under
the International Business Companies Act. The directors may convene meetings of
our shareholders at such times and in such manner and places as the directors
consider necessary or desirable, and they shall convene such a meeting upon the
written request of shareholders holding more than 30 percent of the votes of
our outstanding voting shares. Other than providing, if

58



---



##### Table of Contents



requested, reasonable
proof of a holders status as a holder of our shares as of the applicable
record date, there is no condition to the admission of a shareholder or his or
her proxy holder to our meetings of shareholders.

British Virgin Islands law and our Memorandum and Articles of Association
impose no limitations on the right of nonresident or foreign owners to hold or
vote our securities.

There are no provisions in our Memorandum of Association or Articles of
Association governing the ownership threshold above which shareholder ownership
must be disclosed.

As a result of the issuance of additional common shares in 2003 pursuant
to the three-for-one stock split and increase in the number of Common Shares reserved
for issuance under the Companys 1993 Stock Option Plan and 2001 Stock Option
Plan, the authorized share capital of the Company was enlarged from $200,000
to $2,000,000 and number of shares was increased from 20,000,000 to
200,000,000. The full text of our Amended Articles and Memorandum, amended on
June 26, 2003, we hereby file as Exhibit 1.1 with the Annual Report on Form
20-F for 2003.

Transfer Agent

Registrar and Transfer Agent Company, 10 Commerce Drive, Cranford, New
Jersey 07016-3572, U.S.A., is the United States transfer agent and registrar
for our common shares.

Material Contracts

The following summarizes each material contract, other than contracts
entered into in the ordinary course of business, to which Nam Tai or any
subsidiary of Nam Tai is a party, for the two years immediately preceding the
filing of this report:



| |  |  | On January 14, 2002, we entered into an agreement with the joint
liquidators of Albatronics. Under the agreement we injected our
wholly-owned subsidiary J.I.C. Group into a new company for 92.9% ownership
in the new company on a fully diluted basis after conversion of
preference shares. Albatronics listing status on the Hong Kong Stock
Exchange was withdrawn and the new company was listed on the Hong Kong
Stock Exchange by way of introduction and free from the liabilities of
Albatronics. Immediately following completion of this reverse merger,
we, the creditors and the public beneficially owned approximately 70.4%,
24.1% and 5.5% of the enlarged issued ordinary share capital of the new
company, respectively, and we also hold preference shares. Upon our full
conversion of the preference shares, we, the creditors and the public
will own approximately 92.9%, 5.8% and 1.3% of the enlarged issued
ordinary share capital of the new company, respectively. No holder of
preference shares is entitled to exercise its conversion right if such
conversion would result in the minimum public float of 25% as required
under the Hong Kong Stock Exchange Listing Rules not being met.
Consummation of the agreement was subject to the fulfillment of a number
of conditions including approval by Albatronics creditors and
shareholders and the Listing Committee of the Stock Exchange of Hong
Kong and the receipt of other regulatory and court approvals. The
agreement was consummated in the second quarter of 2002.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Share Transfer Agreement dated January 25, 2002 between Hui Zhou City
Investment Holdings Co., Ltd., as seller, and Namtai Electronic
(Shenzhen) Co., Ltd., as buyer, under which Hui Zhou City agreed to
transfer a 6% equity interest in TCL Holdings Corporation Ltd. to Namtai
Electronic for Chinese renminbi 98,520,000 (approximately $12.0 million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | On March 20, 2002, an Agreement was entered between Sony Ericsson
Mobile Communications AB and Nam Tai Electronic & Electrical Products
Ltd. for the production of Camera August to Sony Ericsson Mobile
Communication AB.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  |  | J.I.C. Enterprises (Hong Kong) Ltd. signed a banking facility letter
on March 27, 2002 with Shanghai Commercial Bank Ltd. for a four-year
term loan with borrowings totaling $4,500,000. The loan is charged at an
annual rate of 1.5% over the 3-month London Interbank Offered Rate and
is repayable in 16 quarterly payments of US$281,250 plus interest
accrued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  |  | On April 24, 2002, Nam Tai Electronic & Electrical Products Limited,
or NTEE, entered into a Sale and Purchase Agreement with Toshiba Battery
Co., Ltd., or Toshiba, and A&T Battery Corp., or ATB, under which NTEE
agreed to transfer its 86.7% equity interest in BPC (Shenzhen) Co., Ltd.
to ATB in exchange for $1,300,000 from ATB and $800,000 from Toshiba,
which was related to the termination of a license.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

59



---



##### Table of Contents





| |  |  | We entered into a Subscription Agreement with TCL International
Holdings Ltd. on September 6, 2002 under which we agreed to purchase
HK$40,000,000 (approximately $5.1 million) of 3% convertible notes of
TCL International Holdings Ltd. that mature three years after issuance.                                                                                                                                                                 
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We entered into a Subscription Agreement with Alpha Star Investments
Ltd. on January 6, 2003 under which Nam Tai agreed to purchase 1,625,000
newly issued ordinary shares of Alpha Star Investments Ltd. (25%
ownership) for $10,000,000. We agreed to sign a shareholders agreement
and Alpha Star Investments Ltd. agreed to place with us or a party we
nominate at least 50% of the orders for RF modules that it
or its subsidiaries receive.
|
| |  |  | On January 1, 2003, a Basic Agreement was entered into between Optrex
Corporation and Nam Tai Telecom (Hong Kong) Company Limited for the
manufacturing of LCD modules for cellular phones for Optrex Corporation.                                                                                                                                                                                                                                 
|
| |  |  | On January 8, 2003, we entered into a Shareholders Agreement with the
other three shareholders of Alpha Star under which each shareholder is
granted a right of first refusal and is generally prohibited from
competing against Alpha Star.                                                                                                                                                                                                       
|
| |  |  | On January 8, 2003, a Basic Agreement was entered into between JCT
Wireless Technology Ltd. and Nam Tai Telecom (Hong Kong) Company Limited
for manufacturing and assembly of various products, including mother
boards, LCD modules, FPC and RF modules, for JCT Wireless Technology
Ltd.                                                                                                                                                         
|
| |  |  | On January 10, 2003, an Agreement was entered into between Sony
Ericsson Mobile Communications AB and Nam Tai Electronic & Electrical
Products Ltd. for the production of Camera August C1 for Sony Ericsson
Mobile Communications AB.                                                                                                                                                                                                             
|
| |  |  | On January 10, 2003, an Agreement was entered into between Sony
Ericsson Mobile Communications AB and Nam Tai Electronic & Electrical
Products Ltd. for the production of Camera Filip for Sony Ericsson
Mobile Communications AB.                                                                                                                                                                                                                 
|
| |  |  | On January 27, 2003, an Agreement was entered into among Toshiba
Matsushita Display Technology Co. Ltd., Nam Tai Telecom (Hong Kong)
Company Limited and Zastron Electronic (Shenzhen) Company Limited for
the production of LCD modules for Toshiba Matsushita Display Technology
Co. Ltd.                                                                                                                                                        
|
| |  |  | A Sale and Purchase Agreement was entered into between Zastron
Electronic (Shenzhen) Company Limited and J.I.C. Enterprises (Hong Kong)
Limited on March 10, 2003 for selling LCD panels, ACFs and ICs to
Zastron Electronic (Shenzhen) Company Limited.                                                                                                                                                                                           
|
| |  |  | A Sale and Purchase Agreement was entered into between J.I.C.
Enterprises (Hong Kong) Limited and Zastron Electronic (Shenzhen)
Company Limited on March 10, 2003 for selling COG panels to J.I.C.
Technology Company Limited.                                                                                                                                                                                                                     
|
| |  |  | On June 26, 2003, an Agreement Amendment was entered into between
Sony Ericsson Mobile Communications AB and Nam Tai Electronic &
Electrical Products Ltd. for amending the agreements entered into on
March 20, 2002 and January 10, 2003.                                                                                                                                                                                                        
|
| |  |  | An Agreement was entered into between J.I.C. Technology Company
Limited and Glory Gate Enterprises Limited on June 28, 2003 for the
disposal of transformers operation to Glory Gate Enterprises Limited.                                                                                                                                                                                                                                          
|
| |  |  | On July 15, 2003, an Agreement was entered into between Omnivision
Technologies, Inc. and Namtai Electronic (Shenzhen) Company Limited for
supplying CMOS sensor to Namtai Electronic (Shenzhen) Company Limited.                                                                                                                                                                                                                                  
|
| |  |  | On August 22, 2003, we entered into a Purchase Agreement with
Citigroup Global Markets Limited for the sale of 3% convertible notes of
TCL International Holdings Ltd. at an aggregate price of
HK$39,555,068.49 (approximately $5.03 million).                                                                                                                                                                                                    
|
| |  |  | On September 8, 2003, a Basic Agreement and two memorandums were
entered into between Wuxi Sharp Electronic Component Co. Ltd. and
Zastron Electronic (Shenzhen) Company Limited for assembling of PCBs for
Wuxi Sharp Electronic Component Co. Ltd.                                                                                                                                                                                               
|
| |  |  | On September 9, 2003, an Agreement was entered into between Sony
Ericsson Mobile Communications AB and Namtai Electronic (Shenzhen)
Company for the production of flash for cellular phones for Sony
Ericsson Mobile Communications AB.                                                                                                                                                                                                            

60



---



##### Table of Contents





| |  |  | On September 15, 2003, an Agreement was entered into between Sony
Computer Entertainment Europe Limited and Namtai Electronic (Shenzhen)
Co. Ltd. for the production of CMOS sensor modules for Sony Computer
Entertainment Europe and its nominated distributors.                                                                                       
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On September 19, 2003, a Specific Service Agreement was entered into
between Sony Ericsson Mobile Communications AB and Namtai Electronic
(Shenzhen) Company Ltd. for the manufacturing of bluetooth headset for Sony
Ericsson Mobile Communication AB.                                                                                                  
|
| |  |  | On October 28, 2003, a Construction Agreement, with commencement date
of September 23, 2003, was entered into between Namtai Electronic
(Shenzhen) Co. Ltd. and Takasago Thermal Engineering (Hong Kong) Co.
Ltd. for the construction of new factory premises. The construction is
expected to be completed by the end of the fourth quarter in 2004.   
|
| |  |  | On December 9, 2003, an Investment Agreement and Shareholders
Agreement was entered into among Mr. André Jolivet, Mr. Alain Jolivet,
Remote Reward SAS, AGF Private Equity, Mighty Wealth Group Limited and
Nam Tai Electronics, Inc. for acquiring an 11.33% equity interest in
Stepmind with a consideration of approximately $5.3 million.            
|
| |  |  | On January 2, 2004, a
Supplemental Agreement was entered into among Mr. André Jolivet, Mr. Alain Jolivet, Remote Reward SAS, AGF Private
Equity, Mighty Wealth Group Limited and Nam Tai Electronics, Inc. for
consenting to release the second phrase of payment and increase capital
investment in Stepmind should Stepmind fulfill certain conditions.
|
| |  |  | On March 10, 2004, an
Agreement was entered into between Nam Tai Group Management Limited
and Frontier Profit Inc. for selling Flat A, 22nd Floor,
Tower 2 and Car Parking Space No. A86, The Leighton Hill,
2B Broadwood Road, Happy Valley, Hong Kong to Frontier Profit
Inc. with a consideration of approximately $1.8 million.                      
|

Exchange Controls

There are no exchange control restrictions on payments of dividends,
interest, or other payments to nonresident holders of Nam Tais securities or
on the conduct of our operations in Hong Kong and PRC headquarters in Macao,
China or where our principal executive offices are located in the British
Virgin Islands, where Nam Tai is incorporated. Other jurisdictions in which we
conduct operations may have various exchange controls. With respect to our
China subsidiaries, with the exception of a requirement that 10% of profits be
reserved for future developments, there are no restrictions on the payment of
dividends and the removal of dividends from China once all taxes are paid and
assessed and losses, if any, from previous years have been made good. We
believe such restrictions will not have a material effect on our liquidity or
cash flow.

Taxation

United States Federal Income Tax Consequences

The discussion below is for general information only and is not, and
should not be interpreted to be, tax advice to any holder of our common shares.
Each holder or a prospective holder of our common shares is urged to consult
his, her or its own tax advisor.

General

This section is a general summary of the material United States federal
income tax consequences to U.S. Holders, as defined below, of the ownership and
disposition of our common shares as of the date of this report. This summary is
based on the provisions of the Internal Revenue Code of 1986, as amended, or
the Code, the applicable Treasury regulations promulgated and proposed
thereunder, judicial decisions and current administrative rulings and practice,
all of which are subject to change, possibly on a retroactive basis. The
summary applies to you only if you hold our common shares as a capital asset
within the meaning of Section 1221 of the Code. The United States Internal
Revenue Service, or the IRS, may challenge the tax consequences described
below, and we have not requested, nor will we request, a ruling from the IRS or
an opinion of counsel with respect to the United States federal income tax
consequences of acquiring, holding or disposing of our common shares. This
summary does not purport to be a comprehensive description of all the tax
considerations that may be relevant to the ownership of our common shares. In
particular, the discussion below does not cover tax consequences that depend
upon your particular tax circumstances nor does it cover any state, local or
foreign law, or the possible application of United States federal estate or
gift tax. You are urged to consult your own tax advisors regarding the
application of the United States federal income tax laws to your particular
situation as well as any state, local, foreign and the United States federal
estate and gift tax consequences of the ownership and disposition of the common
shares. In addition, this summary does not take into account any special United
States federal income tax rules that apply to a particular holder of our common
shares, including, without limitation, the following:

61



---



##### Table of Contents





| |  |  | a dealer in securities or currencies;                                                                               
| | - |  | --------------------------------------------------------------------------------------------------------------------
|
| |  |  | a trader in securities that elects to use a market-to-market method of accounting for its securities holdings;      
|
| |  |  | a financial institution or a bank;                                                                                  
|
| |  |  | an insurance company;                                                                                               
|
| |  |  | a tax-exempt organization;                                                                                          
|
| |  |  | a person that holds our common shares in a hedging transaction or as part of a straddle or a conversion transaction;
|
| |  |  | a person whose functional currency for United States federal income tax purposes is not the U.S. dollar;            
|
| |  |  | a person liable for alternative minimum tax;                                                                        
|
| |  |  | a person that owns, or is treated as owning, 10% or more, by voting power or value, of our common shares; or        
|
| |  |  | a person who receives our shares pursuant to the exercise of employee stock options or otherwise as compensation.   

For purposes of the discussion below, you are a U.S. Holder if you are a
beneficial owner of our common shares who or which is:



| |  |  | an individual United States citizen or resident alien of the United
States (as specifically defined for United States federal income tax
purposes);                                                                                                                                                                                                                                                                                      
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | a corporation or, other entity treated as a corporation for United
States federal income tax purposes, created or organized in or under the
laws of the United States or any State or political subdivision thereof;                                                                                                                                                                                                                     
|
| |  |  | an estate whose income is subject to United States federal income tax
regardless of its source; or                                                                                                                                                                                                                                                                                                                                       
|
| |  |  | a trust (x) if a United States court can exercise primary supervision
over the trusts administration and one or more United States persons
are authorized to control all substantial decisions of the trust or (y)
if it was in existence on August 20, 1996, was treated as a United
States person prior to that date and has a valid election in effect
under applicable Treasury regulations to be treated as a United States
person.

Distributions on Our Common Shares

Subject to the passive foreign investment company, or PFIC, considerations
discussed below, the gross amount of any cash distribution or the fair market
value of any property distributed that you receive with respect to our common
shares generally will be subject to tax as ordinary dividend income to the
extent such distribution does not exceed our current or accumulated earnings
and profits, or E&P, as calculated for United States federal income tax
purposes. Such income will be includable in your gross income on the date of
receipt. Subject to certain limitations, dividends paid to noncorporate U.S.
Holders, including individuals, may be eligible for a reduced rate of taxation
if we are a qualified foreign corporation for U.S. federal income tax
purposes. A qualified foreign corporation includes (i) a foreign corporation
that is eligible for the benefits of a comprehensive income tax treaty with the
United States that includes an exchange of information program, and (ii) a
foreign corporation if its stock with respect to which a dividend is paid is
readily tradable on an established securities market within the United States,
but does not include an otherwise qualified corporation that is a PFIC. We
believe that we will be a qualified foreign corporation for so long as we are
not a PFIC and our common shares are considered to be readily tradable on an
established securities market within the United States. No assurances can be
made that our Companys status as a qualified foreign corporation will not
change. To the extent any distribution exceeds our E&P, such distribution will
first be treated as a tax-free return of capital to the extent of your adjusted
tax basis in our common shares and will be applied against and reduce such
basis on a dollar-for-dollar basis (thereby increasing the amount of gain and
decreasing the amount of loss recognized on a subsequent disposition of such
shares). To the extent that such distribution exceeds your adjusted tax

62



---



##### Table of Contents



basis
in our common shares, the distribution will be treated as capital gain. Because
we are not a United States corporation, no dividends-received deduction will be
allowed to corporations with respect to dividends paid by us.

For United States foreign tax credit limitation purposes, dividends
received on our common shares will be treated as foreign source income and
generally will be passive income, or in the case of certain holders,
financial services income. You may be eligible, subject to a number of
complex limitations, to claim a foreign tax credit in respect of foreign
withholding taxes, if any, imposed on dividends received on our common shares.
The rules governing United States foreign tax credits are complex, and we
recommend that you consult your tax advisor regarding the applicability of such
rules to you.

Sale, Exchange or Other Disposition of Our Common Shares

Subject to the PFIC considerations discussed below, generally, in
connection with the sale, exchange or other taxable disposition of our common
shares:



| |  |  | you will recognize capital gain or loss equal to the difference (if any) between:
| | - |  | ---------------------------------------------------------------------------------



| |  |  |  | the amount realized on such sale, exchange or other taxable disposition and                                                                              
| |  |  | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  |  | your adjusted tax basis in such common shares (your adjusted tax
basis in the shares you hold generally will equal your U.S. dollar
cost of such shares);



| |  |  | such gain or loss will be long-term capital gain or loss if your
holding period for our common shares is more than one year at the time
of such sale or other disposition;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | such gain or loss will generally be treated as United States source for United States foreign tax credit purposes; and                                                    
|
| |  |  | your ability to deduct capital losses is subject to limitations.                                                                                                          

PFIC Considerations

A foreign corporation will be treated as a PFIC for United States federal
income tax purposes if, after applying relevant look-through rules with
respect to the income and assets of subsidiaries, 75% or more of its gross
income consists of certain types of passive income or 50% or more of the gross
value of its assets is attributable to assets that produce passive income or
are held for the production of passive income. For this purpose, passive income
generally includes dividends, interest, royalties, rents (other that rents and
royalties derived in the active conduct of a trade or business), annuities and
gains from assets that produce passive income. We presently believe that we
are not a PFIC and do not anticipate becoming a PFIC. This is, however, a
factual determination made on an annual basis and is subject to change. If we
were to be classified as a PFIC in any taxable year, (i) U.S. Holders would
generally be required to treat any gain on sales of our shares held by them as
ordinary income and to pay an interest charge on the value of the deferral of
their United States federal income tax attributable to such gain and (ii)
distributions paid by us to our U.S. Holders could also be subject to an
interest charge. In addition, we would not provide information to our U.S.
Holders that would enable them to make a qualified electing fund election
under which, generally, in lieu of the foregoing treatment, our earnings would
be currently included in their United States federal income.

Backup Withholding and Information Reporting

Payments, including dividends and proceeds of sales, in respect of our
common shares that are made in the United States or by a United States related
financial intermediary will be subject to United States information reporting
rules. In addition, such payments may be subject to United States federal
backup withholding tax. You will not be subject to backup withholding provided
that:



| |  |  | you are a corporation or other exempt recipient, or                                                                                                                   
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | you provide your correct United States federal taxpayer
identification number and certify, under penalties of perjury, that you
are not subject to backup withholding.

63



---



##### Table of Contents



Amounts withheld under the backup withholding rules may be credited
against your United States federal income tax, and you may obtain a refund of
any excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS in a timely manner.

BRITISH VIRGIN ISLANDS TAX CONSIDERATIONS

Under the International Business Companies Act of the British Virgin
Islands as currently in effect, a holder of common equity, such as our common
shares, who is not a resident of the British Virgin Islands is exempt from
British Virgin Islands income tax on dividends paid with respect to the common
equity and is not liable to the British Virgin Islands for income tax on gains
realized on sale or disposal of such shares. Furthermore, there are no capital
gains, gift or inheritance taxes levied by the British Virgin Islands on
persons who are not residents of the British Virgin Islands. The British Virgin
Islands does not impose a withholding tax on dividends paid by a company
incorporated under the International Business Companies Act.

Our common shares are not subject to transfer taxes, stamp duties or
similar charges. There is no income tax treaty or convention currently in
effect between the United States and the British Virgin Islands.

Documents on Display

Nam Tai Electronics, Inc. is subject to the information requirements of
the Securities and Exchange Act of 1934, and, in accordance with the
Securities Exchange Act of 1934, Nam Tai Electronics, Inc. files annual
reports on Form 20-F within six months of its fiscal year end, and submit
other reports and information under cover of Form 6-K with the SEC. You may
read and copy this information at the SECs public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. Recent filings and reports are
also available free of charge though the EDGAR electronic filing system at
www.sec.gov. You can also request copies of the documents, upon payment of a
duplicating fee, by writing to the public reference section of the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the public reference room or accessing documents through EDGAR.
As a foreign private issuer, Nam Tai Electronics, Inc. is exempt from the
rules under the Securities Exchange Act of 1934 prescribing the furnishing
and content of proxy statements to shareholders.




Item 11.Quantitative and Qualitative Disclosure About Market Risk

Currency Fluctuations

See
Exchange Rate Fluctuation discussion in Item 3. Key Information
 Risk Factors and Item 5. Operating and Financial Review and
Prospects on pages 10 and 45, respectively.

Foreign Currency Risk

See Foreign Currency Risk discussion in Item 5. Operating and Financial Review and
Prospects on page 45.

Interest Rate Risk

See Interest Rate Risk discussion in Item 5. Operating and Financial Review and
Prospects on page 45.




Item 12.Description of Securities Other Than Equity Securities

Not applicable

64



---



##### Table of Contents






PART II




Item 13.Defaults, Dividend Arrearages and Delinquencies

Not applicable




Item 14.Material Modifications to the Rights of Security Holders and Use of Proceeds

Not applicable




Item 15.Controls and Procedures

Evaluation of disclosure controls and procedures

As required by Rule 13a-14 under the Securities Exchange Act of 1934, as of December 31, 2003, the Company carried out an evaluation of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) of the Securities
Exchange Act of 1934. This evaluation was carried out under the supervision
and with the participation of the Companys management, including the Companys
Chief Executive Officer and Chief Financial Officer. Based upon that
evaluation, the Companys controls and procedures were designed and provided
reasonable assurance of preventing errors and irregularities.

Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in the
Companys reports filed or submitted under the Securities
Exchange Act of 1934 recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commissions rules and forms. Disclosure controls and
procedures include controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Companys Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding disclosures.

The Company has confidence in its internal controls and procedures and has
expanded its efforts to develop and improve its controls. Nevertheless, the
Companys management, including the Chief Executive Officer and Chief Financial
Officer, does not expect that the Companys disclosure procedures and controls,
or its internal controls, will necessarily prevent all error or intentional
fraud. An internal control system, no matter how well-conceived and operated,
can provide only reasonable, but not absolute, assurance that the objectives of
such internal controls are met. Further, the design of an internal control
system must reflect the fact that the Company is subject to resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all internal control systems, no
evaluation of controls can provide absolute assurance that all internal control
issues or instances of fraud, if any, within the Company be detected.

Changes in internal controls

There have been no significant changes in the Companys internal controls
or in other factors that could significantly affect internal controls
subsequent to the date the Company carried out this evaluation.




