##### 









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Amendment No. 1 to







Form 20-F/A





|   |  |                                                                                                       
|-- |  | ------------------------------------------------------------------------------------------------------
|o  |  | REGISTRATION STATEMENT PURSUANT TO
    SECTION 12(b) OR (g)
    OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|or
|  
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934          
|  
|   |  | For the Fiscal Year Ended December 31,
    2002                                                       
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934      

Commission File Number: 0-16673



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Nam Tai Electronics, Inc.

(Exact name of registrant as specified in its
charter)


British Virgin Islands

(Jurisdiction of incorporation or
organization)





116 Main Street







2nd 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, 2002, there were
12,019,668 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 þ          No o

Indicate by check mark which financial statement
item the registrant has elected to
follow:     Item 17. o          Item 18. þ



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##### 



TABLE OF CONTENTS




|                                                                                                                                                                       |                                                                                                                 |  |  |    | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I                                                                                                                                                                 |                                                                                                                 |  |  |   
|                                                                                                                                                                       | Item 1.   Identity of
    Directors, Senior Management and Advisors  Not
    applicable                        |  |  | 2  | 
|                                                                                                                                                                       | Item 2.   Offer Statistics
    and Expected Timetable  Not applicable                                          |  |  | 2  | 
|                                                                                                                                                                       | Item 3.   Key Information                                                                                       |  |  | 2  | 
|                                                                                                                                                                       | Item 4.   Information on the
    Company                                                                        |  |  | 14 | 
|                                                                                                                                                                       | Item 5.   Operating and
    Financial Review and Prospects                                                      |  |  | 29 | 
|                                                                                                                                                                       | Item 6.   Directors, Senior
    Management and Employees                                                        |  |  | 48 | 
|                                                                                                                                                                       | Item 7.   Major Shareholders
    and Related Party Transactions                                                 |  |  | 52 | 
|                                                                                                                                                                       | Item 8.   Financial
    Information                                                                             |  |  | 54 | 
|                                                                                                                                                                       | Item 9.   The Listing                                                                                           |  |  | 58 | 
|                                                                                                                                                                       | Item 10.  Additional Information                                                                                |  |  | 59 | 
|                                                                                                                                                                       | Item 11.  Quantitative and
    Qualitative Disclosure about Market Risk                                         |  |  | 68 | 
|                                                                                                                                                                       | Item 12.  Description of
    Securities Other than Equity Securities  Not
    applicable                       |  |  | 68 | 
|                                                                                                                                                                      
|PART II                                                                                                                                                                |                                                                                                                 |  |  |   
|                                                                                                                                                                       | Item 13.  Defaults, Dividend
    Arrearages and Delinquencies  Not applicable                                  |  |  | 69 | 
|                                                                                                                                                                       | Item 14.  Material Modifications
    to the Rights of Security Holders and Use of
    Proceeds  Not applicable |  |  | 69 | 
|                                                                                                                                                                       | Item 15.  Controls and Procedures                                                                               |  |  | 69 | 
|                                                                                                                                                                       | Item 16.  [Reserved]                                                                                            |  |  | 69 | 
|                                                                                                                                                                      
|PART III                                                                                                                                                               |                                                                                                                 |  |  |   
|                                                                                                                                                                       | Item 17.  Financial
    Statements  Not applicable                                                             |  |  | 70 | 
|                                                                                                                                                                       | Item 18.  Financial Statements                                                                                  |  |  | 70 | 
|                                                                                                                                                                       | Item 19.  Exhibits                                                                                              |  |  | 71 | 
|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.

1



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##### 



PART I

Unless the context otherwise requires, all
references in this annual report to Nam Tai,
we, our, 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, 2002 and the balance sheet data as of
December 31, 2001 and 2002 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 the
balance sheet data as of December 31, 1998, 1999 and 2000
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.




|                                                                          |                                     |                         |         |                                      |  |      |         |        |   |      |         |        |  |   |         |        |  |   |         |        | 
|------------------------------------------------------------------------- | ----------------------------------- | ----------------------- | ------- | ------------------------------------ |  | ---- | ------- | ------ | - | ---- | ------- | ------ |  | - | ------- | ------ |  | - | ------- | ------ | 
|                                                                          |                                     |                        
|                                                                          |                                     | Year ended December 31,
|                                                                          |                                     |                        
|                                                                          |                                     | 1998                    |         | 1999                                 |  | 2000 |         | 2001   |   | 2002
|                                                                          |                                     |                         |         |                                      |  |      |         |        |   |     
|                                                                          |                                     |                         |         |                                      |  |     
|                                                                          |                                     |                         |         | (in thousands except per share data) |  |     
|Consolidated statements of income
    data:                               |                                     |                         |         |                                      |  |      |         |        |   |      |         |        |  |   |         |        |  |   |         |       
|Net sales  third parties                                                 |                                     | $                       | 101,649 |                                      |  | $    | 145,054 |        |   | $    | 207,456 |        |  | $ | 212,934 |        |  | $ | 228,167 |       
|Net sales  related party                                                 |                                     |                         |        |                                      |  |      |        |        |   |      | 6,232   |        |  |   | 21,072  |        |  |   | 7,849   |       
|                                                                          |                                     |                         |         |                                      |  |      |         |        |   |      |         |        |  |   |         |        |  |   |         |       
|Total net sales                                                           |                                     |                         | 101,649 |                                      |  |      | 145,054 |        |   |      | 213,688 |        |  |   | 234,006 |        |  |   | 236,016 |       
|Cost of sales                                                             |                                     |                         | 76,939  |                                      |  |      | 120,074 |        |   |      | 182,096 |        |  |   | 203,974 |        |  |   | 197,956 |       
|                                                                          |                                     |                         |         |                                      |  |      |         |        |   |      |         |        |  |   |         |        |  |   |         |       
|Gross profit                                                              |                                     |                         | 24,710  |                                      |  |      | 24,980  |        |   |      | 31,592  |        |  |   | 30,032  |        |  |   | 38,060  |       
|Operating costs and expenses:                                             |                                     |                         |         |                                      |  |      |         |        |   |      |         |        |  |   |         |        |  |   |         |       
|                                                                          | Selling, general and administrative |                         |         | 13,246                               |  |      |         | 14,913 |   |      |         | 17,646 |  |   |         | 21,974 |  |   |         | 17,983 | 
|                                                                          | Research and development            |                         |         | 1,691                                |  |      |         | 2,624  |   |      |         | 3,489  |  |   |         | 2,954  |  |   |         | 2,686  | 
|                                                                          | Impairment of goodwill              |                         |         |                                     |  |      |         |       |   |      |         |       |  |   |         |       |  |   |         | 339    | 
|                                                                          | Non-recurring expense (income)      |                         |         | 1,445                                |  |      |         | (848   | ) |      |         |       |  |   |         |       |  |   |         |       | 
|                                                                          |                                     |                         |         |                                      |  |      |         |        |   |      |         |        |  |   |         |        |  |   |         |       
|Total operating expenses                                                  |                                     |                         | 16,382  |                                      |  |      | 16,689  |        |   |      | 21,135  |        |  |   | 24,928  |        |  |   | 21,008  |       
|                                                                          |                                     |                         |         |                                      |  |      |         |        |   |      |         |        |  |   |         |        |  |   |         |       
|Income from operations                                                    |                                     |                         | 8,328   |                                      |  |      | 8,291   |        |   |      | 10,457  |        |  |   | 5,104   |        |  |   | 17,052  |       
|Equity in income (loss) of affiliated companies                           |                                     |                         | 534     |                                      |  |      | 1,146   |        |   |      | (189    | )      |  |   | 1,867   |        |  |   | 10,741  |       
|Equity in loss of an unconsolidated subsidiary                            |                                     |                         | (1,708  | )                                    |  |      |        |        |   |      |        |        |  |   |        |        |  |   |        |       
|Other income (expense)  net                                              |                                     |                         | 5,687   |                                      |  |      | 2,494   |        |   |      | 13,853  |        |  |   | 2,709   |        |  |   | (6,043  | )     
|Interest expense                                                          |                                     |                         | (1      | )                                    |  |      | (192    | )      |   |      | (165    | )      |  |   | (178    | )      |  |   | (790    | )     
|Provision for/write off of investment in an
    unconsolidated subsidiary |                                     |                         | (8,271  | )                                    |  |      | (1      | )      |   |      |        |        |  |   |        |        |  |   |        |       
|                                                                          |                                     |                         |         |                                      |  |      |         |        |   |      |         |        |  |   |         |        |  |   |         |       
|Income before income taxes and minority interests                         |                                     |                         | 4,569   |                                      |  |      | 11,738  |        |   |      | 23,956  |        |  |   | 9,502   |        |  |   | 20,960  |       
|Income taxes (expense) benefit                                            |                                     |                         | (1,040  | )                                    |  |      | 60      |        |   |      | 33      |        |  |   | (227    | )      |  |   | (773    | )     
|                                                                          |                                     |                         |         |                                      |  |      |         |        |   |      |         |        |  |   |         |        |  |   |         |       




2



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##### 



|                                 |         |                         |       |                                      |  |      |        |       |  |      |        |       |  |   |       |        |  |   |        |        | 
|-------------------------------- | ------- | ----------------------- | ----- | ------------------------------------ |  | ---- | ------ | ----- |  | ---- | ------ | ----- |  | - | ----- | ------ |  | - | ------ | ------ | 
|                                 |         |                        
|                                 |         | Year ended December 31,
|                                 |         |                        
|                                 |         | 1998                    |       | 1999                                 |  | 2000 |        | 2001  |  | 2002
|                                 |         |                         |       |                                      |  |      |        |       |  |     
|                                 |         |                         |       |                                      |  |     
|                                 |         |                         |       | (in thousands except per share data) |  |     
|Income before minority interests |         |                         | 3,529 |                                      |  |      | 11,798 |       |  |      | 23,989 |       |  |   | 9,275 |        |  |   | 20,187 |       
|Minority interests               |         |                         |      |                                      |  |      |       |       |  |      | 12     |       |  |   | (230  | )      |  |   | (164   | )     
|                                 |         |                         |       |                                      |  |      |        |       |  |      |        |       |  |   |       |        |  |   |        |       
|Net income                       |         | $                       | 3,529 |                                      |  | $    | 11,798 |       |  | $    | 24,001 |       |  | $ | 9,045 |        |  | $ | 20,023 |       
|                                 |         |                         |       |                                      |  |      |        |       |  |      |        |       |  |   |       |        |  |   |        |       
|Earnings per share:              |         |                         |       |                                      |  |      |        |       |  |      |        |       |  |   |       |        |  |   |        |       
|                                 | Basic   |                         | $     | 0.34                                 |  |      | $      | 1.26  |  |      | $      | 2.63  |  |   | $     | 0.88   |  |   | $      | 1.89   | 
|                                 |         |                         |       |                                      |  |      |        |       |  |      |        |       |  |   |       |        |  |   |        |       
|                                 | Diluted |                         | $     | 0.34                                 |  |      | $      | 1.25  |  |      | $      | 2.56  |  |   | $     | 0.87   |  |   | $      | 1.86   | 
|                                 |         |                         |       |                                      |  |      |        |       |  |      |        |       |  |   |       |        |  |   |        |       
|Weighted average shares:         |         |                         |       |                                      |  |      |        |       |  |      |        |       |  |   |       |        |  |   |        |       
|                                 | Basic   |                         |       | 10,317                               |  |      |        | 9,328 |  |      |        | 9,114 |  |   |       | 10,274 |  |   |        | 10,571 | 
|                                 |         |                         |       |                                      |  |      |        |       |  |      |        |       |  |   |       |        |  |   |        |       
|                                 | Diluted |                         |       | 10,351                               |  |      |        | 9,417 |  |      |        | 9,375 |  |   |       | 10,393 |  |   |        | 10,736 | 
|                                 |         |                         |       |                                      |  |      |        |       |  |      |        |       |  |   |       |        |  |   |        |       

|                                                                 |  |                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|---------------------------------------------------------------- |  | --------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- |  |  | - | ------- | 
|                                                                 |  |                
|                                                                 |  | At December 31,
|                                                                 |  |                
|                                                                 |  | 1998            |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                                                                 |  |                 |         |      |  |      |         |      |  |     
|                                                                 |  |                
|                                                                 |  | (in thousands) 
|Consolidated balance sheet data:                                 |  |                 |         |      |  |      |         |      |  |      |         |  |  |   |         |  |  |   |         | 
|Cash and cash equivalents                                        |  | $               | 71,215  |      |  | $    | 54,215  |      |  | $    | 58,896  |  |  | $ | 58,676  |  |  | $ | 82,477  | 
|Working capital                                                  |  |                 | 77,539  |      |  |      | 61,265  |      |  |      | 89,568  |  |  |   | 83,982  |  |  |   | 87,408  | 
|Property, plant and equipment  net                              |  |                 | 32,445  |      |  |      | 44,717  |      |  |      | 44,599  |  |  |   | 70,414  |  |  |   | 75,914  | 
|Total assets                                                     |  |                 | 147,228 |      |  |      | 158,747 |      |  |      | 208,370 |  |  |   | 224,573 |  |  |   | 275,086 | 
|Short-term debt, including current portion of
    long-term debt |  |                 | 329     |      |  |      | 6,949   |      |  |      | 1,523   |  |  |   | 3,687   |  |  |   | 14,970  | 
|Long-term debt, less current portion                             |  |                 |        |      |  |      |        |      |  |      |        |  |  |   | 12,860  |  |  |   | 2,812   | 
|Total debt                                                       |  |                 | 329     |      |  |      | 6,949   |      |  |      | 1,523   |  |  |   | 16,547  |  |  |   | 17,782  | 
|Shareholders equity                                             |  |                 | 127,696 |      |  |      | 125,568 |      |  |      | 162,364 |  |  |   | 169,351 |  |  |   | 202,128 | 

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 or on our
behalf. Any such statement is 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, 2000, 2001 and 2002, sales to our
customers accounting for 10% or more of our net sales aggregated
approximately 72.4%, 44.1% and 60.2% respectively, of our net
sales. The loss of Epson Precision (HK) Ltd., Sony Ericsson
Mobile Communications AB or Texas Instruments Incorporated, each
of which accounted for more than 10% of our net sales during
2002, or a substantial reduction in orders from any of them
would materially and adversely impact our business and operating
results.

3



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##### 



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.

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 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-downs of raw material inventory that could
materially and adversely affect our business and operating
results. In 2001, we made an inventory provision of
$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, resulting in a partial reversal of $2.0 million
of the provision in 2002. Of the remaining $1.8 million of
slow-moving inventory, $1.2 million was scrapped and
$600,000 will be scrapped in the next six months.



| |                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 currently commenced production of radio frequency, or RF,
modules, thin film transistor, or TFT, modules and color LCD
modules, in relation to which we have limited manufacturing
experience. We expect that a substantial portion of our growth
will come from our

4



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##### 



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 and color LCD 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, China. Once our new factory is complete, we will have
committed substantial expenditures and resources to 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 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 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 24.3% in 1998 to approximately
15.3% in 2002, as adjusted to take into account a
$2.0 million partial reversal of a provision we made in
2001. Continuing competitive pressures could materially and
adversely affect our business and operating results.



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




The 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. 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

5



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##### 



funds for, and significant resources to, engage
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.



| |                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------
| | 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 and color
STN modules and TFT 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.

6



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##### 





| |                                                                                                               
| | --------------------------------------------------------------------------------------------------------------
| | 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.



| |                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



| |                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------
| | 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 British Virgin
Islands, the Cayman Islands, Hong Kong and China. Our
administrative offices are located in Hong Kong. We manufacture
all of our products in China. As of December 31, 2002,
approximately 72% 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.

7



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##### 



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 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.) (the Rocco Action).
Plaintiff in the Rocco Action purports to represent a putative
class of persons who purchased the common stock of Nam Tai from
July 29, 2002 through February 14, 2003. 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.) (the Steigler
Action) (together with the Rocco Action, the
Actions). We have not yet been served in the
Steigler Action. Plaintiff in the Steigler Action purports to
represent a putative class of persons who purchased Nam
Tais common stock during the period December 13, 2002
through February 14, 2003. One director is also named as a
defendant in the Steigler Action. 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 relating to
accounting issues arising from the JIC reverse merger. The
plaintiff in the Rocco Action also appears to allege that Nam
Tai failed to make timely disclosures concerning certain pending
litigation related to a British Virgin Islands company known as
Tele-Art. The Actions are in their preliminary stages, Nam Tai
believes it has meritorious defenses and it intends to defend
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.






| |                                                                  
| | -----------------------------------------------------------------
| | 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,
Mr. M. K. Koo, our Chief Financial Officer. We have
employment agreements with each of Mr. Murakami and
Mr. Koo. Mr. Murakamis employment may be
terminated immediately and, pursuant to Mr. Koos
agreement, his employment may be terminated upon short notice.
We also have entered into a Services Agreement with Mr. Li,
which expires in October 2003. Mr. Lis Services
Agreement provides that he may not compete with our business nor
solicit customers or employees for a period of 36 months
following termination for any reason under the Services
Agreement. Neither Mr. Koos nor
Mr. Murakamis agreement has comparable provisions,
and once Mr. Lis Service Agreement expires, and, if
not renewed, Mr. Li will not be subject to the
non-competition and non-solicitation




8



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##### 






provisions. Accordingly, each officer 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 plus
interests and costs. 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 nine 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 and
Hong Kong




Our manufacturing facilities are located in China
and our principal subsidiaries and several of our customers and
suppliers are located in Hong Kong and China. As a result, our
operations and assets are subject to significant political,
economic, legal and other uncertainties associated with doing
business in China and Hong Kong, 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 deregulation. 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.



| |                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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




9



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##### 



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 attempted to
augment its revenues through heightened tax collection efforts.
Continued efforts by the Chinese government to increase tax
revenues could result in decisions or interpretations of the tax
laws by the Chinese tax authorities that would increase our
future tax liabilities or deny us expected concessions or
refunds.



| |                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 $345,000 during the year ended December 31, 2002
and total foreign exchange gains of $530,000 and $51,000 during
the years ended December 31, 2001 and 2000, respectively.
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

10



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##### 



Japanese yen. Approximately 14%, 16% and 8% of
our material costs have been in yen during the years ended
December 31, 2000, 2001 and 2002, respectively, but sales
made in yen accounted for less than 7% 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.


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. Approximately 5% and 11% of our revenues and 15% and 19%
of our expenses were in Chinese renminbi and Hong Kong dollars,
respectively, in 2001. An appreciation of the 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 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 recorded charges of $304,000 in 2000
and $566,000 in 1999 on the write-off of option premiums
purchased as a hedge against the appreciation of the Japanese
yen and the decline of the Hong Kong dollar, respectively. We
did not engage in currency hedging transactions for fiscal year
2002. 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 principal 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 may have a negative impact on our business and
    operating results.







There has been a recent outbreak of severe acute
respiratory syndrome, or SARS, in Hong Kong and southern China,
where our operations are located. This outbreak is being
investigated by the World Health Organization, among other
health agencies. To date, we are not aware of any of our
employees having contracted this illness and have had no plant
shutdowns due to workers being suspected of infection with SARS.
For the personal safety of our employees, we have directed our
employees to minimize business travel and we have distributed
respiratory masks to our employees. We are continuing to monitor
the possible implications of the SARS outbreak but at this time
it is difficult to quantify the future impact on our business.
For example, the 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.




11



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##### 



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 recent unfavorable economic
conditions and reduced capital spending, sales to OEMs in the
electronics industry declined during 2002 and 2001. Lower
consumer demand and high customer inventory levels have resulted
in the delay and cancellation of orders for nearly all types of
electronic products. As a result of order cancellations in 2001
we were required to make a provision for slow-moving inventory,
which materially and adversely impacted our net income in 2001.
If the economic conditions in the United States or Asia worsen
generally 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
    electronics manufacturing services industry could continue to
    have a material adverse effect on our business and operating
    results.

The EMS industry is currently in an economic
slowdown with an uncertain outlook. Some of the major contract
manufacturers and OEMs worldwide have announced job reductions
and plant closures aimed at reducing costs. Industry analysts
have reduced their projections of the future growth of the EMS
segment. Furthermore, Wall Street analysts have reduced earnings
and revenue estimates across the entire EMS sector and have
reported that the EMS industry has 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 provision for slow-moving inventory.

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.




At March 31, 2003, members of our management
and board of directors as a group beneficially owned
approximately 46% 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




12



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##### 



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 principal subsidiaries in Hong Kong. We
have appointed Stephen Seung, 2 Mott St., 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.




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.

13



---



##### 





| |                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 Exchange
    Act and corporate governance standards of the New York Stock
    Exchange, 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 Exchange Act 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 Exchange Act regulating the
    solicitation of proxies, consents or authorizations in respect
    of a security registered under the Exchange Act;                                                                                                                                                                                            
|
| |  | the provisions of Regulation FD aimed at
    preventing issuers from making selective disclosures of material
    information; and                                                                                                                                                                                                                                 
|
| |  | the sections of the Exchange Act requiring
    insiders to file public reports of their stock ownership and
    trading activities and establishing insider liability for
    profits realized from any short-swing trading
    transaction (i.e., a purchase and sale, or sale and purchase, of
    the issuers equity securities within less than six months).

In addition, because the Company is a foreign
private issuer, certain of the corporate governance standards of
the New York Stock Exchange 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 New York Stock Exchange.

Item 4.     Information
on the Company

History and Development of Nam Tai




Nam Tai Electronics, Inc. was founded in 1975 by
M.K. Koo, Nam Tais Chief Financial Officer and a member of
the Board of Directors, as an electronic products trading
company based in Hong Kong. We shifted our focus to
manufacturing of electronic products in 1978. We moved our
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 design and manufacturing operations are
based in Shenzhen, China, approximately 30 miles from Hong Kong.
Some of our principal 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 corporate administrative matters are
conducted in the British Virgin Islands through its registered
agent, McW. Todman & Co., McNamara Chambers, P.O.
Box 3342, Road Town, Tortola, British Virgin

14



---



##### 






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, 2nd
Floor, Road Town, Tortola, British Virgin Islands, and its
telephone number is (284) 494-7752.





In 1978, Mr. Koo 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
electronics 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 developed into an original equipment manufacturer
and 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 liquid crystal
display, or LCD, modules as well as end products including
cordless phones and family radio systems.




In September 2000, we acquired for
$2.0 million a 5% indirect equity interest in both TCL
Mobile Communication (HK) Co., Ltd. and Huizhou TCL Mobile
Communication Co., Ltd., or together known as TCL Mobile,
through the acquisition of 25% of the outstanding shares of Mate
Fair Group Limited, or Mate Fair, an investment holding company
owning a 20% shareholding interest in the communications
companies. 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 mobile LCD modules used in its mobile phones.
However, sales to TCL Mobile were not material for the year
ended December 31, 2002. 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 Group Limited sold a portion of its equity
interest in Huizhou TCL Mobile Communication Co., Limited for
which we received proceeds of approximately $10.4 million,
reducing our indirect equity interest (held through Mate Fair
Group Limited) 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.




In October 2000, we completed the acquisition of
the J.I.C. Group (BVI) Limited, or the JIC Group. The JIC Group
is 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 1.16 million of our
common shares.




In January 2002, we entered into a transaction,
which resulted in the listing of a company holding JIC
Groups business on the Hong Kong Stock Exchange. To effect
the transaction, we entered an agreement with the liquidators of
Albatronics (Far East) Company Limited, 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 JIC 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 Stock Exchange of Hong Kong Limited was withdrawn and J.I.C.
Technology Company Limited was listed on The Stock Exchange of
Hong Kong Limited free from the liabilities of Albatronics. 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




15



---



##### 






Tai) may convert them if such conversion would
result in the minimum public float of 25% that is required under
the Hong Kong Stock Exchange Listing Rules not being met.





In January 2003 we invested $10.0 million
for a 25% equity interest in Alpha Star Investments Ltd., the
ultimate parent of Hong Kong based JCT Wireless Technology
Company 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 radio
frequency, or RF, modules.

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:

|                                    |  |      |           |      |  |      |            |  |  |  |            | 
|----------------------------------- |  | ---- | --------- | ---- |  | ---- | ---------- |  |  |  | ---------- | 
|                                    |  | 2000 |           | 2001 |  | 2002
|                                    |  |      |           |      |  |     
|Property, plant and equipment (net) |  | $    | 3,579,000 |      |  | $    | 36,013,000 |  |  |  | 18,485,000 | 

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.

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 expansion of the front
    end process for producing LCD panels.                                                                                           




In order to expand production capacity, we also
plan to build a new factory consisting of approximately 250,000
square feet adjacent to our principal manufacturing facilities
in Shenzhen, China. Planning for the project began in January
2003 and we expect construction to be completed by the end of
the second quarter in 2004. We have budgeted $40.0 million
to cover the cost of construction and fixtures and equipment for
the new factory. We plan to finance these improvements to our
manufacturing facilities from cash resources and banking
facilities.




Other capital expenditures we have planned for
2003 include:



| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | $12.0 million for machinery for
    manufacturing RF modules,                                                        
|
| |  | $8.9 million for other capital equipment, and                                                                        
|
| |  | $10.0 million for investment in a 25%
    interest in Alpha Star Investments Ltd., which we made in
    January 2003.

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.