Item 16.[Reserved]




Item 16 A. Audit Committee Financial Expert

The
Companys Board of Directors has determined that one member of
the Audit Committee, Mark Waslen, qualifies as audit committee
financial expert as defined by Item 401(h) of Regulation S-Km adopted pursuant to the
Securities Exchange Act of 1934. Mr. Waslen has a degree in Accounting and
is a C.F.A., C.A. and a C.P.A. In addition to serving in various financial
positions, including Nam Tai Group Financial Controller from 1990 to 1995
and Treasurer from 1998 to 1999, at Nam Tai, Mr. Waslen has worked at Peat
Marwick Thorne, Deloitte Touche Tohmatsu and BME+ Partners Chartered
Accountants.

All three members of the audit committee, Messrs. Waslen, Chu and Lo,
are independent non-executive directors.




Item 16 B. Code of Ethics

The Company has adopted a Code of Ethics for the Chief Executive
Officer and Chief Financial Officer, which applies to the Companys principal
executive officer and to its principal financial and accounting officers. A
copy of the Code of Ethics is attached as Exhibit 14.1 to this Annual Report
on Form 20-F.

65



---



##### Table of Contents






Item 16 C. Principal
Accountant Fees and Services

Deloitte Touche Tohmatsu has served as our independent public accountant
for each of the fiscal years in the three-year period ended December 31, 2003,
for which audited financial statements appear in this annual report on Form
20-F. The auditor is elected annually at the Annual General Meeting. The
Audit Committee will propose to the Annual General Meeting convening on June
11, 2004 that Deloitte Touche Tohmatsu be elected as the auditor for 2004.

The following table presents the aggregate fees for professional services
and other services rendered by Deloitte Touche Tohmatsu to us in 2003 and 2002.

|                      |  |         |     |         |  |  |     | 
|--------------------- |  | ------- | --- | ------- |  |  | --- | 
|                      |  | 2003    |     | 2002   
|                      |  | US$000 |     | US$000
|                      |  |         |     |        
|Audit Fees(1)         |  |         | 271 |         |  |  | 152 | 
|Audit-related Fees(2) |  |         | 1   |         |  |  | 12  | 
|Tax Fees(3)           |  |         | 11  |         |  |  | 4   | 
|All
Other Fees(4)     |  |         | 8   |         |  |  |    | 
|                      |  |         |     |         |  |  |     | 
|Total                 |  |         | 291 |         |  |  | 168 | 
|                      |  |         |     |         |  |  |     | 

---

(1)  Audit Fees consist of fees billed for the annual audit of our consolidated
financial statements and the statutory financial statements of our
subsidiaries. They also include fees billed for other audit services, which
are those services that only the external auditor reasonably can provide, and
include the provision of comfort letters and consents, and attestation services
relating to the review of documents filed with the SEC. The fees for 2003
include US$40 of accrued audit fees for the 2003 year-end audit that were not
billed until 2004; the fees for 2002 did not include any of accrued audit fees
for the 2002 year-end audit that were not billed until 2003.


(2)  Audit-related Fees consist of fees billed for assurance and related
services that are reasonably related to the performance of the audit or review
of our financial statements or that are traditionally performed by the external
auditor.

(3)  Tax Fees include fees billed for tax compliance services, including the
preparation of original and amended tax returns and claims for refund; tax
consultations, such as assistance and representation in connection with tax
audits and appeals, tax advice related to mergers and acquisitions, transfer
pricing, and requests for rulings or technical advice from tax authorities; tax
planning services; and expatriate tax compliance, consultation and planning
services.

(4)  All Other Fees includes
business advisory service fee.

Audit Committee Pre-approval Policies and Procedures

The Audit Committee of our Board of Directors is responsible, among other
matters, for the oversight of the external auditor subject to the relevant
regulations of the SEC and NYSE. The Audit Committee has adopted a policy, or
the Policy, regarding pre-approval of audit and permissible non-audit services
provided by our independent auditors..

Under the Policy, the Chairman of the Audit Committee is delegated the
authority to grant pre-approvals in respect of all auditing services including
non-audit service, but excluding those services stipulated in Section 201
Service Outsider the Scope of Practice of Auditors. Moreover, if the Audit
Committee approves an audit service within the scope of the engagement of the
audit service, such audit service shall be deemed to have been pre-approved.
The decisions of the Chairman of the Audit Committee made under delegation
authority to pre-approve an activity shall be presented to the Audit Committee
at each of its scheduled meetings.

Requests or applications to provide services that require specific
approval by the Audit Committee are submitted to the Audit Committee by both
the external auditor and the Chief Financial Officer.

During 2003, services provided to us by Deloitte Touche Tohmatsu
representing less than 8.2% of the total fees were approved by the Audit
Committee pursuant to the de minima is exception to the pre-approval requirement
provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.




Item 16 D. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

Not applicable

66



---



##### Table of Contents






PART III




Item 17.Financial Statements

Not Applicable




Item 18.Financial Statements

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                     |  |  |     | 
|---------------------------------------------------------------------------------------------------- |  |  | --- | 
|Independent Auditors Reports                                                                        |  |  | F-1 | 
|Consolidated Statements of Income for the years ended December 31, 2001, 2002 and 2003               |  |  | F-2 | 
|Consolidated Balance Sheets as of December 31, 2002 and 2003                                         |  |  | F-3 | 
|Consolidated Statements of Shareholders Equity for the years ended December 31, 2001, 2002 and 2003 |  |  | F-4 | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003           |  |  | F-5 | 
|Notes to Consolidated Financial Statements                                                           |  |  | F-7 | 

The information required within the schedules for which provisions are
made in the applicable accounting regulations of the Securities and Exchange
Commission is either not applicable or is included in the notes to the
Consolidated Financial Statements.

67



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Shareholders and the Board of Directors of Nam Tai Electronics,
Inc.:

We have audited the accompanying consolidated balance sheets of Nam Tai
Electronics, Inc. and subsidiaries as of December 31, 2002 and 2003, and
the related consolidated statements of income, shareholders equity and
cash flows for each of the three years in the period ended December 31,
2003. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, such consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nam
Tai Electronics, Inc. and subsidiaries at December 31, 2002 and 2003, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in note 2(f) to the consolidated financial statements, in
2002, the Company changed its method of accounting of goodwill and other
intangibles.

DELOITTE TOUCHE TOHMATSU

Hong Kong
March 5, 2004

F-1



---



##### Table of Contents



NAM TAI ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF INCOME
(In thousands of US dollars, except per share data)

|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                  |  | Year ended December 31,
|                                                  |  |                        
|                                                  |  | 2001                    |         | 2002 |  | 2003
|                                                  |  |                         |         |      |  |     
|Net sales - third parties                         |  | $                       | 212,934 |      |  | $    | 228,167 |   |  | $ | 385,524 |  
|Net sales - related party                         |  |                         | 21,072  |      |  |      | 7,849   |   |  |   | 20,782  |  
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Total net sales                                   |  |                         | 234,006 |      |  |      | 236,016 |   |  |   | 406,306 |  
|Cost of sales                                     |  |                         | 203,974 |      |  |      | 197,956 |   |  |   | 340,016 |  
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Gross profit                                      |  |                         | 30,032  |      |  |      | 38,060  |   |  |   | 66,290  |  
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Selling, general and administrative expenses      |  |                         | 21,974  |      |  |      | 17,983  |   |  |   | 24,866  |  
|Research and development expenses                 |  |                         | 2,954   |      |  |      | 2,686   |   |  |   | 4,037   |  
|Impairment of goodwill                            |  |                         |        |      |  |      | 339     |   |  |   |        |  
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Total operating expenses                          |  |                         | 24,928  |      |  |      | 21,008  |   |  |   | 28,903  |  
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Income from operations                            |  |                         | 5,104   |      |  |      | 17,052  |   |  |   | 37,387  |  
|Equity in income of affiliated companies          |  |                         | 1,867   |      |  |      | 10,741  |   |  |   | 498     |  
|Other income (expenses), net                      |  |                         | 2,709   |      |  |      | (6,043  | ) |  |   | 5,525   |  
|Interest expense                                  |  |                         | (178    | )    |  |      | (790    | ) |  |   | (121    | )
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Income before income taxes and minority interests |  |                         | 9,502   |      |  |      | 20,960  |   |  |   | 43,289  |  
|Income taxes expense, net                         |  |                         | (227    | )    |  |      | (773    | ) |  |   | (399    | )
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Income before minority interests                  |  |                         | 9,275   |      |  |      | 20,187  |   |  |   | 42,890  |  
|Minority interests                                |  |                         | (230    | )    |  |      | (164    | ) |  |   | (1,067  | )
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Income
after minority interests                   |  |                         | 9,045   |      |  |      | 20,023  |   |  |   | 41,823  |  
|Discontinued operation                            |  |                         |        |      |  |      |        |   |  |   | 1,979   |  
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Net income                                        |  | $                       | 9,045   |      |  | $    | 20,023  |   |  | $ | 43,802  |  
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Basic earnings per share                          |  | $                       | 0.27    |      |  | $    | 0.57    |   |  | $ | 1.09    |  
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  
|Diluted earnings per share                        |  | $                       | 0.26    |      |  | $    | 0.57    |   |  | $ | 1.07    |  
|                                                  |  |                         |         |      |  |      |         |   |  |   |         |  

See accompanying notes to consolidated financial statements.

F-2



---



##### Table of Contents



NAM TAI ELECTRONICS, INC.

CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share data)

|                                           |                                                                                                                        |                                            |        |              |         |      |        |         |         | 
|------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------------ | ------- | ---- | ------ | ------- | ------- | 
|                                           |                                                                                                                        |                                            |        | December 31,
|                                           |                                                                                                                        |                                            |        |             
|                                           |                                                                                                                        |                                            |        | 2002         |         | 2003
|                                           |                                                                                                                        |                                            |        |              |         |     
|ASSETS                                     |                                                                                                                        |                                            |        |              |         |      |        |        
|Current assets:                            |                                                                                                                        |                                            |        |              |         |      |        |        
|                                           | Cash and cash equivalents                                                                                              |                                            | $      | 82,477       |         |      | $      | 61,827  |        
|                                           | Accounts receivable, less allowance for doubtful accounts of $122
and $119 at December 31, 2002 and 2003, respectively |                                            |        | 50,944       |         |      |        | 62,090  |        
|                                           | Amount due from a related party                                                                                        |                                            |        |             |         |      |        | 2,707   |        
|                                           | Inventories                                                                                                            |                                            |        | 19,200       |         |      |        | 27,032  |        
|                                           | Prepaid expenses and other receivables                                                                                 |                                            |        | 1,867        |         |      |        | 13,126  |        
|                                           | Income taxes recoverable                                                                                               |                                            |        | 855          |         |      |        | 4,922   |        
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        
|                                           |                                                                                                                        | Total current assets                       |        |              | 155,343 |      |        |         | 171,704 | 
|Investment in an affiliated company        |                                                                                                                        |                                            |       |              |         |      | 9,855  |        
|Investments, at cost                       |                                                                                                                        |                                            | 15,982 |              |         |      | 16,366 |        
|Convertible notes                          |                                                                                                                        |                                            | 5,128  |              |         |      |       |        
|Property, plant and equipment, net         |                                                                                                                        |                                            | 75,914 |              |         |      | 77,647 |        
|Goodwill                                   |                                                                                                                        |                                            | 21,308 |              |         |      | 20,137 |        
|Intangible
assets                          |                                                                                                                        |                                            |       |              |         |      | 551    |        
|Other assets                               |                                                                                                                        |                                            | 1,411  |              |         |      | 1,435  |        
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        
|                                           |                                                                                                                        | Total assets                               |        | $            | 275,086 |      |        | $       | 297,695 | 
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        
|LIABILITIES AND SHAREHOLDERS EQUITY       |                                                                                                                        |                                            |        |              |         |      |        |        
|Current liabilities:                       |                                                                                                                        |                                            |        |              |         |      |        |        
|                                           | Notes payable                                                                                                          |                                            | $      | 985          |         |      | $      | 1,879   |        
|                                           | Long term bank loans - current portion                                                                                 |                                            |        | 13,985       |         |      |        | 1,125   |        
|                                           | Accounts payable                                                                                                       |                                            |        | 38,714       |         |      |        | 55,674  |        
|                                           | Accrued expenses and other payables                                                                                    |                                            |        | 12,609       |         |      |        | 13,633  |        
|                                           | Dividend payable                                                                                                       |                                            |        | 1,442        |         |      |        | 2,062   |        
|                                           | Income taxes payable                                                                                                   |                                            |        | 200          |         |      |        | 530     |        
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        
|                                           |                                                                                                                        | Total current liabilities                  |        |              | 67,935  |      |        |         | 74,903  | 
|Deferred income taxes                      |                                                                                                                        |                                            | 112    |              |         |      | 78     |        
|Long term bank loans - non-current portion |                                                                                                                        |                                            | 2,812  |              |         |      | 1,688  |        
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        
|                                           |                                                                                                                        | Total liabilities                          |        |              | 70,859  |      |        |         | 76,669  | 
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        
|Minority interests                         |                                                                                                                        |                                            | 2,099  |              |         |      | 3,908  |        
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        
|Commitments and contingencies              |                                                                                                                        |                                            |       |              |         |      |       |        
|Shareholders equity:                      |                                                                                                                        |                                            |        |              |         |      |        |        
|                                           | Common shares (2003: $0.01 par value - authorized 200,000,000 shares)                                                  |                                            |        | 360          |         |      |        | 412     |        
|                                           | Additional paid-in capital                                                                                             |                                            |        | 147,754      |         |      |        | 206,845 |        
|                                           | Retained earnings                                                                                                      |                                            |        | 54,016       |         |      |        | 9,863   |        
|                                           | Accumulated other comprehensive loss                                                                                   |                                            |        | (2           | )       |      |        | (2      | )      
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        
|                                           |                                                                                                                        | Total shareholders equity                 |        |              | 202,128 |      |        |         | 217,118 | 
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        
|                                           |                                                                                                                        | Total liabilities and shareholders equity |        | $            | 275,086 |      |        | $       | 297,695 | 
|                                           |                                                                                                                        |                                            |        |              |         |      |        |        

See accompanying notes to consolidated financial statements.

F-3



---



##### Table of Contents



NAM TAI ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands of US dollars, except share and per share data)

|                                                                                |                              |  |             |   |        |   |            |   |          |   |               |   |          |   |         |        |  |   |             |     |       |   |         |        |  
|------------------------------------------------------------------------------- | ---------------------------- |  | ----------- | - | ------ | - | ---------- | - | -------- | - | ------------- | - | -------- | - | ------- | ------ |  | - | ----------- | --- | ----- | - | ------- | ------ | -
|                                                                                |                              |  |             |   |        |   |            |   |          |   |               |   |          |   |         |        |  |   | Accumulated |     | Total
|                                                                                |                              |  | Common      |   | Common |   | Additional |   |          |   |               |   | Other    |   | Share  
|                                                                                |                              |  | Shares      |   | Shares |   | Paid-in    |   | Retained |   | Comprehensive |   | holders
|                                                                                |                              |  | Outstanding |   | Amount |   | Capital    |   | Earnings |   | Income (loss) |   | Equity  
|                                                                                |                              |  |             |   |        |   |            |   |          |   |               |   |         
|Balance at January 1, 2001                                                      |                              |  | 30,641,520  |   |        | $ | 306        |   |          | $ | 105,936       |   |          | $ | 56,127  |        |  | $ | (5          | )   |       | $ | 162,364 |       
|Share buy-back program                                                          |                              |  | (683,700    | ) |        |   | (6         | ) |          |   |              |   |          |   | (3,347  | )      |  |   |            |     |       |   | (3,353  | )     
|Shares issued on exercise of advisors warrants                                 |                              |  | 900,000     |   |        |   | 9          |   |          |   | 3,066         |   |          |   |        |        |  |   |            |     |       |   | 3,075   |       
|Shares issued on exercise of options                                            |                              |  | 348,000     |   |        |   | 3          |   |          |   | 1,229         |   |          |   |        |        |  |   |            |     |       |   | 1,232   |       
|Advisors warrants                                                              |                              |  |            |   |        |   |           |   |          |   | 263           |   |          |   |        |        |  |   |            |     |       |   | 263     |       
|Issue of options (note 12b)                                                     |                              |  |            |   |        |   |           |   |          |   | 839           |   |          |   |        |        |  |   |            |     |       |   | 839     |       
|Comprehensive income:                                                           |                              |  |             |   |        |   |            |   |          |   |               |   |          |   |         |        |  |   |             |     |       |   |         |       
|                                                                                | Net income                   |  |             |  |        |   |            |  |          |   |               |  |          |   |         | 9,045  |  |   |             |    |       |   |         | 9,045  |  
|                                                                                | Foreign currency translation |  |             |  |        |   |            |  |          |   |               |  |          |   |         |       |  |   |             | 20  |       |   |         | 20     |  
|Cash dividends ($0.13 per share)                                                |                              |  |            |   |        |   |           |   |          |   |              |   |          |   | (4,134  | )      |  |   |            |     |       |   | (4,134  | )     
|                                                                                |                              |  |             |   |        |   |            |   |          |   |               |   |          |   |         |        |  |   |             |     |       |   |         |       
|Balance at December 31, 2001                                                    |                              |  | 31,205,820  |   |        |   | 312        |   |          |   | 111,333       |   |          |   | 57,691  |        |  |   | 15          |     |       |   | 169,351 |       
|Share buy-back program                                                          |                              |  | (592,800    | ) |        |   | (6         | ) |          |   |              |   |          |   | (3,522  | )      |  |   |            |     |       |   | (3,528  | )     
|Share redemption                                                                |                              |  | (509,181    | ) |        |   | (5         | ) |          |   |              |   |          |   | (3,120  | )      |  |   |            |     |       |   | (3,125  | )     
|Shares issued on exercise of public warrants                                    |                              |  | 4,381,965   |   |        |   | 44         |   |          |   | 29,753        |   |          |   |        |        |  |   |            |     |       |   | 29,797  |       
|Shares issued on exercise of options                                            |                              |  | 1,573,200   |   |        |   | 15         |   |          |   | 6,658         |   |          |   |        |        |  |   |            |     |       |   | 6,673   |       
|Advisors options (note 12b)                                                    |                              |  |            |   |        |   |           |   |          |   | 10            |   |          |   |        |        |  |   |            |     |       |   | 10      |       
|Comprehensive income:                                                           |                              |  |             |   |        |   |            |   |          |   |               |   |          |   |         |        |  |   |             |     |       |   |         |       
|                                                                                | Net income                   |  |             |  |        |   |            |  |          |   |               |  |          |   |         | 20,023 |  |   |             |    |       |   |         | 20,023 |  
|                                                                                | Foreign currency translation |  |             |  |        |   |            |  |          |   |               |  |          |   |         |       |  |   |             | (17 | )     |   |         | (17    | )
|Cash dividends ($0.49 per share, including special
dividend of $0.33 per share) |                              |  |            |   |        |   |           |   |          |   |              |   |          |   | (17,056 | )      |  |   |            |     |       |   | (17,056 | )     
|                                                                                |                              |  |             |   |        |   |            |   |          |   |               |   |          |   |         |        |  |   |             |     |       |   |         |       
|Balance at December 31, 2002                                                    |                              |  | 36,059,004  |   |        |   | 360        |   |          |   | 147,754       |   |          |   | 54,016  |        |  |   | (2          | )   |       |   | 202,128 |       
|Shares issued on exercise of options                                            |                              |  | 1,425,600   |   |        |   | 14         |   |          |   | 8,494         |   |          |   |        |        |  |   |            |     |       |   | 8,508   |       
|Issue of stock dividend                                                         |                              |  | 3,746,668   |   |        |   | 38         |   |          |   | 50,333        |   |          |   | (50,371 | )      |  |   |            |     |       |   |        |       
|Compensation expense (note 3(b)(iv))                                            |                              |  |            |   |        |   |           |   |          |   | 264           |   |          |   |        |        |  |   |            |     |       |   | 264     |       
|Comprehensive income:                                                           |                              |  |             |   |        |   |            |   |          |   |               |   |          |   |         |        |  |   |             |     |       |   |         |       
|                                                                                | Net income                   |  |             |  |        |   |            |  |          |   |               |  |          |   |         | 43,802 |  |   |             |    |       |   |         | 43,802 |  
|Cash dividends ($1.00 per share, including special
dividend of $0.80 per share) |                              |  |            |   |        |   |           |   |          |   |              |   |          |   | (37,584 | )      |  |   |            |     |       |   | (37,584 | )     
|                                                                                |                              |  |             |   |        |   |            |   |          |   |               |   |          |   |         |        |  |   |             |     |       |   |         |       
|Balance at December 31, 2003                                                    |                              |  | 41,231,272  |   |        |   | 412        |   |          |   | 206,845       |   |          |   | 9,863   |        |  |   | (2          | )   |       |   | 217,118 |       
|                                                                                |                              |  |             |   |        |   |            |   |          |   |               |   |          |   |         |        |  |   |             |     |       |   |         |       

See accompanying notes to consolidated financial statements.