16



---



##### 



Business
Overview




We are an electronics manufacturing and design
services provider to a select group of the worlds leading
original equipment manufacturers, or OEMs, of telecommunication
and consumer electronic products. Our largest customers include
Epson Precision (HK) Ltd., Sony Ericsson Mobile Communications
AB and Texas Instruments Incorporated. Through our electronics
manufacturing services, or EMS, operations, we manufacture
electronic components and subassemblies, including liquid
crystal display, or LCD, panels, transformers, LCD modules and
radio frequency, or RF, modules. These components are used in
various 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 palm-sized PCs,
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. Some of our principal 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 96.2% of our 2002 net sales
came from customers that also used our services in 2001. 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 90.2%, 83.7% and
84.8% of our net sales during the years ended December 31,
2000, 2001 and 2002, respectively. Sales to customers accounting
for 10% or more of our net sales in the year ended
December 31, 2000, 2001 or 2002 were as follows:

|                                       |  |              |      |      |  |      |       |  |  |  |      |  
|-------------------------------------- |  | ------------ | ---- | ---- |  | ---- | ----- |  |  |  | ---- | -
|                                       |  |             
|                                       |  | Year ended  
|                                       |  | December 31,
|                                       |  |             
|                                       |  | 2000         |      | 2001 |  | 2002
|                                       |  |              |      |      |  |     
|Epson Precision (HK) Ltd.              |  |              | 23.8 | %    |  |      | 29.9% |  |  |  | 32.2 | %
|Sony Ericsson Mobile Communications AB |  |              | N/A  |      |  |      | *     |  |  |  | 16.9 |  
|Texas Instruments Incorporated         |  |              | 23.9 |      |  |      | 14.2  |  |  |  | 11.1 |  
|Sharp Corporation                      |  |              | 14.7 |      |  |      | *     |  |  |  | *    |  
|Seiko Instruments Inc.                 |  |              | 10.0 |      |  |      | *     |  |  |  | *    |  



---



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

17



---



##### 



Our largest OEM customers based on net sales
during 2002 include the following (listed alphabetically):




|                                                       |  |                                                            
|------------------------------------------------------ |  | -----------------------------------------------------------
|Customer                                               |  | Product                                                    
|                                                       |  |                                                            
|Advance Watch Co. (Far East) Ltd.                      |  | LCD panels for watches                                     
|Canon Electronic Business Machines (H.K.) Co.
    Ltd. |  | Electronic dictionaries and calculators                    
|Casine Electronics Ind. Co.                            |  | LCD panels for calculators and clocks                      
|Epson Precision (H.K.) Ltd.                            |  | LCD modules for cellular phones                            
|Hitachi Ferrite Electronics Ltd.                       |  | Transformers                                               
|Hitachi Media Electronics Co. Ltd.                     |  | Transformers                                               
|Kanda Tsushin Kogyo Co Ltd (affiliate of Fujitsu)      |  | Caller ID function phones                                  
|Maeda Global Net (HK) Co Ltd.                          |  | PCB modules for cellular phones                            
|Nanox Ltd.                                             |  | LCD panels for cordless phones and household
    appliances
|Nishimura Musen Denki Co. Ltd.                         |  | Transformers                                               
|Optrex Corporation                                     |  | Assemblies for LCD modules                                 
|Seiko Instruments Inc.                                 |  | Electronic dictionaries                                    
|Sharp Corporation                                      |  | Calculators, pocket computers and control panel
    modules
|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 Battery Company Ltd*                           |  | Rechargeable battery packs for cellular phones             
|Vtech Telecommunications Ltd.                          |  | LCD panels for phones                                      
|Zexus Technology Ltd.                                  |  | LCD panels for watches                                     






---



|  |                                                                                                                                                                                                                                                                                        
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | We sold rechargeable battery packs to Toshiba
    Battery Company Ltd., through a joint venture we had with this
    customer. We sold our interest in the joint venture to a Toshiba
    related company and ceased manufacturing rechargeable battery
    packs as of April 30, 2002.

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.

18



---



##### 



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, 2000, 2001 and 2002 were as
follows:




|                               |                               |                         |         |         |  |         |     |         |   |         |         |         |  |  |     |    |   |   |         |         |  |  |     |    |  
|------------------------------ | ----------------------------- | ----------------------- | ------- | ------- |  | ------- | --- | ------- | - | ------- | ------- | ------- |  |  | --- | -- | - | - | ------- | ------- |  |  | --- | -- | -
|                               |                               |                        
|                               |                               | Year ended December 31,
|                               |                               |                        
|                               |                               |                         |         |         |  |        
|                               |                               | 2000                    |         | 2001    |  | 2002   
|                               |                               |                         |         |         |  |        
|                               |                               | Dollars                 |         | Percent |  | Dollars |     | Percent |   | Dollars |         | Percent
|                               |                               |                         |         |         |  |         |     |         |   |         |         |        
|Consumer Electronic Products:  |                               |                         |         |         |  |         |     |         |   |         |         |         |  |  |     |    |   |   |         |         |  |  |     |   
|                               | Component assembly(1)         |                         | $       | 103,288 |  |         |     | 48      | % |         | $       | 121,751 |  |  |     | 52 | % |   | $       | 103,625 |  |  |     | 44 | %
|                               | LCD consumer products         |                         |         | 98,043  |  |         |     | 46      |   |         |         | 73,596  |  |  |     | 32 |   |   |         | 94,207  |  |  |     | 40 |  
|                               | Software development services |                         |         | 2,073   |  |         |     | 1       |   |         |         | 2,701   |  |  |     | 1  |   |   |         | 2,923   |  |  |     | 1  |  
|LCD Panels and Transformers(2) |                               |                         |         |         |  |         |     |         |   |         |         |         |  |  |     |    |   |   |         |         |  |  |     |   
|                               | LCD panels                    |                         |         | 6,606   |  |         |     | 3       |   |         |         | 24,977  |  |  |     | 11 |   |   |         | 23,937  |  |  |     | 10 |  
|                               | Transformers                  |                         |         | 3,678   |  |         |     | 2       |   |         |         | 10,981  |  |  |     | 4  |   |   |         | 11,324  |  |  |     | 5  |  
|                               |                               |                         |         |         |  |         |     |         |   |         |         |         |  |  |     |    |   |   |         |         |  |  |     |   
|                               |                               | $                       | 213,688 |         |  |         | 100 | %       |   | $       | 234,006 |         |  |  | 100 | %  |   | $ | 236,016 |         |  |  | 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 were not included after that date.
|   
|(2) | LCD panels and components consist of products
    manufactured and sold by our subsidiaries in the JIC Group. We
    acquired the JIC Group in 2000 and their sales were consolidated
    with ours beginning in October 1, 2000.                                                                                                                                                                                         

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 telephones 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.                                                                                                            
|
| |  | 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 telephones.                                                                       
|
| |  | Electronic calculators that include basic
    function calculators, desktop display style, scientific and
    advanced graphic calculators.
|
| |  | Digital management devices that include personal
    digital assistants, or PDAs, and electronic personal organizers.                      

19



---



##### 





| |   |                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------
| |  | Linguistic products, including electronic
    dictionaries, spell checkers, and language translators.





| |                              
| | -----------------------------
| | Software Development Services

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 JIC 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 to our assembly
business.



| |             
| | ------------
| | 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.

Our Manufacturing and Assembly
Capabilities

We utilize the following production techniques:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Chip on Film.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, 2002, we had two COF
    machines. These machines connect the bump of LSI (Large Scale
    Integrated) driver onto FPC (Flexible Printed Circuit) pattern
    with ACF (Anisotropic Conductive Film), and mount chip resister
    cap components to FPC (Flexible Printed Circuit) through SMT
    (Surface Mount Technology) 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.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, 2002, we had seven COG lines. These machines
    provide an LCD (Liquid Crystal Display) 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
    2,600,000 chips per month.                                                                                                                                                                                                                                        
|
|
|
| |  | Chip On Board.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, 2002, we had 79 COB machines. These machines
    are fully automatic bonding machine 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 4,000,000 per month.                                                                                                                                             
|

20



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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Outer Lead Bonding.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, 2002, we had three OLB machines. The machines
    include multi-pinned TCP LSIC (Tape Carrier Packaged Large Scale
    Integrated Circuit) bonding which is up to 280 pins, they also
    provide ultra thin assembly with module thickness to around one
    millimeter and high accuracy bonding with pin pitch 100
    micrometers. The total production capacity is 12,000 per month.                                                                                                                                                                                                                                            
|
|
|
| |  | Tape Automated Bonding with Anisotropic
    Conductive Film.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, 2002, we had seven 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 800,000 components per month.                                                                                                                                                                                                                                                                                                                                                              
|
|
|
| |  | Fine Pitch Heat Seal
    Technology.FPHS technology allows us
    to connect LCD displays to PCBs produced by chip on board and
    outer lead bonding that enable very thin connections. This
    method is highly specialized and is used in the production of
    finished products such as PDAs. At December 31, 2002, 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.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, 2002, we had 16 SMT
    productions lines. The production time per chip ranges from
    0.1 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). BGA (Ball Grid Array) ball pitch is 0.5 millimeter and
    ball diameter is 0.2 millimeter. The total production capacity
    is 190,000,000 resistor capacitor chips per month.
|
|
|
| |  | Twisted Nematic
    LCDs.A 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, 2002, 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.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, 2002, 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, 2002, 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 seven clean rooms at
January 31, 2003, four were Class ten thousand and three
were Class one 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.

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All of our manufacturing facilities are certified
under either ISO 9001 or ISO 9002 quality standards,
the International Organization for Standardizations or ISO
highest standards, except for Namtai Electronic (Shenzhen) Co.
Ltd., or NTSZ, one of our subsidiaries, which was certified
under an ISO 9001 quality standard until March 2003 and is
now awaiting renewal. 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 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.

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 the past we have used two major suppliers,
    Epson Hong Kong Ltd. and Sharp Corporation for LCD panels and in
    the future we may produce some LCD supplies internally;
|
| |  | 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.

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

22



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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. Recently, some of our customers have started to
request that we bear responsibility for paying development
costs. For some products, we bear the development costs if we
believe that we can recover these costs through our
manufacturing relationship. 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 expect to recover the
development costs by the forging of a long-term customer
relationship and through mass production.




The production period usually lasts approximately
six to 12 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 2000 or 2002. In
2001, we made an inventory provision of $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,
resulting in our partial reversal of $2.0 million of the
provision in 2002. Of the remaining $1.8 million of
slow-moving inventory, $1.2 million was scrapped and
$600,000 will be scrapped in the next six months.

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.

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 disrupt the flow of our customers products into
the United States could materially and adversely affect our

23



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sales and margins if, as a result, our customers
delay or cancel orders or seek concessions to offset expediting
charges they incurred pending resolution of the problems causing
the port closures.


Competition

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




The EMS services we provide are available from
many independent sources as well as from current and potential
customers with in-house manufacturing capabilities. 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.
We have numerous competitors in the telecommunication,
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 instead on our trade secrets, industry
expertise and long-term relationships with our customers and
suppliers.

24



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Organizational
Structure

We are a holding company for Nam Tai Group
Management Ltd., 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
January 31, 2003.




Our significant operating entities are described
below:

JIC Technology Company
Ltd.




JIC Technology was formed in the Cayman Islands
in June 2002 in connection with a reverse merger with
Albatronics (Far East) Company Limited, of which we owned
slightly more than 50% of the outstanding capital stock. JIC
Technology is listed on the Hong Kong Stock Exchange. We
currently hold 75% of the ordinary shares of JIC Technology, and
upon conversion of the preference shares we own, we would own
approximately 94% of JIC Technology.




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

JIC 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, JIC 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.

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Jieyao Electronics (Shenzhen) Co.,
Ltd.




Jieyao was incorporated in 1995 as a wholly
foreign-owned enterprise with its factory located in Baoan
County District, Shenzhen. The company acts as another
manufacturing arm of JIC Groups transformer division.

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 (Hong Kong)
Company Limited




Nam Tai Telecom (Hong Kong) Company Limited was
established in Hong Kong in August 1999, emerging from a
successful acquisition of a Korea based telecommunication
business. Located in the same office building as Nam Tai
Electronic & Electrical Products Limited, Nam Tai Telecom
(Hong Kong) Company Limited develops and sells high frequency
wireless telecommunication products and LCD modules.




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. In June 2002, Zastrons equity interest was
transferred from Nam Tai Electronic & Electrical Products
Limited to Nam Tai Group Management Limited. In October 2002,
Zastrons silk screening business was transferred to Jieyao
Electronics (Shenzhen) Co. Ltd. In December 2002, the equity
interest of Zastron was transferred from Nam Tai Group
Management Limited to Nam Tai Telecom (Hong Kong) Company
Limited.




Nam Tai Electronic &
Electrical Products Limited




Nam Tai Electronic & Electrical Products
Limited was incorporated in November 1983 and became the holding
company for Namtai Electronic (Shenzhen) Co. Ltd. in 1992.
Marketing and customer relations are the main functions handled
by Nam Tai Electronic & Electrical Products Limited.







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 our principal manufacturing arm and is
engaged in research and development, manufacturing and
assembling our electronic products in China.




Namtek Software
Development Company Limited




Namtek Software Development Company Limited was
established in May 2002 and is a holding company for Shenzhen
Namtek Co., Ltd.




26



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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, 2002, Shenzhen Namtek
employed approximately 70 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.




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
neither own nor lease 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) | 
|                                  
|Principal Manufacturing Facilities |  |                |         |               |  |                            |  |  |          | 
|Shenzhen, China                    |  |                | 300,800 |               |  | Manufacturing              |  |  | 2043     | 
|                                   |  |                | 39,380  |               |  | Offices                    |  |  | 2043     | 
|                                   |  |                | 231,943 |               |  | Dormitories and cafeteria  |  |  | 2043     | 
|                                   |  |                | 6,596   |               |  | Recreational               |  |  | 2043     | 
|                                  
|Other facilities                   |  |                |         |               |  |                            |  |  |          | 
|Shenzhen, China                    |  |                | 72,360  |               |  | Manufacturing transformers |  |  | 2009     | 
|                                   |  |                | 27,093  |               |  | Dormitories                |  |  | 2009     | 
|                                   |  |                | 151,738 |               |  | Manufacturing LCD panels   |  |  | 2007     | 
|                                   |  |                | 108,181 |               |  | Dormitories                |  |  | 2007     | 
|                                   |  |                | 25,900  |               |  | Silk screening operations  |  |  | 2007     | 
|                                   |  |                | 2,875   |               |  | Dormitories                |  |  | 2007     | 
|Shekou, Shenzhen, China            |  |                | 6,650   |               |  | Software development       |  |  | 2003     | 
|Shanghai, China                    |  |                | 4,754   |               |  | 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 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 improvement 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 plan
to build 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. Planning for the
project began in January 2003 and we expect it to be completed
by the end of the second quarter in 2004. We have budgeted
$40.0 million to cover the cost of construction and
fixtures and equipment for the new factory. We currently plan to
finance these improvements to our manufacturing facilities from
cash resources and banking facilities.




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Hong Kong




In 2001, our Hong Kong offices were 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 us $13.0 million.







We own four residential flats in Hong Kong
purchased for total consideration of $6,016,000. 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 2001 we sold
approximately 7.7 acres of land for net proceeds of
$7,272,000, realizing a gain of $7,018,000. We plan to sell the
remaining land and, pending the sale, to continue to carry the
land at cost of approximately $134,000.

Shenzhen, China



| |                                   
| | ----------------------------------
| | Principal Manufacturing Facilities

Our principal manufacturing facilities 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 one 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.




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






| |                    
| | -------------------
| | Transformer Factory




Our transformer factory was leased in 1999 and
has six floors of manufacturing space totaling about
72,360 square feet. The factory has an average monthly
output of 2,534,335 units. The facility is under a ten-year
lease that expires on October 31, 2009.






| |            
| | -----------
| | LCD Factory




Our LCD factory was leased since 1997 and has
over 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 10 to
12 million pieces. The lease of the facility will be
expired on August 31, 2007.






| |                     
| | --------------------
| | Software Development

We currently lease two offices in which we
conduct software development. Our Shekou, Shenzhen, China office
has approximately 6,650 square feet, which we lease under a
one-year lease expiring in August 2003.

28



---



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The monthly rental is approximately $4,480. 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.




|        |                                                 
|------- | ------------------------------------------------
|Item 5. | Operating and Financial Review and
    Prospects




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




Operating Results

Overview




We are an electronics manufacturing and design
services provider to a select group of the worlds leading
original equipment manufacturers, or OEMs, of telecommunication
and consumer electronic products. Our largest customers include
Epson Precision (HK) Ltd., Sony Ericsson Mobile Communications
AB and Texas Instruments Incorporated. Through our electronics
manufacturing services, or EMS, operations, we manufacture
electronic components and subassemblies, including liquid
crystal display, or LCD, panels, transformers, LCD modules and
radio frequency, or RF modules. These components are used in
various 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 palm-sized PCs,
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.






| |                            
| | ---------------------------
| | 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, 2000, 2001 and 2002, sales to our ten largest
customers were 90.2%, 83.7% and 84.8% of our net sales,
respectively. Furthermore, our customers accounting for 10% or
more of our net sales aggregated approximately 72.4%, 44.1% and
60.2% 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.

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 customer. We generally do not obtain firm,
long-term commitments from our customers. Uncertain economic
conditions and

29



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##### 



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 2000 or 2002. In 2001
however, we made an inventory provision of $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, resulting in a partial reversal of $2.0 million
of the provision in 2002. Of the remaining $1.8 million of
slow-moving inventory, $1.2 million was scrapped and
$600,000 will be scrapped in the next six months.






| |              
| | -------------
| | 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 24.3% in 1998, to 17.2% for 1999, to 14.8%
for 2000, to 12.8% in 2001 and increasing to 16.1% in 2002.
Before the $3.8 million inventory provision in 2001 and our
subsequent partial reversal of $2.0 million of this
provision in 2002 discussed above, our gross margin was 14.5% in
2001 and 15.3% in 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 1998 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. We believe our
gross margin improved in 2002 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
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 has also negatively impacted our
gross margins. For example, in our initial production runs of
LCD 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, we may
not be able to improve or maintain our gross margin for these
products. Furthermore, in December 2002 we began to produce RF
modules, and, in January 2003, we began to produce color and
thin film transistor, or 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.



| |                                                 
| | ------------------------------------------------
| | Selling, General and Administrative
    Expenses

Our selling, general and administrative, or
SG&A, expenses, consist primarily of salary and benefits,
depreciation and amortization of our non-manufacturing fixed and
intangible assets, office expenses, and professional fees.



| |                         
| | ------------------------
| | 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

30



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##### 



the design and development of future products for
them. 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 manufacturing processes.




| |                      
| | ---------------------
| | Operating Realignment




In 2001, we restructured certain of our
operations to better align our manufacturing, engineering and
administrative resources. Related to this restructuring, we
incurred approximately $300,000 of costs related to employee
severance charges that were included in cost of sales. We also
incurred severance charges of approximately $700,000 related to
the elimination of certain administrative positions that were
included in selling, general and administrative expenses in that
year.







Due to the termination of the aforementioned
employees, we anticipate that we will have yearly savings of
approximately $1.7 million, although the benefit of these
savings will be mitigated by the hiring of additional employees
since the realignment and any future employees hired from time
to time.






| |             
| | ------------
| | Income Taxes




Our principal operations, which are conducted
through subsidiaries, are in Hong Kong and China. We calculate
the provision for current income taxes of our subsidiaries
operating in Hong Kong for the years ended December 31,
2000, 2001, and 2002 by applying the current rate of taxation of
16% to the estimated taxable income earned in or derived from
Hong Kong during the 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, which 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 0%, 2%, and 4% for
2000, 2001, and 2002, respectively. The significant factors that
cause our effective tax rates to differ from the applicable
statutory rates of 15% were as follows:







|                                                                                            |  |      |      |      |  |      |     |   |  |  |      |  
|------------------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | --- | - |  |  | ---- | -
|                                                                                            |  | 2000 |      | 2001 |  | 2002
|                                                                                            |  |      |      |      |  |     
|Applicable statutory tax rates                                                              |  |      | 15%  |      |  |      | 15% |   |  |  | 15%  |  
|Effect of (income) loss for which no income tax
    benefit/ expense is receivable/ payable |  |      | (11% | )    |  |      | 0%  |   |  |  | (4%  | )
|Tax holidays and incentives                                                                 |  |      | (2%  | )    |  |      | (8% | ) |  |  | (3%  | )
|Effect of PRC tax concessions, giving rise to no
    PRC tax liability                      |  |      | (2%  | )    |  |      | (6% | ) |  |  | (10% | )
|Others                                                                                      |  |      | 0%   |      |  |      | 1%  |   |  |  | 6%   |  
|                                                                                            |  |      |      |      |  |      |     |   |  |  |      |  
|Effective tax rates                                                                         |  |      | 0%   |      |  |      | 2%  |   |  |  | 4%   |  
|                                                                                            |  |      |      |      |  |      |     |   |  |  |      |  




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

31



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##### 



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:


Alpha Star/JCT Wireless.In January 2003 we invested
$10.0 million for a 25% equity interest in Alpha Star
Investments Ltd., the ultimate parent of Hong Kong based JCT
Wireless Technology Company 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
RF 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 a
portion of one investment. 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 Group
    Limited) in both TCL Mobile Communication (HK) Co., Ltd. and
    Huizhou TCL Mobile Communication Co., Ltd., or 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. However,
    sales to TCL Mobile were not material for 2002.
|
| |  | 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 Group Limited 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 indirect equity
    interest (held through Mate Fair Group Limited) 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.                                                                                                                                                                                                                                                                                                                                                         

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.

Group Sense.In May
1998, we acquired 20% of the outstanding shares of Group Sense
(International) Limited, a Hong Kong public listed company, for
cash of $16.3 million, which was reduced by a
pre-acquisition dividend of $460,000. Group Sense and its
subsidiaries manufacture consumer electronics products. During
the period from February to November 2000, we disposed of our
Group Sense shares for cash aggregating $28.1 million.

Albatronics.In
December 1998, we acquired slightly over 50% of the outstanding
shares of Albatronics (Far East) Company Limited, a Hong Kong
public listed company, for cash of approximately
$10.0 million. Albatronics and its subsidiaries were
engaged in the trading of electronic components and
manufacturing of consumer electronics products. Despite our
direct cash investment, Albatronics financial position
weakened dramatically and it became unable to pay its
liabilities as they came due. As a result, we wrote off our
entire investment in Albatronics.

32



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##### 






The following details the impact of our strategic
investments on our income statements for each of the years ended
2000, 2001 and 2002:







|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |   |        |  
|---------------------------------------------------------------- |  | ----------------------------------------------------------- | ---- | -------------- | ------ | ---- | ----- | ---- | ----- | - | ------ | - | ------ | -
|                                                                 |  |                                                             |      | 2000           |        | 2001 |       | 2002
|                                                                 |  |                                                             |      |                |        |      |       |     
|                                                                 |  |                                                             |      |               
|                                                                 |  |                                                             |      | (in thousands)
|Cost Investments                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |  
|Included in other income:                                        |  |                                                             |      |                |        |      |       |      |       |   |        |  
|Group Sense                                                      |  | Realized gain on disposal of investment, net                |      | $              | 9,435  |      |       | $    |      |   |        | $ |       |  
|Deswell                                                          |  | Realized gain on disposal of marketable securities          |      |                |       |      |       |      |      |   |        |   | 642    |  
|Deswell                                                          |  | Unrealized gain on marketable securities                    |      |                | 433    |      |       |      | 1,568 |   |        |   |       |  
|Deswell                                                          |  | Dividend income received from marketable
    securities     |      |                | 165    |      |       |      | 525   |   |        |   | 114    |  
|Group Sense                                                      |  | Dividend income received from investment                    |      |                | 23     |      |       |      |      |   |        |   |       |  
|TCL Corporation                                                  |  | Dividend income received from investment                    |      |                |       |      |       |      |      |   |        |   | 803    |  
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |   |        |  
|                                                                 |  |                                                             |      | $              | 10,056 |      |       | $    | 2,093 |   |        | $ | 1,559  |  
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |   |        |  
|Equity Investments                                               |  |                                                             |      |                |        |      |       |      |       |   |        |  
|Included in equity in (loss) income of
    affiliated companies: |  |                                                             |      |                |        |      |       |      |       |   |        |  
|Shanghai Q&T Tech Co., Ltd                                       |  |                                                             |      |                |        |      |       |      |       |   |        |  
|Share of results                                                 |  | $                                                           | (93  | )              |        | $    |      |      |       | $ |       |  
|Amortization of goodwill                                         |  |                                                             | (28  | )              |        |      |      |      |       |   |       |  
|Provision for unamortized balance of goodwill                    |  |                                                             | (86  | )              |        |      |      |      |       |   |       |  
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |  
|                                                                 |  |                                                             |      | $              | (207   | )    |       | $    |      |   |        | $ |       |  
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |   |        |  
|Mate Fair Group Ltd.                                             |  |                                                             |      |                |        |      |       |      |       |   |        |  
|Share of results                                                 |  | $                                                           | 69   |                |        | $    | 2,020 |      |       | $ | 10,741 |  
|Amortization of goodwill                                         |  |                                                             | (51  | )              |        |      | (153  | )    |       |   |       |  
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |  
|                                                                 |  |                                                             |      |                | 18     |      |       |      | 1,867 |   |        |   | 10,741 |  
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |   |        |  
|Equity in (loss) income of affiliated companies                  |  | $                                                           | (189 | )              |        | $    | 1,867 |      |       | $ | 10,741 |  
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |  
|Included in other income:                                        |  |                                                             |      |                |        |      |       |      |       |   |        |  
|Group Sense                                                      |  | Gain on disposal of investment in an affiliated
    company |      | $              | 1,346  |      |       | $    |      |   |        | $ |       |  
|Mate Fair                                                        |  | Release of unamortized goodwill of affiliated
    companies |      |                |       |      |       |      |      |   |        |   | (520   | )
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |   |        |  
|                                                                 |  |                                                             |      |                | 1,346  |      |       | $    |      |   |        |   | (520   | )
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |   |        |  
|                                                                 |  |                                                             |      | $              | 1,157  |      |       | $    | 1,867 |   |        | $ | 10,221 |  
|                                                                 |  |                                                             |      |                |        |      |       |      |       |   |        |   |        |  




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.




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.




33



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##### 



JIC Group Acquisition

We acquired J.I.C. Group (BVI) Limited, or
the JIC Group, in October 2000 for $32.8 million. We paid a
portion of the purchase price to the seller by issuing
approximately 1.16 million of our common shares and paid
$11.0 million in cash. The JIC Group is 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 JIC Group under the
purchase method of accounting and the results of the JIC
Groups operations have been consolidated with our results
since the date of its acquisition.

JIC Group Minority Interest




In June 2002, we arranged for the listing of the
JIC Group on The Stock Exchange of Hong Kong Limited by way of a
reverse merger with Albatronics. As a result, our effective
interest in the JIC Group reduced from 100% to 92.9%. However,
our interest in the JIC Group became publicly tradable shares on
the Hong Kong Stock Exchange. In the second quarter of 2002, we
accounted for the transaction by the creation of a minority
interest and a comparable reduction in the value of the net
assets of JIC. We discussed the accounting treatment of the JIC
transaction in our consolidated financial statements for the six
months ended June 30, 2002 with HLB Hodgson Impey Cheng,
our auditor at the time. We believed, and HLB concurred, at the
time we released our consolidated financial statements for the
six months ended June 30, 2002 that our accounting
treatment complied, where applicable, with the relevant
generally accepted accounting principles of Hong Kong and the
United States.







During the third quarter, in connection with a
transaction we were then considering, we were requested to
engage Deloitte Touche Tohmatsu to review our interim operations
for the six months ended June 30, 2002. On October 23,
2002, Deloitte Touche Tohmatsu communicated that, based on its
review, the financial results for the six months ended
June 30, 2002 may be materially misstated as a result
of a departure from generally accepted accounting principles
with respect to the absence of a $1.5 million goodwill
charge relating to the creation of the 7.1% minority interest in
our subsidiary, JIC. As a result, management and our Board of
Directors again discussed the accounting treatment with HLB.
Shortly thereafter, HLB resigned as our auditors for unrelated
reasons described in Change in Public Accountants.
In doing so, HLB provided us with no additional information as
to the appropriate accounting treatment for the
$1.5 million goodwill in question and suggested that the
issue would most appropriately be addressed by the independent
auditors that succeeded them.







We brought the issue to the attention of Grant
Thornton, whom we had retained as our independent auditors in
December 2002. Based on the advice of HLB, our auditor at the
time, we believed that our original accounting was accurate.
However, upon consultation with Grant Thornton, we determined to
include a charge of $1.5 million in other income/(expense),
net in 2002. We then decided to revise our previously issued
financial information issued in the second quarter of 2002 in
order to reflect the charge for the 7.1% JIC minority interest,
which we announced in a press release issued before the market
opened on February 18, 2003.




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 JIC subsidiary that we acquired in
October 2000. Prior to our acquisition of JIC, we operated as a
single segment; therefore, our comparison of operating results
for the years ended December 31, 2001 and 2000 presented
below is not described on a segment basis.




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, personal digital assistants, or 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




34



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##### 



electronic devices with wireless features. The
finished products that our CEP segment assembles include digital
camera accessories for cellular phones, handheld electronic
calculators, dictionaries and linguistic products. Within our
CEP segment, we also provide software development services to
our OEM customers.


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.

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.                    
|




Revenue from sales of products is recognized when
the title is passed to customers upon shipment and when
collectibility is 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.






| |                   
| | ------------------
| | 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 lower of cost or market
considerations. We make provisions for estimated excess and
obsolete 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, the




35



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##### 






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 cancelled an order. As the inventory is
typically unique to each customers product it is unusual
for the Company to be able to utilize the inventory for other
customers product. Therefore, the Companys policy is
to provide for all inventories, other than electronic parts and
LCDs, that remain unused for six months. Prior to providing for
inventory over six months old, management will determine if the
inventory can be utilized in other products. We do not generally
provide for electronic parts and LCDs as these customers are
held to their purchase commitments. If actual market conditions
or our customers product demands are less favorable than
those projected, additional provisions may be required. Our
current reserve for slow-moving or obsolete raw materials is
$1.5 million. We did not make any material provisions
relating to inventory for 2002.








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 made an inventory provision of
$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, resulting in a partial reversal
of $2.0 million of the provision in 2002. Of the remaining
$1.8 million of slow-moving inventory, $1.2 million
was scrapped and $600,000 will be scrapped in the next six
months.






| |                                                
| | -----------------------------------------------
| | Impairment or disposal of long-lived
    assets

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, that was applicable to financial
statements issued for fiscal years beginning after
December 15, 2001. The FASBs new rules on asset
impairment supersede SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and portions of Accounting Principles
Board Opinion No. 30, Reporting the Results for
Operations. The statement requires a single accounting
model for long-lived assets to be disposed of and significantly
changes the criteria that would have to be met to classify an
asset as held-for-sale. Classification as held-for-sale is an
important distinction since such assets are not depreciated and
are stated at the lower of fair value or carrying amount. The
statement also requires expected future operating losses from
discontinued operations to be recorded in the period(s) in which
the losses are incurred, rather than as of the measurement date
as previously required. On January 1, 2002, we adopted SFAS
No. 144. The adoption of SFAS No. 144 did not have any
significant impact on our financial position and results of
operations. We continually review our long-lived assets for
impairment. In 2002, we determined that long-lived assets were
not impaired.



| |         
| | --------
| | Goodwill

The excess of the purchase price over the fair
value of net assets acquired is recorded on our consolidated
balance sheet as goodwill. As of December 31, 2002, we had
goodwill of $21.3 million, the majority of which was from
our acquisition of JIC in 2000. 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 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 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




36



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##### 






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.








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. 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, 2002, 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 by Namtai Electronic (Shenzhen) Co.,
Ltd., Zastron Electronic (Shenzhen) Co. Ltd (formerly known as
Zastron Plastic & Metal Products (Shenzhen) Ltd), Shenzhen
Namtek Company Limited, Jieyao Electronics (Shenzhen) 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.
Accordingly, any PRC tax paid by these subsidiaries during the
year is recorded as an amount recoverable at the balance sheet
date when an application for reinvestment of profits has been
filed 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 to recognize the effect of
the difference between the financial statement and income tax
bases of measuring assets and liabilities.



| |            
| | -----------
| | Investments




We apply the equity method of accounting for
investments in affiliates when we have 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, which results in our
recording corresponding earnings or losses in our income
statement. Nonmarketable 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.




37



---



##### 



Operating Results

The following table presents selected
consolidated financial information stated as a percentage of net
sales for the years ended December 31, 2000, 2001, and 2002
(certain amounts may not calculate due to rounding and amounts
may not add due to rounding).

|                                                             |  |       |       |      |  |      |       |       |  |     |       |     |  |       |       |   |  |  |       |   |  |  |       |    |  |  |       |  
|------------------------------------------------------------ |  | ----- | ----- | ---- |  | ---- | ----- | ----- |  | --- | ----- | --- |  | ----- | ----- | - |  |  | ----- | - |  |  | ----- | -- |  |  | ----- | -
|                                                             |  |       |       |      |  |     
|                                                             |  | 2000  |       | 2001 |  | 2002
|                                                             |  |       |       |      |  |     
|                                                             |  | Total |       | CEP  |  | LPT  |       | Total |  | CEP |       | LPT |  | Total
|                                                             |  |       |       |      |  |      |       |       |  |     |       |     |  |      
|Net sales                                                    |  |       | 100.0 | %    |  |      | 100.0 | %     |  |     | 100.0 | %   |  |       | 100.0 | % |  |  | 100.0 | % |  |  | 100.0 | %  |  |  | 100.0 | %
|Cost of sales                                                |  |       | (85.2 | )    |  |      | (88.3 | )     |  |     | (81.0 | )   |  |       | (87.2 | ) |  |  | (83.4 | ) |  |  | (86.5 | )  |  |  | (83.9 | )
|                                                             |  |       |       |      |  |      |       |       |  |     |       |     |  |       |       |   |  |  |       |   |  |  |       |    |  |  |       |  
|Gross profit                                                 |  |       | 14.8  |      |  |      | 11.7  |       |  |     | 19.0  |     |  |       | 12.8  |   |  |  | 16.6  |   |  |  | 13.5  |    |  |  | 16.1  |  
|Selling, general and administrative expenses                 |  |       | (8.3  | )    |  |      | (8.3  | )     |  |     | (15.2 | )   |  |       | (9.4  | ) |  |  | (7.4  | ) |  |  | (8.6  | )  |  |  | (7.6  | )
|Research and development expenses                            |  |       | (1.6  | )    |  |      | (1.4  | )     |  |     | (0.6  | )   |  |       | (1.2  | ) |  |  | (1.1  | ) |  |  | (1.5  | )  |  |  | (1.1  | )
|Impairment of goodwill                                       |  |       |      |      |  |      |      |       |  |     |      |     |  |       |      |   |  |  | (0.2  | ) |  |  |      |    |  |  | (0.2  | )
|                                                             |  |       |       |      |  |      |       |       |  |     |       |     |  |       |       |   |  |  |       |   |  |  |       |    |  |  |       |  
|Income from operations                                       |  |       | 4.9   |      |  |      | 2.0   |       |  |     | 3.2   |     |  |       | 2.2   |   |  |  | 7.9   |   |  |  | 3.4   |    |  |  | 7.2   |  
|Equity in (loss) income of affiliated companies              |  |       | (0.1  | )    |  |      | 0.9   |       |  |     |      |     |  |       | 0.8   |   |  |  | 5.4   |   |  |  |      |    |  |  | 4.6   |  
|Other income (expense)                                       |  |       | 6.5   |      |  |      | 0.5   |       |  |     | 5.1   |     |  |       | 1.2   |   |  |  | (2.4  | ) |  |  | (3.4  | )  |  |  | (2.6  | )
|Interest expense                                             |  |       | (0.1  | )    |  |      | (0.1  | )     |  |     | (0.0  | )   |  |       | (0.1  | ) |  |  | (0.4  | ) |  |  | (0.2  | )  |  |  | (0.3  | )
|                                                             |  |       |       |      |  |      |       |       |  |     |       |     |  |       |       |   |  |  |       |   |  |  |       |    |  |  |       |  
|Income (loss) before income taxes and minority
    interests |  |       | 11.2  |      |  |      | 3.3   |       |  |     | 8.3   |     |  |       | 4.1   |   |  |  | 10.5  |   |  |  | (0.2  | )  |  |  | 8.9   |  
|Income taxes benefit (expense)                               |  |       | 0.0   |      |  |      | (0.1  | )     |  |     | (0.2  | )   |  |       | (0.1  | ) |  |  | (0.4  | ) |  |  | (0.2  | )  |  |  | (0.3  | )
|                                                             |  |       |       |      |  |      |       |       |  |     |       |     |  |       |       |   |  |  |       |   |  |  |       |    |  |  |       |  
|Income (loss) before minority interests                      |  |       | 11.2  |      |  |      | 3.2   |       |  |     | 8.1   |     |  |       | 4.0   |   |  |  | 10.1  |   |  |  | (0.4  | )  |  |  | 8.6   |  
|Minority interests                                           |  |       | 0.0   |      |  |      | (0.1  | )     |  |     |      |     |  |       | (0.1  | ) |  |  |      |   |  |  | (0.1  | )  |  |  | (0.1  | )
|                                                             |  |       |       |      |  |      |       |       |  |     |       |     |  |       |       |   |  |  |       |   |  |  |       |    |  |  |       |  
|Net income (loss)                                            |  |       | 11.2  | %    |  |      | 3.1   | %     |  |     | 8.1   | %   |  |       | 3.9   | % |  |  | 10.1  | % |  |  | (0.5  | )% |  |  | 8.5   | %
|                                                             |  |       |       |      |  |      |       |       |  |     |       |     |  |       |       |   |  |  |       |   |  |  |       |    |  |  |       |  



| |                                                                          
| | -------------------------------------------------------------------------
| | 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 of 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.




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 price caused by market
competition 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 provision of $3.8 million in 2001 for slow-moving
raw materials relating to cancelled, returned or delayed orders
and our subsequent reversal of $2.0 million of this
provision in 2002 discussed below, our consolidated gross margin
was 14.5% in 2001 and 15.3% in 2002.




Gross profit in the CEP segment increased 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

38



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##### 






inventory provision 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 partial reversal of $2.0 million of the provision 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. We did not establish a new cost basis for the inventory
as it was not written-off, but rather reserved for. Before the
inventory provision of $3.8 million in 2001 and our
subsequent reversal of $2.0 million of this provision in
2002, our gross margin for the CEP segment was 13.6% in 2001 and
15.6% in 2002. Also contributing to the increase in gross profit
in 2002 is a $300,000 non-recurring 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 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
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 the
decrease in stock option compensation expense of $839,000 in
2002 compared to 2001.




Our SG&A expenses include provisions for bad
debt expenses, which provision 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 allowance for doubtful accounts
increased from $31,000 in 2001 to $122,000 in 2002. On a segment
basis, our allowance increased in the CEP segment from zero in
2001 to $35,000 in 2002 and increased in the LPT segment from
$31,000 in 2001 to $87,000 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.




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.

39



---



##### 



Income from Operations.Income from operations increased by
approximately $11.9 million to $17.1 million, or 7.2%
of sales, for 2002 compared to $5.1 million, or 2.2% of
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 JIC Group subsidiary, including the release of
unamortized goodwill, $1.4 million of legal and
professional fees related to the JIC 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 affiliated companies -
Mate Fair, $307,000 of finance charges and $771,000 of
miscellaneous expenses primarily related to non-operating legal
fees. These expenses were partially off set 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 charges is 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 the
prior year. The increase is primarily the result of our 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
JIC 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 $1.86 ($1.89 basic)
compared to $0.87 ($0.88 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 LPT was the result of lower gross profit margin, and the
release of unamortized goodwill as described above.



| |                                                                          
| | -------------------------------------------------------------------------
| | Year ended December 31, 2001 Compared to
    Year ended December 31, 2000

Net Sales.Our net
sales increased by 9.5% to $234.0 million for 2001 compared
to $213.7 million for 2000. We attribute this growth in
sales to our acquisition of the JIC Group, full year results
from our battery pack joint venture and our focus on
manufacturing key components for telecommunication products and
other

40



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##### 



complex components and subassemblies resulting
from our investment in high-technology manufacturing equipment.
The acquisition of the JIC Group in October 2000 contributed
$36.0 million in sales for 2001 compared to
$10.3 million in 2000. The startup of our battery pack
joint venture with a Toshiba-related company in June of 2000
contributed $21.1 million to our net sales in 2001 compared
to $6.2 million for 2000. Sales of subassemblies and
components, particularly LCD modules for mobile phones,
increased by approximately $14.7 million in 2001 compared
to 2000. Sales increases in these categories were partially
offset by sales of calculators, telecommunication products, and
PDAs and linguistic products, which decreased by
$23.4 million, $9.3 million and $4.3 million,
respectively, compared to the prior year period.





Gross Profit.Our
gross profit decreased 4.9% to $30.0 million for 2001 from
$31.6 million for 2000. Our gross margin also decreased in
2001 to 12.8% from 14.8% in 2000. Our inventory provision of
$3.8 million for slow-moving raw materials relating to
cancelled, reduced or delayed orders by our customers is the
primary reason for the decline in our gross profit and gross
margin. Before this charge, our gross margin in 2001 was 14.5%.
Our shift in product mix towards more complex and capital
intensive subassemblies and components, combined with a
reduction in sales of higher margin finished goods such as
calculators, also contributed to the decline in our gross profit
in 2001. Pricing pressure caused by the increasingly competitive
environment for electronic products was another factor in our
gross profit decline. Our cost of sales for 2001 also included
$300,000 related to severance payments for direct labor
employees who were terminated as part of our restructuring
activities in that period.




Selling, General and Administrative Expenses.For 2001, SG&A increased 24.5% to
$22.0 million from $17.6 million in 2000. As a
percentage of net sales, SG&A expense increased to 9.4% in
2001 from 8.3% in 2000. This increase reflected amortization
charges related to the acquisition of JIC Group of
$1.6 million in 2001 compared to $406,000 in 2000, the
addition of JIC Groups SG&A expenses, excluding
goodwill amortization, of $3.0 million for an entire year
in 2001 compared to $2.0 million for the fourth quarter of
2000, stock option compensation expense of $839,000 in 2001
compared to nil in 2000 and various realignment charges,
including employee severance charges, of $700,000 in 2001.

Research and Development Expenses.Research and development expenses for
2001 decreased 15.3% to $3.0 million or 1.2% of net sales
from $3.5 million or 1.6% of net sales in 2000. The
decrease was related to a reduction of some R&D related
staff in 2001 as well as the closure of our Korean research and
development office in the latter part of 2000.




Income from Operations.Income from operations decreased by
approximately $5.4 million to $5.1 million, or 2.2% of
sales, for 2001 compared to $10.5 million, or 4.9% of
sales, for 2000. This decrease in operating income is
attributable to the decrease in gross profit and our increase in
SG&A expenses, as described above.







Equity in Income of Affiliated Companies.Equity in income of affiliated
companies was $1.9 million for 2001 compared to a loss of
$189,000 for 2000. The gain in 2001 was primarily related to our
indirect investment in TCL Mobile. Equity in loss of affiliated
companies in 2000 was related to $18,000 gain from our indirect
investment in TCL Mobile, that was made in September 2000,
offset by the $207,000 loss on the write off of our investment
in Shanghai Q&T Tech. Co., Ltd.







Other Income (Expense), net.Other income, net decreased to
$2.7 million for 2001 compared to $13.9 million for
2000. Other income in 2001 included unrealized gains on
marketable securities of $1.6 million, interest income of
$1.2 million, foreign exchange gains of $530,000, and
dividend income received from marketable securities of $525,000
offset by the write-off of a non-trade receivable of $500,000,
bank charges of $333,000 and miscellaneous expenses of $294,000.
In 2000, other income was comprised primarily of gains related
to sales of investments of $10.8 million and interest
income of $3.3 million. The decrease in interest income
from 2000 to 2001 was the result of lower cash balances and
lower interest rates in 2001 compared to 2000.




Interest Expense.Interest expenses rose to $178,000 for
2001 compared to $165,000 for 2000. The increase in interest
charges is the result of $15.0 million in long-term debt
that we obtained in the fourth quarter of 2001 offset by a
reduction in interest rates.

41



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Income Taxes.The
income tax expense of $227,000 for 2001 compares to a benefit of
$33,000 for 2000. The primary reason for the increase in 2001
was an increase in our taxable income compared to 2000.

Minority Interest.Minority interest changed $242,000
from a loss of $12,000 in 2000 to a profit of $230,000 in 2001.
Minority interest in 2001 represented the minority
shareholders share of BPCs profit. The minority
interest in 2000 represented the minority shareholders
share of the loss of BPC.




Net Income.Net
income decreased by $15.0 million, or 62.3%; to
$9.0 million or 3.9% of net sales, for 2001 compared to
$24.0 million, or 11.2% of net sales for 2000. This
resulted in diluted earnings per share for 2001 of $0.87 ($0.88
basic) compared to $2.56 ($2.63 basic) for 2000. The decrease in
net income and earnings per share is the result of the decrease
in gross profit, the increase in SG&A expense and the
decrease in other income, 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.

We had positive net working capital of
$87.4 million at December 31, 2002 compared to
positive net working capital of $84.0 million at
December 31, 2001. 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
$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 gain on share redemption of
$3.5 million. Our working capital related to operating
activities 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 increase 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 is 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 provided by operating activities in 2001
was $23.2 million. Cash provided by operating activities in
2001 was primarily attributable to net income of
$9.0 million, plus depreciation of $9.1 million,
amortization of intangible assets of $2.0 million and stock
option costs of $839,000 offset by non-cash equity in income of
affiliates of $1.9 million and unrealized gain on
marketable securities of $1.6 million. Our decrease in
working capital related to operating activities was driven by a
decrease in inventory of $15.3 million offset by a decrease
in accounts payable and accrued expenses of $6.1 million
and an increase in accounts receivable of $4.4 million.

Our inventory decreased in 2001 due to our
increased focus on inventory management and our increased use of
domestic China suppliers with shorter delivery lead times.
Inventory also decreased due to our $3.8 million provision
for slow-moving raw materials relating to cancelled, reduced or
delayed orders. The

42



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increase in our accounts receivable was primarily
related to the increase in our net sales while the decrease in
our accounts payable and accrued expenses related to the
decrease in inventory levels.





Net cash used in investing activities was
$33.8 million in 2002. Cash used in investing activities
was primarily related to our $12.0 million strategic
investment in TCL Holdings 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.




Net cash used in investing activities was
$35.4 million in 2001. Cash used in investing activities
was primarily related to capital expenditures of
$36.0 million offset by proceeds from the disposal of
property, plant and equipment of $698,000. 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 our principal manufacturing facilities,                
|
| |  | $5.5 million for the purchase of new chip on
    glass production lines, and                                                                                                    
|
| |  | $2.0 million for the expansion of the front
    end process for producing LCD panels.                                                                                           

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.

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.

Net cash provided by financing activities was
$12.0 million for 2001, which primarily resulted from
$15.0 million of proceeds from a bank loan and
$4.3 million of proceeds received from the exercise of
options and warrants offset by $3.9 million of cash
dividends and $3.4 million for the repurchase of the our
shares.




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






| |                  
| | -----------------
| | Capital Resources




As of December 31, 2002, we had
$82.5 million in cash and cash equivalents, consisting of
cash and short-term deposits compared to $58.7 million at
December 31, 2001. Our short-term debt was
$15.0 million and $3.7 million at December 31,
2002 and at December 31, 2001, respectively.




At December 31, 2002, we had in place
general banking facilities with two financial institutions
aggregating $58.2 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. 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. These facilities are
subject to annual review

43



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##### 






and approval. As at December 31, 2002, we
had utilized approximately $8.9 million under such general
credit facilities and had available unused credit facilities of
$49.3 million.





As at December 31, 2002, we had debt of
$16.8 million, including the current portion of
$14.0 million, compared to debt of $15.0 million,
including the current portion of $2.1 million at
December 31, 2001. A portion of this debt was obtained in
the fourth quarter of 2001, had a seven-year term and carried a
fixed rate of interest of 5.05% for the first four years
changing to a floating rate of 1% over the Singapore Interbank
Money Market Offer Rate, or SIBOR, for the final three years.
The loan was secured by a property with net book value of
$11.4 million. Principal repayments of $535,000 were made
on a quarterly basis for the term of the loan. At
December 31, 2002, the outstanding balance of the loan was
$12.9 million. On January 3, 2003, we repaid the
entire outstanding balance of this loan.

Our debt as of December 31, 2002 also
included unsecured long-term debt of $4.5 million that we
obtained in May 2002. This debt has a term of four years and
bears interest of 1.5% over 3 month LIBOR (with a cap at
7.5%), with principal repayments of $281,250 due on a quarterly
basis. At December 31, 2002, the outstanding balance of the
loan was $3.9 million, including the current portion of
$1.1 million.

A summary of our contractual obligations and
commercial commitments as of December 31, 2002 is as
follows:

|                       |  |                        |            |          |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |         |  |  |   |         | 
|---------------------- |  | ---------------------- | ---------- | -------- |  | ---- | ---------- | ---- |  | ---- | --------- | ---- |  | ---------- | --------- |  |  | - | --------- |  |  | - | ------- |  |  | - | ------- | 
|                       |  |                       
|                       |  | Payments due by period
|                       |  |                       
|                       |  |                        |            | 2008 and
|Contractual obligation |  | Total                  |            | 2003     |  | 2004 |            | 2005 |  | 2006 |           | 2007 |  | thereafter
|                       |  |                        |            |          |  |      |            |      |  |      |           |      |  |           
|Long-term debt         |  | $                      | 16,797,000 |          |  | $    | 13,985,000 |      |  | $    | 1,125,000 |      |  | $          | 1,125,000 |  |  | $ | 562,000   |  |  | $ |        |  |  | $ |        | 
|Operating leases       |  |                        | 3,935,000  |          |  |      | 779,000    |      |  |      | 727,000   |      |  |            | 745,000   |  |  |   | 731,000   |  |  |   | 565,000 |  |  |   | 388,000 | 
|Capital expenditures   |  |                        | 20,856,000 |          |  |      | 20,856,000 |      |  |      |          |      |  |            |          |  |  |   |          |  |  |   |        |  |  |   |        | 
|                       |  |                        |            |          |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |         |  |  |   |         | 
|Total                  |  | $                      | 41,588,000 |          |  | $    | 35,620,000 |      |  | $    | 1,852,000 |      |  | $          | 1,870,000 |  |  | $ | 1,293,000 |  |  | $ | 565,000 |  |  | $ | 388,000 | 
|                       |  |                        |            |          |  |      |            |      |  |      |           |      |  |            |           |  |  |   |           |  |  |   |         |  |  |   |         | 

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, where our principal executive offices
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.