F-4



---



##### Table of Contents



NAM TAI ELECTRONICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)

|                                                                                  |                                                                                                                         |                                                               |        |                         |        |      |        |        |        |   |        |        |         |  
|--------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------- | ------ | ----------------------- | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------- | -
|                                                                                  |                                                                                                                         |                                                               |        | Year ended December 31,
|                                                                                  |                                                                                                                         |                                                               |        |                        
|                                                                                  |                                                                                                                         |                                                               |        | 2001                    |        | 2002 |        | 2003  
|                                                                                  |                                                                                                                         |                                                               |        |                         |        |      |        |       
|Cash flows from operating activities:                                             |                                                                                                                         |                                                               |        |                         |        |      |        |        |        |   |        |       
|                                                                                  | Net income                                                                                                              |                                                               | $      | 9,045                   |        |      | $      | 20,023 |        |   | $      | 43,802 |        
|                                                                                  |                                                                                                                         |                                                               |        |                         |        |      |        |        |        |   |        |       
|Adjustments to reconcile net income to net cash provided
by operating activities: |                                                                                                                         |                                                               |        |                         |        |      |        |        |        |   |        |       
|                                                                                  | Depreciation and amortization of property, plant and equipment                                                          |                                                               |        | 9,136                   |        |      |        | 10,397 |        |   |        | 12,172 |        
|                                                                                  | Amortization of goodwill and intangible assets                                                                          |                                                               |        | 2,035                   |        |      |        | 222    |        |   |        | 92     |        
|                                                                                  | Loss (gain) on disposal of property, plant and equipment                                                                |                                                               |        | 378                     |        |      |        | 977    |        |   |        | (6     | )      
|                                                                                  | Loss on disposal of other assets                                                                                        |                                                               |        |                        |        |      |        | 21     |        |   |        |       |        
|                                                                                  | Loss on disposal of convertible notes                                                                                   |                                                               |        |                        |        |      |        |       |        |   |        | 102    |        
|                                                                                  | Unrealized gain on marketable securities - trading                                                                      |                                                               |        | (1,568                  | )      |      |        |       |        |   |        |       |        
|                                                                                  | Realized gain on marketable securities - trading                                                                        |                                                               |        |                        |        |      |        | (642   | )      |   |        |       |        
|                                                                                  | Impairment of goodwill - business acquired from Micro Business Systems
Industries Company Limited (MBS)               |                                                               |        |                        |        |      |        | 339    |        |   |        |       |        
|                                                                                  | Release of unamortized goodwill of an affiliated company -
Mate Fair Group Limited (Mate Fair)                        |                                                               |        |                        |        |      |        | 520    |        |   |        |       |        
|                                                                                  | Gain on disposal of a subsidiary and related intangible assets -
BPC (Shenzhen) Co. Ltd (BPC)                         |                                                               |        |                        |        |      |        | (77    | )      |   |        |       |        
|                                                                                  | Gain on disposal of a subsidiary - Jieyao Electronics (Shenzhen) Co., Ltd.
(Jieyao)                                   |                                                               |        |                        |        |      |        |       |        |   |        | (1,979 | )      
|                                                                                  | Gain on partial disposal of a subsidiary - J.I.C. Technology Company
Limited (JIC Technology)                         |                                                               |        |                        |        |      |        |       |        |   |        | (1,838 | )      
|                                                                                  | Loss on reverse merger of subsidiaries - J.I.C. Group (B.V.I.) Limited
and its subsidiaries (J.I.C. Group)            |                                                               |        |                        |        |      |        | 2,655  |        |   |        |       |        
|                                                                                  | Compensation cost on partial disposal of a subsidiary - Namtek Software
Development Company Limited (Namtek Software) |                                                               |        |                        |        |      |        |       |        |   |        | 509    |        
|                                                                                  | Amortization of advisors warrants and options                                                                          |                                                               |        | 263                     |        |      |        | 10     |        |   |        |       |        
|                                                                                  | Staff option costs                                                                                                      |                                                               |        | 839                     |        |      |        |       |        |   |        |       |        
|                                                                                  | Share redemption and dividend withheld in settlement of a receivable
- Tele-Art, Inc. (Tele-Art)                      |                                                               |        |                        |        |      |        | (3,519 | )      |   |        |       |        
|                                                                                  | Equity in income of affiliated companies less dividend received                                                         |                                                               |        | (1,867                  | )      |      |        | (285   | )      |   |        | (498   | )      
|                                                                                  | Deferred income taxes                                                                                                   |                                                               |        | 117                     |        |      |        | (39    | )      |   |        | (34    | )      
|                                                                                  | Minority interests                                                                                                      |                                                               |        | 230                     |        |      |        | 164    |        |   |        | 1,067  |        
|                                                                                  | Changes in current assets and liabilities (net of effects of acquisitions
and disposals):                               |                                                               |        |                         |        |      |        |        |        |   |        |        |        
|                                                                                  |                                                                                                                         | Proceeds from marketable securities - trading                 |        |                         |       |      |        |        | 10,147 |   |        |        |        |  
|                                                                                  |                                                                                                                         | Increase in accounts receivable                               |        |                         | (4,378 | )    |        |        | (8,531 | ) |        |        | (11,146 | )
|                                                                                  |                                                                                                                         | Increase in amount due from a related party                   |        |                         |       |      |        |        |       |   |        |        | (2,707  | )
|                                                                                  |                                                                                                                         | Decrease (Increase) in inventories                            |        |                         | 15,302 |      |        |        | (7,625 | ) |        |        | (8,554  | )
|                                                                                  |                                                                                                                         | (Increase) Decrease in prepaid expenses and other receivables |        |                         | (620   | )    |        |        | 496    |   |        |        | (6,130  | )
|                                                                                  |                                                                                                                         | Decrease (Increase) in income taxes recoverable               |        |                         | 689    |      |        |        | 498    |   |        |        | (4,067  | )
|                                                                                  |                                                                                                                         | Increase (Decrease) in notes payable                          |        |                         | 48     |      |        |        | (562   | ) |        |        | 894     |  
|                                                                                  |                                                                                                                         | (Decrease) Increase in accounts payable                       |        |                         | (4,952 | )    |        |        | 10,816 |   |        |        | 17,971  |  
|                                                                                  |                                                                                                                         | (Decrease) Increase in accrued expenses and other payables    |        |                         | (1,110 | )    |        |        | 6,151  |   |        |        | 1,189   |  
|                                                                                  |                                                                                                                         | (Decrease) Increase in income taxes payable                   |        |                         | (354   | )    |        |        | 112    |   |        |        | 330     |  
|                                                                                  |                                                                                                                         | Increase (decrease) in amount due to a related party          |        |                         | 2      |      |        |        | (2,766 | ) |        |        |        |  
|                                                                                  |                                                                                                                         |                                                               |        |                         |        |      |        |        |        |   |        |       
|Total adjustments                                                                 |                                                                                                                         |                                                               | 14,190 |                         |        |      | 19,479 |        |        |   | (2,633 | )     
|                                                                                  |                                                                                                                         |                                                               |        |                         |        |      |        |        |        |   |        |       
|Net cash provided by operating activities                                         |                                                                                                                         |                                                               | 23,235 |                         |        |      | 39,502 |        |        |   | 41,169 |       
|                                                                                  |                                                                                                                         |                                                               |        |                         |        |      |        |        |        |   |        |       

F-5



---



##### Table of Contents



NAM TAI ELECTRONICS. INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)

|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |         |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------------- | - | ----------------------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                     |                                                                                                     |   | Year ended December 31,
|                                                     |                                                                                                     |   |                        
|                                                     |                                                                                                     |   | 2001                    |         | 2002 |   | 2003   
|                                                     |                                                                                                     |   |                         |         |      |   |        
|Cash flows from investing activities:                |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|                                                     | Purchase of property, plant and equipment - third parties                                           |   |                         | (35,963 | )    |   |         | (18,485 | ) |   |         | (17,053 | )
|                                                     | Purchase of property, plant and equipment - related party                                           |   |                         | (50     | )    |   |         |        |   |   |         |        |  
|                                                     | Prepayment for long term investment                                                                 |   |                         |        |      |   |         |        |   |   |         | (5,277  | )
|                                                     | Increase in other assets                                                                            |   |                         | (38     | )    |   |         | (25     | ) |   |         | (24     | )
|                                                     | Acquisition of an affiliated company - Alpha Star Investments Limited
(Alpha Star)                |   |                         |        |      |   |         |        |   |   |         | (10,000 | )
|                                                     | Acquisition of long term investments - TCL Corporation/
iMagic Infomedia Technology Limited         |   |                         |        |      |   |         | (11,968 | ) |   |         | (384    | )
|                                                     | (Acquisition) proceeds from disposal of convertible notes - TCL
International Holdings Limited      |   |                         |        |      |   |         | (5,128  | ) |   |         | 5,026   |  
|                                                     | Acquisition of additional shares in subsidiaries, net of cash acquired
- J.I.C. Group and Mate Fair |   |                         | (85     | )    |   |         | (436    | ) |   |         |        |  
|                                                     | Proceeds from partial disposal of subsidiaries - JIC Technology and
Namtek Software                 |   |                         |        |      |   |         |        |   |   |         | 4,165   |  
|                                                     | Proceeds from disposal of property, plant and equipment                                             |   |                         | 698     |      |   |         | 628     |   |   |         | 2,595   |  
|                                                     | Proceeds from disposal of a subsidiary, net of cash disposal of - Jieyao                            |   |                         |        |      |   |         |        |   |   |         | 2,386   |  
|                                                     | Proceeds from disposal of a subsidiary and related intangible assets,
net of cash disposal of - BPC |   |                         |        |      |   |         | 1,654   |   |   |         |        |  
|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|Net cash used in investing activities                |                                                                                                     |   | (35,438                 | )       |      |   | (33,760 | )       |   |   | (18,566 | )      
|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|Cash flows from financing activities:                |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|                                                     | Cash dividends paid                                                                                 |   |                         | (3,947  | )    |   |         | (16,654 | ) |   |         | (37,777 | )
|                                                     | Share buy-back program                                                                              |   |                         | (3,353  | )    |   |         | (3,528  | ) |   |         |        |  
|                                                     | Repayment of bank loans                                                                             |   |                         |        |      |   |         | (2,703  | ) |   |         | (13,984 | )
|                                                     | Repayment of short term debt                                                                        |   |                         | (24     | )    |   |         |        |   |   |         |        |  
|                                                     | Proceeds from bank loans                                                                            |   |                         | 15,000  |      |   |         | 4,500   |   |   |         |        |  
|                                                     | Proceeds from shares issued on exercise of options and warrants                                     |   |                         | 4,307   |      |   |         | 36,470  |   |   |         | 8,508   |  
|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|Net cash provided by (used in) financing activities  |                                                                                                     |   | 11,983                  |         |      |   | 18,085  |         |   |   | (43,253 | )      
|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|Effect of foreign currencies on cash flows           |                                                                                                     |   |                        |         |      |   | (26     | )       |   |   |        |        
|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|Net (decrease) increase in cash and cash equivalents |                                                                                                     |   | (220                    | )       |      |   | 23,801  |         |   |   | (20,650 | )      
|Cash and cash equivalents at beginning of year       |                                                                                                     |   | 58,896                  |         |      |   | 58,676  |         |   |   | 82,477  |        
|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|Cash and cash equivalents at end of year             |                                                                                                     | $ | 58,676                  |         |      | $ | 82,477  |         |   | $ | 61,827  |        
|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|Supplemental schedule of cash flow information:      |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|                                                     | Interest paid                                                                                       |   | $                       | 178     |      |   | $       | 790     |   |   | $       | 121     |  
|                                                     | Income taxes (received) paid, net                                                                   |   | $                       | (249    | )    |   | $       | 227     |   |   | $       | 4,183   |  
|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|Non-cash financing transactions:                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        
|                                                     | Share redemption and dividend withheld in settlement of
a receivable - Tele-Art                     |   | $                       |        |      |   | $       | 3,519   |   |   | $       |        |  
|                                                     |                                                                                                     |   |                         |         |      |   |         |         |   |   |         |        

See accompanying notes to consolidated financial statements.

F-6



---



##### Table of Contents



NAM TAI ELECTRONICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars, except share and per share data)



|1. |  | Company Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Nam Tai Electronics, Inc. and subsidiaries (the Company or Nam Tai) is
an electronics manufacturing and design services provider to a selected
group of the worlds leading original equipment manufacturers, or OEMs, of
telecommunication and consumer electronic products. The Companys largest
customers include Epson Precision (HK) Ltd., Sony Ericsson
Mobile Communications AB and Toshiba Matsushita Display Technology
Co. Ltd.. Through its electronics manufacturing services, or EMS, operations, the
Company manufactures electronic components and subassemblies, including
liquid crystal display, or LCD, panels, transformers, LCD modules, radio
frequency, or RF, modules, flexible printed circuit assemblies and image
sensors. These components are used in numerous electronic products,
including cellular phones, laptop computers, digital cameras, copiers, fax
machines, electronic toys, handheld video game devices and microwave
ovens. The Company also manufactures finished products, including
cellular phones, palm-sized PCs, personal digital assistants, electronic
dictionaries, calculators and digital camera accessories for use with
cellular phones.
|  
|   |  | The Company was founded in 1975 and moved its manufacturing facilities to
the Peoples Republic of China (the PRC) in 1980 to take advantage of
lower overhead costs, lower material costs and competitive labor rates
available and subsequently relocated to Shenzhen, PRC in order to
capitalize on opportunities offered in Southern China. The Company was
reincorporated as a limited liability International Business Company under
the laws of the British Virgin Islands (BVI) in August 1987. The
Companys principal manufacturing and design operations are based in
Shenzhen, PRC, approximately 30 miles from the Hong Kong Special
Administrative Region (Hong Kong). Its PRC headquarters are located in
the Macao Special Administrative Region (Macao). Some of the
subsidiaries offices are located in Hong Kong, which provides it access
to Hong Kongs infrastructure of communication and banking and facilitates
management of its PRC operations and transportation of its products out of
PRC through the port of Hong Kong.                                                                                                                                         
|  
|   |  | The Company operates in two segments: consumer electronic products (CEP)
and LCD panels and transformers (LPT). Through the disposal of a
subsidiary, the Company discontinued its transformers operations, details
of which are set out in note 3(b)(iii). The Companys principal
manufacturing operations are conducted in the PRC. The PRC resumed
sovereignty over Hong Kong and Macao effective July 1, 1997 and December
20, 1999, respectively, and politically Hong Kong and Macao are integral
parts of China. However, for simplicity and as a matter of definition
only, our references to PRC in these consolidated financial statements
means the PRC and all of its territories excluding Hong Kong and Macao.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|2. |  | Summary of Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              



| | (a) |  | Principles of consolidation                                                                                                                                                                                                                                                                                                                        
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The consolidated financial statements include the financial
statements of the Company and all its subsidiaries. The Company
consolidates companies in which it has controlling interest of over
50%. All significant intercompany accounts, transactions and cash
flows have been eliminated on consolidation.                                     
|
| |     |  | The equity method of accounting is used when the Company has the
ability to exercise a significant influence, which is normally
indicated by a 20% to 50% interest in other entities. Under the
equity method, original investments are recorded at cost and
adjusted by the Companys share of undistributed earnings or losses
of these entities.
|
| |     |  | Non-marketable investments in which the Company has less than 20%
interest and in which does not have the ability to exercise
significant influence over the investee are initially recorded at
cost and periodically reviewed for impairment.                                                                                                     
|
| | (b) |  | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                          
|
| |     |  | Cash and cash equivalents include all cash balances and certificates
of deposit having a maturity date of three months or less upon
acquisition.                                                                                                                                                                                                   

F-7



---



##### Table of Contents





|2. |  | Summary of Significant Accounting Policies - continued
|-- |  | ------------------------------------------------------



| | (c) |  | Marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | All marketable securities are classified as trading securities and
are stated at fair market value. Market value is determined by the
most recently traded price of the security at the balance sheet
date. Net realized and unrealized gains and losses on trading
securities are included in other income. The cost of securities
sold is based on the average cost method and income earned is
included in other income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (d) |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     |  | Inventories are stated at the lower of cost or market value. Cost
is determined on the first-in, first-out basis. Write-down of
potentially obsolete or slow-moving inventory are recorded based on
managements analysis of inventory levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | For the Companys CEP reporting unit, the Company orders inventory
from its suppliers based on firm customer orders for product that is
unique to each customer. The inventory is utilized in production as
soon as all the necessary components are received. The only reason
that inventory would not be utilized within six months is if a
specific customer deferred or cancelled an order. As the inventory
is typically unique to each customers products, it is unusual for
the Company to be able to utilize the inventory for other customers
products. Therefore, the Companys policy is to negotiate with the
customer for the disposal of such inventory that remained unused for
six months. The Company does not generally write down its
inventories as usually, the customers are held to their purchase
commitments. However, there are cases where customers are
contractually obligated to purchase the unused inventory from the
Company, but the Company may elect not to immediately enforce such
contractual right for business reasons. In this connection, the
Company will consider writing down these inventory items which
remained unused for over six months at the Companys own cost.
Prior to writing down, management would determine if the inventory
can be utilized in other products.
|
| |     |  | For the Companys LPT segment, due to the nature of the business,
LPT customers do not always place orders advance enough to enable
the Company to order inventory from suppliers based on firm customer
orders. Nonetheless, management reviews its inventory balance on a
regular basis and write down all inventory over six months old.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (e) |  | Property, plant and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | Property, plant and equipment are recorded at cost and include
interest on funds borrowed to finance construction. No interest was
capitalized for the years ended December 31, 2001, 2002 and 2003.
The cost of major improvements and betterments is capitalized
whereas the cost of maintenance and repairs is expensed in the year
incurred. Assets under construction are not depreciated until
construction is completed and the assets are ready for their
intended use. Gains and losses for the disposal of leasehold land
are included in other income (expenses) while gains and losses from
the disposal of other property, plant and equipment are included in
income from operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     |  | The Company reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable based upon undiscounted cash
flows expected to be generated by such assets over their expected
useful lives. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

F-8



---



##### Table of Contents





|2. |  | Summary of Significant Accounting Policies - continued
|-- |  | ------------------------------------------------------



| | (e) |  | Property, plant and equipment - continued                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The majority of the land in Hong Kong is owned by the government of
Hong Kong which leases the land at public auction to
non-governmental entities. All of the Companys leasehold land in
Hong Kong have leases of not more than 50 years from the respective
balance sheet dates. The cost of such leasehold land is amortized
on a straight-line basis over the respective terms of the leases.
|
| |     |  | All land in other regions of the PRC is owned by the PRC government.
The government in the PRC, according to PRC law, may sell the right
to use the land for a specified period of time. Thus all of the
Companys land purchases in the PRC are considered to be leasehold
land and are amortized on a straight-line basis over the respective
term of the right to use the land.                
|
| |     |  | Depreciation rates computed using the straight-line method are as
follows:                                                                                                                                                                                                                                                                                                                        

|                                             |  |                |  | 
|-------------------------------------------- |  | -------------- |  | 
|Classification                               |  | Years         
|Land use right, leasehold land and buildings |  | 20 to 50 years
|Machinery and equipment                      |  | 4 to 12 years 
|Leasehold improvements                       |  | 3 to 7 years  
|Furniture and fixtures                       |  | 4 to 8 years  
|Automobiles                                  |  | 4 to 6 years  
|Tools and molds                              |  | 4 to 6 years  



| | (f) |  | Goodwill and licenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The excess of the purchase price over the fair value of net assets
acquired is recorded on the consolidated balance sheet as goodwill.
Prior to January 1, 2002, goodwill was amortized to expense on a
straight-line basis over various periods ranging from 4 years to 15
years. Costs incurred in the acquisition of licenses are
capitalized and amortized to expense on a straight-line basis over
the shorter of the license period or 5 to 7 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | In June 2001, the Financial Accounting Standard Board (the FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible Assets. This statement provides
that goodwill and other intangible assets with indefinite lives will
not be amortized, but will be tested for impairment at the reporting
unit level on at least an annual basis. A reporting unit is an operating
segment or one level below an operating segment (i.e. a component)
as defined in SFAS No. 131 Disclosures about Segments of an
Enterprise and Related Information. A component of an operating
segment is a reporting unit if the component constitutes a business
for which discrete financial information is available and segment
management regularly reviews the operating results of that
component. Through May 2002, the Company operated in two reporting
units, which were its operating segments of CEP and LPT. Beginning
in June 2002, the Company segregated its LPT segment into two
reporting units: LCD panels and transformers. In June 2003, the
Company disposed of its transformers operation through the disposal
of a subsidiary, details of which are set out in note 3(b)(iii).
|
| |     |  | The evaluation of goodwill for impairment involves two steps: (1)
the identification of potential impairment by comparing the fair
value of a reporting unit with its carrying amount, including
goodwill and (2) the measurement of the amount of goodwill loss by
comparing the implied fair value of the reporting unit goodwill with
the carrying amount of that goodwill and recognizing a loss by the
excess of the latter over the former.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     |  | SFAS No. 142 was effective for fiscal years beginning after December
15, 2001. The Company adopted SFAS No. 142 on January 1, 2002.
Upon adoption of SFAS No. 142, the Company evaluated goodwill for
impairment at the reporting unit level and determined that there was
no impairment at January 1, 2002. Later in 2002, the Company
determined that goodwill was impaired by $339 related to the
business acquired from MBS (see note 6). All remaining and future
acquired goodwill will be subject to an annual impairment test on
December 31 of each year or earlier if indications of a potential
impairment exist. For future impairment tests, the Company will
measure fair value based either on internal models or independent
valuations. As of December 31, 2003, the Company completed its
annual impairment evaluation and determined that there was no
impairment in goodwill.                                                                                                                                                                                                                                                                                                                                   

F-9



---



##### Table of Contents





|2. |  | Summary of Significant Accounting Policies - continued
|-- |  | ------------------------------------------------------



| | (f) |  | Goodwill and licenses - continued                                                                                                                                                                                              
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The following transitional disclosure represents the Companys
reported and adjusted net income, basic earnings per share, and
fully diluted earnings per share adding back amortization of
goodwill beginning January 1, 2001:

|                                |  |      |        |      |  |      |        |  |  |   |        | 
|------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                |  | 2001 |        | 2002 |  | 2003
|                                |  |      |        |      |  |     
|Net income                      |  |      |        |      |  |      |        |  |  |   |        | 
|As reported                     |  | $    | 9,045  |      |  | $    | 20,023 |  |  | $ | 43,802 | 
|Add back: goodwill amortization |  |      | 1,826  |      |  |      |       |  |  |   |       | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|As adjusted                     |  | $    | 10,871 |      |  | $    | 20,023 |  |  | $ | 43,802 | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|Basic earnings per share        |  |      |        |      |  |      |        |  |  |   |        | 
|As reported                     |  | $    | 0.27   |      |  | $    | 0.57   |  |  | $ | 1.09   | 
|Add back: goodwill amortization |  |      | 0.05   |      |  |      |       |  |  |   |       | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|As adjusted                     |  | $    | 0.32   |      |  | $    | 0.57   |  |  | $ | 1.09   | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|Diluted earnings per share      |  |      |        |      |  |      |        |  |  |   |        | 
|As reported                     |  | $    | 0.26   |      |  | $    | 0.57   |  |  | $ | 1.07   | 
|Add back: goodwill amortization |  |      | 0.05   |      |  |      |       |  |  |   |       | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|As adjusted                     |  | $    | 0.31   |      |  | $    | 0.57   |  |  | $ | 1.07   | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 



| | (g) |  | Impairment or disposal of long-lived assets                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company reviews its long-lived assets for potential impairment
based on a review of projected discounted cash flows associated with
these assets. Long-lived assets are included in impairment
evaluations when events and circumstances exist that indicate the
carrying amount of these assets may not be recoverable. Measurement
of impairment losses for long-lived assets that the Company expects
to hold and use is based on the estimated fair value of the assets.
|
| |     |  | Long-lived assets to be disposed of are stated at the lower of fair
value or carrying amount. Expected future operating losses from
discontinued operations are recorded in the periods in which the
losses are incurred.                                                                                                                                                                                                                                                       
|
| | (h) |  | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | The Company recognizes revenue when all of the following conditions
are met:                                                                                                                                                                                                                                                                                                                                                                                                    



| |  |  | Persuasive evidence of an arrangement exists,        
| | - |  | -----------------------------------------------------
|
| |  |  | Delivery has occurred or services have been rendered,
|
| |  |  | Price to the customer is fixed or determinable, and  
|
| |  |  | Collectibility is reasonably assured.                



| |  |  | Revenue from sales of products is recognized when the title is
passed to customers upon shipment and when collectibility is
assured. The Company does not provide its customers with the right
of return (except for quality), price protection, rebates or
discounts. There are no customer acceptance provisions associated
with the Companys products, except for quality. All sales are
based on firm customer orders with fixed terms and conditions, which
generally cannot be modified.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The Company recognized revenue on its software development services
in accordance with Statement of Position (SOP) 97-2, Software
Revenue Recognition. The Companys software sales include neither
multiple elements nor post-contract customer support.                                                                                                                                                                                                                                  