44



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Recent changes in accounting
standards




In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations. This Statement addresses financial accounting
and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. SFAS No. 143 requires a company to record the fair
value of an asset retirement obligation as a liability in the
period in which it incurs a legal obligation associated with the
retirement of a tangible long-lived asset. SFAS No. 143
also requires a company to record the contra to the initial
obligation as an increase to the carrying amount of the related
long-lived asset (i.e. the associated asset retirement costs)
and to depreciate that cost over the remaining useful life of
the asset. The liability is adjusted at the end of each period
to reflect the passage of time (i.e. accretion expense) and
changes in the estimated future cash flows underlying the
initial fair value measurement. Companies are required to adopt
SFAS No. 143 for fiscal years beginning after June 15,
2002. We adopted SFAS No. 143 on January 1, 2003. We
do not believe that its adoption will have a material effect on
our financial position, results of operations, or cash flows.




In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 eliminates extraordinary accounting
treatment for reporting gain or loss on debt extinguishment, and
amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe
their applicability under changed conditions. The provisions of
SFAS No. 145 related to the rescission of SFAS No. 4
are applicable in fiscal years beginning after May 15,
2002, the provisions related to SFAS No. 13 are effective
for transactions occurring after May 15, 2002, and all
other provisions are effective for financial statements issued
on or after May 15, 2002; however, early application is
encouraged. Debt extinguishments reported as extraordinary items
prior to scheduled or early adoption of SFAS No. 145 would
be reclassified in most cases following adoption. In the current
year, we adopted the provisions of SFAS No. 145 related to
the accounting treatment for the gain or loss on debt
extinguishment. The result of this adoption is that a $610,000
finance charge incurred for the early extinguishment of our long
term debt that would have been recorded as an extraordinary item
under the previous accounting rules has been included as an
expense from continuing operations. We do not expect the
adoption of the remaining provisions of SFAS No. 145 to
have a material effect on our financial position, results of
operations, or cash flows.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires recording costs
associated with exit or disposal activities at their fair values
when a liability has been incurred. Under previous guidance,
certain exit costs were accrued upon managements
commitment to an exit plan, which is generally before an actual
liability has been incurred. The requirements of SFAS
No. 146 are effective prospectively for exit or disposal
activities initiated after December 31, 2002; however,
early application is encouraged. We do not expect the adoption
of SFAS No. 146 to have a material effect on our financial
position, results of operations, or cash flows.

In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). FIN 45 requires that upon
issuance of a guarantee, a guarantor must recognize a liability
for the fair value of an obligation assumed under a guarantee.
FIN 45 also requires additional disclosures by a guarantor in
its annual financial statements about the obligations associated
with guarantees issued. The recognition provisions of FIN 45 are
effective for any guarantees issued or modified after
December 31, 2002. The disclosure requirements are
effective for financial statements of interim or annual periods
ending after December 15, 2002. We are currently evaluating
the effects of FIN 45; however, we do not expect that the
adoption of FIN 45 will have a material effect on our financial
position, results of operations, or cash flows.




In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure. SFAS
No. 148 amends SFAS No. 123 Accounting for
Stock-Based Compensation, to provide alternative methods
of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In
addition, SFAS No. 148 amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect
of the




45



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method used on reported results. SFAS
No. 148 is effective for fiscal years beginning after
December 15, 2002. The expanded annual disclosure
requirements and the transition provisions are effective for
fiscal years ending after December 15, 2002. We do not
expect the adoption of SFAS 148 to have a material effect on our
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 are not
expected to have a material impact on our financial position,
results of operations, or cash flows.




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 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 14%, 16%, and 8% of our material costs have been
in Japanese yen during the years ended December 31, 2000,
2001, and 2002. Sales made in yen account for less than 7% of
sales for the years ended December 31, 2000, 2001 and 2002.
Our business and operating results could be materially and
adversely affected in the event of a severe increase in the
value of the yen to the US dollar at a time when our sales made
in yen are insufficient to cover our material purchases in yen.

Effective January 1, 1994, China adopted a
floating currency system whereby the official exchange rate
equaled the market rate. Since the market and official renminbi
rates were unified, the value of the renminbi against the dollar
has been stable. We believe any devaluation of the renminbi
would benefit us by reducing our costs in China, provided that
devaluation or other economic pressures do not lead to
fundamental changes in the present economic climate in China.

Foreign exchange transactions involving the
renminbi take place through the Bank of China or other
institutions authorized to buy and sell foreign exchange or at
an approved foreign exchange adjustment center (known as a
swap center). In the past, when exchanging Hong Kong
dollars for Chinese renminbi, we used a swap center to obtain
the best possible rate. When translating the Chinese company
accounts into U.S. dollars, we use the same exchange rate
as quoted by the Peoples Bank of China. Since
January 1, 1994, when China adopted a floating currency
system (whereby the official rate is equal to the market rate),
swap centers and banks in China offer essentially the same
market rates, facilitating the exchange of Hong Kong dollars for
renminbi. The adoption of a floating currency system has had no
material impact on us.

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

46



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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, 2002 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 at December 31, 2002 we had no open
forward contracts or option contracts to purchase or sell
foreign currencies.

Cash on hand at December 31, 2002 of
$82,477,000 was held in the following currencies.

|                      |  |                   |            | 
|--------------------- |  | ----------------- | ---------- | 
|                      |  | Equivalent       
|                      |  | U.S. Dollar      
|                      |  | Holdings         
|                      |  |                  
|                      |  | December 31, 2002
|                      |  |                  
|Japanese yen          |  |                   | 438,000    | 
|United States dollars |  |                   | 78,408,000 | 
|Hong Kong dollar      |  |                   | 3,293,000  | 
|Chinese renminbi      |  |                   | 338,000    | 

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 $82.5 million as of December 31, 2002 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 November
2002, we purchased a $5.1 million in principal amount of a
3% convertible note due in November 2005. As the interest rate
on the convertible note is fixed, we do not expect fluctuations
in interest rates to materially effect our cash flows and net
income.

As of December 31, 2002, we had
$8.9 million outstanding on our credit facilities,
including $985,000 in short-term notes payable resulting in
minimal interest rate risk.



| |                             
| | ----------------------------
| | Long-term interest rate risk

As of December 31, 2002, we had
$16.8 million in long-term debt including the current
portion of $14.0 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.

We also obtained a four-year term loan with
borrowings in May 2002 totaling $4.5 million at a rate of
1.5% over three months LIBOR repayable in 16 quarterly
installments of approximately $281,000 beginning August 2002.
The term loan had an outstanding balance of $3.9 million as
of December 31, 2002.

The potential effect of a hypothetical 1%
increase in interest rates for 2002 indebtedness would be
insignificant to our cash flows and net income.

47



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Item 6.     Directors,
Senior Management and Employees

Directors and Senior Managers




Our current directors and senior management and
their ages as of March 31, 2003 are as follows:







|                 |  |     |    |                       |  |                                                                            
|---------------- |  | --- | -- | --------------------- |  | ---------------------------------------------------------------------------
|Name             |  | Age |    | Position with Nam Tai
|                 |  |     |    |                      
|Tadao Murakami   |  |     | 59 |                       |  | Chairman of the Board and member of the Board of
    Directors             
|Joseph Li        |  |     | 51 |                       |  | Chief Executive Officer, President and member of
    the Board of Directors
|M. K. Koo        |  |     | 58 |                       |  | Chief Financial Officer and member of the Board
    of Directors           
|O. Shik Kong     |  |     | 52 |                       |  | Managing Director of NTEE                                                  
|Karene Wong      |  |     | 39 |                       |  | Vice-Managing Director of NTEE                                             
|Patinda Lei      |  |     | 36 |                       |  | Managing Director Nam Tai Telecom                                          
|L. P. Wang       |  |     | 46 |                       |  | Managing Director of Zastron Electronic                                    
|Kazuhiro Asano   |  |     | 51 |                       |  | Managing Director of Namtek Software                                       
|Seitaro Furukawa |  |     | 61 |                       |  | Chairman of the Board of JIC Technology Company
    Limited                
|Ivan Chui        |  |     | 44 |                       |  | Managing Director of J.I.C. Enterprises (HK)
    Limited                   
|Lorne Waldman    |  |     | 36 |                       |  | Secretary                                                                  
|Charles Chu      |  |     | 46 |                       |  | Member of the Board of Directors                                           
|Peter R. Kellogg |  |     | 60 |                       |  | Member of the Board of Directors                                           
|Stephen Seung    |  |     | 56 |                       |  | 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 JIC Group, has served in various
senior executive positions since we acquired the JIC Group in
October 2000. Mr. Li assumed the position of Chief
Executive Officer in May 2002. Mr. Li has directed JIC
Groups business development since founding JIC Group in
1980.

M. K. Koo.Mr. Koo has served as Chairman of the Board of Nam Tai and
its predecessor companies from inception until September 1998
and as Senior Executive Officer, Corporate Strategy, Finance and
Administration and 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 of
Laws degree from National Taiwan University in 1970.




O. Shik Kong.Mr. Kong assumed the position of Sales and Marketing
Director of Nam Tai Group Management Limited in January 2003 and
Managing Director of Nam Tai Electronic & Electrical
Products Ltd. in April 2003. Mr. Kong is responsible for
marketing and business development. Before joining Nam Tai,
Mr. Kong had over 24 years of sales and marketing
experience in electric, electronic and home appliance goods in
LG Electronics. Mr. Kong served as the Vice President and
General Manager of LG Electronics IT overseas sales
division. Mr. Kong received his Bachelor of English
Literature and International Business Administration from Korea
University of Foreign Studies in Korea in 1978 and Master of
Business Administration from Graduate School of Business,
Kyungbuk National University in 2001.







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 April
2003 became the Vice-Managing Director. 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.




48



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##### 






Patinda Lei.Ms. Lei assumed the position of Managing Director of our
subsidiary Nam Tai Telecom (Hong Kong) Company Limited since
June 2002. 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. She graduated
from the Science University of Tokyo in 1990, majoring in
Industrial Engineering.







L.P. Wang.Mr. Wang assumed the position of Managing Director of our
subsidiary Zastron Electronic (Shenzhen) Co. Ltd. in August
2002. 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.




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 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
of English Literature degree from Aoyama University in 1965 and
his Bachelor 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 JIC Groups marketing activities since founding
JIC Group in 1980.

Lorne Waldman.Mr. Waldman was appointed Secretary of Nam Tai Electronics,
Inc. in October 1997. Mr. Waldman received a Bachelor of
Commerce Degree from the University of Calgary in 1990. In 1994
he received his Law and MBA degrees from the University of
British Columbia.




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 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 serves on our audit committee. Mr. Kellogg
is also a member and Chairman 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 serves on our audit
committee and acts as our authorized agent in the United States.
Mr. Seung also serves on the Board of Directors and audit
committee of Deswell Industries, Inc.

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.

49



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##### 



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, 2002
to all directors and officers as a group for services in all
capacities was approximately $1.7 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.

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 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.

Prior to December 2000, we maintained staff
contributory retirement plans (defined contribution pension
plans), which covered certain of our employees. 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. The
MPF is a defined contribution program and independent trustees
manage the assets of the program. We make contributions of 5%
based on the staffs relevant income with the maximum
relevant income for contribution purpose per employee of $2,565
per month. Our contribution cost to the contributory retirement
plans (including the MPF) amounted to $174,000, $151,000 and
$127,000 for the years ended December 31, 2000, 2001 and
2002, 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.

The Audit Committee of the board of directors
reviews, acts on and reports to the board of directors with
respect to various auditing and accounting matters, including
the selection of our auditors, the scope of the annual audits,
fees to be paid to the auditors, the performance of our
independent auditors and our accounting practices. Our Audit
Committee currently consists of Messrs. Seung, Chu, and
Kellogg.

The Compensation Committee of the board of
directors determines the salaries and incentive compensation of
the officers of Nam Tai (other than Messrs. Murakami, Li
and Koo, whose salaries are decided each year by our
boards outside directors) and 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, Li and Koo.

50



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##### 



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, Li 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 31, 2003.







|                 |  |               |        |           |  |            |       |  |  |  |           | 
|---------------- |  | ------------- | ------ | --------- |  | ---------- | ----- |  |  |  | --------- | 
|                 |  | Number of     |        |           |  |           
|                 |  | common shares |        | Exercise  |  |           
|                 |  | subject to    |        | Price ($) |  | Expiration
|Name             |  | options       |        | per share |  | Date      
|                 |  |               |        |           |  |           
|Tadao Murakami   |  |               | 40,000 |           |  |            | 13.94 |  |  |  | 3/16/2004 | 
|                 |  |               | 25,000 |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|Joseph Li        |  |               | 20,000 |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|M. K. Koo        |  |               | 40,000 |           |  |            | 14.50 |  |  |  | 6/22/2004 | 
|                 |  |               | 39,000 |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|O. Shik Kong     |  |               |       |           |  |            |      |  |  |  |          | 
|Karene Wong      |  |               | 10,000 |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|Patinda Lei      |  |               | 3,000  |           |  |            | 13.94 |  |  |  | 3/16/2004 | 
|                 |  |               | 10,000 |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|L. P. Wang       |  |               | 10,000 |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|Kazuhiro Asano   |  |               |       |           |  |            |      |  |  |  |          | 
|Seitaro Furukawa |  |               | 10,000 |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|Ivan Chui        |  |               | 10,000 |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|Lorne Waldman    |  |               | 5,000  |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|Charles Chu      |  |               | 5,000  |           |  |            | 16.38 |  |  |  | 6/8/2003  | 
|                 |  |               | 5,000  |           |  |            | 14.50 |  |  |  | 6/22/2004 | 
|                 |  |               | 5,000  |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|Peter R. Kellogg |  |               | 5,000  |           |  |            | 16.38 |  |  |  | 6/8/2003  | 
|                 |  |               | 5,000  |           |  |            | 14.50 |  |  |  | 6/22/2004 | 
|                 |  |               | 5,000  |           |  |            | 19.85 |  |  |  | 4/30/2005 | 
|Stephen Seung    |  |               | 5,000  |           |  |            | 16.38 |  |  |  | 6/8/2003  | 
|                 |  |               | 5,000  |           |  |            | 14.50 |  |  |  | 6/22/2004 | 
|                 |  |               | 5,000  |           |  |            | 19.85 |  |  |  | 4/30/2005 | 




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 can not be altered once granted; and (iv) every
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 5,000 options, with an
exercise price equal to 100% of the fair market value of the
common shares on the date of grant. At March 31, 2003,
options to purchase 372,000 shares were outstanding under our
Stock Options Plans and 602,233 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. After
December 31, 2002, incentive compensation paid to
management and other key employees will be in the form of cash
bonuses.

51



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##### 



Employees




At 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.







We are not a party to any material labor
contract. 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.







We maintain an employee incentive compensation
program in China whereby a regular bonus is paid to employees on
the employees return to work following the Chinese New
Year holiday. We believe this program has contributed to a lower
employee turnover in our factories relative to other China-based
manufacturing enterprises. 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 December 31, 2003.




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 31, 2003, 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;
|
|
| |  | each of our current directors and senior
    management; and                                                                                                                 
|
|
| |  | each of the selling shareholders.                                                                                                                                            

We are not directly owned or controlled by
another corporation or by any foreign government.




|                                  |  |                              |           |         |  |  |      | 
|--------------------------------- |  | ---------------------------- | --------- | ------- |  |  | ---- | 
|                                  |  |                             
|                                  |  | Shares beneficially(1) owned
|                                  |  |                             
|Name                              |  | Number                       |           | Percent
|                                  |  |                              |           |        
|M. K. Koo                         |  |                              | 2,305,131 | (2)     |  |  | 18.9 | 
|Peter R. Kellogg                  |  |                              | 1,483,600 | (3)     |  |  | 12.2 | 
|I.A.T. Reinsurance Syndicate Ltd. |  |                              | 1,300,000 | (3)     |  |  | 10.7 | 
|Li & Chui Holdings (BVI) Ltd.     |  |                              | 1,061,087 |         |  |  | 8.7  | 
|Joseph Li                         |  |                              | 1,099,987 | (4)     |  |  | 9.1  | 
|Ivan Chui                         |  |                              | 1,089,987 | (5)     |  |  | 9.0  | 
|Tadao Murakami                    |  |                              | 732,155   | (6)     |  |  | 6.0  | 
|O. Shik Kong                      |  |                              |          |         |  |  |     | 
|Karene Wong                       |  |                              | 10,000    | (7)     |  |  | *    | 
|Patinda Lei                       |  |                              | 13,000    | (7)     |  |  | *    | 
|L. P. Wang                        |  |                              | 10,000    | (7)     |  |  | *    | 
|Kazuhiro Asano                    |  |                              |          |         |  |  |     | 
|Seitaro Furukawa                  |  |                              | 10,000    | (7)     |  |  | *    | 
|Lorne Waldman                     |  |                              | 5,600     | (8)     |  |  | *    | 
|Charles Chu                       |  |                              | 25,000    | (9)     |  |  | *    | 
|Stephen Seung                     |  |                              | 26,000    | (10)    |  |  | *    | 




52



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##### 





---



|  |              
|- | -------------
|* | Less than 1%.



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Pursuant to the rules of the Securities and
    Exchange Commission, shares of common shares that an individual
    or group has a right to acquire within 60 days pursuant to
    the exercise of options are deemed to be outstanding for the
    purpose of computing the percentage ownership of such individual
    or group, but are not deemed to be outstanding for the purpose
    of computing the percentage ownership of any other person shown
    in the table. Percentage of ownership is based on 12,130,668
    common shares outstanding as of March 31, 2003.
|   
|   
|   
|(2) | Includes options to purchase 79,000 common shares
    exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|   
|   
|(3) | Mr. Kellogg holds directly 168,600 common
    shares and options to purchase 15,000 common shares exercisable
    within 60 days of March 31, 2003. Indirectly, through
    I.A.T. Reinsurance Syndicate Ltd., Mr. Kellogg holds
    1,300,000 common shares. I.A.T. Reinsurance Syndicate Ltd. is a
    Bermuda Corporation of which Mr. Kellogg is the sole holder
    of voting stock. Mr. Kellogg disclaims beneficial ownership
    of these shares.                                                                                                                       
|   
|   
|   
|(4) | Includes 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. In addition,
    Mr. Li holds 20,000 options to purchase common shares
    exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                     
|   
|   
|   
|(5) | 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. In addition,
    Mr. Chui holds options to purchase 10,000 common shares
    exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                   
|   
|   
|   
|(6) | Includes options to purchase 65,000 common shares
    exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|   
|   
|(7) | Consists of options to purchase common shares
    exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|   
|   
|(8) | Includes options to purchase 5,000 common shares
    exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|   
|   
|(9) | Includes options to purchase 15,000 common shares
    exercisable within 60 days of March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   






|     |                                                                                                                                                                                                     
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Includes options to purchase 15,000 common
    shares, and 11,000 common shares that are registered to Violet
    Seung, Mr. Seungs wife, as to which Mr. Seung
    disclaims beneficial ownership.







All of the holders of our common shares have
equal voting rights with respect to the number of common shares
held. As of March 31, 2003, there were approximately 845
holders of record of our common shares. According to information
supplied by our transfer agent, 824 holders of record with
addresses in the United States held 8,137,079 of our outstanding
common shares.




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




|                                  |  |                         |      |              |  |           |      |  |  |  |      | 
|--------------------------------- |  | ----------------------- | ---- | ------------ |  | --------- | ---- |  |  |  | ---- | 
|                                  |  |                        
|                                  |  | Percentage Ownership(1)
|                                  |  |                        
|                                  |  | February 28,            |      | February 28, |  | March 31,
|                                  |  | 2001                    |      | 2002         |  | 2003     
|                                  |  |                         |      |              |  |          
|M. K. Koo                         |  |                         | 28.6 |              |  |           | 29.2 |  |  |  | 18.9 | 
|Peter R. Kellogg                  |  |                         | 13.8 |              |  |           | 14.2 |  |  |  | 12.2 | 
|I.A.T. Reinsurance Syndicate Ltd. |  |                         | 12.7 |              |  |           | 12.7 |  |  |  | 10.7 | 
|Li & Chui Holdings (BVI) Ltd.     |  |                         | 10.4 |              |  |           | 10.6 |  |  |  | 8.7  | 
|Joseph Li                         |  |                         | 10.4 |              |  |           | 10.6 |  |  |  | 9.1  | 
|Ivan Chui                         |  |                         | 10.4 |              |  |           | 10.6 |  |  |  | 9.0  | 
|Tadao Murakami                    |  |                         | 8.1  |              |  |           | 8.9  |  |  |  | 6.0  | 






---






|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on 10,218,340, 10,259,940, and 12,130,668
    common shares outstanding on February 28, 2001 and 2002 and
    on March 31, 2003, respectively.




53



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##### 



Certain Relationships and Related
Transactions

In 2000, we formed a joint venture company with
Toshiba Battery Company Ltd., or Toshiba, called BPC (Shenzhen)
Co., Ltd., to manufacture rechargeable lithium ion battery packs
at our manufacturing complex in Shenzhen, China. Toshiba owned a
13.3% interest in BPC and we owned the balance. Since the
establishment of BPC (Shenzhen) Co., Ltd in 2000, we recognized
net sales of $6.2 million, $21.1 million and
$7.8 million, purchased raw materials of
$22.4 million, $23.1 million and $7.8 million,
acquired property, plant and equipment of $814,000, $50,000 and
zero, from Toshiba Battery Company Ltd and its related companies
for the years ended December 31, 2000 and 2001 and for the
period from January 1, 2002 through April 2002,
respectively. In addition, we also acquired a license for
$1.0 million from Toshiba Battery Company Ltd. During 2002,
we sold the license and our joint venture interest in BPC
(Shenzhen) Co., Ltd to a Toshiba related company for $800,000
and $2.1 million, respectively, resulting in a gain of
$60,000 and $17,000, respectively.




In January 2003 we invested $10.0 million
for a 25% equity interest in Alpha Star Investments Ltd., the
ultimate parent of Hong Kong based JCT Wireless Technology
Company Limited, or 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s Board of Directors. We are manufacturing
wireless communication terminals and related modules for JCT. As
part of our investment, Alpha Star agreed to have us manufacture
the RF modules for at least 50 percent of the orders it or
any of its subsidiaries receives for RF modules provided we
perform such manufacturing services at a price comparable to the
market price. 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 liquid
crystal display, or LCD, modules and RF modules.




Item 8.     Financial
Information

Financial Statements

Our Consolidated Financial Statements are set
forth under Item 18. Financial Statements

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.




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 New York Stock Exchange, 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.

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.

54



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##### 



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 138,500
shares of Nam Tai registered in the name of Tele-Art, Inc. at a
price of $11.19 per share to offset substantially all of the
judgment debt of $799,000 plus interest and legal costs
totalling 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
BVI 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 the proceeds of the Tele-Art, Inc.s Nam Tai
    shares;
|
| |  | An order setting aside the redemption of 138,500
    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. As
of February 11, 2003, new liquidators have not been
appointed.

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 169,727 shares beneficially owned by Tele-Art, Inc. at
a price of $18.41 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 the third quarter
of 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 138,500
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. The court of BVI granted Nam Tai leave to appeal and
a stay on May 22, 2003, and the hearing appeal is scheduled
for June 18, 2003.




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
were advised by Grant Thornton and have made a 2002 provision
for $5.2 million for both share redemption plus all
dividends declared and withheld by us, pending a final
determination of this matter by the courts. If our appeal is
successful and all legal matters related to Tele Art, Inc. are
finalized, then the $5.2 million will be reversed into
income in the related period.

If our appeal is not successful, and the 308,227
share redemption is set aside, we believe that these shares
would be sold by Tele-Art, Inc.s liquidator, once
appointed, in the open market at the market price prevailing at
the time of sale. For example, if these shares had been sold at
the February 21, 2003 closing price of $26.50, the proceeds
the liquidator would have realized before commissions, plus
withheld dividends of $518,000, would have been approximately
$8.7 million for the estate of Tele-Art, Inc. (in
liquidation). We have two

55



---



##### 



judgments debts against Tele-Art Inc. in the
aggregate amount, including interest, costs, and related
expenses, of approximately $38.0 million. Furthermore, per
the last liquidator report that was filed with the court there
appear to be no proven unsecured creditors of Tele-Art, Inc. and
the estimated liabilities for all other unsecured creditors are
approximately $80,000. The Bank of China is claiming to be a
secured creditor in the amount of $2.2 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 Bank of China has not yet
submitted any proof of an outstanding debt. The now resigned
liquidator is claiming to have incurred approximately $385,000
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
(including interest, costs, and related expenses) from the
estate of Tele-Art, Inc. Accordingly, any amounts recovered from
the estate of Tele-Art, Inc., which in managements opinion
could exceed the $5.2 million provision based on the
current market price of Nam Tais shares and current
information regarding Tele-Art Inc. creditors, would be
recognized as other income upon recovery.


Because Tele-Art, Inc. is in liquidation, we may
not realize the entire amount of our judgment. 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.

Securities
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.) (the Rocco Action).
Plaintiff in the Rocco Action purports to represent a putative
class of persons who purchased the common stock of Nam Tai from
July 29, 2002 through February 14, 2003. 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.) (the Steigler Action)
(together with the Rocco Action, the Actions). We
have not yet been served in the Steigler Action. Plaintiff in
the Steigler Action purports to represent a putative class of
persons who purchased Nam Tais common stock during the
period December 13, 2002 through February 14, 2003.
One director is also named as a defendant in the Steigler
Action. 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 relating to accounting issues arising
from the JIC reverse merger. The plaintiff in the Rocco Action
also appears to allege that Nam Tai failed to make timely
disclosures concerning certain pending litigation related to a
British Virgin Islands Company known as Tele-Art, Inc. The
Actions are in their preliminary stages, Nam Tai believes it has
meritorious defenses and it intends to defend 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.




56



---



##### 



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                        |  | 2000                    |     | 2001 |  | 2002
|                                        |  |                         |     |      |  |     
|Hong Kong                               |  |                         | 46  | %    |  |      | 27  | % |  |  | 24  | %
|Europe (excluding Estonia)              |  |                         | 9   |      |  |      | 10  |   |  |  | 18  |  
|United States                           |  |                         | 24  |      |  |      | 15  |   |  |  | 14  |  
|China (excluding Hong Kong)             |  |                         | 5   |      |  |      | 11  |   |  |  | 12  |  
|Japan                                   |  |                         | 9   |      |  |      | 10  |   |  |  | 11  |  
|Estonia                                 |  |                         |    |      |  |      |    |   |  |  | 8   |  
|North America (excluding United States) |  |                         |    |      |  |      | 8   |   |  |  | 3   |  
|Other                                   |  |                         | 7   |      |  |      | 19  |   |  |  | 10  |  
|                                        |  |                         |     |      |  |      |     |   |  |  |     |  
|                                        |  |                         | 100 | %    |  |      | 100 | % |  |  | 100 | %
|                                        |  |                         |     |      |  |      |     |   |  |  |     |  




Dividend Policy




We have paid an annual dividend for the last nine
consecutive years. On February 14, 2003, we announced that
we were increasing our regular annual dividend to $0.60 per
share to be declared and paid quarterly commencing with the
first quarter 2003 dividend of $0.15 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, 2002:




|                                        |  |                         |       |      |  |      |       |      |  |      |        |  |  |   |       |  |  |   |        | 
|--------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ------ |  |  | - | ----- |  |  | - | ------ | 
|                                        |  |                        
|                                        |  | Year ended December 31,
|                                        |  |                        
|                                        |  | 1998                    |       | 1999 |  | 2000 |       | 2001 |  | 2002
|                                        |  |                         |       |      |  |      |       |      |  |     
|Total dividends declared (in thousands) |  | $                       | 2,829 |      |  | $    | 2,942 |      |  | $    | 12,190 |  |  | $ | 4,134 |  |  | $ | 17,056 | 
|Regular dividends per share             |  | $                       | 0.28  |      |  | $    | 0.32  |      |  | $    | 0.36   |  |  | $ | 0.40  |  |  | $ | 0.48   | 
|Special dividends                       |  |                         |      |      |  |      |      |      |  |      | 1.00   |  |  |   |      |  |  |   | 1.00   | 
|                                        |  |                         |       |      |  |      |       |      |  |      |        |  |  |   |       |  |  |   |        | 
|Total dividends per share               |  | $                       | 0.28  |      |  | $    | 0.32  |      |  | $    | 1.36   |  |  | $ | 0.40  |  |  | $ | 1.48   | 
|                                        |  |                         |       |      |  |      |       |      |  |      |        |  |  |   |       |  |  |   |        | 




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 2000 and 2002
for the reasons described below:



| |   |                                                                                                                                                                                       
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In 2000, as a result of a realized gain we made
    from our sale of our investment in Group Sense (International)
    Ltd.; and                                                      
|
| |  | In 2002, primarily as a result of a realized gain
    we made from our sale of approximately one-third of our indirect
    investment in Huizhou TCL Mobile Communication Company Ltd.

We do no business in the United States that
subjects us to United States income taxes on our income and we
do not expect to receive dividends from any United States
company or any foreign company that has income effectively
connected with a United States trade or business. Accordingly,
we expect that any cash dividends we pay to our shareholders who
are subject to United States income tax will remain taxable if
the recent tax proposal relating to exempting dividends from
United States income tax is enacted as proposed.

57



---



##### 



Item 9.     The
Listing

Our common shares are traded exclusively in the
United States. On January 23, 2003, our common shares were
listed on the New York Stock Exchange 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
indicated through March 31, 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  |  | $    | 19.13 |         |  | $         | 12.13 |         |  |     | 18,517 |           |  | $    | 19.04 |     |  | $         | 15.45 |  |  |  | 101,055 |  |  | $ | 33.68 |  |  | $ | 23.61 |  |  |  | 121,090 | 
|Second Quarter |  |      | 15.01 |         |  |           | 12.25 |         |  |     | 21,319 |           |  |      | 23.18 |     |  |           | 18.30 |  |  |  | 18,768  |  |  |   |       |  |  |   |       |  |  |  |         | 
|Third Quarter  |  |      | 15.31 |         |  |           | 11.30 |         |  |     | 24,724 |           |  |      | 20.59 |     |  |           | 16.00 |  |  |  | 47,936  |  |  |   |       |  |  |   |       |  |  |  |         | 
|Fourth Quarter |  |      | 17.91 |         |  |           | 12.50 |         |  |     | 44,555 |           |  |      | 27.20 |     |  |           | 18.50 |  |  |  | 51,105  |  |  |   |       |  |  |   |       |  |  |  |         | 






---






|    |                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------
|(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:







|                  |  |      |       |     |  |           |       |   |  |  |        | 
|----------------- |  | ---- | ----- | --- |  | --------- | ----- | - |  |  | ------ | 
|                  |  |      |       |     |  | Daily    
|                  |  |      |       |     |  | Trading  
|Year ended        |  | High |       | Low |  | Volume(1)
|                  |  |      |       |     |  |          
|December 31, 2002 |  | $    | 27.20 |     |  | $         | 15.45 |   |  |  | 55,051 | 
|December 31, 2001 |  |      | 19.12 | 5   |  |           | 11.30 |   |  |  | 27,305 | 
|December 31, 2000 |  |      | 20.62 | 5   |  |           | 12.93 | 8 |  |  | 37,881 | 
|December 31, 1999 |  |      | 19.00 |     |  |           | 8.00  |   |  |  | 57,253 | 
|December 31, 1998 |  |      | 17.62 | 5   |  |           | 9.37  | 5 |  |  | 73,906 | 






---






|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(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
through March 31, 2003:







|                  |  |      |       |     |  |           |       |  |  |  |         | 
|----------------- |  | ---- | ----- | --- |  | --------- | ----- |  |  |  | ------- | 
|                  |  |      |       |     |  | Daily    
|                  |  |      |       |     |  | Trading  
|Month ended       |  | High |       | Low |  | Volume(1)
|                  |  |      |       |     |  |          
|March 31, 2003    |  | $    | 25.16 |     |  | $         | 23.61 |  |  |  | 44,848  | 
|February 28, 2003 |  |      | 33.91 |     |  |           | 24.18 |  |  |  | 152,342 | 
|January 31, 2003  |  |      | 33.68 |     |  |           | 25.50 |  |  |  | 169,057 | 
|December 31, 2002 |  |      | 27.20 |     |  |           | 22.45 |  |  |  | 134,719 | 
|November 30, 2002 |  |      | 22.33 |     |  |           | 20.25 |  |  |  | 148,740 | 
|October 31, 2002  |  |      | 20.55 |     |  |           | 18.50 |  |  |  | 28,852  | 






---






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







On May 15, 2003, the last reported sale
price of our common shares on the New York Stock Exchange was
$29.25 per share. As of March 31, 2003, there were 845
holders of record of our common shares.




58



---



##### 



Item 10.     Additional
Information




Revised Quarterly Consolidated Statement of
Income and Balance Sheet For 2002







This statement of income and balance sheet for
2002 gives effect to the adjustment to the Companys second
and fourth quarter as described in our press release dated
February 18, 2003.







Statement of Income







|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |        | 
|------------------------------------------------ | -------------------------------------------- | ------- | ------ | ------- |  | ------- | ------ | ------- |  | ---- | ------ | ------ |  | - | ------ | ------ |  | - | ------- | ------ | 
|                                                 |                                              | 1st     |        | 2nd     |  | 3rd     |        | 4th     |  |     
|                                                 |                                              | Quarter |        | Quarter |  | Quarter |        | Quarter |  | YTD 
|                                                 |                                              | 2002    |        | 2002    |  | 2002    |        | 2002    |  | 2002
|                                                 |                                              |         |        |         |  |         |        |         |  |     
|Net sales                                        |                                              | $       | 51,217 |         |  | $       | 52,311 |         |  | $    | 56,872 |        |  | $ | 75,616 |        |  | $ | 236,016 |       
|Cost of sales                                    |                                              |         | 43,466 |         |  |         | 40,375 |         |  |      | 48,673 |        |  |   | 65,442 |        |  |   | 197,956 |       
|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|Gross profit                                     |                                              |         | 7,751  |         |  |         | 11,936 |         |  |      | 8,199  |        |  |   | 10,174 |        |  |   | 38,060  |       
|Costs and expenses                               |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|                                                 | Selling, general and administrative expenses |         |        | 3,952   |  |         |        | 4,273   |  |      |        | 4,277  |  |   |        | 5,481  |  |   |         | 17,983 | 
|                                                 | Research and development expenses            |         |        | 665     |  |         |        | 663     |  |      |        | 617    |  |   |        | 741    |  |   |         | 2,686  | 
|                                                 | Impairment of goodwill                       |         |        |        |  |         |        |        |  |      |        |       |  |   |        | 339    |  |   |         | 339    | 
|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|                                                 |                                              |         | 4,617  |         |  |         | 4,936  |         |  |      | 4,894  |        |  |   | 6,561  |        |  |   | 21,008  |       
|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|Income from operations                           |                                              |         | 3,134  |         |  |         | 7,000  |         |  |      | 3,305  |        |  |   | 3,613  |        |  |   | 17,052  |       
|Gain on disposal of Land                         |                                              |         |       |         |  |         |       |         |  |      |       |        |  |   |       |        |  |   |        |       
|Interest income                                  |                                              |         | 147    |         |  |         | 189    |         |  |      | 222    |        |  |   | 241    |        |  |   | 799     |       
|Other (loss) income  net                        |                                              |         | 25     |         |  |         | (3,824 | )       |  |      | 3,160  |        |  |   | (6,993 | )      |  |   | (7,632  | )     
|Equity in income of affiliated companies         |                                              |         | 1,135  |         |  |         | 969    |         |  |      |       |        |  |   | 8,637  |        |  |   | 10,741  |       
|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|Income before income taxes and minority interest |                                              |         | 4,441  |         |  |         | 4,334  |         |  |      | 6,687  |        |  |   | 5,498  |        |  |   | 20,960  |       
|Income taxes benefit (expense)                   |                                              |         | (165   | )       |  |         | (452   | )       |  |      | (598   | )      |  |   | 442    |        |  |   | (773    | )     
|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|Income before minority interest                  |                                              |         | 4,276  |         |  |         | 3,882  |         |  |      | 6,089  |        |  |   | 5,940  |        |  |   | 20,187  |       
|Minority interest                                |                                              |         | (101   | )       |  |         | (57    | )       |  |      | (35    | )      |  |   | 29     |        |  |   | (164    | )     
|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|Net income                                       |                                              | $       | 4,175  |         |  | $       | 3,825  |         |  | $    | 6,054  |        |  | $ | 5,969  |        |  | $ | 20,023  |       
|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|Net income per share                             |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|                                                 | Basic                                        |         | $      | 0.41    |  |         | $      | 0.37    |  |      | $      | 0.58   |  |   | $      | 0.54   |  |   | $       | 1.89   | 
|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|                                                 | Diluted                                      |         | $      | 0.40    |  |         | $      | 0.36    |  |      | $      | 0.57   |  |   | $      | 0.53   |  |   | $       | 1.86   | 
|                                                 |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|Weighted average number of shares
    (000)    |                                              |         |        |         |  |         |        |         |  |      |        |        |  |   |        |        |  |   |         |       
|                                                 | Basic                                        |         |        | 10,306  |  |         |        | 10,440  |  |      |        | 10,474 |  |   |        | 11,058 |  |   |         | 10,571 | 
|                                                 | Diluted                                      |         |        | 10,476  |  |         |        | 10,704  |  |      |        | 10,549 |  |   |        | 11,209 |  |   |         | 10,736 | 




59



---



##### 






Balance sheet







|                                                |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|----------------------------------------------- |  | -------- | ------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- | - |  | - | ------- | -
|                                                |  | March 31 |         | June 30 |  | September 30 |         | December 31
|                                                |  | 2002     |         | 2002    |  | 2002         |         | 2002       
|                                                |  |          |         |         |  |              |         |            
|Assets                                          |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Current assets                                  |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Cash and cash equivalents                       |  | $        | 37,628  |         |  | $            | 55,154  |             |  | $ | 57,522  |   |  | $ | 82,477  |  
|Accounts receivable, net                        |  |          | 42,309  |         |  |              | 44,801  |             |  |   | 39,436  |   |  |   | 50,944  |  
|Inventories                                     |  |          | 10,608  |         |  |              | 13,734  |             |  |   | 16,899  |   |  |   | 19,200  |  
|Prepaid expenses and deposits                   |  |          | 2,416   |         |  |              | 2,196   |             |  |   | 1,825   |   |  |   | 1,867   |  
|Income taxes recoverable                        |  |          | 2,079   |         |  |              | 1,999   |             |  |   | 1,585   |   |  |   | 855     |  
|                                                |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Total current assets                            |  |          | 95,040  |         |  |              | 117,884 |             |  |   | 117,267 |   |  |   | 155,343 |  
|Investments in affiliated companies             |  |          | 5,056   |         |  |              | 5,524   |             |  |   | 5,524   |   |  |   |        |  
|Convertible notes                               |  |          |        |         |  |              |        |             |  |   |        |   |  |   | 5,128   |  
|Investments, at cost                            |  |          | 11,957  |         |  |              | 11,968  |             |  |   | 11,968  |   |  |   | 15,982  |  
|Property, plant and equipment, at cost          |  |          | 116,203 |         |  |              | 116,896 |             |  |   | 120,205 |   |  |   | 116,583 |  
|Less: accumulated depreciation and amortisation |  |          | (37,533 | )       |  |              | (39,043 | )           |  |   | (41,744 | ) |  |   | (40,669 | )
|                                                |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|                                                |  |          | 78,670  |         |  |              | 77,853  |             |  |   | 78,461  |   |  |   | 75,914  |  
|Intangible assets  net                         |  |          | 22,948  |         |  |              | 20,652  |             |  |   | 20,842  |   |  |   | 21,308  |  
|Other assets                                    |  |          | 1,407   |         |  |              | 1,407   |             |  |   | 1,407   |   |  |   | 1,411   |  
|Total assets                                    |  |          | 215,078 |         |  |              | 235,288 |             |  |   | 235,469 |   |  |   | 275,086 |  
|                                                |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Liabilities and Shareholders
    Equity        |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Current liabilities                             |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Note payable                                    |  |          | 796     |         |  |              | 284     |             |  |   | 318     |   |  |   | 985     |  
|Long-term bank loans  current portion          |  |          | 1,605   |         |  |              | 3,265   |             |  |   | 3,265   |   |  |   | 13,985  |  
|Accounts payable                                |  |          | 20,163  |         |  |              | 32,864  |             |  |   | 34,017  |   |  |   | 38,714  |  
|Accrued expenses                                |  |          | 4,994   |         |  |              | 4,886   |             |  |   | 3,063   |   |  |   | 12,609  |  
|Amount due to a related party                   |  |          | 3,113   |         |  |              |        |             |  |   |        |   |  |   |        |  
|Dividend payable                                |  |          | 1,213   |         |  |              | 1,247   |             |  |   | 1,247   |   |  |   | 1,442   |  
|Income taxes payable                            |  |          | 345     |         |  |              | 582     |             |  |   | 740     |   |  |   | 200     |  
|                                                |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Total current liabilities                       |  |          | 32,229  |         |  |              | 43,128  |             |  |   | 42,650  |   |  |   | 67,935  |  
|Long-term bank loans  non-current
    portion  |  |          | 12,860  |         |  |              | 15,165  |             |  |   | 14,349  |   |  |   | 2,812   |  
|Deferred income taxes                           |  |          | 151     |         |  |              | 151     |             |  |   | 151     |   |  |   | 112     |  
|                                                |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Total liabilities                               |  |          | 45,240  |         |  |              | 58,444  |             |  |   | 57,150  |   |  |   | 70,859  |  
|Minority interests                              |  |          | 320     |         |  |              | 1,219   |             |  |   | 1,012   |   |  |   | 2,099   |  
|Shareholders equity                            |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Common shares                                   |  |          | 103     |         |  |              | 106     |             |  |   | 104     |   |  |   | 120     |  
|Additional paid-in capital                      |  |          | 112,156 |         |  |              | 115,685 |             |  |   | 115,685 |   |  |   | 147,828 |  
|Retained earnings                               |  |          | 57,279  |         |  |              | 59,836  |             |  |   | 61,520  |   |  |   | 54,182  |  
|Accumulated other comprehensive loss            |  |          | (20     | )       |  |              | (2      | )           |  |   | (2      | ) |  |   | (2      | )
|                                                |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|Total shareholders equity                      |  |          | 169,518 |         |  |              | 175,625 |             |  |   | 177,307 |   |  |   | 202,128 |  
|Total liabilities and shareholders equity      |  |          | 215,078 |         |  |              | 235,288 |             |  |   | 235,469 |   |  |   | 275,086 |  
|                                                |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  







In June 2002, we arranged for the listing of the
JIC Group on The Stock Exchange of Hong Kong Limited by way of a
reverse merger with Albatronics. As a result, our effective
interest in the JIC Group reduced from 100% to 92.9%. However,
our interest in the JIC Group became publicly tradable shares on
the




60



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##### 






Hong Kong Stock Exchange. In the second quarter
of 2002, we accounted for the transaction by the creation of a
minority interest and a comparable reduction in the value of the
net assets of JIC. We discussed the accounting treatment of the
JIC transaction in our consolidated financial statements for the
six months ended June 30, 2002 with HLB Hodgson Impey
Cheng, our auditor at the time. We believed, and HLB concurred,
at the time we released our consolidated financial statements
for the six months ended June 30, 2002 that our accounting
treatment complied, where applicable, with the relevant
generally accepted accounting principles of Hong Kong and the
United States.








During the third quarter, in connection with a
transaction we were then considering, we were requested to
engage Deloitte Touche Tohmatsu to review our interim operations
for the six months ended June 30, 2002. On October 23,
2002, Deloitte Touche Tohmatsu communicated that, based on its
review, the financial results for the six months ended
June 30, 2002 may be materially misstated as a result of a
departure from generally accepted accounting principles with
respect to the absence of a $1.5 million goodwill charge
relating to the creation of the 7.1% minority interest in our
subsidiary, JIC. As a result, management and our Board of
Directors again discussed the accounting treatment with HLB.
Shortly thereafter, HLB resigned as our auditors for unrelated
reasons described in Change in Public Accountants.
In doing so, HLB provided us with no additional information as
to the appropriate accounting treatment for the
$1.5 million goodwill in question and suggested that the
issue would most appropriately be addressed by the independent
auditors that succeeded them.







We brought the issue to the attention of Grant
Thornton, whom we had retained as our independent auditors in
December 2002. Based on the advice of HLB, our auditor at the
time, we believed that our original accounting was accurate.
However, upon consultation with Grant Thornton, we determined to
include a charge of $1.5 million in other income/(expense),
net in 2002. We then decided to revise our previously issued
financial information issued in the second quarter of 2002 in
order to reflect the charge for the 7.1% JIC minority interest,
which we announced in a press release issued before the market
opened on February 18, 2003.







Reconciliation for Revised Quarterly
Consolidated Statement of Income For 2002







|                          |  |              |        |            |  |             |        |              |  |            |        |             |  |   |        |   |  |   |       |  |  |   |        |  
|------------------------- |  | ------------ | ------ | ---------- |  | ----------- | ------ | ------------ |  | ---------- | ------ | ----------- |  | - | ------ | - |  | - | ----- |  |  | - | ------ | -
|                          |  | Original 2nd |        |            |  | Revised 2nd |        | Original 4th |  |            |        | Revised 4th
|                          |  | Quarter      |        |            |  | Quarter     |        | Quarter      |  |            |        | Quarter    
|                          |  | 2002         |        | Adjustment |  | 2002        |        | 2002         |  | Adjustment |        | 2002       
|                          |  |              |        |            |  |             |        |              |  |            |        |            
|Income from operations    |  | $            | 7,000  |            |  |             |       |              |  | $          | 7,000  |             |  | $ | 3,613  |   |  |   |      |  |  | $ | 3,613  |  
|Other (loss) income  net |  | $            | (2,341 | )          |  | $           | (1,483 | )            |  | $          | (3,824 | )           |  | $ | (8,476 | ) |  | $ | 1,483 |  |  | $ | (6,993 | )
|Net income                |  | $            | 5,308  |            |  | $           | (1,483 | )            |  | $          | 3,825  |             |  | $ | 4,486  |   |  | $ | 1,483 |  |  | $ | 5,969  |  







The adjustment for 2002 second quarter and fourth
quarter being the reallocation of release of unamortized
goodwill due to JIC reverse merger from fourth quarter to second
quarter.







Reconciliation for Revised Quarterly
Consolidated Balance Sheet For 2002







|                                                              |  |          |        |         |  |              |        |             |  |   |        |   |  |   |        | 
|------------------------------------------------------------- |  | -------- | ------ | ------- |  | ------------ | ------ | ----------- |  | - | ------ | - |  | - | ------ | 
|                                                              |  | March 31 |        | June 30 |  | September 30 |        | December 31
|                                                              |  | 2002     |        | 2002    |  | 2002         |        | 2002       
|                                                              |  |          |        |         |  |              |        |            
|Original Intangible assets  net                              |  | $        | 22,948 |         |  | $            | 22,135 |             |  | $ | 22,325 |   |  | $ | 21,308 | 
|Release of unamortized goodwill due to JIC
    reverse merger |  |          |       |         |  |              | (1,483 | )           |  |   | (1,483 | ) |  |   |       | 
|Revised Intangible assets  net                               |  | $        | 22,948 |         |  | $            | 20,652 |             |  | $ | 20,842 |   |  | $ | 21,308 | 




Share Capital

Our authorized capital consists of 20,000,000
common shares, $0.01 par value per share, of which 12,130,668
common shares were outstanding on January 31, 2003.

61



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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 McNamara Chambers,
P.O. Box 3342, Road Town, Tortola, British Virgin Islands
and we have been assigned company number 3805. Our object or
purpose is to engage in any act or activity that is not
prohibited under British Virgin Islands law as set forth in
Clause 4 of the Memorandum of Association. As an
International Business Company, we are prohibited from doing
business with persons resident in the British Virgin Islands,
owning real estate in the British Virgin Islands, or acting as a
bank or insurance company. 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;
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

62



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##### 



writing of the holders of not less than three
fourths of the issued shares of any other class or series of
shares which may be affected by such variation.


Provisions in respect of the holding of general
meetings and extraordinary general meetings are set out in
Paragraphs 27 to 46 of the Articles and under the
International Business Companies Act. The directors may convene
meetings of our shareholders at such times and in such manner
and places as the directors consider necessary or desirable, and
they shall convene such a meeting upon the written request of
shareholders holding more than 30 percent of the votes of
our outstanding voting shares. Other than providing, if
requested, reasonable proof of a holders status as a
holder of our shares as of the applicable record date, there is
no condition to the admission of a shareholder or his or her
proxy holder to our meetings of shareholders.

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

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

The full text of our Amended Articles and
Memorandum were filed as Exhibit 2.1 in the Companys
1998 Annual Report on Form 20-F.

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:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sale and Purchase Agreement dated March 27,
    2001 between Nam Tai and Shun Tak Centre Limited for the
    15th Floor of China Merchants Tower, Shun Tak Centre,
    Nos. 168-200 Connaught Road Central, Hong Kong for
    approximately US$11.3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | On July 9, 2001 we entered into an
    indemnification agreement with each of our directors providing
    for basic indemnification and expense reimbursement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | We signed a facility letter on September 24,
    2001 with The Hong Kong and Shanghai Banking Corporation Limited
    for a $15,000,000 long-term loan the terms of which are
    described in Note 11 of the Notes to the Consolidated
    Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
|
| |  | On January 14, 2002 we entered into an
    agreement with the joint liquidators of Albatronics. Under the
    agreement we injected our wholly-owned subsidiary JIC 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.
|

63



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##### 





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 RMB98,520,000 (approximately $12.0 million).                                                                                                       
|
| |  | 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.                           
|
| |  | 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. (Alpha Star) on
    January 6, 2003 under which Nam Tai agreed to purchase
    1,625,000 newly issued ordinary shares of Alpha Star (25%
    ownership) for $10,000,000. We agreed to sign a shareholders
    agreement and Alpha Star agreed to place with us or a party we
    nominate at least 50% of the orders for radio frequency modules
    that it or its subsidiaries receive.
|
|
| |  | 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.                                                                                                                                                                                                             
|

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, 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 of the ownership
and disposition of our common shares as of the date of this
prospectus. The summary applies to you only if you hold our
common shares as a capital asset for tax purposes (that is,
generally for investment purposes), and it does not purport to
be a comprehensive description of all the tax considerations
that may be

64



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##### 



relevant to the ownership of our common shares.
The summary is based on current law. Changes in the law may
alter your tax treatment of holding our common shares, possibly
on a retroactive basis. The United States Internal Revenue
Service, or 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. 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:




| |   |                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------
| |  | a dealer in securities or currencies;                                                                                       
|
| |  | a trader in securities that elects to use a
    market-to-market method of accounting for your 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.       