F-10



---



##### Table of Contents





|2. |  | Summary of Significant Accounting Policies - continued
|-- |  | ------------------------------------------------------



| | (i) |  | Shipping and handling costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Shipping and handling costs are classified as to cost of sales for
material purchased and selling expenses for the delivery of finished
products. During the years ended December 31, 2001, 2002, and 2003,
shipping and handling costs classified as costs of sales were $488,
$536 and $466, respectively. During the years ended December 31,
2001, 2002 and 2003, shipping and handing costs classified as
selling expenses were $954, $808 and $870, respectively.                                                                                                                                                                                                       
|
| | (j) |  | Research and development costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | Research and development costs relating to the development of new
products and processes, including significant improvements and
refinements to existing products, are expensed as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | (k) |  | Advertising expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | The Company expenses advertising costs as incurred. Advertising
expenses were $141, $528 and $261 for the years ended December 31,
2001, 2002 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | (l) |  | Staff retirement plan costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     |  | The Companys costs related to the staff retirement plans (see note
15) are charged to the consolidated statement of income as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (m) |  | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | PRC tax paid by subsidiaries operating in the PRC during the year is
recorded as an amount recoverable at the balance sheet date when
management has filed or has the intention to file an application for
reinvestment of profits and a refund is expected unless there is an
indication from the PRC tax authority that the refund will be
refused.                                                                                                                                                                                                                                                                                                                         
|
| |     |  | Deferred income taxes are provided using the asset and liability
method. Under this method, deferred income taxes are recognized for
all significant temporary differences and classified as current or
non-current based upon the classification of the related asset or
liability in the financial statements. A valuation allowance is
provided to reduce the amount of deferred tax assets if it is
considered more likely than not that some portion of, or all, the
deferred tax asset will not be realized.                                                                                                                                                            
|
| | (n) |  | Foreign currency transactions and translations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | All transactions in currencies other than functional currencies
during the year are translated at the exchange rates prevailing on
the respective transaction dates. Monetary assets and liabilities
existing at the balance sheet date denominated in currencies other
than functional currencies are translated at the exchange rates
existing on that date. Exchange differences are recorded in the
consolidated statement of income.                                                                                                                                                                                                                                     
|
| |     |  | The Company and its subsidiaries have adopted the U.S. dollar, Hong
Kong dollar or the Chinese 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 Chinese Renminbi and the U.S. dollar is
based on the applicable rate of exchange quoted by the Peoples Bank
of China prevailing at the balance sheet date and were approximately
8.1500, 8.2773 and 8.2767 as of December 31, 2001, 2002 and 2003,
respectively.                                                                                                                                                                                                                                                   

F-11



---



##### Table of Contents





|2. |  | Summary of Significant Accounting Policies - continued
|-- |  | ------------------------------------------------------



| | (o) |  | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On June 20, 2003, the Companys board of directors declared a
3-for-1 stock split of its outstanding common shares. Each
shareholder of record on June 30, 2003 received two additional
shares for each common share held at that date. In addition, the
Company retained the current par value of $0.01 per share.
Accordingly, all references to numbers of common shares, per share
data and stock option data in the accompanying financial statements
have been restated to reflect the stock split on a retroactive
basis.                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | On October 24, 2003, the Companys board of directors declared an
issuance of stock dividend to shareholders at the ratio of one
dividend share for every ten shares held by the shareholders of
record on November 7, 2003. For the purposes of earnings per share
calculation, all references to numbers of common shares and per
share data have been restated to reflect this stock dividend.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the
year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |     |  | Diluted earnings per share gives effect to all dilutive potential
common shares outstanding during the year. The weighted average
number of common shares outstanding is adjusted to include the
number of additional common shares that would have been outstanding
if the dilutive potential common shares had been issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (p) |  | Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |  | The Company does not recognize compensation expense for employee
stock-based compensation if the strike-price is equal to or greater
than the market price of the stock at the date of grant. The
Companys policy is to generally grant stock-based compensation to
employees with a stock price equal to the market price of the stock
on the date of grant. The Company continues to account for
stock-based compensation arrangements under Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees and provides additional financial statement disclosure in
accordance with FAS No. 123, Accounting for Stock-Based
Compensation. The Company recognizes compensation expense for all
stock-based compensation granted to non-employees by estimating the
fair value of the stock-based compensation utilizing the
Black-Scholes option-pricing model. See note 12.
|
| |     |  | The Company has two stock-based employee compensation plans, as more
fully described in note 12(b). Stock-based employee compensation
costs are not reflected in net income when options granted under the
plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. During 2001, the
Company recorded compensation cost of $839 as 316,200 options
granted under the plan had an exercise price less than the market
value of the underlying common stock on the date of grant.                                                                                                                                                                                                                                                                                                                                                                                  
|
| |     |  | The following table illustrates the effect on net income and
earnings per share as if the Company had applied the fair value
recognition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                                                                  |           |      |        |      |  |      |        |      |  |   |        |      | 
|--------------------------------------------------------------------------------- | --------- | ---- | ------ | ---- |  | ---- | ------ | ---- |  | - | ------ | ---- | 
|Year ended December 31,                                                           |           | 2001 |        | 2002 |  | 2003
|                                                                                  |           |      |        |      |  |     
|Net income, as reported                                                           |           | $    | 9,045  |      |  | $    | 20,023 |      |  | $ | 43,802 |     
|Less: Stock based compensation costs under
fair value based method for all awards |           |      | (2,331 | )    |  |      | (1,491 | )    |  |   | (582   | )   
|                                                                                  |           |      |        |      |  |      |        |      |  |   |        |     
|Net income, pro forma                                                             |           | $    | 6,714  |      |  | $    | 18,532 |      |  | $ | 43,220 |     
|                                                                                  |           |      |        |      |  |      |        |      |  |   |        |     
|Basic earnings per share     As reported                                          |           | $    | 0.27   |      |  | $    | 0.57   |      |  | $ | 1.09   |     
|                                                                                  | Pro forma |      | $      | 0.20 |  |      | $      | 0.53 |  |   | $      | 1.07 | 
|                                                                                  |           |      |        |      |  |      |        |      |  |   |        |     
|Diluted earnings per share  As reported                                           |           | $    | 0.26   |      |  | $    | 0.57   |      |  | $ | 1.07   |     
|                                                                                  | Pro forma |      | $      | 0.20 |  |      | $      | 0.52 |  |   | $      | 1.06 | 
|                                                                                  |           |      |        |      |  |      |        |      |  |   |        |     

F-12



---



##### Table of Contents





|2. |  | Summary of Significant Accounting Policies - continued
|-- |  | ------------------------------------------------------



| | (q) |  | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the United States
of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.                                                                                                                                                                                                                                                                                                                                      
|
| | (r) |  | Comprehensive income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |     |  | Accumulated other comprehensive income (loss) represents foreign
currency translation adjustments and is included in the consolidated
statement of shareholders equity. The comprehensive income of
the Company was $9,065, $20,006 and $43,802 for the years ended
December 31, 2001, 2002 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | (s) |  | Fair value disclosures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     |  | The carrying amounts of cash and cash equivalents, accounts
receivable, amount due from a related party, prepaid expenses and
other receivables, income taxes recoverable, notes payable, accounts
payable, accrued expenses and other payables, dividend payable and
income tax payable approximate fair value due to the short term
maturity of these instruments. The carrying amount of long term
debt also approximates fair value due to the variable nature of the
interest calculations. The fair value of the convertible notes is
estimated based on the current rates offered to the Company for
notes of similar terms and maturities.                                                                                                                                                                                               
|
| | (t) |  | Recent changes in accounting standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |     |  | In January 2003, the FASB issued Interpretation No. (FIN) 46
(revised), Consolidation of Variable Interest Entities. FIN 46
(revised) requires that if a business enterprise has a controlling
financial interest in a variable interest entity, the assets,
liabilities and results of the activities of the variable interest
entity should be included in consolidated financial statements of
the business enterprise. FIN 46 (revised) applies immediately to
variable interest entities created after January 31, 2003. For
variable interest entities created or acquired prior to February 1,
2003, the provisions of FIN 46 (revised) are effective beginning
January 1, 2004. The adoption of FIN 46 (revised) is not expected
to have a material impact on the Companys financial position,
results of operations, or cash flows.
|
| |     |  | In April 2003, the 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 did not have a material impact on the Companys
financial position, results of operations, or cash flows.                                                      
|
| |     |  | In May 2003, the FASB issued SFAS 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 classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances).
SFAS No. 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective for the
third quarter of 2003. The adoption of SFAS No. 150 did not have a
material impact on the Companys financial position, results of
operations, or cash flows.                                                                               

F-13



---



##### Table of Contents





|3. |  | Investment in Subsidiaries
|-- |  | --------------------------



| | (a) |  | Subsidiaries
| | --- |  | ------------

|                                     |                                                           |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|------------------------------------ | --------------------------------------------------------- | -------------- | ------------- | ----------------------- | --------- | ------------------ | ----------------------- | -- | ---- |  | ----------------------- | -- |  |  |  |  | 
|                                     |                                                           |                |               |                         |           |                    |                         |    |      |  | Percentage of ownership
|                                     |                                                           |                | Place of      |                         | Principal |                    | as of December 31      
|                                     |                                                           |                | incorporation |                         | activity  |                    | 2002                    |    | 2003
|                                     |                                                           |                |               |                         |           |                    |                         |    |     
|Consolidated principal
subsidiaries: |                                                           |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  | 
|J.I.C. Technology Company            |                                                           | Cayman Islands |               | Investment holding      |           |                    | 74.78                   | %* |      |  | 74.86                   | %*
|                                     | Limited                                                   |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|J.I.C Enterprises (Hong Kong)        |                                                           | Hong Kong      |               | Investment holding,     |           |                    | 74.78                   | %* |      |  | 74.86                   | %*
|                                     | Limited                                                   |                |               |                         |           |                    | manufacturing and       |    |      |  |                         |    |  |  | 
|                                     |                                                           |                |               |                         |           | trading            |                         |    |      |  |                         |    |  | 
|J.I.C. Electronics Company           |                                                           | Hong Kong      |               | Inactive                |           |                    | 74.78                   | %* |      |  |                        |   
|                                     | Limited (deregistered in 2003)                            |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|J.I.C. Group (B.V.I.) Limited        |                                                           | BVI            |               | Inactive                |           |                    | 74.78                   | %* |      |  | 74.86                   | %*
|Jetup Electronic (Shenzhen)          |                                                           | PRC            |               | Manufacturing           |           |                    | 74.78                   | %* |      |  | 74.86                   | %*
|                                     | Co., Limited                                              |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|Jieda Electronics (Shenzhen)         |                                                           | PRC            |               | Inactive                |           |                    | 74.78                   | %* |      |  |                        |   
|                                     | Co., Ltd. (dissolved in 2003)                             |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|Jieyao Electronics (Shenzhen)        |                                                           | PRC            |               | Manufacturing           |           |                    | 74.78                   | %* |      |  |                        |   
|                                     | Co., Ltd.                                                 |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|Nam Tai Investments Consultant       |                                                           | Macao          |               | Provision of management |           |                    |                        |    |      |  | 100                     | % 
|                                     | (Macao Commercial Offshore)                               |                |               |                         |           |                    | and sales co-ordination |    |      |  |                         |    |  |  | 
|                                     | Company Limited                                           |                |               |                         |           |                    | and marketing services  |    |      |  |                         |    |  |  | 
|Nam Tai Group Management             |                                                           | Hong Kong      |               | Provision of management |           |                    | 100                     | %  |      |  | 100                     | % 
|                                     | Limited                                                   |                |               |                         |           |                    | services                |    |      |  |                         |    |  |  | 
|Nam Tai Electronic & Electrical      |                                                           | Cayman Islands |               | Investment holding      |           |                    |                        |    |      |  | 100                     | % 
|                                     | Products Limited                                          |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|Nam Tai Electronic & Electrical      |                                                           | Hong Kong      |               | Investment holding and  |           |                    | 100                     | %  |      |  | 100                     | % 
|                                     | Products Limited                                          |                |               |                         |           |                    | trading                 |    |      |  |                         |    |  |  | 
|Nam Tai Telecom (Cayman)             |                                                           | Cayman Islands |               | Investment holding      |           |                    |                        |    |      |  | 100                     | % 
|                                     | Company Limited                                           |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|Nam Tai Telecom (Hong Kong)          |                                                           | Hong Kong      |               | Investment holding and  |           |                    | 100                     | %  |      |  | 100                     | % 
|                                     | Company Limited                                           |                |               |                         |           |                    | trading                 |    |      |  |                         |    |  |  | 
|Namtai Electronic (Shenzhen)         |                                                           | PRC            |               | Manufacturing and       |           |                    | 100                     | %  |      |  | 100                     | % 
|                                     | Co., Ltd.                                                 |                |               |                         |           |                    | trading                 |    |      |  |                         |    |  |  | 
|Namtek Japan Company Limited         |                                                           | Japan          |               | Provision of sales      |           |                    |                        |    |      |  | 80                      | % 
|                                     |                                                           |                |               |                         |           | co-ordination and  |                         |    |      |  |                         |    |  | 
|                                     |                                                           |                |               |                         |           | marketing services |                         |    |      |  |                         |    |  | 
|Namtek Software Development          |                                                           | Cayman Islands |               | Investment holding      |           |                    | 100                     | %  |      |  | 80                      | % 
|                                     | Company Limited                                           |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|Shenzhen
Namtek Co., Ltd.            |                                                           | PRC            |               | Software development    |           |                    | 100                     | %  |      |  | 80                      | % 
|Zastron Electronics (Shenzhen)       |                                                           | PRC            |               | Manufacturing and       |           |                    | 100                     | %  |      |  | 100                     | % 
|                                     | Co. Ltd. (formerly known                                  |                |               |                         |           |                    | trading                 |    |      |  |                         |    |  |  | 
|                                     | as Zastron Plastic & Metal
Products (Shenzhen) Co., Ltd.) |                |               |                         |           |                    |                         |    |      |  |                         |    |  |  |  |  | 
|Mate Fair Group Limited              |                                                           | BVI            |               | Investment holding      |           |                    | 72.22                   | %  |      |  | 72.22                   | % 



|* |  | Upon full conversion of the preference shares held
by the Company, the Company would have an effective interest of
93.97% and 88.39% in these subsidiaries as of December 31, 2002
and 2003, respectively (see note 3(b)(ii)).
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-14



---



##### Table of Contents





|3. |  | Investment in Subsidiaries - continued
|-- |  | --------------------------------------



| | (b) |  | Significant transactions
| | --- |  | ------------------------



| | (i)  |  | In March 2000, Nam Tai Electronic & Electrical
Products Limited (NTEE), a wholly-owned subsidiary of the
Company, together with Toshiba Battery Co., Ltd. (TBCL),
established BPC, a wholly foreign owned enterprise in Shenzhen,
PRC. NTEE had a 86.67% interest in BPC and the investment cost
of $1,300 was contributed in cash. BPC was located within the
Companys manufacturing complex where it produced and sold
high-end, environmentally friendly, rechargeable lithium ion
battery packs. Effective April 30, 2002, the Company sold its
86.67% joint venture interest in BPC to a TBCL related company
for $2,131 resulting in a gain of $17. For the year ended
December 31, 2001 and during the period from January 1, 2002
through April 30, 2002, the Company recognized net sales of
$21,072 and $7,849, respectively, from TBCL and its related
companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | In October 2000, the Company acquired all of the
outstanding shares of J.I.C. Group (B.V.I.) Limited (JIC), a
company incorporated in the BVI. The purchase price was the
initial consideration of $32,776, less a purchase price
adjustment based on earnings. The initial consideration was
satisfied by a cash consideration of $10,981 and the issuance
of 3,483,261 shares in the Company at $6.26 each, being the
average market closing price as reported on the Nasdaq Stock
Market (Nasdaq, the then stock market in which the Companys
stock was traded) for each day during the period from September
26, 2000 to October 24, 2000 (inclusive) on which Nasdaq was
open for trading and on which at least 30,000 shares were
traded. J.I.C Group are principally engaged in the manufacture
and trading of LCD panels and transformers. Their production
base is located at Shenzhen and Bao An, which are used by three
subsidiaries of JIC namely, Jieda Electronics (Shenzhen) Co.,
Ltd. (Jieda), Jetup Electronic (Shenzhen) Co., Ltd. (Jetup)
and Jieyao, all being wholly foreign owned enterprises in the
PRC. During 2003, Jieda merged with Jieyao and in June 2003,
J.I.C. Group disposed of its entire interest in Jieyao, which was
principally engaged in the manufacturing and sale of
transformers, as a result of concentration of its effort on its
LCD panels business unit. A profit of approximately $1,979, net of
minority interests, arose as a result of this disposition (see note 3 (b)(iii)).
|
| |      |  | The purchase price adjustment based on earnings is the amount
of shortfall, if any, between the net income of the J.I.C. Group
for the year ended March 31, 2001 and the guaranteed profit
amount of $3,846, multiplied by 8.5. As the net income of the
J.I.C. Group for the year ended March 31, 2001 met this
guaranteed profit requirement, no adjustment to the purchase
price was made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |      |  | The acquisition was accounted for as a purchase and the
results of the J.I.C. Group have been included in the
accompanying consolidated financial statements since the date
of acquisition. The excess of the purchase consideration over
the fair value of the net assets acquired of $10,002 was
$22,774 and had been recorded as goodwill which was being
amortized on a straight-line basis over 15 years. Upon the
Companys adoption of SFAS No. 142, the goodwill is no longer
being amortized (see note 2(f)). During 2001, the Company
incurred legal and professional fees of $85 to complete the
acquisition of JIC which was adjusted to goodwill.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-15



---



##### Table of Contents





|3. |  | Investment in Subsidiaries - continued
|-- |  | --------------------------------------



| | (b) |  | Significant transactions - continued
| | --- |  | ------------------------------------



| | (ii) - continued
| | ----------------
|
| |                 
|
| |                 
|
| |                 
|
| |                 

F-16



---



##### Table of Contents





|3. |  | Investment in Subsidiaries - continued
|-- |  | --------------------------------------



| | (b) |  | Significant transactions - continued
| | --- |  | ------------------------------------



|
|
|
|
|

|                              |  |   |        |  
|----------------------------- |  | - | ------ | -
|Property, plant and equipment |  | $ | 559    |  
|Cash                          |  |   | 40     |  
|Other assets                  |  |   | 870    |  
|Liabilities                   |  |   | (1,176 | )
|                              |  |   |        |  
|Total                         |  | $ | 293    |  
|                              |  |   |        |  



| | (iv) |  | In January 2003, the Company disposed of 20% of its
equity interest in Namtek Software to a company
which is owned by the management of Namtek Software for a cash
consideration of $160. As of the date of disposal, Namtek
Software was fair valued at $3,347. Accordingly, a charge to
compensation expense of $509 and a credit to additional paid-in
capital of $264 (being the difference between the net asset
value and fair value of Namtek Software disposed) resulted.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (v)  |  | In September 2000, the Company acquired a 5%
indirect shareholding in both Huizhou TCL Mobile Communication
Co., Ltd. (Huizhou TCL) and TCL Mobile Communication (HK)
Co., Ltd. (collectively TCL Mobile) through the acquisition
of 25% of the outstanding shares of Mate Fair, a privately held
investment holding company incorporated in the BVI with a 20%
shareholding interest in TCL Mobile. TCL Mobile is engaged in
manufacturing, distributing and trading of digital mobile
phones and accessories in the PRC as well as overseas markets.
The acquisition in Mate Fair was satisfied by cash
consideration of approximately $2,036. The 25% share of the net
book value of Mate Fair on that date was approximately $511.
Goodwill of approximately $1,525 was recorded by the Company
and was being amortized on a straight line basis over 10 years
from September 2000 to August 2010. The amortization expense
for the year ended December 31, 2001 was $153.
|
| |      |  | In May 2002, due to the increase of capital in Huizhou TCL,
Mate Fairs direct interest in Huizhou TCL was diluted from
20% to 18% and accordingly, the Companys 5% indirect interest
in Huizhou TCL was diluted to 4.5%. As a result of the
dilution, the Company recognized the release of unamortized
goodwill of approximately $132 and the share of Mate Fairs
loss on deemed disposal of Huizhou TCL of approximately $336
as part of the equity in income of affiliated companies. Mate
Fair ceased the equity method of accounting for Huizhou TCL
since it no longer held at least a 20% interest in Huizhou
TCL. In late 2002, TCL Mobile Communications (HK) Co., Ltd.
was acquired by Huizhou TCL.                                                                                                                                                                                                                                                                  
|
| |      |  | On November 11, 2002, through a series of linked transactions,
the Company effectively exchanged its 4.5% indirect interest
in Huizhou TCL for a 3.033% direct interest plus cash
consideration. This was accomplished by Mate Fair selling a
13.8% equity interest in Huizhou TCL for $10,424, which
resulted in a gain of $9,022 that was included in equity in
income of affiliated companies. Also, as part of these linked
transactions, the Company increased its shareholding in Mate
Fair from 25% to 72.22% for $3 by the subscription of
additional 3,028 shares in Mate Fair, and recognized an
additional release of unamortized goodwill of approximately
$388. The Company invested $5,128 of the proceeds in TCL
International Holdings Limited 3% convertible notes (see note
9(a)).                                                                                                                                                                              

F-17



---



##### Table of Contents





|3. |  | Investment in Subsidiaries - continued
|-- |  | --------------------------------------



| | (c) |  | Establishment of subsidiaries
| | --- |  | -----------------------------



| | (i)   |  | In May 2002, the Company established Namtek
Software, a wholly-owned subsidiary incorporated in the Cayman
Islands, at an investment cost of $800. It is an investment
holding company of Shenzhen Namtek Company Limited (Shenzhen
Namtek).                                                                                                                                       
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | In June 2003, Namtek Software established Namtek
Japan Company Limited, a subsidiary incorporated in Japan, at
an investment cost of $85. Its principal activity is sales
co-ordination and marketing of software.                                                                                                                                                                   
|
| | (iii) |  | In June 2003, the Company established two
wholly-owned subsidiaries, namely Nam Tai Telecom (Cayman)
Company Limited and Nam Tai Electronic & Electrical Products
Limited, incorporated in the Cayman Islands. Their principal
activity is to act as investment holding companies.                                                                                                   
|
| | (iv)  |  | In August 2003, the Company established Nam Tai
Investments Consultant (Macao Commercial Offshore) Company
Limited, a wholly-owned subsidiary incorporated in Macao, at an
investment cost of $13. Its principal activity is provision of
consultancy services to other group companies, and as the
Companys PRC headquarters due to the continuous increase in
investment in China.



|
|
|
|
|



|4. |  | Inventories                          
|-- |  | -------------------------------------
|  
|   |  | Inventories consist of the following:

|                 |  |      |        |      |  |   |        | 
|---------------- |  | ---- | ------ | ---- |  | - | ------ | 
|At December 31,  |  | 2002 |        | 2003
|                 |  |      |        |     
|Raw materials    |  | $    | 15,719 |      |  | $ | 17,448 | 
|Work-in-progress |  |      | 1,937  |      |  |   | 4,534  | 
|Finished goods   |  |      | 1,544  |      |  |   | 5,050  | 
|                 |  |      |        |      |  |   |        | 
|                 |  | $    | 19,200 |      |  | $ | 27,032 | 
|                 |  |      |        |      |  |   |        | 



|5. |  | Property, Plant and Equipment                          
|-- |  | -------------------------------------------------------
|  
|   |  | Property, plant and equipment consist of the following:

|                                                |  |      |         |      |  |   |         |  
|----------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | -
|At December 31,                                 |  | 2002 |         | 2003
|                                                |  |      |         |     
|At cost                                         |  |      |         |      |  |   |         |  
|Land use right, leasehold land and buildings    |  | $    | 41,938  |      |  | $ | 47,777  |  
|Machinery and equipment                         |  |      | 51,648  |      |  |   | 61,417  |  
|Leasehold improvements                          |  |      | 10,237  |      |  |   | 12,506  |  
|Furniture and fixtures                          |  |      | 1,646   |      |  |   | 1,967   |  
|Automobiles                                     |  |      | 1,536   |      |  |   | 1,432   |  
|Tools and molds                                 |  |      | 77      |      |  |   | 132     |  
|                                                |  |      |         |      |  |   |         |  
|Total                                           |  |      | 107,082 |      |  |   | 125,231 |  
|Less: accumulated depreciation and amortization |  |      | (40,669 | )    |  |   | (50,283 | )
|Construction in progress                        |  |      | 9,501   |      |  |   | 2,699   |  
|                                                |  |      |         |      |  |   |         |  
|Net book value                                  |  | $    | 75,914  |      |  | $ | 77,647  |  
|                                                |  |      |         |      |  |   |         |  



| |  | As of December 31, 2003, the Company has entered into commitments for
capital expenditure for property, plant and equipment of approximately
$34,161, which are expected to be disbursed during the year ending
December 31, 2004.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-18