Tax Consequences to
U.S. Holders

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 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;                                                                                                                                 
|
| |  | a trust (x) if a United States court can
    exercise primary supervision over the trusts
    administration and one or more U.S. persons are authorized
    to control all substantial decisions of the trust or (y) if
    it was

65



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| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | in existence on August 20, 1996, was treated
    as a U.S. person prior to that date and has a valid
    election in effect under applicable treasury regulations to be
    treated as a U.S. person; or
|
| |  | any other person or entity that would be subject
    to United States federal income tax on a net income basis in
    respect of the common shares.                                                     

Distributions

Subject to the passive foreign investment company
considerations discussed below, for cash dividends, the gross
amount of any such distribution (other than in liquidation) 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. To the extent any
distribution exceeds our E&P, such distribution will first
be treated as a tax-free return of capital to the extent of your
adjusted tax basis in our common shares and will be applied
against and reduce such basis on a dollar-for-dollar basis
(thereby increasing the amount of gain and decreasing the amount
of loss recognized on a subsequent disposition of such shares).
To the extent that such distribution exceeds your adjusted tax
basis in our common shares, the distribution will be such to tax
as gain recognized on a sale or exchange of our common shares.
Because we are not a United States corporation, no
dividends-received deduction will be allowed to corporations
with respect to dividends paid by us.

Dividends received on our common shares will be
treated for United States federal income tax purposes, as
foreign source income. A U.S. Holder 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.

We do no business in the United States that
subjects us to United States income taxes on our income, and we
do not expect to receive dividends from any U.S. company or
any foreign company that has income effectively connected with a
U.S. trade or business. Accordingly, we expect that any
cash dividends we pay to our shareholders who are subject to
United States income tax will remain taxable if the recent tax
proposal relating to exempting dividends from United States
income tax is enacted as proposed.

Sale or Other Disposition of Our Common
Shares

Subject to the passive foreign investment company
considerations discussed below, generally, in connection with
the sale 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 or other taxable
    disposition and                                                                                            
|
| |  | your adjusted tax basis in such common shares
    (your adjusted tax basis in the shares you hold generally will
    equal your U.S. dollar cost of such shares);



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

Passive Foreign Investment Company
Considerations

A foreign corporation will be treated as a
passive foreign investment company, or PFIC, for United States
federal income tax purposes, if 75% or more of its gross income
consists of certain types of passive income or 50% or more of
its assets are passive. 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

66



---



##### 



any gain on sales of our shares held by them as
ordinary income and 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.


Tax Consequences to
Non-U.S. Holders

If you are not a U.S. Holder, you are a
Non-U.S. Holder.

Distributions

You generally will not be subject to United
States federal income tax, including withholding tax, on
distributions made on our common shares unless:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | you conduct a trade or business in the United
    States and                                                                                                                                                                                                                                                                                                                                                             
|
| |  | the distributions are effectively connected with
    the conduct of that trade or business (and, if an applicable
    income tax treaty so requires as a condition for you to be
    subject to United States federal income tax on a net income
    basis in respect of income from our common shares, such
    distributions are attributable to a permanent establishment that
    you maintain in the United States).

If you meet the requirements set forth above, you
generally will be subject to tax in respect of such dividends in
the same manner as a U.S. Holder, as described above. In
addition, any effectively connected dividends received by a
non-United States corporation may also, under certain
circumstances, be subject to an additional branch profits
tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.

Sale or Other Disposition of Our Common
Shares

Generally, you will not be subject to United
States federal income tax, including withholding tax, in respect
of gain recognized on a sale or other taxable disposition of our
common shares unless:



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

You will be subject to tax in respect of any gain
effectively connected with your conduct of a trade or business
in the United States generally in the same manner as a
U.S. holder, as described above. Effectively connected
gains realized by a non-United States corporation may also,
under certain circumstances, be subject to an additional
branch profits tax at a rate of 30% or such lower
rate as may be specified by an applicable income tax treaty.

Backup Withholding and Information
Reporting

Payments (or other taxable distributions) 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

67



---



##### 



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 no loss of exemption from backup withholding has
    occurred.

If you are a Non-U.S. Holder, you generally
are not subject to information reporting and backup withholding,
but you may be required to provide a certification of your
non-United States status in order to establish that you are
exempt.

Amounts withheld under the backup withholding
rules may be credited against your United States federal income
tax liability, 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.

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.

Item 11.     Quantitative
and Qualitative Disclosure About Market Risk

Currency Fluctuations




See Exchange Rate Fluctuation discussion in risk
factor section and MD&A on pages 10 and 46,
respectively.




Foreign Currency Risk




See Foreign Currency Risk discussion in MD&A
on page 47.




Interest Rate Risk




See Interest Rate Risk discussion in MD&A on
page 47.




Item 12.     Description
of Securities Other Than Equity Securities

Not applicable

68



---



##### 



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

Our Chief Executive Officer and our Chief
Financial Officer, after evaluating the effectiveness of the
Companys disclosure controls and procedures (as defined in
US Exchange Act Rules 13a-14(c)) within 90 days of the
date of this Form 20-F, have concluded that, as of such
date, the Companys disclosure controls and procedures were
effective to ensure that material information relating to the
Company was made known to them by others within the Company
particularly during the period in which this Form 20-F was
being prepared.

There were no significant changes in the
Companys internal controls or in other factors that could
significantly affect these controls subsequent to the date our
Chief Executive Officer and our Chief Financial Officer
completed their evaluation, nor were there any significant
deficiencies or material weaknesses in the Companys
internal controls requiring corrective actions.

Item 16.     [Reserved]

69



---



##### 



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, 2000, 2001 and 2002               |  |  | F-3 | 
|Consolidated Balance Sheets as of
    December 31, 2001 and 2002                                         |  |  | F-4 | 
|Consolidated Statements of Shareholders
    Equity for the years ended December 31, 2000, 2001 and 2002 |  |  | F-5 | 
|Consolidated Statements of Cash Flows for the
    years ended December 31, 2000, 2001 and 2002           |  |  | F-6 | 
|Notes to Consolidated Financial Statements                                                               |  |  | F-8 | 

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.

70



---



##### 



Independent Auditors Report

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




We have audited the accompanying consolidated
balance sheet of Nam Tai Electronics, Inc. and Subsidiaries (the
Company) as of December 31, 2002, and the
related consolidated statements of income, shareholders
equity and cash flows for the year then ended. We have also
audited the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, included in Note 2(f) for
the years ended December 31, 2000 and 2001. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audit. The
consolidated financial statements of the Company as of
December 31, 2001 and for the two years then ended were
audited by other auditors whose report dated March 15,
2002, expressed an unqualified opinion on those statements.




We conducted our audit 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 audit
provides a reasonable basis for our opinion.




In our opinion, the 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 the results of
their operations and their cash flows for the year then ended
and the transitional disclosures required by Statement of
Financial Accounting Standards No. 142, Goodwill and
Other Intangible Assets, included in Note 2(f) for
the years ended December 31, 2000 and 2001 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 for goodwill and other intangibles.

/s/ GRANT THORNTON




Hong Kong

February 21, 2003


F-1



---



##### 



Independent Auditors Report

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




We have audited the accompanying consolidated
balance sheet of Nam Tai Electronics, Inc. and Subsidiaries (the
Company) as of December 31, 2001, and the
related consolidated statements of income, shareholders
equity and cash flows for each of the two years in the period
ended December 31, 2001 before the inclusion of the
transitional disclosures required by Statement of Financial
Accounting Standards No. 142, Goodwill and Other
Intangible Assets, included in Note 2(f). 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 present fairly, in all material respects, the
financial position of Nam Tai Electronics, Inc. and Subsidiaries
as of December 31, 2001, and the results of their
operations and their cash flows for each of the two years in the
period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of
America.

/s/ DELOITTE TOUCHE TOHMATSU




Hong Kong

March 15, 2002


F-2



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries

Consolidated Statements of Income




|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|------------------------------------------------- |  | ---------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                                  |  |                             
|                                                  |  | Year Ended December 31,     
|                                                  |  |                             
|                                                  |  | 2000                         |         | 2001 |  | 2002
|                                                  |  |                              |         |      |  |     
|                                                  |  |                             
|                                                  |  | (In thousands of US dollars,
|                                                  |  | except per share data)      
|Net sales  third parties                         |  | $                            | 207,456 |      |  | $    | 212,934 |   |  | $ | 228,167 |  
|Net sales  related party                         |  |                              | 6,232   |      |  |      | 21,072  |   |  |   | 7,849   |  
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Total net sales                                   |  |                              | 213,688 |      |  |      | 234,006 |   |  |   | 236,016 |  
|Cost of sales                                     |  |                              | 182,096 |      |  |      | 203,974 |   |  |   | 197,956 |  
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Gross profit                                      |  |                              | 31,592  |      |  |      | 30,032  |   |  |   | 38,060  |  
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Selling, general and administrative expenses      |  |                              | 17,646  |      |  |      | 21,974  |   |  |   | 17,983  |  
|Research and development expenses                 |  |                              | 3,489   |      |  |      | 2,954   |   |  |   | 2,686   |  
|Impairment of goodwill                            |  |                              |        |      |  |      |        |   |  |   | 339     |  
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Total operating expenses                          |  |                              | 21,135  |      |  |      | 24,928  |   |  |   | 21,008  |  
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Income from operations                            |  |                              | 10,457  |      |  |      | 5,104   |   |  |   | 17,052  |  
|Equity in (loss) income of affiliated companies   |  |                              | (189    | )    |  |      | 1,867   |   |  |   | 10,741  |  
|Other income (expense), net                       |  |                              | 13,853  |      |  |      | 2,709   |   |  |   | (6,043  | )
|Interest expense                                  |  |                              | (165    | )    |  |      | (178    | ) |  |   | (790    | )
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Income before income taxes and minority interests |  |                              | 23,956  |      |  |      | 9,502   |   |  |   | 20,960  |  
|Income taxes benefit (expense)                    |  |                              | 33      |      |  |      | (227    | ) |  |   | (773    | )
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Income before minority interests                  |  |                              | 23,989  |      |  |      | 9,275   |   |  |   | 20,187  |  
|Minority interests                                |  |                              | 12      |      |  |      | (230    | ) |  |   | (164    | )
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Net income                                        |  | $                            | 24,001  |      |  | $    | 9,045   |   |  | $ | 20,023  |  
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Basic earnings per share                          |  | $                            | 2.63    |      |  | $    | 0.88    |   |  | $ | 1.89    |  
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  
|Diluted earnings per share                        |  | $                            | 2.56    |      |  | $    | 0.87    |   |  | $ | 1.86    |  
|                                                  |  |                              |         |      |  |      |         |   |  |   |         |  




See accompanying notes to the consolidated
financial statements

F-3



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries

Consolidated Balance Sheets

|                                                                                                                                                                            |  |                    |         |      |  |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | -
|                                                                                                                                                                            |  |                   
|                                                                                                                                                                            |  | December 31,      
|                                                                                                                                                                            |  |                   
|                                                                                                                                                                            |  | 2001               |         | 2002
|                                                                                                                                                                            |  |                    |         |     
|                                                                                                                                                                            |  |                   
|                                                                                                                                                                            |  | (In thousands of  
|                                                                                                                                                                            |  | US dollars, except
|                                                                                                                                                                            |  | share data)       
|ASSETS                                                                                                                                                                     
|Current assets                                                                                                                                                              |  |                    |         |      |  |   |         |  
|Cash and cash equivalents                                                                                                                                                   |  | $                  | 58,676  |      |  | $ | 82,477  |  
|Marketable securities                                                                                                                                                       |  |                    | 9,505   |      |  |   |        |  
|Accounts receivable, less allowance for doubtful
    accounts of $31 and $122 at December 31, 2001 and 2002,
    respectively                                               |  |                    | 41,968  |      |  |   | 50,944  |  
|Inventories, net                                                                                                                                                            |  |                    | 11,892  |      |  |   | 19,200  |  
|Prepaid expenses and deposits                                                                                                                                               |  |                    | 2,377   |      |  |   | 1,867   |  
|Income taxes recoverable                                                                                                                                                    |  |                    | 1,353   |      |  |   | 855     |  
|                                                                                                                                                                            |  |                    |         |      |  |   |         |  
|Total current assets                                                                                                                                                        |  |                    | 125,771 |      |  |   | 155,343 |  
|Investment in affiliated companies, equity method                                                                                                                           |  |                    | 3,921   |      |  |   |        |  
|Investments, at cost                                                                                                                                                        |  |                    |        |      |  |   | 15,982  |  
|Convertible notes                                                                                                                                                           |  |                    |        |      |  |   | 5,128   |  
|Property, plant and equipment, net                                                                                                                                          |  |                    | 70,414  |      |  |   | 75,914  |  
|Goodwill, net                                                                                                                                                               |  |                    | 22,089  |      |  |   | 21,308  |  
|Intangible assets, net                                                                                                                                                      |  |                    | 971     |      |  |   |        |  
|Other assets                                                                                                                                                                |  |                    | 1,407   |      |  |   | 1,411   |  
|                                                                                                                                                                            |  |                    |         |      |  |   |         |  
|Total assets                                                                                                                                                                |  | $                  | 224,573 |      |  | $ | 275,086 |  
|                                                                                                                                                                            |  |                    |         |      |  |   |         |  
|                                                                                                                                                                           
|LIABILITIES AND SHAREHOLDERS
    EQUITY                                                                                                                                   
|Current liabilities                                                                                                                                                         |  |                    |         |      |  |   |         |  
|Notes payable                                                                                                                                                               |  | $                  | 1,547   |      |  | $ | 985     |  
|Long term bank loans  current portion                                                                                                                                      |  |                    | 2,140   |      |  |   | 13,985  |  
|Accounts payable                                                                                                                                                            |  |                    | 27,929  |      |  |   | 38,714  |  
|Accrued expenses                                                                                                                                                            |  |                    | 6,329   |      |  |   | 12,609  |  
|Amount due to a related party                                                                                                                                               |  |                    | 2,733   |      |  |   |        |  
|Dividend payable                                                                                                                                                            |  |                    | 1,023   |      |  |   | 1,442   |  
|Income taxes payable                                                                                                                                                        |  |                    | 88      |      |  |   | 200     |  
|                                                                                                                                                                            |  |                    |         |      |  |   |         |  
|Total current liabilities                                                                                                                                                   |  |                    | 41,789  |      |  |   | 67,935  |  
|Deferred income taxes                                                                                                                                                       |  |                    | 151     |      |  |   | 112     |  
|Long term bank loans  non-current
    portion                                                                                                                              |  |                    | 12,860  |      |  |   | 2,812   |  
|                                                                                                                                                                            |  |                    |         |      |  |   |         |  
|Total liabilities                                                                                                                                                           |  |                    | 54,800  |      |  |   | 70,859  |  
|                                                                                                                                                                            |  |                    |         |      |  |   |         |  
|Minority interests                                                                                                                                                          |  |                    | 422     |      |  |   | 2,099   |  
|Commitments and contingencies                                                                                                                                               |  |                    |        |      |  |   |        |  
|Shareholders equity                                                                                                                                                        |  |                    |         |      |  |   |         |  
|Common shares ($0.01 par value 
    authorized 20,000,000 shares; shares issued and outstanding at
    December 31, 2001  10,401,940, December 31,
    2002  12,019,668) |  |                    | 104     |      |  |   | 120     |  
|Additional paid-in capital                                                                                                                                                  |  |                    | 111,368 |      |  |   | 147,828 |  
|Retained earnings                                                                                                                                                           |  |                    | 57,864  |      |  |   | 54,182  |  
|Accumulated other comprehensive income (loss)                                                                                                                               |  |                    | 15      |      |  |   | (2      | )
|                                                                                                                                                                            |  |                    |         |      |  |   |         |  
|Total shareholders equity                                                                                                                                                  |  |                    | 169,351 |      |  |   | 202,128 |  
|                                                                                                                                                                            |  |                    |         |      |  |   |         |  
|Total liabilities and shareholders equity                                                                                                                                  |  | $                  | 224,573 |      |  | $ | 275,086 |  
|                                                                                                                                                                            |  |                    |         |      |  |   |         |  

See accompanying notes to the consolidated
financial statements

F-4



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries

Consolidated Statements of Shareholders
Equity

|                                                                            |                              |                                                               |            |        |  |            |     |          |  |               |         |               |  |   |         |        |  |   |    |     |   |   |         |        |  
|--------------------------------------------------------------------------- | ---------------------------- | ------------------------------------------------------------- | ---------- | ------ |  | ---------- | --- | -------- |  | ------------- | ------- | ------------- |  | - | ------- | ------ |  | - | -- | --- | - | - | ------- | ------ | -
|                                                                            |                              |                                                               |            |        |  |            |     |          |  | Accumulated   |         |              
|                                                                            |                              | Common                                                        |            | Common |  | Additional |     |          |  | other         |         | Total        
|                                                                            |                              | shares                                                        |            | shares |  | paid-in    |     | Retained |  | comprehensive |         | shareholders
|                                                                            |                              | outstanding                                                   |            | amount |  | capital    |     | earnings |  | income (loss) |         | equity       
|                                                                            |                              |                                                               |            |        |  |            |     |          |  |               |         |              
|                                                                            |                              |                                                              
|                                                                            |                              | (In thousands of US dollars, except share and per share data)
|Balance at January 1, 2000                                                  |                              |                                                               | 8,840,823  |        |  | $          | 88  |          |  | $             | 80,870  |               |  | $ | 44,566  |        |  | $ | 44 |     |   | $ | 125,568 |       
|Share buy-back program                                                      |                              |                                                               | (5,600     | )      |  |            |    |          |  |               |        |               |  |   | (73     | )      |  |   |   |     |   |   | (73     | )     
|Shares issued as compensation                                               |                              |                                                               | 10,000     |        |  |            |    |          |  |               | 136     |               |  |   |        |        |  |   |   |     |   |   | 136     |       
|Shares issued on exercise of advisors
    warrants                         |                              |                                                               | 58,030     |        |  |            | 1   |          |  |               | 1,183   |               |  |   |        |        |  |   |   |     |   |   | 1,184   |       
|Shares issued on exercise of options                                        |                              |                                                               | 149,500    |        |  |            | 1   |          |  |               | 1,568   |               |  |   |        |        |  |   |   |     |   |   | 1,569   |       
|Shares issued for acquisition of subsidiaries                               |                              |                                                               | 1,161,087  |        |  |            | 12  |          |  |               | 21,783  |               |  |   |        |        |  |   |   |     |   |   | 21,795  |       
|Advisors warrants and options                                              |                              |                                                               |           |        |  |            |    |          |  |               | 423     |               |  |   |        |        |  |   |   |     |   |   | 423     |       
|Comprehensive income:                                                       |                              |                                                               |            |        |  |            |     |          |  |               |         |               |  |   |         |        |  |   |    |     |   |   |         |       
|                                                                            | Net income                   |                                                               |            |       |  |            |     |         |  |               |         |              |  |   |         | 24,001 |  |   |    |    |   |   |         | 24,001 |  
|                                                                            | Foreign currency translation |                                                               |            |       |  |            |     |         |  |               |         |              |  |   |         |       |  |   |    | (49 | ) |   |         | (49    | )
|Dividends ($1.36 per share, including special
    dividend of $1 per share) |                              |                                                               |           |        |  |            |    |          |  |               |        |               |  |   | (12,190 | )      |  |   |   |     |   |   | (12,190 | )     
|                                                                            |                              |                                                               |            |        |  |            |     |          |  |               |         |               |  |   |         |        |  |   |    |     |   |   |         |       
|Balance at December 31, 2000                                                |                              |                                                               | 10,213,840 |        |  | $          | 102 |          |  | $             | 105,963 |               |  | $ | 56,304  |        |  | $ | (5 | )   |   | $ | 162,364 |       
|Share buy-back program                                                      |                              |                                                               | (227,900   | )      |  |            | (2  | )        |  |               |        |               |  |   | (3,351  | )      |  |   |   |     |   |   | (3,353  | )     
|Shares issued on exercise of advisors
    warrants                         |                              |                                                               | 300,000    |        |  |            | 3   |          |  |               | 3,072   |               |  |   |        |        |  |   |   |     |   |   | 3,075   |       
|Shares issued on exercise of options                                        |                              |                                                               | 116,000    |        |  |            | 1   |          |  |               | 1,231   |               |  |   |        |        |  |   |   |     |   |   | 1,232   |       
|Advisors warrants                                                          |                              |                                                               |           |        |  |            |    |          |  |               | 263     |               |  |   |        |        |  |   |   |     |   |   | 263     |       
|Issue of options                                                            |                              |                                                               |           |        |  |            |    |          |  |               | 839     |               |  |   |        |        |  |   |   |     |   |   | 839     |       
|Comprehensive income:                                                       |                              |                                                               |            |        |  |            |     |          |  |               |         |               |  |   |         |        |  |   |    |     |   |   |         |       
|                                                                            | Net income                   |                                                               |            |       |  |            |     |         |  |               |         |              |  |   |         | 9,045  |  |   |    |    |   |   |         | 9,045  |  
|                                                                            | Foreign currency translation |                                                               |            |       |  |            |     |         |  |               |         |              |  |   |         |       |  |   |    | 20  |   |   |         | 20     |  
|Dividends ($0.40 per share)                                                 |                              |                                                               |           |        |  |            |    |          |  |               |        |               |  |   | (4,134  | )      |  |   |   |     |   |   | (4,134  | )     
|                                                                            |                              |                                                               |            |        |  |            |     |          |  |               |         |               |  |   |         |        |  |   |    |     |   |   |         |       
|Balance at December 31, 2001                                                |                              |                                                               | 10,401,940 |        |  | $          | 104 |          |  | $             | 111,368 |               |  | $ | 57,864  |        |  | $ | 15 |     |   | $ | 169,351 |       
|Share buy-back program                                                      |                              |                                                               | (197,600   | )      |  |            | (2  | )        |  |               |        |               |  |   | (3,526  | )      |  |   |   |     |   |   | (3,528  | )     
|Share redemption                                                            |                              |                                                               | (169,727   | )      |  |            | (2  | )        |  |               |        |               |  |   | (3,123  | )      |  |   |   |     |   |   | (3,125  | )     
|Shares issued on exercise of public warrants                                |                              |                                                               | 1,460,655  |        |  |            | 15  |          |  |               | 29,782  |               |  |   |        |        |  |   |   |     |   |   | 29,797  |       
|Shares issued on exercise of options                                        |                              |                                                               | 524,400    |        |  |            | 5   |          |  |               | 6,668   |               |  |   |        |        |  |   |   |     |   |   | 6,673   |       
|Advisors options                                                           |                              |                                                               |           |        |  |            |    |          |  |               | 10      |               |  |   |        |        |  |   |   |     |   |   | 10      |       
|Comprehensive income:                                                       |                              |                                                               |            |        |  |            |     |          |  |               |         |               |  |   |         |        |  |   |    |     |   |   |         |       
|                                                                            | Net income                   |                                                               |            |       |  |            |     |         |  |               |         |              |  |   |         | 20,023 |  |   |    |    |   |   |         | 20,023 |  
|                                                                            | Foreign currency translation |                                                               |            |       |  |            |     |         |  |               |         |              |  |   |         |       |  |   |    | (17 | ) |   |         | (17    | )
|Dividends ($1.48 per share, including special
    dividend of $1 per share) |                              |                                                               |           |        |  |            |    |          |  |               |        |               |  |   | (17,056 | )      |  |   |   |     |   |   | (17,056 | )     
|                                                                            |                              |                                                               |            |        |  |            |     |          |  |               |         |               |  |   |         |        |  |   |    |     |   |   |         |       
|Balance at December 31, 2002                                                |                              |                                                               | 12,019,668 |        |  | $          | 120 |          |  | $             | 147,828 |               |  | $ | 54,182  |        |  | $ | (2 | )   |   | $ | 202,128 |       
|                                                                            |                              |                                                               |            |        |  |            |     |          |  |               |         |               |  |   |         |        |  |   |    |     |   |   |         |       

See accompanying notes to the consolidated
financial statements

F-5



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries

Consolidated Statements of Cash
Flows




|                                                                                                                |                                                                  |                              |         |         |   |      |        |        |   |   |         |        |  
|--------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ---------------------------- | ------- | ------- | - | ---- | ------ | ------ | - | - | ------- | ------ | -
|                                                                                                                |                                                                  |                             
|                                                                                                                |                                                                  | Year Ended December 31,     
|                                                                                                                |                                                                  |                             
|                                                                                                                |                                                                  | 2000                         |         | 2001    |   | 2002
|                                                                                                                |                                                                  |                              |         |         |   |     
|                                                                                                                |                                                                  |                             
|                                                                                                                |                                                                  | (In thousands of US dollars)
|Cash flows from operating
    activities:                                                                       |                                                                  |                              |         |         |   |      |        |        |   |   |         |       
|Net income                                                                                                      |                                                                  | $                            | 24,001  |         |   | $    | 9,045  |        |   | $ | 20,023  |       
|                                                                                                                |                                                                  |                              |         |         |   |      |        |        |   |   |         |       
|Adjustments to reconcile net income to net
    cash (used in)provided by operating activities:                  |                                                                  |                              |         |         |   |      |        |        |   |   |         |       
|Depreciation                                                                                                    |                                                                  |                              | 6,965   |         |   |      | 9,136  |        |   |   | 10,397  |       
|Amortization of intangible assets                                                                               |                                                                  |                              | 733     |         |   |      | 2,035  |        |   |   | 222     |       
|Impairment of goodwill  Micro Business
    Systems Industries Company Limited (MBS)                          |                                                                  |                              |        |         |   |      |       |        |   |   | 339     |       
|Amortization of advisors warrants and
    options                                                              |                                                                  |                              | 423     |         |   |      | 263    |        |   |   | 10      |       
|Staff option costs                                                                                              |                                                                  |                              |        |         |   |      | 839    |        |   |   |        |       
|Share redemption and dividend
    withheld  Tele-Art, Inc.                                                     |                                                                  |                              |         |         |   |      |        |        |   |   |         |       
|                                                                                                                | (Tele-Art)                                                     |                              |         |        |   |      |        |       |   |   |         | (3,519 | )
|(Gain) Loss on disposal of property, plant and
    equipment                                                    |                                                                  |                              | (244    | )       |   |      | 378    |        |   |   | 977     |       
|Gain on disposal of investments  Group
    Sense (International) Limited (Group Sense)                       |                                                                  |                              | (9,435  | )       |   |      |       |        |   |   |        |       
|Gain on disposal of investment in an affiliated
    company  Group Sense                                       |                                                                  |                              | (1,346  | )       |   |      |       |        |   |   |        |       
|Release of unamortized goodwill of affiliated
    companies  Mate Fair Group Limited (Mate
    Fair)         |                                                                  |                              |        |         |   |      |       |        |   |   | 520     |       
|Gain on disposal of a subsidiary and related
    intangible assets  BPC (Shenzhen) Co., Ltd.
    (BPC)       |                                                                  |                              |        |         |   |      |       |        |   |   | (77     | )     
|Loss on disposal of other assets                                                                                |                                                                  |                              |        |         |   |      |       |        |   |   | 21      |       
|Loss on reverse merger of subsidiary 
    J.I.C. Group (B.V.I.) Limited and its subsidiaries (JIC
    Group) |                                                                  |                              |        |         |   |      |       |        |   |   | 2,655   |       
|Unrealized gain on marketable securities                                                                        |                                                                  |                              | (433    | )       |   |      | (1,568 | )      |   |   |        |       
|Realized gain on marketable securities                                                                          |                                                                  |                              |        |         |   |      |       |        |   |   | (642    | )     
|Equity in loss (income) of affiliated companies                                                                 |                                                                  |                              | 189     |         |   |      | (1,867 | )      |   |   | (10,741 | )     
|Dividend income from affiliated
    companies  Mate Fair                                                       |                                                                  |                              |        |         |   |      |       |        |   |   | 10,456  |       
|Fair value of shares issued as compensation                                                                     |                                                                  |                              | 136     |         |   |      |       |        |   |   |        |       
|Deferred income taxes                                                                                           |                                                                  |                              | (110    | )       |   |      | 117    |        |   |   | (39     | )     
|Minority interests                                                                                              |                                                                  |                              | (12     | )       |   |      | 230    |        |   |   | 164     |       
|Changes in current assets and liabilities (net of
    effects of acquisitions and disposals):                   |                                                                  |                              |         |         |   |      |        |        |   |   |         |       
|                                                                                                                | (Acquisition of) Proceeds from marketable
    securities         |                              |         | (7,504  | ) |      |        |       |   |   |         | 10,147 |  
|                                                                                                                | Increase in accounts receivable                                  |                              |         | (5,137  | ) |      |        | (4,378 | ) |   |         | (8,531 | )
|                                                                                                                | (Increase) Decrease in inventories                               |                              |         | (13,245 | ) |      |        | 15,302 |   |   |         | (7,625 | )
|                                                                                                                | Decrease (Increase) in prepaid expenses and
    deposits         |                              |         | 407     |   |      |        | (620   | ) |   |         | 496    |  
|                                                                                                                | Decrease in income taxes recoverable                             |                              |         | 28      |   |      |        | 689    |   |   |         | 498    |  
|                                                                                                                | (Decrease) Increase in notes payable                             |                              |         | (6,331  | ) |      |        | 48     |   |   |         | (562   | )
|                                                                                                                | Increase (Decrease) in accounts payable and
    accrued expenses |                              |         | 7,203   |   |      |        | (6,062 | ) |   |         | 16,967 |  
|                                                                                                                | (Decrease) Increase in income taxes payable                      |                              |         | (114    | ) |      |        | (354   | ) |   |         | 112    |  
|                                                                                                                | Increase (Decrease) in amount due to a related
    party         |                              |         | 2,691   |   |      |        | 2      |   |   |         | (2,766 | )
|                                                                                                                |                                                                  |                              |         |         |   |      |        |        |   |   |         |       
|Total adjustments                                                                                               |                                                                  |                              | (25,136 | )       |   |      | 14,190 |        |   |   | 19,479  |       
|                                                                                                                |                                                                  |                              |         |         |   |      |        |        |   |   |         |       
|Net cash (used in) provided by operating
    activities                                                         |                                                                  |                              | (1,135  | )       |   |      | 23,235 |        |   |   | 39,502  |       
|                                                                                                                |                                                                  |                              |         |         |   |      |        |        |   |   |         |       




F-6



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Consolidated Statements of Cash
Flows  (Continued)




|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |   | 
|----------------------------------------------------------------------------------------------------------- | ----- | ---------------------------- | ------- | ------ |  | ---- | ------- | - |  | - | ------- | - | 
|                                                                                                            |       |                             
|                                                                                                            |       | Year Ended December 31,     
|                                                                                                            |       |                             
|                                                                                                            |       | 2000                         |         | 2001   |  | 2002
|                                                                                                            |       |                              |         |        |  |     
|                                                                                                            |       |                             
|                                                                                                            |       | (In thousands of US dollars)
|Cash flows from investing
    activities:                                                                   |       |                              |         |        |  |      |         |   |  |   |         |  
|Acquisition of long term investment 
    TCL Corporation                                                   |       |                              |        |        |  |      |        |   |  |   | (11,968 | )
|Acquisition of convertible notes  TCL
    International Holdings Limited                                   |       |                              |        |        |  |      |        |   |  |   | (5,128  | )
|Purchase of property, plant and
    equipment  third parties                                               |       |                              | (2,765  | )      |  |      | (35,963 | ) |  |   | (18,485 | )
|Purchase of property, plant and
    equipment  related party                                               |       |                              | (814    | )      |  |      | (50     | ) |  |   |        |  
|Acquisition of JIC Group, net of cash acquired                                                              |       |                              | (7,872  | )      |  |      |        |   |  |   |        |  
|Acquisition of additional shares in subsidiaries,
    net of cash acquired  JIC Group and Mate Fair        |       |                              |        |        |  |      | (85     | ) |  |   | (436    | )
|Decrease (Increase) in other assets                                                                         |       |                              | 123     |        |  |      | (38     | ) |  |   | (25     | )
|Proceeds from disposal of property, plant and
    equipment                                                 |       |                              | 388     |        |  |      | 698     |   |  |   | 628     |  
|Purchase of interest in affiliated companies                                                                |       |                              | (2,243  | )      |  |      |        |   |  |   |        |  
|Proceeds from disposal of investment                                                                        |       |                              | 24,214  |        |  |      |        |   |  |   |        |  
|Proceeds from disposal of investment in an
    affiliated company                                           |       |                              | 3,875   |        |  |      |        |   |  |   |        |  
|Proceeds from disposal of a subsidiary and
    related intangible assets, net of cash disposed of 
    BPC |       |                              |        |        |  |      |        |   |  |   | 1,654   |  
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  
|Net cash provided by (used in) investing
    activities                                                     |       |                              | 14,906  |        |  |      | (35,438 | ) |  |   | (33,760 | )
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  
|Cash flows from financing
    activities:                                                                   |       |                              |         |        |  |      |         |   |  |   |         |  
|Dividends paid                                                                                              |       |                              | (11,973 | )      |  |      | (3,947  | ) |  |   | (16,654 | )
|Share buy-back program                                                                                      |       |                              | (73     | )      |  |      | (3,353  | ) |  |   | (3,528  | )
|Repayment of bank loans                                                                                     |       |                              |        |        |  |      |        |   |  |   | (2,703  | )
|Repayment of short term debt                                                                                |       |                              | (1      | )      |  |      | (24     | ) |  |   |        |  
|Proceeds from bank loans                                                                                    |       |                              |        |        |  |      | 15,000  |   |  |   | 4,500   |  
|Proceeds from shares issued on exercise of
    options and warrants                                         |       |                              | 2,753   |        |  |      | 4,307   |   |  |   | 36,470  |  
|Contribution by minority interests                                                                          |       |                              | 200     |        |  |      |        |   |  |   |        |  
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  
|Net cash (used in) provided by financing
    activities                                                     |       |                              | (9,094  | )      |  |      | 11,983  |   |  |   | 18,085  |  
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  
|Effect of foreign currencies on cash flows                                                                  |       |                              | 4       |        |  |      |        |   |  |   | (26     | )
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  
|Net increase (decrease) in cash and cash
    equivalents                                                    |       |                              | 4,681   |        |  |      | (220    | ) |  |   | 23,801  |  
|Cash and cash equivalents at beginning of year                                                              |       |                              | 54,215  |        |  |      | 58,896  |   |  |   | 58,676  |  
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  
|Cash and cash equivalents at end of year                                                                    |       | $                            | 58,896  |        |  | $    | 58,676  |   |  | $ | 82,477  |  
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  
|Supplemental schedule of cash flow
    information:                                                         |       |                              |         |        |  |      |         |   |  |   |         |  
|Interest paid                                                                                               |       | $                            | 165     |        |  | $    | 178     |   |  | $ | 790     |  
|Income taxes paid (received)                                                                                |       | $                            | 129     |        |  | $    | (249    | ) |  | $ | 227     |  
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  
|Non cash investing transaction:                                                                             |       |                              |         |        |  |      |         |   |  |   |         |  
|Acquisition of subsidiaries by issue of
    shares  JIC                                                    |       |                              |         |        |  |      |         |   |  |   |         |  
|                                                                                                            | Group |                              | $       | 21,795 |  |      | $       |  |  |   | $       |  | 
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  
|Non cash financing transaction:                                                                             |       |                              |         |        |  |      |         |   |  |   |         |  
|Share redemption and dividend
    withheld  Tele-Art                                                       |       | $                            |        |        |  | $    |        |   |  | $ | 3,519   |  
|                                                                                                            |       |                              |         |        |  |      |         |   |  |   |         |  




See accompanying notes to the consolidated
financial statements

F-7



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries

Notes to Consolidated Financial
Statements

December 31, 2001 and 2002


(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 select 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 Texas
Instruments Incorporated. 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 and
radio frequency, or RF, modules. These components are used in
various 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
palm-sized PCs, personal digital assistants, electronic
dictionaries, calculators and digital camera accessories for use
with cellular phones.




The Company operates in two segments: consumer
electronic products (CEP) and LCD panels and
transformers (LPT). The Companys principal
operations, which are conducted through subsidiaries, are in the
Hong Kong Special Administrative Region (Hong Kong)
and the Peoples Republic of China (the PRC).
The PRC resumed sovereignty over Hong Kong effective
July 1, 1997 and politically Hong Kong is an integral part
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.

The Company was founded in 1975 as an electronic
products trading company based in Hong Kong and shifted its
focus to manufacturing of electronic products in 1978. The
Company moved its manufacturing facilities to 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 in August 1987. The Companys
principal manufacturing and design operations are based in
Shenzhen, PRC, approximately 30 miles from Hong Kong. Its
principal executive 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.

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.
All significant intercompany accounts and transactions have been
eliminated on consolidation.

(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.

(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.

F-8



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


(d) Inventories




Inventories are stated at the lower of cost or
market value. Cost is determined on the first-in, first-out
basis. Provisions for potentially obsolete or slow-moving
inventory are recorded based on managements analysis of
inventory levels. Generally, 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 cancelled an order. As the inventory is
typically unique to each customers product it is unusual
for the Company to be able to utilize the inventory for other
customers product. Therefore, the Companys policy is
to provide for all inventories, other than electronic parts and
LCDs, that remain unused for six months. Prior to providing for
inventory over six months old, management will determine if the
inventory can be utilized in other products. The Company does
not generally provide for electronic parts and LCDs as these
customers are held to their purchase commitments. The following
represents the movement in the inventory provision for the years
ended December 31,




|                                        |  |      |      |      |  |      |        |   |  |   |        |  
|--------------------------------------- |  | ---- | ---- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                        |  | 2000 |      | 2001 |  | 2002
|                                        |  |      |      |      |  |     
|Balance at January 1,                   |  | $    | (479 | )    |  | $    | (487   | ) |  | $ | (4,741 | )
|(Provided for) Reversal during the year |  |      | (12  | )    |  |      | (4,247 | ) |  |   | 1,970  |  
|Write off during the year               |  |      |     |      |  |      |       |   |  |   | 1,271  |  
|Others                                  |  |      | 4    |      |  |      | (7     | ) |  |   | 14     |  
|                                        |  |      |      |      |  |      |        |   |  |   |        |  
|Balance at December 31,                 |  | $    | (487 | )    |  | $    | (4,741 | ) |  | $ | (1,486 | )
|                                        |  |      |      |      |  |      |        |   |  |   |        |  

During 2002, the Company was able to use portions
of the raw materials that had been previously provided for in
production or the Company received compensation for the unused
raw materials. This change in accounting estimate resulted in
the partial reversal of the provision of approximately $2,000 in
2002.




As of December 31, 2002, the Company has
$600 of inventory that has been fully provided for, and will be
scrapped, once formal approval is obtained from the PRC
government. Subsequent to year-end the Company scrapped
approximately $179 of this inventory.




(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, 2000, 2001 and 2002. 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 from the disposal of property, plant and equipment
are included in income from operations and gains and losses from
the disposal of unused land are reported in other income
(expense) in the consolidated statements of income.

The majority of the land in Hong Kong is owned by
the government of Hong Kong which leases the land at public
auction to non-governmental entities. With the exception of
those leases which expire after June 30, 1997 and before
June 30, 2047 with no right of renewal, the Sino-British
Joint Declaration extends the terms of all currently existing
land leases for another 50 years beyond June 30, 1997.
Thus, all of the Companys leasehold land in Hong Kong are
considered to be medium-term assets. The cost of such leasehold
land is amortized on the 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

F-9



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


Companys land purchases in the PRC are
considered to be leasehold land and are amortized on the
straight- line basis over the respective term of the right to
use the land.

(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 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 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 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.







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 Micro
Business Systems Industries Company Limited (MBS)
(see note 3(b)(ii)). 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. For future impairment tests the
Company will measure fair value based either on internal models
or independent valuations. As of December 31, 2002, the
Company completed its annual impairment evaluation and
determined that there was no impairment in goodwill.




F-10



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


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 beginning January 1, 2000:

|                                |  |      |        |      |  |      |        |  |  |   |        | 
|------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                |  | 2000 |        | 2001 |  | 2002
|                                |  |      |        |      |  |     
|Net income                      |  |      |        |      |  |      |        |  |  |   |        | 
|As reported                     |  | $    | 24,001 |      |  | $    | 9,045  |  |  | $ | 20,023 | 
|Add back: goodwill amortization |  |      | 600    |      |  |      | 1,826  |  |  |   |       | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|As adjusted                     |  | $    | 24,601 |      |  | $    | 10,871 |  |  | $ | 20,023 | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|Basic earnings per share        |  |      |        |      |  |      |        |  |  |   |        | 
|As reported                     |  | $    | 2.63   |      |  | $    | 0.88   |  |  | $ | 1.89   | 
|Add back: goodwill amortization |  |      | 0.07   |      |  |      | 0.18   |  |  |   |       | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|As adjusted                     |  | $    | 2.70   |      |  | $    | 1.06   |  |  | $ | 1.89   | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|Diluted earnings per share      |  |      |        |      |  |      |        |  |  |   |        | 
|As reported                     |  | $    | 2.56   |      |  | $    | 0.87   |  |  | $ | 1.86   | 
|Add back: goodwill amortization |  |      | 0.06   |      |  |      | 0.18   |  |  |   |       | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 
|As adjusted                     |  | $    | 2.62   |      |  | $    | 1.05   |  |  | $ | 1.86   | 
|                                |  |      |        |      |  |      |        |  |  |   |        | 

(g) Impairment
or disposal of long-lived assets

In August 2001, the FASB issued SFAS
No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets, that was applicable to financial
statements issued for fiscal years beginning after
December 15, 2001. The FASBs new rules on asset
impairment supersede SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and portions of Accounting Principles
Board (APB) Opinion No. 30, Reporting
the Results for Operations. The statement requires a
single accounting model for long-lived assets to be disposed of
and significantly changes the criteria that would have to be met
to classify an asset as held-for-sale. Classification as
held-for-sale is an important distinction since such assets are
not depreciated and are stated at the lower of fair value or
carrying amount. The statement also requires expected future
operating losses from discontinued operations to be recorded in
the period(s) in which the losses are incurred, rather than as
of the measurement date as previously required. On
January 1, 2002, the Company adopted SFAS No. 144. The
adoption of SFAS No. 144 did not have any significant
impact on the financial position and results of operations of
the Company.

(h) Equity
method of accounting

The equity method of accounting is used when the
Company has 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. Nonmarketable investments in which
the Company has less than 20% interest and in which it does not
have the ability to exercise significant influence over the
investee are initially recorded at cost and periodically
reviewed for impairment.

F-11



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


(i) Revenue
recognition




The Company recognizes 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.                
|




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 recognizes revenue on its software
development services in accordance with Statement of Position
(SOP) 97-2, Software Revenue Recognition. The
Company recognizes revenue when (i) persuasive evidence of
an arrangement exists; (ii) delivery has occurred or
services have been rendered; (iii) the sales price is fixed
or determinable; and (iv) collectibility is reasonably
assured. The Companys software sales include neither
multiple elements nor post-contract customer support.







(j) Shipping
and handling costs







Shipping and handling costs are expensed to cost
of sales for material purchased and selling expenses for the
delivery of finished products. During the years ended
December 31, 2000, 2001, and 2002, shipping and handling
costs expensed to cost of sales were $564, $488, and $536,
respectively. During the years ended December 31, 2000,
2001 and 2002, shipping and handling costs expensed to selling
expenses were $985, $954, and $808, respectively.







(k) 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.




(l) Advertising
expenses




The Company expenses advertising costs as
incurred. Advertising expenses were $173, $141 and $528 for the
years ended December 31, 2000, 2001 and 2002, respectively.




(m) Staff
retirement plan costs




The Companys costs related to the staff
retirement plans are charged to the consolidated statement of
income as incurred.




(n) Income
taxes




The Company provides 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,

F-12



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)





the Company has reasonable grounds to believe
that income taxes paid by Namtai Electronic (Shenzhen) Co., Ltd.
(NTSZ), Zastron Electronic (Shenzhen) Co., Ltd.
(Zastron) (formerly known as Zastron Plastic &
Metal Products (Shenzhen) Ltd.), Shenzhen Namtek Company Limited
(Namtek), Jieyao Electronics (Shenzhen) Co., Ltd.
(Jieyao) and Jetup Electronic (Shenzhen) Co., Ltd.
(Jetup) 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. Accordingly, any PRC tax
paid by these subsidiaries during the year is recorded as an
amount recoverable at the balance sheet date when an application
for reinvestment of profits has been filed 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 to recognize the effect of the difference between
the financial statement and income tax bases of measuring assets
and liabilities.









|    |                                                   
|--- | --------------------------------------------------
|(o) | 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 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 Renminbi and the
U.S. dollar is based on the prevailing market rate.






|    |                   
|--- | ------------------
|(p) | Earnings per share




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.






|    |              
|--- | -------------
|(q) | Stock options







SFAS No. 123, Accounting for
Stock-Based Compensation, allows companies which have
stock-based compensation arrangements with employees to adopt a
new fair value basis of accounting for stock options and other
equity instruments or to continue to apply the existing
accounting rules under APB Opinion No. 25,
Accounting for Stock Issued to Employees, but
with additional financial statement disclosure. The Company
continues to account for stock-based compensation arrangements
under APB Opinion No. 25 and provides additional
disclosures required by SFAS No. 123. 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




F-13



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)





stock price equal to the market price of the
stock on the date of grant. 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.









|    |                 
|--- | ----------------
|(r) | 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.






|    |                     
|--- | --------------------
|(s) | Comprehensive income




The Company reports comprehensive income in
accordance with SFAS No. 130, Reporting
Comprehensive Income. Accumulated other comprehensive
income (loss) represents foreign currency translation
adjustments and is included in the consolidated statements of
shareholders equity. The comprehensive income of the
Company was $23,952, $9,065 and $20,006 for the years ended
December 31, 2000, 2001 and 2002, respectively.






|    |                       
|--- | ----------------------
|(t) | Fair value disclosures




The carrying amounts of cash and cash
equivalents, marketable securities, accounts receivable, notes
payable, accounts payable and amount due to a related party
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 Companys
convertible notes is estimated based on the current rates
offered to the Company for notes of similar terms and maturities.






|    |                              
|--- | -----------------------------
|(u) | New accounting pronouncements




In August 2001, the FASB issued SFAS
No. 143, Accounting for Asset Retirement
Obligations. This Statement addresses financial
accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 requires a company to
record the fair value of an asset retirement obligation as a
liability in the period in which it incurs a legal obligation
associated with the retirement of a tangible long-lived asset.
SFAS No. 143 also requires a company to record the contra
to the initial obligation as an increase to the carrying amount
of the related long-lived asset (i.e. the associated asset
retirement costs) and to depreciate that cost over the remaining
useful life of the asset. The liability is adjusted at the end
of each period to reflect the passage of time (i.e. accretion
expense) and changes in the estimated future cash flows
underlying the initial fair value measurement. Companies are
required to adopt SFAS No. 143 for fiscal years beginning
after June 15, 2002. Management has adopted SFAS
No. 143 on January 1, 2003, and does not believe its
adoption will have a material effect on the Companys
financial position, results of operations, or cash flows.

In April 2002, the FASB issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS No. 145 eliminates
extraordinary accounting treatment for reporting gain or loss on
debt extinguishment, and amends other existing authoritative
pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed
conditions. The provisions of SFAS No. 145 related to the
rescission of SFAS No. 4 are applicable in fiscal years
beginning after May 15, 2002, the provisions related to
SFAS No. 13 are effective for transactions occurring after
May 15, 2002, and all other provisions are effective for
financial statements issued

F-14



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


on or after May 15, 2002; however, early
application is encouraged. Debt extinguishments reported as
extraordinary items prior to scheduled or early adoption of SFAS
No. 145 would be reclassified in most cases following
adoption. In the current year, management adopted the provisions
of SFAS No. 145 related to the accounting treatment for the
gain or loss on debt extinguishment. The result of this adoption
is that $610 finance charge incurred for the early
extinguishment of the Companys long term debt (see
note 11) that would have been recorded as an extraordinary
item under the previous accounting rules have been included as
an expense from continuing operations. Management does not
expect the adoption of the remaining provisions of SFAS
No. 145 to have a material effect on the Companys
financial position, results of operations, or cash flows.

In June 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal
Activities. SFAS No. 146 requires recording costs
associated with exit or disposal activities at their fair values
when a liability has been incurred. Under previous guidance,
certain exit costs were accrued upon managements
commitment to an exit plan, which is generally before an actual
liability has been incurred. The requirements of SFAS
No. 146 are effective prospectively for exit or disposal
activities initiated after December 31, 2002; however,
early application is encouraged. Management does not expect the
adoption of SFAS No. 146 to have a material effect on the
Companys financial position, results of operations, or
cash flows.




In November 2002, the FASB issued Interpretation
No. 45, Guarantors Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others (FIN 45). FIN 45 requires
that upon issuance of a guarantee, a guarantor must recognize a
liability for the fair value of an obligation assumed under a
guarantee. FIN 45 also requires additional disclosures by a
guarantor in its annual financial statements about the
obligations associated with guarantees issued. The recognition
provisions of FIN 45 are effective for any guarantees
issued or modified after December 31, 2002. The disclosure
requirements are effective for financial statements of interim
or annual periods ending after December 15, 2002.
Management has adopted the disclosure provisions of FIN 45
and is currently evaluating the effects of the recognition
provisions of FIN 45; however, it does not expect that the
adoption of FIN 45 will have a material effect on the
Companys financial position, results of operations, or
cash flows.




In December 2002, the FASB issued SFAS
No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure.
SFAS No. 148 amends SFAS No. 123 Accounting
for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results. SFAS No. 148 is effective for fiscal
years beginning after December 15, 2002. The expanded
annual disclosure requirements and the transition provisions are
effective for fiscal years ending after December 15, 2002.
Management does not expect the adoption of SFAS No. 148 to
have a material effect on the Companys financial position,
results of operations, or cash flows.