---



##### Table of Contents





|6. |  | Goodwill                           
|-- |  | -----------------------------------
|  
|   |  | Goodwill consists of the following:

|                                                                                               |                                                           |   |            |     |           |   |        |     |  |   |        |     | 
|---------------------------------------------------------------------------------------------- | --------------------------------------------------------- | - | ---------- | --- | --------- | - | ------ | --- |  | - | ------ | --- | 
|                                                                                               |                                                           |   |            |     |           |   | LPT    |     |  |   |       
|                                                                                               |                                                           |   | CEP        |     | Segment   |   |        |     | 
|                                                                                               |                                                           |   | Segment    |     | (LCD      |   |        |     | 
|                                                                                               |                                                           |   | (reporting |     | reporting |   |        |     | 
|                                                                                               |                                                           |   | unit)      |     | unit)     |   | Total 
|                                                                                               |                                                           |   |            |     |           |   |       
|Balance at January 1, 2002                                                                     |                                                           | $ | 339        |     |           | $ | 21,750 |     |  | $ | 22,089 |    
|Goodwill acquired during the year:                                                             |                                                           |   |            |     |           |   |        |     |  |   |        |    
|                                                                                               | Additional goodwill of JIC Technology
(see note 3(b)(ii)) |   |            |    |           |   |        | 253 |  |   |        | 253 | 
|                                                                                               | Additional goodwill of Mate Fair                          |   |            | 788 |           |   |        |    |  |   |        | 788 | 
|Impairment of goodwill on business acquired from MBS                                           |                                                           |   | (339       | )   |           |   |       |     |  |   | (339   | )  
|Goodwill release related to disposition of 7.1% interest
in J.I.C. Group(see note 3(b)(ii))    |                                                           |   |           |     |           |   | (1,483 | )   |  |   | (1,483 | )  
|                                                                                               |                                                           |   |            |     |           |   |        |     |  |   |        |    
|Balance at December 31, 2002                                                                   |                                                           | $ | 788        |     |           | $ | 20,520 |     |  | $ | 21,308 |    
|Goodwill release related to disposition of 5.58% interest
in JIC Technology(see note 3(b)(ii)) |                                                           |   |           |     |           |   | (1,171 | )   |  |   | (1,171 | )  
|                                                                                               |                                                           |   |            |     |           |   |        |     |  |   |        |    
|Balance at December 31, 2003                                                                   |                                                           | $ | 788        |     |           | $ | 19,349 |     |  | $ | 20,137 |    
|                                                                                               |                                                           |   |            |     |           |   |        |     |  |   |        |    



|   |  | No goodwill has been assigned to the transformer reporting unit as the
Companys purchase of the J.I.C. Group was exclusively for the LCD panel
reporting unit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company acquired certain net assets from MBS, a telecommunication
business including the design, research and development, and marketing of
telecommunication products. The excess of the purchase consideration over
the fair value of the assets acquired was $776 and was recorded as
goodwill which was being amortized on a straight-line basis over 4 years.
In 2002, the Company determined that the previously acquired technology
had become obsolete. Therefore, the Company recorded an impairment for
the remaining goodwill of $339 and accelerated the amortization of the
license fees (included in intangible assets) by $173.
|  
|7. |  | Intangible Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Amortized intangible assets consist of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                  |  |      |       |      |  |   |     |  
|--------------------------------- |  | ---- | ----- | ---- |  | - | --- | -
|At December 31,                   |  | 2002 |       | 2003
|                                  |  |      |       |     
|Gross
carrying amount of licenses |  | $    | 1,335 |      |  | $ | 643 |  
|Accumulated amortization          |  |      | (586  | )    |  |   | (92 | )
|Disposal (see note 17)            |  |      | (749  | )    |  |   |    |  
|                                  |  |      |       |      |  |   |     |  
|Net carrying amount               |  | $    |      |      |  | $ | 551 |  
|                                  |  |      |       |      |  |   |     |  



| |  | Amortization expense charged to income from
operations for the year ended December 31,
2001, 2002 and 2003 was $209, $222 and $92,
respectively. Amortization expense on
intangible assets for each of the next five
years is as follows:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                         |        |   |     |    | 
|------------------------ | ------ | - | --- | -- | 
|Year ending December 31, |        |   |     |   
|                         | - 2004 |   | $   | 92 | 
|                         | - 2005 |   |     | 92 | 
|                         | - 2006 |   |     | 92 | 
|                         | - 2007 |   |     | 92 | 
|                         | - 2008 |   |     | 92 | 
|                         |        |   |     |   
|Total                    |        | $ | 460 |   
|                         |        |   |     |   

F-19



---



##### Table of Contents





|8. |  | Investment in Affiliated Companies, Equity Method                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Companys investments accounted for under the equity method are
disclosed below. The Company has not made any loans or guarantees or has
any contingent liabilities with these companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Mate Fair                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | Mate Fair was accounted as an affiliated company upto November 11, 2002.
Details of the investment in Mate Fair are set out in note 3(b)(v).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Alpha Star                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | In January 2003, the Company further expanded its business to include
wireless communication technology and related products. The Company made
a strategic investment of $10,000 by subscribing for a 25% shareholding in
Alpha Star, a BVI company, which is the ultimate holding company of the
JCT Wireless Technology Company Limited (JCT), a company engaged in the
design, development and marketing of wireless communication terminals and
wireless application software. The Company also manufactures wireless
communication terminals and related modules for JCT. As part of the
agreement, Alpha Star agreed to purchase from the Company at least 50
percent of the orders it, or any of its subsidiaries, receives for RF
modules provided the Company performs such manufacturing services at a
price comparable to the market. The fair value of this arrangement was
estimated to be $643 and is included in the consolidated balance sheet as
an intangible asset (note 7). The Company has one representative on Alpha
Stars board of directors.
|  
|   |  | The Company has recorded goodwill of approximately $5,596 as a result of
the acquisition of Alpha Star. For the year ended December 31, 2003, the
Company recorded $498 in equity in earning of Alpha Star.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | As of December 31, 2003, JCT owed the Company $2,707. For the year ended
December 31, 2003, the Company recognized net sales of $20,782 to JCT and
purchased raw materials of $5,456 from JCT and its related companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|9. |  | Investments in TCL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The Company had three investments in TCL Group of companies in the form of
convertible notes and investments at cost. During the year ended December
31, 2003, the Company disposed of the convertible notes. The Company has
not incurred any material operating revenue or expenses from the TCL Group
of companies, for the years ended December 31, 2001, 2002 and 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            



| | (a) |  | Convertible Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On November 11, 2002, in connection with its disposal of 1.467%
indirect interest in Huizhou TCL (see note 3(b)(v)) for
approximately $10,424, the Company purchased $5,128 in 3%
convertible notes (CB Note) due in November 2005 of TCL
International Holdings Limited, a publicly listed company on The
Stock Exchange of Hong Kong Limited. In August 2003, the CB Note
was disposed of by the Company for a consideration of $5,026,
resulting in a loss of $102.
|
| | (b) |  | Investments, at cost                                                                                                                                                                                                                                                                                                                                                                                                                                                    



| | (i)  |  | TCL Corporation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | In January 2002, the Company acquired a 6% equity interest in
TCL Holdings Corporation Ltd, now known as TCL Corporation,
for a consideration of $11,968. TCL Corporation, an
enterprise established in the PRC, is the parent company of
the TCL Group of companies. TCL Corporations scope of
business includes the import and export of raw materials, the
design, manufacturing and sales and marketing of telephones,
VCD players, color television sets, mobile phones and other
consumer electronic products. TCL Corporation changed from a
limited liability company to a company limited by shares in
April 2002 (the Establishment Date).
|
| |      |  | In January 2004, TCL Corporation listed its A-shares on the
Shenzhen Stock Exchange at RMB4.26 (equivalent to US$0.52) per
A-share. The Companys interest in TCL Corporation has then
been diluted to 3.69% and represents 95.52 million promoters
shares of TCL Corporation after its initial public offering.
According to Article 147 of the Company Law of the PRC, the
Company is restricted to transfer its promoters shares within
three years from the Establishment Date. The Company is,
however, entitled to dividend and other rights similar to the
holders of A-shares.                                                               
|
| |      |  | The Company may re-consider its investment strategy in these
promotors shares after the end of restriction period in April
2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | (ii) |  | Huizhou TCL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |      |  | The Company has a 3.033% direct interest in Huizhou TCL
through the Companys subsidiary, Mate Fair (see note
3(b)(v)). This investment at cost is $4,014 at December 31,
2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

F-20



---



##### Table of Contents





|10. |  | Investment in iMagic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On January 20, 2003, one of the Companys subsidiaries, JIC Technology,
entered into a subscription agreement with iMagic Infomedia Technology
Limited (iMagic) pursuant to which JIC Technology agreed to subscribe
for 60 shares of par value of HK$1 each in iMagic, representing 5.36% of
the total issued capital of iMagic, for cash consideration of $384. On
the same date, JIC Technology also entered into a deed of put option with
a director of iMagic under which the director of iMagic granted JIC
Technology an option to require the director to purchase the shares from
JIC Technology at the original consideration of $384. The put option
shall be exercisable on December 31, 2004 and expire on January 30, 2005.
iMagic, a privately held company, is the parent company of PowerPhone
Network Limited, a company that has deployed interactive multimedia voice
and data terminals in Asia and the United States.
|   
|11. |  | Bank Loans and Banking Facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|    |  | The Company has credit facilities with various banks representing notes
payable, trade acceptances, import facilities and overdrafts. At December
31, 2002 and 2003, these facilities totaled $58,244 and $62,256, of which
$8,889 and $8,309 were utilized at December 31, 2002 and 2003,
respectively. The maturity of these facilities is generally up to 90
days. Interest rates are generally based on the banks usual lending
rates in Hong Kong and the credit lines are normally subject to annual
review. The banking facilities are secured by guarantees given by Nam Tai
and certain subsidiaries and restrict the pledge of assets to any other banks without the prior consent of the
Companys bankers.                                                                                                                                                                                                                       
|   
|    |  | The notes payable, which include trust receipts and shipping guarantees,
may not agree to utilized banking facilities due to a timing difference
between the Company receiving the goods and the bank issuing the trust
receipt to cover financing of the purchase. The Company recognizes the
outstanding letter of credit as a note payable when the goods are
received, even though the bank may not have issued the trust receipt.
However, this will not affect the total bank facility utilization, as an
addition to the trust receipts will be offset by a reduction in the same
amount of outstanding letters of credit.                                                                                                                                                                                                                                                                                                             

|                                    |  |      |        |      |  |   |        |  
|----------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|At December 31,                     |  | 2002 |        | 2003
|                                    |  |      |        |     
|Outstanding letters of credit       |  | $    | 7,904  |      |  | $ | 6,430  |  
|Trust receipts                      |  |      | 908    |      |  |   | 1,531  |  
|Usance bills pending maturity       |  |      | 57     |      |  |   | 348    |  
|Documents in transit                |  |      | 20     |      |  |   |       |  
|                                    |  |      |        |      |  |   |        |  
|Total banking facilities utilized   |  |      | 8,889  |      |  |   | 8,309  |  
|Less: Outstanding letters of credit |  |      | (7,904 | )    |  |   | (6,430 | )
|                                    |  |      |        |      |  |   |        |  
|Notes payable                       |  | $    | 985    |      |  | $ | 1,879  |  
|                                    |  |      |        |      |  |   |        |  



| |  | A subsidiary of the Company has an unsecured four-year term loan with
borrowings in May 2002 totaling $4,500 at a rate of 1.5% over three months
London Interbank Offered Rate, repayable in 16 quarterly instalments of
approximately $281 beginning August 31, 2002. At December 31, 2003, the
loan had an outstanding balance of $2,813. There is no restrictive
financial covenants associated with this term loan.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The long term debt is repayable as follows for the years ending December
31                                                                                                                                                                                                                                                                                                                                            

|       |  |   |       | 
|------ |  | - | ----- | 
|- 2004 |  | $ | 1,125 | 
|- 2005 |  |   | 1,125 | 
|- 2006 |  |   | 563   | 
|       |  |   |       | 
|       |  | $ | 2,813 | 
|       |  |   |       | 



| |  | The Company had a seven-year term loan with borrowings in October 2001
totaling $15,000 at a fixed interest rate of 5.05% in the first four years
and at a rate of 1% over Singapore Interbank Money Market Offer Rate for
the following three years. The loan was secured by a property with net
book value of $11,400. At December 31, 2002, the bank loan had an
outstanding balance of $12,860. On January 3, 2003, Company repaid the
entire outstanding balance due to the bank, resulting in a finance charge
on early repayment of $610, which was expensed in 2002.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-21



---



##### Table of Contents





|12. |  | Shareholders Equity
|--- |  | --------------------



| | (a) |  | The Company has only one class of common shares authorized,
issued and outstanding.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Stock options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |     |  | In August 1993, the Board of Directors approved a stock option plan
which authorized the issuance of 900,000 vested options to key
employees, consultants or advisors of the Company or any of its
subsidiaries. In December 1993, January 1996 and April 1999, the
option plan was amended and the maximum number of shares to be
issued pursuant to the exercise of options granted was increased to
1,950,000 and 3,000,000 and 4,275,000, respectively. The options
granted under this plan vest immediately and generally have a term
of three years, but cannot exceed ten years. The options are
granted to employees based on past performance and/or expected
contribution to the Company.                                                                         
|
| |     |  | In May 2001, the Board of Directors approved another stock option
plan which would grant 15,000 options to each independent director
of the Company elected at each annual general meeting of
shareholders, and might grant options to key employees, consultants
or advisors of the Company or any of its subsidiaries to subscribe
for its shares in accordance with the terms of this stock option
plan. The maximum number of shares to be issued pursuant to the
exercise of options granted was 3,000,000 shares. The options
granted under this plan vest immediately and generally have a term
of three years, but cannot exceed ten years. The options are
granted to independent directors based on past performance and/or
expected contributions to the Company.
|
| |     |  | Effective January 1, 2003, the Company has suspended issuing options
to management and employees except for the independent directors.
Rather, the Board of Directors approved an incentive bonus program
to reward management and employees with a cash bonus in lieu of
stock options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | A summary of stock option activity during the three years ended
December 31, 2003 is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Number of
    
    Option price per share with the weightedoptions
    
    average option price in parenthesisOutstanding at January 1, 2001
    
    
    1,308,000
    
    
    $3.50, $4.63, $4.94, $5.25 and $5.46 ($4.37)Granted
    
    
    1,314,759
    
    
    $4.65, $4.83 and $2.33 ($4.11)Exercised
    
    
    (348,000
    )
    
    $3.50, $4.63 and $5.25 ($3.54)Cancelled
    
    
    (152,559
    )
    
    $4.63, $4.65 and $4.94 ($4.67)Outstanding at December 31, 2001
    
    
    2,122,200
    
    
    $2.33, $4.63, $4.65, $4.83 and $5.46 ($4.32)Granted
    
    
    900,000
    
    
    $6.62Exercised
    
    
    (1,573,200
    )
    
    $2.33, $4.63, $4.65 and $6.62 ($4.24)Outstanding at December 31, 2002
    
    
    1,449,000
    
    
    $4.63, $4.65, $4.83, $5.46 and $6.62 ($5.84)Granted
    
    
    75,000
    
    
    $18.50Exercised
prior to 10 for 1 stock dividend
    
    
    (1,422,500
    )
    
    $4.63, $4.65, $4.83, $5.46, and $18.50 ($5.97)Effect of 10 for 1 stock dividend on
stock option
    
    
    10,150Exercised after 10 for 1 stock dividend
    
    
    (3,100
    )
    
    $6.02 ($6.02)Outstanding at December 31, 2003
    
    
    108,550
    
    
    $4.39, $6.02 and $16.82 ($12.34)




| |  |  | During 2002, 6,000 advisors options with an exercise price of $6.62
exercisable from April 30, 2002 and expiring on April 30, 2005 were
granted to an advisor and all were exercised during 2003. The
Company recorded compensation expense of $10 for the 2002 advisors
options based on the Black-Scholes option-pricing model. No
advisors options were granted during 2001 and 2003.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-22



---



##### Table of Contents





|12. |  | Shareholders Equity - continued
|--- |  | --------------------------------



| | (b) |  | Stock options - continued                                                           
| | --- |  | ------------------------------------------------------------------------------------
|
| |     |  | Details of the options granted by the Company in 2001, 2002 and 2003
are as follows:

|                                                                                                                       |  |          |       |                    |  |                                  |  |  | 
|---------------------------------------------------------------------------------------------------------------------- |  | -------- | ----- | ------------------ |  | -------------------------------- |  |  | 
|Number of                                                                                                              |  | Exercise |       |                    |  |                                 
|options granted                                                                                                        |  | price    |       | Exercisable period
|                                                                                                                       |  |          |       |                   
|In 2001                                                                                                                |  |          |       |                    |  |                                  |  | 
|833,559                                                                                                                |  | $        | 4.65  |                    |  | March 16, 2001 to March 16, 2004
|165,000                                                                                                                |  | $        | 4.39  | *                  |  | June 22, 2001 to June 22, 2004  
|316,200                                                                                                                |  | $        | 2.33  |                    |  | June 27, 2001 to June 22, 2002  
|In 2002                                                                                                                |  |          |       |                    |  |                                  |  | 
|900,000                                                                                                                |  | $        | 6.02  | *                  |  | April 30, 2002 to April 30, 2005
|In 2003                                                                                                                |  |          |       |                    |  |                                  |  | 
|75,000                                                                                                                 |  | $        | 16.82 | *                  |  | July 8, 2003 to July 8, 2006    
|                                                                                                                       |  |          |       |                    |  |                                 
|*  Subsequent to
November 7, 2003, the exercise price has been adjusted to reflect the 10 for 1 stock dividend effect.



| |  |  | Stock option costs of $839 charged to the selling, general and
administrative expenses in 2001 represented the difference between
the market price and exercisable price of $2.33 for the 316,200
options granted during 2001.
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The following summarizes information about stock options outstanding at December 31,
2003. All stock options are exercisable as of December 31, 2003.                                                                         

|                |  |            |         |                       |  |                  |      | 
|--------------- |  | ---------- | ------- | --------------------- |  | ---------------- | ---- | 
|                |  |            |         |                       |  | Weighted average
|                |  | Number     |         | remaining contractual
|Exercise prices |  | of options |         | life in months       
|                |  |            |         |                      
|$4.39           |  |            | 16,500  |                       |  |                  | 5.7  | 
|$6.02           |  |            | 26,050  |                       |  |                  | 15.9 | 
|$16.82          |  |            | 66,000  |                       |  |                  | 30.2 | 
|                |  |            |         |                       |  |                  |      | 
|                |  |            | 108,550 |                       |  |                  | 23.0 | 
|                |  |            |         |                       |  |                  |      | 



| |  |  | The weighted average remaining contractual life of the stock options outstanding at
December 31, 2001, 2002 and 2003 was 18, 22 and 23 months, respectively. The weighted
average fair value of options granted during 2001, 2002 and 2003 was $1.71, $1.66 and
$7.76, respectively, using the Black-Scholes option-pricing model based on the following
assumptions:
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |  |             |      |         |  |         |      |   |  |   |       |  
|----------------------------- |  | ----------- | ---- | ------- |  | ------- | ---- | - |  | - | ----- | -
|Year ended December, 31       |  | 2001        |      | 2002    |  | 2003   
|                              |  |             |      |         |  |        
|Risk-free interest rate       |  |             | 5    | %       |  |         | 4.5  | % |  |   | 2.56  | %
|Expected life                 |  | 1 - 3 years |      | 3 years |  | 3 years
|Expected volatility           |  |             | 45.0 | %       |  |         | 36.0 | % |  |   | 64.24 | %
|Expected dividend per quarter |  | $           | 0.03 |         |  | $       | 0.04 |   |  | $ | 0.05  |  



| | (c) |  | Advisors warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On December 2, 1997, the Company issued 390,000 units to its
advisors. The holder of each unit is entitled to purchase from the
Company at the purchase price of $6.80 per unit one common share and
one warrant exercisable to purchase one common share at $6.80 per
share for the period from November 30, 1998 to November 24, 2000.
In 2000, 174,090 advisors warrants were exercised, 185,910
advisors warrants had expired and the expiry date of exercisable
period for the remaining 30,000 advisors warrants was extended to
November 24, 2002. As a result, 174,090 common shares and 174,090
warrants were issued during the year ended December 31, 2000. The
compensation expense for the extention of the expiry date of the
30,000 advisors warrants, using the Black-Scholes option-pricing
model, was $43 and has been charged to the consolidated statement of
income in 2000. The remaining 30,000 of these advisors warrants
expired on November 24, 2002.

F-23



---



##### Table of Contents





|12. |  | Shareholders Equity - continued
|--- |  | --------------------------------



| | (c) |  | Advisors warrants - continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On October 5, 1998, the Company issued 900,000 warrants to an
advisor as consideration of advisory services under a service
contract for a period of 3 years. The holder of each warrant is
entitled to purchase from the Company one common share at $3.42 per
share for the period from October 5, 1999 to October 4, 2001. These
warrants have been accounted for using variable accounting and the
related compensation expense of $263 has been charged to the
consolidated statement of income for the year ended December 31,
2001. In 2001, all these warrants were exercised.
|
| |     |  | The fair values of the advisors warrants were calculated using the
Black-Scholes option-pricing model based on the following
assumptions:                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                              |  |                   |      |                 |  |   |      |  
|----------------------------- |  | ----------------- | ---- | --------------- |  | - | ---- | -
|                              |  | $6.80 Advisors'   |      | $3.42 Advisors'
|                              |  | warrants          |      | warrants       
|                              |  |                   |      |                
|Risk-free interest rate       |  |                   | 6.50 | %               |  |   | 6.50 | %
|Expected life                 |  | November 24, 2002 |      | October 4, 2001
|Expected volatility           |  |                   | 50   | %               |  |   | 50   | %
|Expected dividend per quarter |  | $                 | 0.03 |                 |  | $ | 0.03 |  



| | (d) |  | Public warrants                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On October 10, 1997, the Company distributed to each holder of its
common shares nontransferable rights (the Rights) to subscribe for
one unit for every three common shares owned at that date (referred
to as the Rights Offering). The subscription price was $5.67 per
unit. Each unit consisted of one common share and one redeemable
common share purchase warrant. Each warrant is exercisable to
purchase one common share at a price of $6.80 per share at any time
from the date of their issuance until November 24, 2000. The common
shares and the warrants included in the units will be separately
transferable immediately on issuance of the common shares. The
warrants are redeemable by the Company at any time at $0.02 per
warrant if the average closing sale price of the common shares for
20 consecutive trading days within the 30-day period preceding the
date the notice is given equals or exceeds $8.50 per share. The
terms of the Rights Offering include an over subscription privilege
available to shareholders subject to certain conditions and a
Standby Purchase Commitment made by the Standby Underwriters to the
Rights Offering, subject to the terms and conditions of a Standby
Underwriting Agreement made between the Company and the Standby
Underwriters, and which includes purchase by the Standby
Underwriters of units not subscribed for by shareholders of the
Company. Pursuant to the Rights Offering, 9,000,000 units were
offered with a subscription expiry date of November 24, 1997.
|
| |     |  | During the period of the Rights Offering, shareholders of the
Company exercised Rights to purchase a total of 6,803,751 units at
$5.67 per unit and the Standby Underwriters purchased a total of
2,187,636 units at a price of $5.58, being the lower of the
subscription price per unit and the closing bid price per common
share as reported on the Nasdaq on the subscription expiry date, as
provided for under the Standby Underwriting Agreement. The gross
proceeds raised amounted to $50,769 and the net proceeds raised
after deduction of expenses associated with the Rights Offering
amounted to $47,700.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | On April 1, 2000, the Company amended the terms of the warrant by
extending the expiry date of the warrants from November 24, 2000 to
November 24, 2002. The extending of the expiry date of the warrants
created a new measurement date for the warrants, however, the
resulting amount was immaterial. During 2002, 4,381,965 warrants
were exercised. On November 24, 2002, all of the remaining warrants
expired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |     |  | The 174,090 warrants issued pursuant to the exercise of advisors
warrants above bear the same rights as public warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | (e) |  | Share buy - back program                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |     |  | The Company repurchased shares under its buy-back program as
follows. All shares were purchased at the prevailing market price
at the date of the buy back and were settled out of the
Company's retained earnings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|     |  |                    |         |                        |  |   |      | 
|---- |  | ------------------ | ------- | ---------------------- |  | - | ---- | 
|Year |  | Shares repurchased |         | Average purchase price
|     |  |                    |         |                       
|2001 |  |                    | 683,700 |                        |  | $ | 4.90 | 
|2002 |  |                    | 592,800 |                        |  | $ | 5.95 | 

F-24



---



##### Table of Contents





|12. |  | Shareholders Equity - continued
|--- |  | --------------------------------



| | (f) |  | Share redemptions                                                                                                                                                                                                                     
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | On January 22, 1999, pursuant to its Articles of Association, the
Company redeemed and cancelled 415,500 shares of the Company
registered in the name of Tele-Art at a price of 3.73 per share for
$1,549 (see note 19(b)).           
|
| |     |  | On August 12, 2002, pursuant to its Articles of Association, the
Company redeemed and cancelled an additional 509,181, shares of the
Company beneficially owned by Tele-Art at a price of $6.14 per share
for $3,125 (see note 19(b)).



|13. |  | Earnings Per Share                                                                                  
|--- |  | ----------------------------------------------------------------------------------------------------
|   
|    |  | The calculations of basic earnings per share and diluted earnings per
share are computed as follows:

|                              |                 |        |       |             |  |        |                |         |           |   |      |  | 
|----------------------------- | --------------- | ------ | ----- | ----------- |  | ------ | -------------- | ------- | --------- | - | ---- |  | 
|                              |                 |        |       |             |  |        | Weighted       |         |           |   |     
|                              |                 |        |       |             |  |        | average number |         | Per share
|Year ended December 31, 2001  |                 | Income |       | of shares * |  | amount
|                              |                 |        |       |             |  |       
|Basic earnings per share      |                 | $      | 9,045 |             |  |        | 33,905,444     |         |           | $ | 0.27 | 
|Effect of dilutive securities |                 |        |       |             |  |        |                |         |           |   |      | 
|                              | - Stock options |        |       |            |  |        |                | 186,978 |           |   |      |  | 
|                              | - Warrants      |        |       |            |  |        |                | 205,834 |           |   |      |  | 
|                              |                 |        |       |             |  |        |                |         |           |   |      | 
|Diluted earnings per share    |                 | $      | 9,045 |             |  |        | 34,298,256     |         |           | $ | 0.26 | 
|                              |                 |        |       |             |  |        |                |         |           |   |      | 



| |  | Stock options to purchase 45,000 shares of common shares at $5.46,
warrants to purchase 9,165,477 shares of common shares at $6.80 and 30,000
advisors warrants were outstanding at December 31, 2001 but were not
included in the computation of diluted earnings per share because the
exercise price of the stock options and warrants was greater than the
average market price of the common shares during the relevant period. The
holder of each advisors warrant is entitled to purchase from the Company
at the purchase price of $6.80 per unit one common share and one warrant
exercisable to purchase one common share at $6.80 per share.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |                 |        |        |             |  |        |                |         |           |   |      |  | 
|----------------------------- | --------------- | ------ | ------ | ----------- |  | ------ | -------------- | ------- | --------- | - | ---- |  | 
|                              |                 |        |        |             |  |        | Weighted       |         |           |   |     
|                              |                 |        |        |             |  |        | average number |         | Per share
|Year ended December 31, 2002  |                 | Income |        | of shares * |  | amount
|                              |                 |        |        |             |  |       
|Basic earnings per share      |                 | $      | 20,023 |             |  |        | 34,885,366     |         |           | $ | 0.57 | 
|Effect of dilutive securities |                 |        |        |             |  |        |                |         |           |   |      | 
|                              | - Stock options |        |        |            |  |        |                | 476,837 |           |   |      |  | 
|                              | - Warrants      |        |        |            |  |        |                | 67,914  |           |   |      |  | 
|                              |                 |        |        |             |  |        |                |         |           |   |      | 
|Diluted earnings per share    |                 | $      | 20,023 |             |  |        | 35,430,117     |         |           | $ | 0.57 | 
|                              |                 |        |        |             |  |        |                |         |           |   |      | 



| |  | All options and warrants to purchase shares of common stock were included
in the computation of 2002 diluted earnings per share as the exercise
prices were less than the average market price of the common stock.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              |                 |        |        |             |  |        |                |         |           |   |      |  | 
|----------------------------- | --------------- | ------ | ------ | ----------- |  | ------ | -------------- | ------- | --------- | - | ---- |  | 
|                              |                 |        |        |             |  |        | Weighted       |         |           |   |     
|                              |                 |        |        |             |  |        | average number |         | Per share
|Year ended December 31, 2003  |                 | Income |        | of shares * |  | amount
|                              |                 |        |        |             |  |       
|Continuing
Operations         |                 |        |        |             |  |        |                |         |           |   |      | 
|Basic earnings per share      |                 | $      | 41,823 |             |  |        | 40,336,439     |         |           | $ | 1.04 | 
|Effect of dilutive securities |                 |        |        |             |  |        |                |         |           |   |      | 
|                              | - Stock options |        |        |            |  |        |                | 502,701 |           |   |      |  | 
|                              |                 |        |        |             |  |        |                |         |           |   |      | 
|Diluted earnings per share    |                 | $      | 41,823 |             |  |        | 40,839,140     |         |           | $ | 1.02 | 
|                              |                 |        |        |             |  |        |                |         |           |   |      | 
|Discontinued
operation        |                 |        |        |             |  |        |                |         |           |   |      | 
|Basic earnings per share      |                 | $      | 1,979  |             |  |        | 40,336,439     |         |           | $ | 0.05 | 
|Effect of dilutive securities |                 |        |        |             |  |        |                |         |           |   |      | 
|                              | - Stock options |        |        |            |  |        |                | 502,701 |           |   |      |  | 
|                              |                 |        |        |             |  |        |                |         |           |   |      | 
|Diluted earnings per share    |                 | $      | 1,979  |             |  |        | 40,839,140     |         |           | $ | 0.05 | 
|                              |                 |        |        |             |  |        |                |         |           |   |      | 
|                              |                 |        |        |             |  |        |                |         |           |   |      | 
|Net
income                    |                 |        |        |             |  |        |                |         |           |   |      | 
|Basic earnings per share      |                 | $      | 43,802 |             |  |        | 40,336,439     |         |           | $ | 1.09 | 
|Effect of dilutive securities |                 |        |        |             |  |        |                |         |           |   |      | 
|                              | - Stock options |        |        |            |  |        |                | 502,701 |           |   |      |  | 
|                              |                 |        |        |             |  |        |                |         |           |   |      | 
|Diluted earnings per share    |                 | $      | 43,802 |             |  |        | 40,839,140     |         |           | $ | 1.07 | 
|                              |                 |        |        |             |  |        |                |         |           |   |      | 



| |  | All options to purchase shares of common stock were included in the
computation of 2003 diluted earnings per share as the exercise prices were
less than the average market price of the common stock.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | * Adjusted for 3 for 1 stock split and 10 for 1 stock dividend.                                                                                                                                       

F-25



---



##### Table of Contents





|14. |  | Other Income (Expenses) - Net             
|--- |  | ------------------------------------------
|   
|    |  | Other income (expenses) - net consists of:

|                                                                                                                |  |      |       |      |  |      |        |   |  |   |       |  
|--------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ----- | -
|Year ended December 31,                                                                                         |  | 2001 |       | 2002 |  | 2003
|                                                                                                                |  |      |       |      |  |     
|Interest income                                                                                                 |  | $    | 1,195 |      |  | $    | 799    |   |  | $ | 788   |  
|Miscellaneous expense                                                                                           |  |      | (294  | )    |  |      | (771   | ) |  |   | (886  | )
|Non-trade receivable (write-off) recovered                                                                      |  |      | (500  | )    |  |      |       |   |  |   | 500   |  
|Foreign exchange gain (loss)                                                                                    |  |      | 530   |      |  |      | (345   | ) |  |   | (62   | )
|Bank charges                                                                                                    |  |      | (333  | )    |  |      | (307   | ) |  |   | (274  | )
|Release of unamortized goodwill of an affiliated company
- Mate Fair (see note 3(b)(v))                         |  |      |      |      |  |      | (520   | ) |  |   |      |  
|Realized gain on disposal of marketable securities                                                              |  |      |      |      |  |      | 642    |   |  |   |      |  
|Unrealized gain on marketable securities                                                                        |  |      | 1,568 |      |  |      |       |   |  |   |      |  
|Dividend income received from marketable securities and investment                                              |  |      | 525   |      |  |      | 917    |   |  |   | 3,714 |  
|Gain on disposal of intangible asset (see note 17)                                                              |  |      |      |      |  |      | 60     |   |  |   |      |  
|Gain on disposal of a subsidiary (see note 3(b)(i))                                                             |  |      |      |      |  |      | 17     |   |  |   |      |  
|Gain on disposal of land                                                                                        |  |      | 18    |      |  |      |       |   |  |   | 9     |  
|Gain on partial disposal of JIC Technology                                                                      |  |      |      |      |  |      |       |   |  |   | 1,838 |  
|Loss on disposal of convertible notes                                                                           |  |      |      |      |  |      |       |   |  |   | (102  | )
|Redemption of shares in legal settlement, net of expenses
- Tele Art case (see note 19(b))                      |  |      |      |      |  |      | 3,333  |   |  |   |      |  
|Provision for loss on Tele-Art Case for 1999 and 2002
share redemptions (see note 19(b))                        |  |      |      |      |  |      | (5,192 | ) |  |   |      |  
|Loss
on reverse merger of J.I.C. Group, including release of
unamortized goodwill of $1,483 (see note 3(b)(ii)) |  |      |      |      |  |      | (2,655 | ) |  |   |      |  
|Legal
expense related to reverse merger of J.I.C. Group                                                         |  |      |      |      |  |      | (1,411 | ) |  |   |      |  
|Finance charge on early repayment of a bank loan (see note 11)                                                  |  |      |      |      |  |      | (610   | ) |  |   |      |  
|                                                                                                                |  |      |       |      |  |      |        |   |  |   |       |  
|                                                                                                                |  | $    | 2,709 |      |  | $    | (6,043 | ) |  | $ | 5,525 |  
|                                                                                                                |  |      |       |      |  |      |        |   |  |   |       |  



|15. |  | Staff Retirement Plans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company operates a Mandatory Provident Fund (MPF) scheme for all
qualifying employees in Hong Kong and a retirement benefit scheme (RBS)
for all qualifying employees in Macao. The MPF and RBS are defined
contribution schemes and the assets of the schemes are managed by the
trustees independent to the Company.                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Both the MPF and RBS are available to all employees aged 18 to 64 and with
at least 60 days of service under the employment of the Company in Hong
Kong and Macao. Contributions are made by the Company at 5% based on the
staffs relevant income. The maximum relevant income for contribution
purpose per employee is $3 per month. Staff members are entitled to 100%
of the Companys contributions together with accrued returns irrespective
of their length of service with the Company, but the benefits are required
by law to be preserved until the retirement age of 65 for employees in
Hong Kong while the benefit can be withdrawn by the employees in Macao at
the end of employment contracts.
|   
|    |  | According to the relevant laws and regulations in the PRC, the Company is
required to contribute 8% to 9% of the stipulated salary set by the local
government of Shenzhen, the PRC, to the retirement benefit schemes to fund
the retirement benefits of their employees. The principal obligation of
the Company with respect to these retirement benefit schemes is to make
the required contributions under the scheme. No forfeited contributions
may be used by the employer to reduce the existing level of contributions.                                                                                                                                                                                
|   
|    |  | The cost of the Companys contribution to the staff retirement plans in
Hong Kong, Macao and PRC amounted to $561, $617 and $982 for the years
ended December 31, 2001, 2002 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

F-26



---



##### Table of Contents





|16. |  | Income Taxes Expense, Net                                                         
|--- |  | ----------------------------------------------------------------------------------
|   
|    |  | The components of income before income taxes and minority interest are as
follows:

|                                   |  |      |       |      |  |      |        |  |  |   |        | 
|---------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ |  |  | - | ------ | 
|Year ended December 31,            |  | 2001 |       | 2002 |  | 2003
|                                   |  |      |       |      |  |     
|PRC, excluding Hong Kong and Macao |  | $    | 9,002 |      |  | $    | 18,823 |  |  | $ | 39,778 | 
|Hong Kong and Macao                |  |      | 500   |      |  |      | 2,137  |  |  |   | 3,511  | 
|                                   |  |      |       |      |  |      |        |  |  |   |        | 
|                                   |  | $    | 9,502 |      |  | $    | 20,960 |  |  | $ | 43,289 | 
|                                   |  |      |       |      |  |      |        |  |  |   |        | 



| |  | Under the current BVI law, the Companys income is not subject to
taxation. Subsidiaries operating in Hong Kong and the PRC are subject to
income taxes as described below, and subsidiary operating in Macao is
exempted from income taxes. Under the current Cayman law, Nam Tai Telecom
(Cayman) Company Limited, Nam Tai Electronic & Electrical Products Limited
and Namtek Software are not subject to profit tax as they have no business
operation.                                                                                                                                                                                        
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The provision for current income taxes of the subsidiaries operating in
Hong Kong has been calculated by applying the current rate of taxation of
16% for 2001 and 2002 and 17.5% for 2003 to the estimated taxable income
earned in or derived from Hong Kong during the period.                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Deferred tax, where applicable, is provided under the liability method at
the rate of 16% for 2001 and 2002 and 17.5% for 2003, being the effective
Hong Kong statutory income tax rate applicable to the ensuing financial
year, on the difference between the financial statement and income tax
bases of measuring assets and liabilities.                                                                                                                                                                                                                                                                                                      
|
| |  | The basic corporate tax rate for Foreign Investment Enterprises (FIEs)
in the PRC, such as Namtai Electronic (Shenzhen) Co., Ltd. (NTSZ),
Zastron Electronics (Shenzhen) Co., Ltd. (Zastron), Shenzhen Namtek and
Jetup (the PRC Subsidiaries) is currently 33% (30% state tax and 3%
local tax). However, because all the PRC subsidiaries are located in
Shenzhen and are involved in production operations, they qualify for a
special reduced state tax rate of 15%. In addition, the local tax
authorities in Shenzhen are not currently assessing any local tax.                                                                     
|
| |  | Since the PRC subsidiaries have agreed to operate for a minimum of 10
years in the PRC, a two-year tax holiday from the first profit making year
is available, following which in the third through fifth years there is a
50% reduction to 7.5%. In any event, for FIEs such as NTSZ, Zastron and
Namtek which export 70% or more of the production value of their products,
a reduction in the tax rate is available; in all cases apart from the
years in which a tax holiday or tax incentive is available, there is an overall minimum tax
rate of 10%. The following details the tax concessions received for the
Companys PRC subsidiaries:



| |  |  | On January 8, 1999, NTSZ received the recognition of High and
New Technology Enterprise which entitles it to various tax benefits
including a lower income tax rate of 7.5% until 2003. In July 2002,
the Shenzhen local tax authority issued a notice to shorten the tax
incentive period from 5 years to 3 years expiring in 2001.
Nevertheless NTSZ was advised by the Shenzhen local tax authority
that it would continue to provide a rebate of corporate tax paid for
2 years for 2002 and 2003. During 2003, NTSZ received $110 rebate of
corporate tax paid for 2002. In addition, NTSZ received a tax refund
of $122 from reinvestment of profits for 1999 to 2001 and a refund of
$441 for being a export-oriented enterprise in 2002.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Income tax of Zastron was payable at the rate of 10% on the
assessable profits of Zastron for the years ended December 31, 1999
to 2000. In 2003 Zastron received a refund of $56 from reinvestment
of profits for 1999 and a refund of $124 for being an export-oriented
enterprise in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | For the years ended December 31, 2001 and 2002, the income tax
of Jieda was payable at the rate of 15% on the assessable profit.
During 2003, Jieda merged with Jetup.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

F-27



---



##### Table of Contents





|16. |  | Income Taxes Expense, Net - continued
|--- |  | -------------------------------------



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | In February 2001, Namtek received the recognition of Advanced
Technology Enterprise which entitles it to various tax benefits
including a lower income tax rate of 7.5% until 2003. In 2003,
Shenzhen Namtek claimed a refund of $27 from the reinvestment of
profits for 1998 to 2000.                                                                                                                                
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Income tax of Jetup was payable at the rate of 7.5% on its
assessable profit for the years ended December 31, 1999 to 2001. The
Shenzhen local tax authority has granted Jetup the status of High
and New Technology Enterprise and allowed it to enjoy a 50%
reduction in corporate tax rate to 7.5% for 3 years from 2002 to
2004. During 2003, Jetup received a refund of $175 from reinvestment
of profit for 2002.
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | Income tax of Jieyao was payable at the rate of 7.5% on the
assessable profit for the years ended December 31, 2001 to 2003.
During 2003, Jieyao was disposed of to a third party (see note
3(b)(iii)).                                                                                                                                                                                                                  
|
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  | For the years ended December 31, 2001 and 2002, BPC qualified
for a tax holiday. During 2002, BPC was disposed of to TBCL (see
note 3(b)(i)).                                                                                                                                                                                                                                                                            
|
| | An FIE whose foreign investor directly reinvests by way of capital
injection its share of profits obtained from that FIE or another FIE owned
by the same foreign investor in establishing or expanding an
export-oriented or technologically advanced enterprise in the PRC for a
minimum period of five years may obtain a refund of the taxes already paid
on those profits. NTSZ, Zastron, Shenzhen Namtek and Jetup qualified for
such refunds of taxes as a result of reinvesting their profit earned in
previous years by their respective holding companies. As a result, the
Company recorded tax expense net of the benefit related to the refunds.
At December 31, 2002 and 2003, taxes recoverable under such arrangements
were $789 and $4,889, respectively, which are included in income taxes
recoverable and expected to be received during 2004. However, during 2003
the Shenzhen government did not refund approximately $13 in taxes the
Company paid in 1998 to 2000. Therefore, the Company reversed the related
receivable into current tax expense in 2003.
|
| | In accordance with its normal practice, the Hong Kong tax authorities
selected the Company and one of its wholly owned subsidiaries for a tax
audit. In March 2003, in relation to fiscal year 1996, the Hong Kong tax
authorities have made certain estimated assessments for public revenue
protection purposes to prevent the assessments, if any, from becoming time
barred. The Hong Kong tax authorities have not provided concrete grounds
for the assessments. The Company and the subsidiary concerned have
objected to these estimated assessments. The outcome of the objection is
uncertain at this stage as the Hong Kong tax authorities are still
reviewing the Companys and its subsidiarys Hong Kong tax position. At
the time, it is not possible to estimate the outcome of the tax audit, the
amount that may have to be paid, if any, or the impact that the results of
the 1996 tax audit will have to subsequent tax years. However, management
is of the view that there will be no material tax adjustment as a result
of the tax audit.                 
|
| | The current and deferred components of the income tax expense appearing in
the consolidated statements of income are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

|                        |  |      |      |      |  |      |      |   |  |   |      |  
|----------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|Year ended December 31, |  | 2001 |      | 2002 |  | 2003
|                        |  |      |      |      |  |     
|Current tax             |  | $    | (110 | )    |  | $    | (812 | ) |  | $ | (433 | )
|Deferred tax            |  |      | (117 | )    |  |      | 39   |   |  |   | 34   |  
|                        |  |      |      |      |  |      |      |   |  |   |      |  
|                        |  | $    | (227 | )    |  | $    | (773 | ) |  | $ | (399 | )
|                        |  |      |      |      |  |      |      |   |  |   |      |  



| |  | Deferred tax liabilities consist of tax allowances over depreciation and are
$112 and $78 at December 31, 2002 and 2003, respectively.
| |  | --------------------------------------------------------------------------------------------------------------------------------------
|
| |  | At December 31, 2001, 2002 and 2003, the Company does not have any tax
loss carryforwards.                                            

F-28



---



##### Table of Contents





|16. |  | Income Taxes Expense, Net - continued                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | A reconciliation of the income tax expense to the amount computed by
applying the current tax rate to the income before income taxes in the
consolidated statements of income is as follows:

|                                                                                                 |                                            |      |        |      |   |      |        |      |   |   |        |      |  
|------------------------------------------------------------------------------------------------ | ------------------------------------------ | ---- | ------ | ---- | - | ---- | ------ | ---- | - | - | ------ | ---- | -
|Year ended December 31,                                                                          |                                            | 2001 |        | 2002 |   | 2003
|                                                                                                 |                                            |      |        |      |   |     
|Income before income taxes and minority interests                                                |                                            | $    | 9,502  |      |   | $    | 20,960 |      |   | $ | 43,289 |     
|PRC tax rate                                                                                     |                                            |      | 15     | %    |   |      | 15     | %    |   |   | 15     | %   
|Income tax expense at PRC tax rate on income before
income tax                                   |                                            | $    | (1,425 | )    |   | $    | (3,144 | )    |   | $ | (6,493 | )   
|Effect of difference between Hong Kong and PRC tax
rates applied to Hong Kong income             |                                            |      | (7     | )    |   |      | 42     |      |   |   | 72     |     
|Effect of income (loss) for which no income tax benefit/
expense is receivable/payable           |                                            |      | (35    | )    |   |      | 950    |      |   |   | 870    |     
|Tax holidays and tax incentives                                                                  |                                            |      | 786    |      |   |      | 542    |      |   |   | 2,122  |     
|Effect of PRC tax concessions, giving rise to no PRC tax
liability                               |                                            |      | 564    |      |   |      | 2,153  |      |   |   | 3,435  |     
|Tax benefit (expense) arising from items which are not
assessable (deductible) for tax purposes: |                                            |      |        |      |   |      |        |      |   |   |        |     
|                                                                                                 | Gain on disposal of land in Hong Kong      |      |        | 6    |   |      |        |     |   |   |        | 1    |  
|                                                                                                 | Exempted interest income                   |      |        | 21   |   |      |        | 12   |   |   |        | 16   |  
|                                                                                                 | Non-deductible legal and professional fees |      |        |     |   |      |        | (234 | ) |   |        | (301 | )
|                                                                                                 | Non-deductible other items                 |      |        | (159 | ) |      |        | (466 | ) |   |        | (105 | )
|Overprovision for income tax expense in prior year                                               |                                            |      |       |      |   |      |       |      |   |   | 103    |     
|Underprovision of income tax expense in prior years                                              |                                            |      |       |      |   |      | (501   | )    |   |   |       |     
|Other                                                                                            |                                            |      | 22     |      |   |      | (127   | )    |   |   | (119   | )   
|                                                                                                 |                                            |      |        |      |   |      |        |      |   |   |        |     
|                                                                                                 |                                            | $    | (227   | )    |   | $    | (773   | )    |   | $ | (399   | )   
|                                                                                                 |                                            |      |        |      |   |      |        |      |   |   |        |     



|    |  | No income tax arose in the United States of America in any of the periods presented.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Tax that would otherwise have been payable without tax holidays and tax
concessions amounts to approximately $1,350, $2,695 and $5,557 in the
years ended December 31, 2001, 2002 and 2003, respectively (representing a
decrease in the basic earnings and diluted earnings per share of $0.04,
$0.08 and $0.14 in the years ended December 31, 2001, 2002 and 2003,
respectively).                                                                                                                                                                                                                                                                                                          
|   
|17. |  | Related Party Balance and Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | Since the establishment of BPC in 2000, the Company recognized net sales
of $21,072 and $7,849, purchased raw materials of $23,065 and $7,751,
acquired property, plant and equipment of $50 and $Nil, from TBCL, a
minority shareholder of BPC, and its related companies for the year ended
December 31, 2001 and for the period from January 1, 2002 though April
2002, respectively. In addition, the Company had paid $1,000 to TBCL for
acquisition of a license during the year ended December 31, 1999, which
was disposed of during 2002 for a consideration of $800 together with the
disposal of interest in BPC, plus the foreign exchange gain of $9,
resulting in a gain of $60.
|   
|    |  | As of December 31, 2003, the balance due from a related party represented
the balance due from JCT, a subsidiary of Alpha Star. For the year ended
December 31, 2003, the Company recognized net sales of $20,782 and
purchased raw materials of $5,456 from JCT and its related companies.                                                                                                                                                                                                                                                                                                                                                                                                   

F-29



---



##### Table of Contents





|18. |  | Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Companys financial instruments that are exposed to concentrations of
credit risk consist primarily of its cash equivalents and trade
receivables.                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The Companys cash and cash equivalents are high-quality deposits placed with
banking institutions with high credit ratings. This investment policy
limits the Companys exposure to concentrations of credit risk.                                                                                                                                                                                                                                                                                                   
|   
|    |  | The trade receivable balances largely represent amounts due from the
Companys principal customers who are generally international
organizations with high credit ratings. Letters of credit are the
principal security obtained to support lines of credit or negotiated
contracts from a customer. As a consequence, concentrations of credit
risk are limited. Allowance for doubtful debts was $122 and $119 in 2002
and 2003, respectively. There were no other movements in the provision
for doubtful accounts.
|   
|    |  | All of the Companys significant financial instruments at December 31,
2002 and 2003 are reported in current assets or current liabilities in the
consolidated balance sheet at carrying amounts which approximate their
fair value due to the short maturity of these instruments.                                                                                                                                                                                                                                   
|   
|    |  | The Companys fair value of convertible notes, including the embedded
option, was not significantly different from the carrying value at
December 31, 2002 and it was disposed of during 2003.                                                                                                                                                                                                                                                                                                                        
|   
|19. |  | Commitments and Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         



| | (a) |  | Lease commitments                                                                                                                                                                                                                      
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The Company leases premises under various operating leases, certain
of which contain escalation clauses. Rental expense under operating
leases was $1,501, $909 and $617 in the years ended December 2001,
2002 and 2003, respectively.
|
| |     |  | At December 31, 2003, the Company was obligated under operating
leases, which relate to land and buildings, requiring minimum
rentals as follows:                                                                                      

|                         |  |   |       | 
|------------------------ |  | - | ----- | 
|Year ending December 31,
|- 2004                   |  | $ | 1,045 | 
|- 2005                   |  |   | 1,037 | 
|- 2006                   |  |   | 988   | 
|- 2007                   |  |   | 1,070 | 
|- 2008                   |  |   | 1,087 | 
|- 2009 and thereafter    |  |   | 3,658 | 
|                         |  |   |       | 
|                         |  | $ | 8,885 | 
|                         |  |   |       | 



| | (b) |  | Significant legal proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In June 1997, the Company filed a petition in BVI for the winding up
of Tele-Art on account of an unpaid judgment debt owing to the
Company. The High Court of Justice granted an order to wind up
Tele-Art in July 1998 and the Eastern Caribbean Court of Appeal
upheld the decision on January 25, 1999. On January 22, 1999,
pursuant to its Articles of Association, the Company redeemed and
cancelled 415,500 shares (*) of the Company registered in the
name of Tele-Art at a price of $3.73 per share to offset
substantially all of the judgment debt of $799, plus interest and
legal costs totalling $1,673, including dividends that the Company
had withheld and credited against the judgment debt.
|
| |     |  | (*: Subsequent to November 7, 2003, the number of
shares has been adjusted to 457,050 to reflect the 10 for 1
stock dividend effect.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

F-30



---



##### Table of Contents





|19. |  | Commitments and Contingencies - continued
|--- |  | -----------------------------------------



| | (b) |  | Significant legal proceedings - continued                                                                                                                                                                                                                                                                                                          
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Following the completion of the redemption, the Company received
notice that the liquidator had obtained an ex-parte injunction
preventing the Company from redeeming Nam Tai shares beneficially
owned by Tele-Art. On February 4, 1999, the liquidator of Tele-Art
filed a further summons in the BVI on its behalf seeking, among
other matters:



| |  |  | A declaration as to the respective priorities of
the debts of Tele-Art to the Bank of China, Nam Tai, and other
creditors and their respective rights to have their debts
discharged out of the proceeds of the Tele-Arts Nam Tai
shares;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | An order setting aside the redemption of 415,500
shares, and ordering delivery of all shares in possession or
control of Nam Tai to the liquidator; and                                                                                   
|
| |  |  | Payment of all dividends in respect of Tele-Arts
Nam Tai shares.                                                                                                                                                                         



| |  |  | On March 26, 2001, the Company filed a summons seeking to remove the
liquidator for failing to act diligently in the performance of his
duties and for knowingly misleading the court. On September 3,
2002, the liquidator submitted a letter of resignation prior to the
scheduled removal hearing. A new liquidator was subsequently
appointed in July 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | On July 5, 2002, upon application by the Company, the court ordered
the removal of the liquidators ex-parte injunction and ordered an
inquiry into damages. On August 9, 2002, the court delivered a
decision awarding a judgment against Tele-Art for approximately
$34,000. On August 12, 2002, the Company redeemed and cancelled,
pursuant to its Articles of Association, the remaining 509,181 (**) shares beneficially owned by Tele-Art at a price of $6.14 per
share. Including the dividends which the Company had withheld and
credited against the judgment, this offset a further $3,519 in
judgment debts owed to the Company by Tele-Art. The Company
recorded the $3,333 redemption, net of expenses, as other income in
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  |  | On January 21, 2003, judgment was delivered on the liquidators
February 4, 1999 summons declaring that the redemption and set off
of dividends on the 415,500 shares be set aside and that all
Tele-Art property withheld by Nam Tai be delivered to Tele-Art in
liquidation. The orders granted in the judgment were substantially
different from the relief sought in the February 4, 1999
application. On February 4, 2003, the Company filed an application
for a stay of execution and leave to appeal the decision listing
eight grounds of appeal, which was granted on June 23, 2003. The
case was heard on January 12, 2004 and the judgment was reserved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |  | The Company has been advised by its legal representatives that it
has real prospects of success on appeal against the January 21, 2003
decision and plans to vigorously fight for such an outcome.
However, due to the uncertainty of the final outcome of the
litigation as a result of the January 21, 2003 judgment and in
accordance with SFAS No. 5, Accounting for
Contingencies, the
Company recorded a provision for $5,192 as a component of
accrued expenses as of December 31, 2002,
pending a final determination
of this matter by the courts, represented the then best estimate of
the net monetary expense the Company would have if its appeal was
unsuccessful and its two judgment debts in the total amount of $38,000 (including interest,
costs, and related expenses) was determined as having the lowest
priorities in recovering from the estate of Tele-Art. According to
the latest information provided by the liquidator on November 7,
2003, apart from Nam Tai, a total of 4 other creditors of Tele-Art,
including the Bank of China, submitted their proof of debt to the
liquidator for a total claim of approximately $3,390. Together with
the outstanding legal charge as of December 31, 2003, the total
potential obligation to the Company was estimated to be
approximately $3,890, and accordingly, the 2002 provision for $5,192
had been reduced to $3,890 in the fourth quarter of 2003. If the
appeal is successful and all legal matters related to Tele-Art, Inc.
are finalized, including the final determination of other creditors
position, then any remaining portion of the $3,890 provision will
be reversed into income in the related period.
|
| |  |  | (**: Subsequent to November 7, 2003, the number of
shares has been adjusted to 560,099 to reflect the 10 for 1
stock dividend effect.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

F-31



---



##### Table of Contents





|19. |  | Commitments and Contingencies - continued
|--- |  | -----------------------------------------



| | (b) |  | Significant legal proceedings - continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | If the appeal is not successful, and the 1,017,149 (adjusted for 10
for 1 stock dividend effect) share redemption is set aside, the
Company believe that these shares would be sold by Tele-Arts
liquidator in the open market at the market price prevailing at the
time of sale. For example, if these shares had been sold at the
March 1, 2004 closing price of $28.09 per share, the proceeds the
liquidator would have realized before commissions, plus withheld
dividends of $518, would have been approximately $29,090 for the
estate of Tele-Art. Accordingly, if the Company is not successful on its appeal of the
January 21, 2003 judgment, Nam Tai will seek to recover its $38,000
in judgment debts from the estate of Tele-Art and any amounts recovered
therein would be recognized as other income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |     |  | However, there is no assurance
that the Company may realize the
entire amount of its judgment debts as Tele-Art is in liquidation. The actual amount of the recovery, if any,
is uncertain, and is dependent on a number of factors including the
value of Nam Tais shares when sold in the market, and the final
determination of other creditors positions. The Company plans to
continue to pursue vigorously all legal alternatives available
to recover the maximum amount of the outstanding debt from
Tele-Art as well as pursue other parties that may
have assisted in any transfers of the assets from Tele-Art. The
Company may incur substantial additional costs in pursuing the
recovery and such costs may not be recoverable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     |  | Class Actions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |     |  | On March 11, 2003, the Company were served with a complaint in an
action captioned Michael Rocco v. Nam Tai, et al., 03 Civ. 1148
(S.D.N.Y.), or the Rocco Action. In addition to Nam Tai, certain
directors are named as defendants. On or about April 9, 2003, a
second complaint was filed in an action captioned A.J. & Celine
Steigler v. Nam Tai, et al., 03 Civ. 2462 (S.D.N.Y.), or the
Steigler Action, and together with the Rocco Action, the Actions.
The Actions have been consolidated since July 2003 and purports to
represent a putative class of persons who purchased the common stock
of Nam Tai from July 29, 2002 through February 18, 2003. Plaintiffs
in the Actions assert claims under Section 10(b) of the Securities
Exchange Act of 1934 and allege that misrepresentations and/or
omissions were made during the alleged class periods concerning the
recovery of an inventory write-down and a charge to goodwill
related to Nam Tais LPT segment. The Company has filed a motion to
dismiss the lawsuit and the putative class action has not been
certified as a class action by the court. In any event, the
Companys motion to dismiss was heard in November 2003 and are
awaiting the judgment of the court thereof. Nam Tai believes it has
meritorious defenses and intends to defend the case vigorously.

F-32



---



##### Table of Contents





|20. |  | Segment Information
|--- |  | -------------------



| | The Company operates in two segments: CEP and LPT, principally relating to
the operation of J.I.C. Group. The Company operates and manages these
segments as strategic business units. The chief operating decision maker
evaluates the net income of each segment in assessing performance and
allocating resources between segments.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | The following table provides operating financial information for the two
reportable segments.                                                                                                                                                                                                                                         

|                                                         |  |                         |          |      |  |       |         |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|-------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | ----- | ------- | --- |  | --- | -------- | ----- |  | --- | -------- | --- |  | ----- | ------- | - |  | - | -------- | - |  | - | -------- | - |  | - | ------- | - |  | - | -------- | -
|                                                         |  | Year ended December 31,
|                                                         |  |                        
|                                                         |  | 2001                    |          | 2002 |  | 2003 
|                                                         |  |                         |          |      |  |      
|                                                         |  | CEP                     |          | LPT  |  | Total |         | CEP |  | LPT |          | Total |  | CEP |          | LPT |  | Total
|                                                         |  |                         |          |      |  |       |         |     |  |     |          |       |  |     |          |     |  |      
|Net sales - third parties                                |  | $                       | 176,976  |      |  | $     | 35,958  |     |  | $   | 212,934  |       |  | $   | 192,906  |     |  | $     | 35,261  |   |  | $ | 228,167  |   |  | $ | 344,200  |   |  | $ | 41,324  |   |  | $ | 385,524  |  
|Net
sales - related party                                |  |                         | 21,072   |      |  |       |        |     |  |     | 21,072   |       |  |     | 7,849    |     |  |       |        |   |  |   | 7,849    |   |  |   | 20,782   |   |  |   |        |   |  |   | 20,782   |  
|                                                         |  |                         |          |      |  |       |         |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Total net sales                                          |  |                         | 198,048  |      |  |       | 35,958  |     |  |     | 234,006  |       |  |     | 200,755  |     |  |       | 35,261  |   |  |   | 236,016  |   |  |   | 364,982  |   |  |   | 41,324  |   |  |   | 406,306  |  
|Cost of sales                                            |  |                         | (174,863 | )    |  |       | (29,111 | )   |  |     | (203,974 | )     |  |     | (167,440 | )   |  |       | (30,516 | ) |  |   | (197,956 | ) |  |   | (305,426 | ) |  |   | (34,590 | ) |  |   | (340,016 | )
|                                                         |  |                         |          |      |  |       |         |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Gross profit                                             |  |                         | 23,185   |      |  |       | 6,847   |     |  |     | 30,032   |       |  |     | 33,315   |     |  |       | 4,745   |   |  |   | 38,060   |   |  |   | 59,556   |   |  |   | 6,734   |   |  |   | 66,290   |  
|Selling, general and
administrative expenses             |  |                         | (16,521  | )    |  |       | (5,453  | )   |  |     | (21,974  | )     |  |     | (14,940  | )   |  |       | (3,043  | ) |  |   | (17,983  | ) |  |   | (20,908  | ) |  |   | (3,958  | ) |  |   | (24,866  | )
|Research and development
expenses                        |  |                         | (2,746   | )    |  |       | (208    | )   |  |     | (2,954   | )     |  |     | (2,162   | )   |  |       | (524    | ) |  |   | (2,686   | ) |  |   | (3,547   | ) |  |   | (490    | ) |  |   | (4,037   | )
|Impairment of goodwill                                   |  |                         |         |      |  |       |        |     |  |     |         |       |  |     | (339     | )   |  |       |        |   |  |   | (339     | ) |  |   |         |   |  |   |        |   |  |   |         |  
|Interest expense                                         |  |                         | (170     | )    |  |       | (8      | )   |  |     | (178     | )     |  |     | (705     | )   |  |       | (85     | ) |  |   | (790     | ) |  |   | (5       | ) |  |   | (116    | ) |  |   | (121     | )
|Equity in income of affiliated
companies                 |  |                         | 1,867    |      |  |       |        |     |  |     | 1,867    |       |  |     | 10,741   |     |  |       |        |   |  |   | 10,741   |   |  |   | 498      |   |  |   |        |   |  |   | 498      |  
|Other income (expenses), net                             |  |                         | 885      |      |  |       | 1,824   |     |  |     | 2,709    |       |  |     | (4,879   | )   |  |       | (1,164  | ) |  |   | (6,043   | ) |  |   | 6,759    |   |  |   | (1,234  | ) |  |   | 5,525    |  
|                                                         |  |                         |          |      |  |       |         |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Income (loss) before income
taxes and minority interests |  |                         | 6,500    |      |  |       | 3,002   |     |  |     | 9,502    |       |  |     | 21,031   |     |  |       | (71     | ) |  |   | 20,960   |   |  |   | 42,353   |   |  |   | 936     |   |  |   | 43,289   |  
|Income (loss) taxes expense                              |  |                         | (137     | )    |  |       | (90     | )   |  |     | (227     | )     |  |     | (710     | )   |  |       | (63     | ) |  |   | (773     | ) |  |   | (395     | ) |  |   | (4      | ) |  |   | (399     | )
|                                                         |  |                         |          |      |  |       |         |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Income before minority
interests                         |  |                         | 6,363    |      |  |       | 2,912   |     |  |     | 9,275    |       |  |     | 20,321   |     |  |       | (134    | ) |  |   | 20,187   |   |  |   | 41,958   |   |  |   | 932     |   |  |   | 42,890   |  
|Minority interests                                       |  |                         | (230     | )    |  |       |        |     |  |     | (230     | )     |  |     | (107     | )   |  |       | (57     | ) |  |   | (164     | ) |  |   | (856     | ) |  |   | (211    | ) |  |   | (1,067   | )
|                                                         |  |                         |          |      |  |       |         |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Income
after minority interests                          |  |                         | 6,133    |      |  |       | 2,912   |     |  |     | 9,045    |       |  |     | 20,214   |     |  |       | (191    | ) |  |   | 20,023   |   |  |   | 41,102   |   |  |   | 721     |   |  |   | 41,823   |  
|Discontinued operation                                   |  |                         |         |      |  |       |        |     |  |     |         |       |  |     |         |     |  |       |        |   |  |   |         |   |  |   |         |   |  |   | 1,979   |   |  |   | 1,979    |  
|
|                                                         |  |                         |          |      |  |       |         |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Net
income (loss)                                        |  | $                       | 6,133    |      |  | $     | 2,912   |     |  | $   | 9,045    |       |  | $   | 20,214   |     |  | $     | (191    | ) |  | $ | 20,023   |   |  | $ | 41,102   |   |  | $ | 2,700   |   |  | $ | 43,802   |  
|                                                         |  |                         |          |      |  |       |         |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  

|                              |  |                         |         |      |  |       |        |     |  |     |         |       |  |     |         |     |  |       |        |  |  |   |         |  |  |   |         |  |  |   |        |  |  |   |         | 
|----------------------------- |  | ----------------------- | ------- | ---- |  | ----- | ------ | --- |  | --- | ------- | ----- |  | --- | ------- | --- |  | ----- | ------ |  |  | - | ------- |  |  | - | ------- |  |  | - | ------ |  |  | - | ------- | 
|                              |  | Year ended December 31,
|                              |  |                        
|                              |  | 2001                    |         | 2002 |  | 2003 
|                              |  |                         |         |      |  |      
|                              |  | CEP                     |         | LPT  |  | Total |        | CEP |  | LPT |         | Total |  | CEP |         | LPT |  | Total
|                              |  |                         |         |      |  |       |        |     |  |     |         |       |  |     |         |     |  |      
|Depreciation and
amortization |  | $                       | 8,454   |      |  | $     | 2,717  |     |  | $   | 11,171  |       |  | $   | 8,739   |     |  | $     | 1,880  |  |  | $ | 10,619  |  |  | $ | 9,633   |  |  | $ | 2,631  |  |  | $ | 12,264  | 
|Stock option costs            |  |                         |        |      |  |       | 839    |     |  |     | 839     |       |  |     |        |     |  |       |       |  |  |   |        |  |  |   |        |  |  |   |       |  |  |   |        | 
|Capital expenditures          |  |                         | 34,060  |      |  |       | 1,953  |     |  |     | 36,013  |       |  |     | 5,962   |     |  |       | 12,523 |  |  |   | 18,485  |  |  |   | 16,584  |  |  |   | 469    |  |  |   | 17,053  | 
|Identifiable assets           |  | $                       | 188,262 |      |  | $     | 36,311 |     |  | $   | 224,573 |       |  | $   | 225,754 |     |  | $     | 49,332 |  |  | $ | 275,086 |  |  | $ | 248,165 |  |  | $ | 49,530 |  |  | $ | 297,695 | 



| |  | There were no material inter-segment sales for the years ended December
31, 2001, 2002 and 2003. Property, plant and equipment with a net book
value of $312 was transferred from the CEP segment to the LPT segment
during 2002. The Company charges 100% of its corporate level related
expenses to its reportable segments as management fees.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | A summary sets forth the percentage of net sales of each of the Companys
product lines of each segment for the years ended December 31, 2001, 2002
and 2003, is as follows:                                                                                                                                                                     

|                        |                        |                                 |     |      |    |      |     |   |    |   |     |   |    |  
|----------------------- | ---------------------- | ------------------------------- | --- | ---- | -- | ---- | --- | - | -- | - | --- | - | -- | -
|Year ended December 31, |                        | 2001                            |     | 2002 |    | 2003
|                        |                        |                                 |     |      |    |     
|Product line            |                        |                                 |     |      |    |      |     |   |    |   |     |  
|CEP:                    |                        |                                 |     |      |    |      |     |   |    |   |     |  
|                        | - Assembling           |                                 |     |      |    |      |     |   |    |   |     |   |   
|                        |                        | - LCD consumer products         |     |      | 32 | %    |     |   | 40 | % |     |   | 31 | %
|                        |                        | - Telecom components assembly   |     |      | 52 | %    |     |   | 44 | % |     |   | 58 | %
|                        |                        | - Software development services |     |      | 1  | %    |     |   | 1  | % |     |   | 1  | %
|                        |                        |                                 |     |      |    |      |     |   |    |   |     |  
|                        |                        |                                 | 85  | %    |    |      | 85  | % |    |   | 90  | %
|                        |                        |                                 |     |      |    |      |     |   |    |   |     |  
|LPT:                    |                        |                                 |     |      |    |      |     |   |    |   |     |  
|                        | - Parts and components
|                        |                        | - LCD panels                    |     |      | 11 | %    |     |   | 10 | % |     |   | 9  | %
|                        |                        | - Transformers                  |     |      | 4  | %    |     |   | 5  | % |     |   | 1  | %
|                        |                        |                                 |     |      |    |      |     |   |    |   |     |  
|                        |                        |                                 | 15  | %    |    |      | 15  | % |    |   | 10  | %
|                        |                        |                                 |     |      |    |      |     |   |    |   |     |  
|                        |                        |                                 | 100 | %    |    |      | 100 | % |    |   | 100 | %
|                        |                        |                                 |     |      |    |      |     |   |    |   |     |  

F-33



---



##### Table of Contents





|20. |  | Segment Information - continued                                                            
|--- |  | -------------------------------------------------------------------------------------------
|   
|    |  | A summary of net sales, net income and long-lived assets by geographic
areas is as follows:
|   
|    |  | By geographical area:                                                                      

|                                  |                                       |                        |         |          |         |      |         |          |         |   |         |          |         | 
|--------------------------------- | ------------------------------------- | ---------------------- | ------- | -------- | ------- | ---- | ------- | -------- | ------- | - | ------- | -------- | ------- | 
|Year ended December 31,           |                                       | 2001                   |         | 2002     |         | 2003
|                                  |                                       |                        |         |          |         |     
|Net sales from operations within: |                                       |                        |         |          |         |      |         |          |         |   |         |         
|                                  | - Hong Kong and Macao:                |                        |         |          |         |      |         |          |         |   |         |          |        
|                                  |                                       | Unaffiliated customers |         | $        | 206,902 |      |         | $        | 223,709 |   |         | $        | 295,113 | 
|                                  |                                       | Related party          |         |          |        |      |         |          |        |   |         |          | 14,770  | 
|                                  |                                       | Intercompany sales     |         |          |        |      |         |          | 979     |   |         |          | 404     | 
|                                  |                                       |                        |         |          |         |      |         |          |         |   |         |         
|                                  |                                       |                        | 206,902 |          |         |      | 224,688 |          |         |   | 310,287 |         
|                                  |                                       |                        |         |          |         |      |         |          |         |   |         |         
|                                  | - PRC, excluding Hong Kong and Macao: |                        |         |          |         |      |         |          |         |   |         |          |        
|                                  |                                       | Unaffiliated customers |         |          | 6,032   |      |         |          | 4,458   |   |         |          | 90,411  | 
|                                  |                                       | Related
party          |         |          | 21,072  |      |         |          | 7,849   |   |         |          | 6,012   | 
|                                  |                                       | Intercompany sales     |         |          | 160,503 |      |         |          | 179,411 |   |         |          | 263,971 | 
|                                  |                                       |                        |         |          |         |      |         |          |         |   |         |         
|                                  |                                       |                        | 187,607 |          |         |      | 191,718 |          |         |   | 360,394 |         
|                                  |                                       |                        |         |          |         |      |         |          |         |   |         |         
|                                  | - Intercompany eliminations           |                        |         | (160,503 | )       |      |         | (180,390 | )       |   |         | (264,375 | )      
|                                  |                                       |                        |         |          |         |      |         |          |         |   |         |         
|Total net sales                   |                                       | $                      | 234,006 |          |         | $    | 236,016 |          |         | $ | 406,306 |         
|                                  |                                       |                        |         |          |         |      |         |          |         |   |         |         
|Net income within:                |                                       |                        |         |          |         |      |         |          |         |   |         |         
|                                  | - PRC, excluding Hong Kong and Macao  |                        | $       | 4,848    |         |      | $       | 17,930   |         |   | $       | 38,627   |        
|                                  | - Hong Kong and Macao                 |                        |         | 4,197    |         |      |         | 2,093    |         |   |         | 5,175    |        
|                                  |                                       |                        |         |          |         |      |         |          |         |   |         |         
|Total net income                  |                                       | $                      | 9,045   |          |         | $    | 20,023  |          |         | $ | 43,802  |         
|                                  |                                       |                        |         |          |         |      |         |          |         |   |         |         

|                                             |                                           |      |         |        |  |      |         |        |  |   |         |         | 
|-------------------------------------------- | ----------------------------------------- | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------- | 
|Year ended December 31,                      |                                           | 2001 |         | 2002   |  | 2003
|                                             |                                           |      |         |        |  |     
|Net sales to customers by geographical area: |                                           |      |         |        |  |      |         |        |  |   |         |        
|                                             | - Hong Kong                               |      | $       | 64,391 |  |      | $       | 57,157 |  |   | $       | 36,433  | 
|                                             | - Europe (excluding Estonia)              |      |         | 22,437 |  |      |         | 42,943 |  |   |         | 84,954  | 
|                                             | - United States                           |      |         | 35,662 |  |      |         | 33,054 |  |   |         | 55,543  | 
|                                             | - PRC (excluding Hong Kong)               |      |         | 25,378 |  |      |         | 28,518 |  |   |         | 101,211 | 
|                                             | - Japan                                   |      |         | 22,767 |  |      |         | 25,276 |  |   |         | 68,498  | 
|                                             | - Estonia                                 |      |         |       |  |      |         | 19,660 |  |   |         | 20,474  | 
|                                             | - North America (excluding United States) |      |         | 19,332 |  |      |         | 6,640  |  |   |         | 347     | 
|                                             | - Korea                                   |      |         | 23,986 |  |      |         | 17,390 |  |   |         | 24,499  | 
|                                             | - Other                                   |      |         | 20,053 |  |      |         | 5,378  |  |   |         | 14,347  | 
|                                             |                                           |      |         |        |  |      |         |        |  |   |         |        
|Total net sales                              |                                           | $    | 234,006 |        |  | $    | 236,016 |        |  | $ | 406,306 |        
|                                             |                                           |      |         |        |  |      |         |        |  |   |         |        

|                                      |                                      |      |        |        |  |      |        |        |  |   |        |        | 
|------------------------------------- | ------------------------------------ | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|As of December 31,                    |                                      | 2001 |        | 2002   |  | 2003
|                                      |                                      |      |        |        |  |     
|Long-lived assets by geographic area: |                                      |      |        |        |  |      |        |        |  |   |        |       
|                                      | - PRC, excluding Hong Kong and Macao |      | $      | 43,299 |  |      | $      | 54,481 |  |   | $      | 59,399 | 
|                                      | - Hong Kong and Macao                |      |        | 27,115 |  |      |        | 21,433 |  |   |        | 18,248 | 
|                                      |                                      |      |        |        |  |      |        |        |  |   |        |       
|Total long-lived assets               |                                      | $    | 70,414 |        |  | $    | 75,914 |        |  | $ | 77,647 |       
|                                      |                                      |      |        |        |  |      |        |        |  |   |        |       



| |  | Intercompany sales arise from the transfer of finished goods between
subsidiaries operating in different areas. These sales are generally at
estimated market price.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-34



---



##### Table of Contents





|20. |  | Segment Information - continued                                                              
|--- |  | ---------------------------------------------------------------------------------------------
|   
|    |  | The Companys sales to customers which accounted for 10% or more of its
sales are as follows:

|                        |  |      |         |      |  |      |         |  |  |   |         | 
|----------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|Year ended December 31, |  | 2001 |         | 2002 |  | 2003
|                        |  |      |         |      |  |     
|A                       |  | $    | 69,996  |      |  | $    | 75,965  |  |  | $ | 100,541 | 
|B                       |  |      | N/A     |      |  |      | 39,854  |  |  |   | 46,057  | 
|C                       |  |      | 33,143  |      |  |      | 26,217  |  |  |   | N/A     | 
|D                       |  |      | N/A     |      |  |      | N/A     |  |  |   | 43,233  | 
|                        |  |      |         |      |  |      |         |  |  |   |         | 
|                        |  | $    | 103,139 |      |  | $    | 142,036 |  |  | $ | 189,831 | 
|                        |  |      |         |      |  |      |         |  |  |   |         | 



|21. |  | Subsequent Events                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In December 2003, the Company paid approximately $5,277 (Euros 4,250)
into an escrow account for an investment in Stepmind, which was included
in prepayment and other receivables at December 31, 2003. Approximately
$2,642 (Euros 2,122) has been released from the escrow amount in January
2004 for the Companys first phase of investment. The second phase of
investment amounting to $2,646 (Euros 2,132) will be released by the
Company to Stepmind in August 2004, subject to fulfillment of certain
conditions. Upon successful subscription of the shares in the second
phase, the Companys total investment will represent 11.33% equity
interest in Stepmind.

F-35



---



##### Table of Contents






Item 19Exhibits.

The following exhibits are filed as part of this annual report:

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Number  |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|1.1     |  | Memorandum and Articles of Association, as amended on June 26,
2003.                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.1     |  | Sale and Purchase Agreement dated April 24, 2002 between A&T
Battery Corporation, Nam Tai Electronic & Electrical Products
Limited and Toshiba Battery Co., Ltd.*                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.2     |  | Subscription Agreement dated September 6, 2002 between TCL
International Holdings Ltd. and Nam Tai Electronics, Inc. for the
purchase of Convertible Notes of TCL International Holdings. *                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.3     |  | Agreement on Proposal for the listing of J.I.C. Group common shares
on the Hong Kong Stock Exchange dated January 14, 2002 among Nam
Tai Electronics, Inc., J.I.C. Technology Company Limited,
Albatronics (Far East) Company Limited (in liquidation) and
Messrs. Toohey and Chung, the Joint Liquidators (incorporated by
reference to Exhibit 4.7 of registrants Form 20-F for the year
ended December 31, 2001 filed with the SEC on March 18, 2002).**
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.4     |  | Banking Facility Letter, as amended, dated March 27, 2002 between
Shanghai Commercial Bank Ltd. and J.I.C. Enterprises (Hong Kong)
Ltd. for a four-year term loan of $4,500,000. *                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.5     |  | Agreement entered into between Sony Ericsson Mobile Communications
AB and Nam Tai Electronic & Electrical Products Ltd. on March 20,
2002 for the production of Camera August for Sony Ericsson Mobile
Communications AB.                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.6     |  | Share Transfer Agreement of TCL Holdings dated January 25, 2002
between Hui Zhou City Investment Holdings Co., Ltd and Namtai
Electronic (Shenzhen) Co., Ltd. *                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.7     |  | Agreement entered into between Namtai Electronic (Shenzhen) Co.
Ltd. and Sony Computer Entertainment Europe Limited on September
15, 2003 for the production of CMOS sensor modules for Sony
Computer Entertainment Europe and its nominated distributors.                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.8     |  | Agreement entered into between Sony Ericsson Mobile Communications
AB and Namtai Electronic (Shenzhen) Company on September 9, 2003
for the production of flash for cellular phones for Sony Ericsson
Mobile Communications AB.                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.9     |  | Purchase Agreement entered into between Citigroup Global Markets
Limited and Nam Tai Electronics, Inc. on August 22, 2003 for the
sale of 3% convertible notes of TCL International Holdings Ltd. at
an aggregate price of HK$39,555,068.49 (approximately $5.03
million).                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.10    |  | Agreement entered into between Omnivision Technologies, Inc. and
Namtai Electronic (Shenzhen) Company Limited on July 15, 2003 for
supplying CMOS sensor to Namtai Electronic (Shenzhen) Company
Limited.                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.11    |  | Agreement entered into between J.I.C. Technology Company Limited
and Glory Gate Enterprises Limited on June 28, 2003 for the
disposal of transformers operation to Glory Gate Enterprises
Limited for approximately $2.4 million.                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.12    |  | Agreement Amendment entered into between Sony Ericsson Mobile
Communications AB and Nam Tai Electronic & Electrical Products
Ltd. on June 26, 2003 for amending the agreements entered on March
20, 2002 and January 10, 2003.                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.13    |  | Sale and Purchase Agreement entered into between J.I.C.
Enterprises (Hong Kong) Limited and Zastron Electronic (Shenzhen)
Company Limited on March 10, 2003 for the sale of COG panels to
J.I.C. Technology Company Limited.                                                                                                                                                                                                                                

68



---



##### Table of Contents



|     |  |                                                                                                                                                                                                                                                                                                                                         
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 |  | Sale and Purchase Agreement entered into between Zastron
Electronic (Shenzhen) Company Limited and J.I.C. Enterprises (Hong
Kong) Limited on March 10, 2003 for the sale of LCD panels, ACFs
and ICs to Zastron Electronic (Shenzhen) Company Limited.                                                                                  
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.15 |  | Agreement entered into among Toshiba Matsushita Display Technology
Co. Ltd., Nam Tai Telecom (Hong Kong) Company Limited and Zastron
Electronic (Shenzhen) Company Limited on January 27, 2003 for the
production of LCD modules for Toshiba Matsushita Display
Technology Co. Ltd.                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.16 |  | Agreement entered into between Sony Ericsson Mobile Communications
AB and Nam Tai Electronic & Electrical Products Ltd. on January
10, 2003 for the production of Camera Filip for Sony Ericsson
Mobile Communication AB.                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.17 |  | Agreement entered into between Sony Ericsson Mobile Communications
AB and Nam Tai Electronic & Electrical Products Ltd. on January
10, 2003 for the production of Camera August Cl for Sony Ericsson
Mobile Communication AB.                                                                                                           
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.18 |  | Basic Agreement entered into between JCT Wireless Technology Ltd.
and Nam Tai Telecom (Hong Kong) Company Limited on January 8, 2003
for supplying various products, including mother boards, LCD
modules, FPC and RF modules, to JCT Wireless Technology Ltd.                                                                          
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.19 |  | Basic Agreement entered into between Optrex Corporation and Nam
Tai Telecom (Hong Kong) Company Limited on January 1, 2003 for the
manufacturing of LCD modules for cellular phone.                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.20 |  | Subscription Agreement dated January 6, 2003 between Alpha Star
Investments Ltd and the Company for the purchase of 1,625,000
ordinary shares.**                                                                                                                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.21 |  | Shareholders Agreement dated January 8, 2003 among Alpha Star
Investments and its investors, including the Company.**                                                                                                                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.22 |  | Basic Agreement and two memorandums entered into between Wuxi
Sharp Electronic Component Co. Ltd. and Zastron Electronic
(Shenzhen) Company Limited on September 8, 2003 for the
manufacturing of PCBs for Wuxi Sharp Electronic Component Co. Ltd.                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.24 |  | Agreement entered into between Sony Computer Entertainment Europe Limited and Namtai
Electronic (Shenzhen) Co. Ltd. on September 15, 2003
for the production of CMOS sensors modules for Sony Computer Entertainment Europe and its nominated distributors.                                                                             
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.25 |  | Specific Service Agreement entered into between Sony Ericsson Mobile Communications AB
and Namtai Electronic (Shenzen) Company Ltd. on September 19, 2003 for the manufacturing
of Bluetooth headset for Sony Ericsson Mobile Communication AB.                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.26 |  | Construction Agreement, with commencement date of September 23,
2003, entered into between Namtai Electronic (Shenzhen) Co. Ltd.
and Takasago Thermal Engineering (Hong Kong) Co. Ltd. on October 28, 2003 for the construction of new factory premises.                                                                                
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.27 |  | An Investment Agreement and Shareholders Agreement entered
into among Mr. André Jolivet, Mr. Alain Jolivet, Remote Reward
SAS, AGF Private Equity, Mighty Wealth Group Limited and Nam Tai
Electronics, Inc. on December 9, 2003 for acquiring an 11.33%
equity interest in Stepmind with a consideration of approximately
$5.3 million.

69



---



##### Table of Contents



|     |  |                                                                                                                                                                                                                                                                                                                                                              
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.28 |  | A Supplemental Agreement was entered into among Mr. André
Jolivet, Mr. Alain Jolivet, Remote Reward SAS, AGF Private Equity,
Mighty Wealth Group Limited and Nam Tai Electronics, Inc. on
January 2, 2004 for consenting the release of the second phase of
payment and increasing capital investment in Stepmind should
Stepmind fulfill certain conditions.
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|4.29 |  | An Agreement was entered into between Nam Tai Group Management
limited and Frontier Profit Inc. on March 10, 2004 for selling
Flat A, 22nd  Floor, Tower 2 and Car Parking Space
No. A86, The Leighton Hill, 28 Broadwood Road, Happy
Valley, Hong Kong to Frontier Profit Inc.                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|8.1  |  | Diagram of Companys subsidiaries. See Page 26 of this
Report.                                                                                                                                                                                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|10.2 |  | Letter from MCW. Todman & Co. dated February 10, 2003. *                                                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|10.3 |  | Letter from MCW. Todman & Co. dated February 17, 2003. *                                                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|12.1 |  | Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|12.2 |  | Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|14.1 |  | Code of Ethics.                                                                                                                                                                                                                                                                                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|23.1 |  | Consent of Deloitte Touche Tohmatsu.                                                                                                                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|99.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|99.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the. Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                     



---

|*  |  | Previously filed with the registrants Form 20-F filed with the SEC on February 28, 2003.    
|-- |  | ---------------------------------------------------------------------------------------------
|  
|** |  | Previously filed with the registrants Amended Form 20-F filed with the SEC on June 11, 2003.




SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and has duly caused and authorized the undersigned to
sign this annual report on its behalf.

| |  |                          
| |  | -------------------------
| |  |                          
| |  | NAM TAI ELECTRONICS, INC.
| |  |                          

| |  |     |  |                        
| |  | --- |  | -----------------------
| |  | By: |  | /s/ JOSEPH LI          
| |  |     |  |                        
| |  |     |  | Joseph Li              
| |  |     |  | Chief Executive Officer

Date: March 10, 2004

70



---



##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|Number  |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|1.1     |  | Memorandum and Articles of Association, as amended on June 26,
2003.                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.1     |  | Sale and Purchase Agreement dated April 24, 2002 between A&T
Battery Corporation, Nam Tai Electronic & Electrical Products
Limited and Toshiba Battery Co., Ltd.*                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.2     |  | Subscription Agreement dated September 6, 2002 between TCL
International Holdings Ltd. and Nam Tai Electronics, Inc. for the
purchase of Convertible Notes of TCL International Holdings. *                                                                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.3     |  | Agreement on Proposal for the listing of J.I.C. Group common shares
on the Hong Kong Stock Exchange dated January 14, 2002 among Nam
Tai Electronics, Inc., J.I.C. Technology Company Limited,
Albatronics (Far East) Company Limited (in liquidation) and
Messrs. Toohey and Chung, the Joint Liquidators (incorporated by
reference to Exhibit 4.7 of registrants Form 20-F for the year
ended December 31, 2001 filed with the SEC on March 18, 2002).**
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.4     |  | Banking Facility Letter, as amended, dated March 27, 2002 between
Shanghai Commercial Bank Ltd. and J.I.C. Enterprises (Hong Kong)
Ltd. for a four-year term loan of $4,500,000. *                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.5     |  | Agreement entered into between Sony Ericsson Mobile Communications
AB and Nam Tai Electronic & Electrical Products Ltd. on March 20,
2002 for the production of Camera August for Sony Ericsson Mobile
Communications AB.                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.6     |  | Share Transfer Agreement of TCL Holdings dated January 25, 2002
between Hui Zhou City Investment Holdings Co., Ltd and Namtai
Electronic (Shenzhen) Co., Ltd. *                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.7     |  | Agreement entered into between Namtai Electronic (Shenzhen) Co.
Ltd. and Sony Computer Entertainment Europe Limited on September
15, 2003 for the production of CMOS sensor, modules for Sony
Computer Entertainment Europe and its nominated distributors.                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.8     |  | Agreement entered into between Sony Ericsson Mobile Communications
AB and Namtai Electronic (Shenzhen) Company on September 9, 2003
for the production of flash for cellular phones for Sony Ericsson
Mobile Communications AB.                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.9     |  | Purchase Agreement entered into between Citigroup Global Markets
Limited and Nam Tai Electronics, Inc. on August 22, 2003 for the
sale of 3% convertible notes of TCL International Holdings Ltd. at
an aggregate price of HK$39,555,068.49 (approximately $5.03 million).                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.10    |  | Agreement entered into between Omnivision Technologies, Inc. and
Namtai Electronic (Shenzhen) Company Limited on July 15, 2003 for
supplying CMOS sensor to Namtai Electronic (Shenzhen) Company
Limited.                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.11    |  | Agreement entered into between J.I.C. Technology Company Limited
and Glory Gate Enterprises Limited on June 28, 2003 for the
disposal of transformer operations to Glory Gate Enterprises
Limited for approximately $2.4 million.                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.12    |  | Agreement Amendment entered into between Sony Ericsson Mobile
Communications AB and Nam Tai Electronic & Electrical Products
Ltd. on June 26, 2003 for amending the agreements entered on March
20, 2002 and January 10, 2003.                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|4.13    |  | Sale and Purchase Agreement entered into between J.I.C.
Enterprises (Hong Kong) Limited and Zastron Electronic (Shenzhen)
Company Limited on March 10, 2003 for the sale of COG panels to
J.I.C. Technology Company Limited.                                                                                                                                                                                                                                

71



---



##### Table of Contents



|     |  |                                                                                                                                                                                                                                                                                                                                         
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.14 |  | Sale and Purchase Agreement entered into between Zastron
Electronic (Shenzhen) Company Limited and J.I.C. Enterprises (Hong
Kong) Limited on March 10, 2003 for the sale of LCD panels, ACFs
and ICs to Zastron Electronic (Shenzhen) Company Limited.                                                                                  
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.15 |  | Agreement entered into among Toshiba Matsushita Display Technology
Co. Ltd., Nam Tai Telecom (Hong Kong) Company Limited and Zastron
Electronic (Shenzhen) Company Limited on January 27, 2003 for the
production of LCD modules for Toshiba Matsushita Display
Technology Co. Ltd.                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.16 |  | Agreement entered into between Sony Ericsson Mobile Communications
AB and Nam Tai Electronic & Electrical Products Ltd. on January
10, 2003 for the production of Camera Filip for Sony Ericsson
Mobile Communication AB.                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.17 |  | Agreement entered into between Sony Ericsson Mobile Communications
AB and Nam Tai Electronic & Electrical Products Ltd. on January
10, 2003 for the production of Camera August Cl for Sony Ericsson
Mobile Communication AB.                                                                                                           
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.18 |  | Basic Agreement entered into between JCT Wireless Technology Ltd.
and Nam Tai Telecom (Hong Kong) Company Limited on January 8, 2003
for supplying various products, including mother boards, LCD
modules, FPC and RF modules, to JCT Wireless Technology Ltd.                                                                          
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.19 |  | Basic Agreement entered into between Optrex Corporation and Nam
Tai Telecom (Hong Kong) Company Limited on January 1, 2003 for the
manufacturing of LCD modules for cellular phone.                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.20 |  | Subscription Agreement dated January 6, 2003 between Alpha Star
Investments Ltd and the Company for the purchase of 1,625,000
ordinary shares.**                                                                                                                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.21 |  | Shareholders Agreement dated January 8, 2003 among Alpha Star
Investments and its investors, including the Company.**                                                                                                                                                                                                                   
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.22 |  | Basic Agreement and two memorandums entered into between Wuxi
Sharp Electronic Component Co. Ltd. and Zastron Electronic
(Shenzhen) Company Limited on September 8, 2003 for the
manufacturing of PCBs for Wuxi Sharp Electronic Component Co. Ltd.                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.24 |  | Agreement entered into between Sony Computer Entertainment Europe Limited and Namtai
Electronic (Shenzhen) Co. Ltd. on September 15, 2003
for the production of CMOS sensors modules for Sony Computer Entertainment Europe and its nominated distributors.                                                                             
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.25 |  | Specific Service Agreement entered into between Sony Ericsson Mobile Communications AB
and Namtai Electronic (Shenzhen) Company Ltd. on September 19, 2003 for the manufacturing
of Bluetooth headset for Sony Ericsson Mobile Communication AB.                                                                                        
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.26 |  | Construction Agreement, with commencement date of September 23,
2003, entered into between Namtai Electronic (Shenzhen) Co. Ltd.
and Takasago Thermal Engineering (Hong Kong) Co. Ltd. on October 28, 2003 for the construction of new factory premises.                                                                                
|     |  |                                                                                                                                                                                                                                                                                                                                         
|4.27 |  | An Investment Agreement and Shareholders Agreement entered
into among Mr. André Jolivet, Mr. Alain Jolivet, Remote Reward
SAS, AGF Private Equity, Mighty Wealth Group Limited and Nam Tai
Electronics, Inc. on December 9, 2003 for acquiring an 11.33%
equity interest in Stepmind with a consideration of approximately
$5.3 million.
|     |  |                                                                                                                                                                                                                                                                                                                                         

72



---



##### Table of Contents



|     |  |                                                                                                                                                                                                                                                                                                                                                              
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.28 |  | A Supplemental Agreement was entered into among Mr. André
Jolivet, Mr. Alain Jolivet, Remote Reward SAS, AGF Private Equity,
Mighty Wealth Group Limited and Nam Tai Electronics, Inc. on
January 2, 2004 for consenting the release of the second phase of
payment and increasing capital investment in Stepmind should
Stepmind fulfill certain conditions.
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|4.29 |  | An Agreement was entered into between Nam Tai Group Management
limited and Frontier Profit Inc. on March 10, 2004 for selling
Flat A, 22nd  Floor, Tower 2 and Car Parking Space
No. A86, The Leighton Hill, 28 Broadwood Road, Happy
Valley, Hong Kong to Frontier Profit Inc.                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|8.1  |  | Diagram of Companys subsidiaries. See Page 26 of this
Report.                                                                                                                                                                                                                                                                                               
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|10.2 |  | Letter from MCW. Todman & Co. dated February 10, 2003. *                                                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|10.3 |  | Letter from MCW. Todman & Co. dated February 17, 2003. *                                                                                                                                                                                                                                                                                                     
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|12.1 |  | Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|12.2 |  | Certification pursuant to Section 1350, as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|14.1 |  | Code of Ethics.                                                                                                                                                                                                                                                                                                                                              
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|23.1 |  | Consent of Deloitte Touche Tohmatsu.                                                                                                                                                                                                                                                                                                                         
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|99.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                      
|     |  |                                                                                                                                                                                                                                                                                                                                                              
|99.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the. Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                     



---

|* |  | Previously filed with the registrants Form 20-F filed with the SEC on February 28, 2003.    
|-- |  | ---------------------------------------------------------------------------------------------
|  
|** |  | Previously filed with the registrants Amended Form 20-F filed with the SEC on June 11, 2003.

73