At December 31, 2002, the Company has two
stock-based employee compensation plans, as more fully described
in note 12(a). The Company accounts for these plans under
the recognition and measurement principles of APB No. 25,
Accounting for Stock Issued to Employees, and
related interpretations. Stock-based employee compensation costs
are not reflected in net income when options granted under the
plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. During 2001, the
Company recorded compensation cost of $839 as 105,400 options
granted under the plan had an exercise price less than the
market value of the underlying common stock on the date of grant.

F-15



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


The following table illustrates the effect on net
income and earnings per share as if the Company had applied the
fair value recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, to
stock-based employee compensation.

|                                                                                      |  |   |             |      |  |      |        |      |  |   |        |   |  |   |      | 
|------------------------------------------------------------------------------------- |  | - | ----------- | ---- |  | ---- | ------ | ---- |  | - | ------ | - |  | - | ---- | 
|Year ended December 31,                                                               |  |   |             | 2000 |  | 2001 |        | 2002
|                                                                                      |  |   |             |      |  |      |        |     
|Net income, as reported                                                               |  | $ | 24,001      |      |  | $    | 9,045  |      |  | $ | 20,023 |  
|Less: Stock based compensation costs under fair
    value based method for all awards |  |   | (2,216      | )    |  |      | (2,331 | )    |  |   | (1,491 | )
|                                                                                      |  |   |             |      |  |      |        |      |  |   |        |  
|Net income, pro forma                                                                 |  | $ | 21,785      |      |  | $    | 6,714  |      |  | $ | 18,532 |  
|                                                                                      |  |   |             |      |  |      |        |      |  |   |        |  
|Basic earnings per share                                                              |  |   | As reported |      |  | $    | 2.63   |      |  | $ | 0.88   |   |  | $ | 1.89 | 
|                                                                                      |  |   | Pro forma   |      |  | $    | 2.39   |      |  | $ | 0.65   |   |  | $ | 1.75 | 
|                                                                                      |  |   |             |      |  |      |        |      |  |   |        |   |  |   |      | 
|Diluted earnings per share                                                            |  |   | As reported |      |  | $    | 2.56   |      |  | $ | 0.87   |   |  | $ | 1.86 | 
|                                                                                      |  |   | Pro forma   |      |  | $    | 2.32   |      |  | $ | 0.65   |   |  | $ | 1.73 | 
|                                                                                      |  |   |             |      |  |      |        |      |  |   |        |   |  |   |      | 




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 the SFAS No. 149 are
not expected to have a material impact on the Companys
financial position, results of operations, or cash flows.







(v) Reclassification




Certain prior year amounts in the accompanying
consolidated financial statements have been reclassified to
conform to the current years presentation. These
reclassifications had no effect on the net income or financial
position for any year presented.

F-16



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


3. Investment in Subsidiaries

(a) Subsidiaries

|                                                                                                                    |  |               |                |                    |  |                                               |                      |      |          |   |       |   |       |   |       |  
|------------------------------------------------------------------------------------------------------------------- |  | ------------- | -------------- | ------------------ |  | --------------------------------------------- | -------------------- | ---- | -------- | - | ----- | - | ----- | - | ----- | -
|                                                                                                                    |  |               |                |                    |  |                                              
|                                                                                                                    |  |               |                |                    |  | Percentage of                                
|                                                                                                                    |  |               |                |                    |  | ownership at                                 
|                                                                                                                    |  |               |                |                    |  | December 31,                                 
|                                                                                                                    |  | Place of      |                |                    |  |                                              
|                                                                                                                    |  | incorporation |                | Principal activity |  | 2001                                          |                      | 2002
|                                                                                                                    |  |               |                |                    |  |                                               |                      |     
|Consolidated principal subsidiaries:                                                                                |  |               |                |                    |  |                                               |                      |      |          |   |       |   |       |   |       |  
|J.I.C. Technology Company Limited                                                                                   |  |               | Cayman Islands |                    |  |                                               | Investment holding   |      |          |   |      |   |       |   | 93.97 | %
|J.I.C. Enterprises (Hong Kong) Limited                                                                              |  |               | Hong Kong      |                    |  | Investment holding, manufacturing and trading |                      |      | 100      | % |       |   | 93.97 | %
|J.I.C. Electronics Company Limited                                                                                  |  |               | Hong Kong      |                    |  |                                               | Inactive             |      |          |   | 100   | % |       |   | 93.97 | %
|J.I.C. Group (B.V.I.) Limited                                                                                       |  |               | BVI            |                    |  |                                               | Investment holding   |      |          |   | 100   | % |       |   | 93.97 | %
|Jetup Electronic (Shenzhen) Co., Ltd.                                                                               |  |               | PRC            |                    |  |                                               | Manufacturing        |      |          |   | 100   | % |       |   | 93.97 | %
|Jieda Electronics (Shenzhen) Co., Ltd.                                                                              |  |               | PRC            |                    |  |                                               | Inactive             |      |          |   | 100   | % |       |   | 93.97 | %
|Jieyao Electronics (Shenzhen) Co., Ltd.                                                                             |  |               | PRC            |                    |  |                                               | Manufacturing        |      |          |   | 100   | % |       |   | 93.97 | %
|Nam Tai Group Management Limited                                                                                    |  |               | Hong Kong      |                    |  | Provision of management services              |                      |      | 100      | % |       |   | 100   | %
|Nam Tai Electronic & Electrical Products
    Limited                                                                |  |               | Hong Kong      |                    |  |                                               | Trading              |      |          |   | 100   | % |       |   | 100   | %
|Nam Tai Telecom (Hong Kong) Company Limited                                                                         |  |               | Hong Kong      |                    |  |                                               | Trading              |      |          |   | 100   | % |       |   | 100   | %
|Namtai Electronic (Shenzhen) Co., Ltd.                                                                              |  |               | PRC            |                    |  |                                               | Manufacturing        |      |          |   | 100   | % |       |   | 100   | %
|Namtek Software Development Company Limited                                                                         |  |               | Cayman Islands |                    |  |                                               | Investment holding   |      |          |   |      |   |       |   | 100   | %
|Shenzhen Namtek Company Limited                                                                                     |  |               | PRC            |                    |  |                                               | Software development |      |          |   | 100   | % |       |   | 100   | %
|Zastron Electronic (Shenzhen) Co. Ltd. (formerly
    known as Zastron Plastic & Metal Products (Shenzhen)
    Ltd.) |  |               | PRC            |                    |  |                                               | Manufacturing        |      |          |   | 100   | % |       |   | 100   | %
|Mate Fair Group Limited                                                                                             |  |               | BVI            |                    |  |                                               | Investment holding   |      |          |   | 25    | % |       |   | 72.22 | %
|BPC (Shenzhen) Co., Ltd.                                                                                            |  |               | PRC            |                    |  |                                               | Manufacturing        |      |          |   | 86.67 | % |       |   |      |  
|Unconsolidated subsidiary:                                                                                          |  |               |                |                    |  |                                               |                      |      |          |   |       |   |       |   |       |  
|Albatronics (Far East) Company Limited
    (in liquidation)                                                         |  |               | Hong Kong      |                    |  | Ceased business in August 1999                |                      |      | 50.00025 | % |       |   |      |  

F-17



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


(b) Acquisitions
and dispositions



| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i) | In 1998, the Company acquired 50.00025% of the
    outstanding shares of Albatronics (Far East) Company Limited
    (Albatronics), a Hong Kong publicly listed company.
    Albatronics and its subsidiaries were engaged in the trading of
    electronic components and manufacturing of consumer electronics
    products. Due to the troubled financial condition of Albatronics
    at December 31, 1998, it was probable that the Company
    would never be in a position to exercise control over
    Albatronics as such control would rest with the creditors of
    Albatronics. Accordingly, the Company did not consolidate
    Albatronics financial statements at December 31,
    1998, for the year then ended or for any subsequent period. As
    of December 31, 1999 the investment was written off. On
    February 1, 2000, the Company received an invitation
    soliciting offers for the rescue or restructuring of Albatronics
    from Albatronics liquidators.



| |                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During 1999, the Company commenced legal
    proceedings against Albatronics seeking compensation to recover
    its investment and seeking damages for breach of
    representations, warranties and undertakings. The case was
    settled and the Company withdrew its legal proceedings against
    Albatronics at December 31, 2001.
|
|
| | In January 2002, the Company entered into an
    agreement with the liquidators of Albatronics, which among other
    matters provided for a reverse merger of J.I.C. Group (B.V.I.)
    Limited (JIC) into Albatronics (see
    note 3(b)(iv)).                                                                                       
|



| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | In 1999, the Company acquired certain net assets
    from MBS, a telecommunication business including the design,
    research and development, and marketing of telecommunication
    products, for a consideration of $951 including acquisition
    costs. The acquisition was accounted for as a purchase and the
    results of operations of the acquired business 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 assets acquired of $175
    was $776 and was recorded as goodwill which was being amortized
    on a straight-line basis over 4 years. The results of
    operations of the business acquired were not material in
    relation to the consolidated results of operations of the
    Company. 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 by $173.
|
| | (iii) | 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 (Shenzhen) Co., Ltd.
    (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 existing 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 years ended December 31, 2000, 2001 and during the
    period from January 1, 2002 through April 30, 2002,
    the Company recognized net sales of $6,232, $21,072 and $7,849,
    respectively, from TBCL and its related companies.                                                                                                                    






| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (iv) | In October 2000, the Company acquired all of the
    outstanding shares of 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 1,161,087 shares in the Company at $18.77
    each, being the average market closing price as reported on the
    Nasdaq Stock Market (Nasdaq) for each day during the




F-18



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)




| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | period from September 26, 2000 to
    October 24, 2000 (inclusive) on which Nasdaq is open for
    trading and on which at least 10,000 shares were traded.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | JIC and its subsidiaries (JIC 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 and Jieyao, all being wholly foreign
    owned enterprises in the PRC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The purchase price adjustment based on earnings
    is the amount of shortfall, if any, between the net income of
    JIC 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 JIC 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 JIC 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
    has 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Had the acquisition of JIC occurred on
    January 1, 2000, the following would be the unaudited pro
    forma consolidated results of operations for the year ended
    December 31, 2000. Net sales, net income, basic earnings
    per share and diluted earnings per share would have been
    $239,327, $25,492, $2.53 and $2.47, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
|
| |  | In June 2002, through a reverse merger, the
    Company arranged for the listing of the JIC Group on The Stock
    Exchange of Hong Kong Limited. To effect the listing, the
    Company entered an agreement with the liquidators of
    Albatronics, whose shares had been listed on The Stock Exchange
    of Hong Kong Limited and which was placed into voluntary
    liquidation in August 1999. The Company owned slightly more than
    50% of the outstanding capital stock of Albatronics (see
    note 3(b)(i)). Under the agreement the Company agreed to
    transfer the JIC 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 Stock
    Exchange of Hong Kong Limited was withdrawn and J.I.C.
    Technology Company Limited was listed on The Stock Exchange of
    Hong Kong Limited free from the liabilities of Albatronics. For
    the Companys contribution to J.I.C. Technology Company
    Limited, the Company 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. The Company, the creditors of
    Albatronics and the Hong Kong public who held shares of
    Albatronics received ordinary shares of J.I.C. Technology
    Company Limited equal to approximately 70.4%, 24.1% and 5.5%,
    respectively, of the outstanding ordinary shares of J.I.C.
    Technology Company Limited. The Company also received preference
    shares of J.I.C. Technology Company Limited, which upon their
    full conversion, would result in the Company, 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 the Company) may convert them if such
    conversion would result in the minimum
|

F-19



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)




| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | public float of 25% that is required under the
    Hong Kong Stock Exchange listing rules not being met.                                                                                                                                                                                                                                                                                                                                                                       
|
|
| |  | Due to the reverse merger, the Companys
    effective interest in the JIC Group reduced from 100% to 92.9%.
    As a result of this reduction in interest during 2002, the
    Company has released unamortized goodwill of $1,483,
    representing 7.1% of the goodwill that had previously been
    recorded upon purchasing the JIC Group in October 2000. The
    release of unamortized goodwill is included as part of the loss
    on reverse merger of the JIC Group.
|
|
| |  | In August 2002, the Company acquired an
    additional 7,984,000 shares of JIC Technology Company Limited
    for a cash consideration of $437, resulting in additional
    goodwill of $253. As at December 31, 2002, the Company held
    74.8% of the existing ordinary shares and 94.0% of the
    outstanding ordinary shares upon full conversion of the
    preference shares.                                                                                          

(c) Establishment
of subsidiaries



| |      |                                                                                                                                                                                                                                                                                           
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)  | In March 2001, the Company established Nam Tai
    Group Management Limited, a wholly-owned subsidiary in Hong
    Kong, at an investment cost of $1 (one dollar) contributed in
    cash. Its principal activity is to provide management services
    to other group companies.         
|
| | (ii) | In May 2002, the Company established Namtek
    Software Development Company Limited, a wholly-owned subsidiary
    incorporated in the Cayman Islands, at an investment cost of
    $800. Its principal activity is an investment holding company of
    Shenzhen Namtek Company Limited.

(d) Retained
earnings

Retained earnings are not restricted as to the
payment of dividends except to the extent dictated by prudent
business practices. The Company believes that there are no
material restrictions, including foreign exchange controls, on
the ability of its non-PRC subsidiaries to transfer surplus
funds to the Company in the form of cash dividends, loans,
advances or purchases. With respect to the Companys PRC
subsidiaries, there are restrictions on the purchase of
materials by these companies, the payment of dividends and the
removal of dividends from the PRC. In the event that dividends
are paid by the Companys PRC subsidiaries, such dividends
will reduce the amount of reinvested profits and accordingly,
the refund of taxes paid will be reduced to the extent of tax
applicable to profits not reinvested. However, the Company
believes that such restrictions will not have a material effect
on the Companys liquidity or cash flows.

4. Marketable Securities

In September 2000, the Company purchased 500,000
common shares for $7,504. These marketable securities were
classified as trading securities and included in current assets.
During the first quarter of 2002, the Company sold its interest
for an aggregate of $10,147 resulting in a realized gain of $642.

|                                         |  |      |       |      |  |   |   | 
|---------------------------------------- |  | ---- | ----- | ---- |  | - | - | 
|December 31,                             |  | 2001 |       | 2002
|                                         |  |      |       |     
|Cost                                     |  | $    | 7,504 |      |  | $ |  | 
|Unrealized gain on marketable securities |  |      | 2,001 |      |  |   |  | 
|                                         |  |      |       |      |  |   |   | 
|Market value                             |  | $    | 9,505 |      |  | $ |  | 
|                                         |  |      |       |      |  |   |   | 

F-20



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


5. Inventories

Inventories consist of the following:

|                                |  |      |        |      |  |   |        |  
|------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|December 31,                    |  | 2001 |        | 2002
|                                |  |      |        |     
|Raw materials                   |  | $    | 13,332 |      |  | $ | 16,840 |  
|Work-in-progress                |  |      | 1,823  |      |  |   | 1,937  |  
|Finished goods                  |  |      | 1,478  |      |  |   | 1,909  |  
|                                |  |      |        |      |  |   |        |  
|                                |  |      | 16,633 |      |  |   | 20,686 |  
|Less: Provision for inventories |  |      | (4,741 | )    |  |   | (1,486 | )
|                                |  |      |        |      |  |   |        |  
|                                |  | $    | 11,892 |      |  | $ | 19,200 |  
|                                |  |      |        |      |  |   |        |  

6. Property, Plant and
Equipment

Property, plant and equipment consist of the
following:

|                                                                     |  |              |                |      |  |      |         |   |  |   |         | 
|-------------------------------------------------------------------- |  | ------------ | -------------- | ---- |  | ---- | ------- | - |  | - | ------- | 
|                                                                     |  | Estimated    |                |      |  |     
|December 31,                                                         |  | Useful Lives |                | 2001 |  | 2002
|                                                                     |  |              |                |      |  |     
|Land, land use right and buildings                                   |  |              | 20  50  years |      |  | $    | 38,592  |   |  | $ | 41,938  | 
|Machinery and equipment                                              |  |              | 4  12  years  |      |  |      | 41,974  |   |  |   | 51,648  | 
|Leasehold improvements                                               |  |              | 3  7  years   |      |  |      | 11,862  |   |  |   | 10,237  | 
|Furniture and fixtures                                               |  |              | 4  7  years   |      |  |      | 1,930   |   |  |   | 1,646   | 
|Automobiles                                                          |  |              | 4  6  years   |      |  |      | 1,631   |   |  |   | 1,536   | 
|Tools and molds                                                      |  |              | 4  6  years   |      |  |      | 127     |   |  |   | 77      | 
|                                                                     |  |              |                |      |  |      |         |   |  |   |         | 
|Total                                                                |  |              |                |      |  |      | 96,116  |   |  |   | 107,082 | 
|Less: accumulated depreciation and amortization                      |  |              | (35,122        | )    |  |      | (40,669 | )
|Construction in progress                                             |  |              | 5,321          |      |  |      | 9,501   |  
|Deposit paid for the acquisition of leasehold
    land and buildings |  |              | 4,099          |      |  |      |        |  
|                                                                     |  |              |                |      |  |      |         |  
|Net book value                                                       |  | $            | 70,414         |      |  | $    | 75,914  |  
|                                                                     |  |              |                |      |  |      |         |  

As at December 31, 2002, the Company has
entered into commitments for capital expenditure for property,
plant and equipment of approximately $20,856, which are expected
to be disbursed during the year ending December 31, 2003.

F-21



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


7. Goodwill

Goodwill consists of the following:




|                                                                                              |                                                                                  |            |      |           |  |       |        |     |  |   |        |     | 
|--------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ---------- | ---- | --------- |  | ----- | ------ | --- |  | - | ------ | --- | 
|                                                                                              |                                                                                  |            |      | LPT       |  |      
|                                                                                              |                                                                                  | CEP        |      | Segment   |  |      
|                                                                                              |                                                                                  | Segment    |      | (LCD      |  |      
|                                                                                              |                                                                                  | (reporting |      | reporting |  |      
|                                                                                              |                                                                                  | unit)      |      | unit)     |  | Total
|                                                                                              |                                                                                  |            |      |           |  |      
|Balance at January 1, 2001                                                                    |                                                                                  | $          | 533  |           |  | $     | 23,297 |     |  | $ | 23,830 |    
|Goodwill acquired during the year                                                             |                                                                                  |            |     |           |  |       | 85     |     |  |   | 85     |    
|Goodwill amortization                                                                         |                                                                                  |            | (194 | )         |  |       | (1,632 | )   |  |   | (1,826 | )  
|                                                                                              |                                                                                  |            |      |           |  |       |        |     |  |   |        |    
|Balance at December 31, 2001                                                                  |                                                                                  | $          | 339  |           |  | $     | 21,750 |     |  | $ | 22,089 |    
|Goodwill acquired during the year:                                                            |                                                                                  |            |      |           |  |       |        |     |  |   |        |    
|                                                                                              | Additional acquisition of JIC Technology Company
    Limited (see note 3(b)(iv)) |            |      |          |  |       |        | 253 |  |   |        | 253 | 
|                                                                                              | Additional goodwill of Mate Fair, net                                            |            |      | 788       |  |       |        |    |  |   |        | 788 | 
|Impairment of MBS goodwill (see
    note 3(b)(ii))                                            |                                                                                  |            | (339 | )         |  |       |       |     |  |   | (339   | )  
|Goodwill release related to disposition of 7.1%
    interest in JIC Group (see note 3(b)(iv)) |                                                                                  |            |     |           |  |       | (1,483 | )   |  |   | (1,483 | )  
|                                                                                              |                                                                                  |            |      |           |  |       |        |     |  |   |        |    
|Balance at December 31, 2002                                                                  |                                                                                  | $          | 788  |           |  | $     | 20,520 |     |  | $ | 21,308 |    
|                                                                                              |                                                                                  |            |      |           |  |       |        |     |  |   |        |    







No goodwill has been assigned to the
transformer reporting unit as the Companys
purchase of the JIC Group was exclusively for the
LCD business.




8. Intangible Assets

Amortized intangible assets consist of licenses
of the following:

|                         |  |      |       |      |  |   |       |  
|------------------------ |  | ---- | ----- | ---- |  | - | ----- | -
|December 31,             |  | 2001 |       | 2002
|                         |  |      |       |     
|Gross carrying amount    |  | $    | 1,335 |      |  | $ | 1,335 |  
|Accumulated amortization |  |      | (364  | )    |  |   | (586  | )
|Disposal (see note 17)   |  |      |      |      |  |   | (749  | )
|                         |  |      |       |      |  |   |       |  
|Net carrying amount      |  | $    | 971   |      |  | $ |      |  
|                         |  |      |       |      |  |   |       |  

Amortization expense charged to income from
operations for the years ended December 31, 2000, 2001 and
2002 was $133, $209 and $222, respectively.

9. Investment in Affiliated Companies,
Equity Method




The Companys investments accounted for
under the equity method are as follows. The Company has not made
any loans or guarantees or has any contingent liabilities with
these companies.






| |              
| | -------------
| | (a) Mate Fair




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 Group
Limited (Mate Fair), a privately held investment
holding company incorporated in the BVI with a 20% shareholding




F-22



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)





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 a 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
years ended December 31, 2000 and 2001 was $51 and $153,
respectively. As of December 31, 2000 and 2001, the Company
had a 5% indirect interest in Huizhou TCL since its acquisition
of Mate Fair. In addition, one of the Companys directors
was appointed to the board of directors of Mate Fair.




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 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 (loss) income of affiliated companies.
Mate Fair ceased the equity accounting for Huizhou TCL since it
no longer held at least a 20% interest in Huizhou TCL.




On November 11, 2002, the Company disposed
of 1.467% of its indirect interest in Huizhou TCL at a
consideration of approximately $10,424 through Mate Fair selling
its 13.8% equity interest in Huizhou TCL. Mate Fairs
shareholders unanimously agreed that Mate Fair would distribute
its earnings on the sale of its 13.8% interest in Huizhou TCL,
not in accordance with the individual shareholders
ownership of Mate Fair, but rather based on each individual
shareholders indirect interest of Huizhou TCL that was
sold. The Companys portion of the interest sold, 1.467%,
represented 10.63% of the total interest sold of 13.8%. Hence,
the Companys share of the gain on sale of the investment
was $9,022. The Company invested $5,128 of the proceeds in TCL
International Holdings Limited 3% convertible notes (see
note 10(a)). Also on November 11, 2002, the Company
increased its shareholding in Mate Fair from 25% to
approximately 72.22% for $3. Effectively, the Company now has a
3.033% indirect interest in Huizhou TCL. As a result of the
above shareholding change, the Company recognized an additional
release of unamortized goodwill of approximately $388.




Prior to November 11, 2002, the Company held
a 25% interest in Mate Fair. Therefore, Mate Fair had been
accounted for as an affiliated company and the results of Mate
Fair has been accounted for under the equity method in the
consolidated financial statements from the date of acquisition.
The Company shared the results of Mate Fair for the period from
January 1, 2002 to November 10, 2002 of $10,741.

As the Companys investment in Mate Fair has
increased from 25% to 72.22%, the Company has consolidated Mate
Fair for the first time as of November 11, 2002. The
consolidated statement of income reflects Mate Fairs
equity in earnings through November 10, 2002, and
consolidates Mate Fairs results of operations for the
period from November 11, 2002 through December 31,
2002.

In addition, the remaining unamortized goodwill
of Mate Fair was transferred from investment in affiliated
companies to the Companys goodwill account.

F-23



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


The following table presents summarized financial
information for Mate Fair until the point it became consolidated:




|                     |  |              |        |                     |  |   |        | 
|-------------------- |  | ------------ | ------ | ------------------- |  | - | ------ | 
|                     |  | For the Year |        |                    
|                     |  | Ended        |        | For the Period from
|                     |  | December 31, |        | January 1, 2002 to 
|                     |  | 2001         |        | November 10, 2002  
|                     |  |              |        |                    
|Operating income     |  | $            | 8,077  |                     |  | $ | 92,202 | 
|Net income           |  | $            | 8,077  |                     |  | $ | 92,202 | 
|Non-current assets   |  | $            | 10,452 |                     |  | $ | 4,014  | 
|Shareholders equity |  | $            | 10,452 |                     |  | $ | 4,018  | 







The following unaudited pro-forma discloses the
Companys statement of income for 2002 as if the additional
acquisition of 47.22% of Mate Fair had occurred on
January 1, 2002:







|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|----------------------------------------------------- |  | ---------- | ---------- | ----------- |  | ----- | ------- | ----------- |  |  | --- |  |  | - | ---------- | -
|                                                      |  |            |            | Pro Forma   |  |       |         |            
|Year ended December 31, 2002                          |  | Historical |            | Adjustments |  | Notes |         | Pro Forma  
|                                                      |  |            |            |             |  |       |         |            
|                                                      |  |            |            | (unaudited) |  |       |         | (unaudited)
|Net Sales                                             |  | $          | 236,016    |             |  | $     |        |             |  |  |     |  |  | $ | 236,016    |  
|Costs of Sales                                        |  |            | (197,956   | )           |  |       |        |             |  |  |     |  |  |   | (197,956   | )
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|Gross profit                                          |  |            | 38,060     |             |  |       |        |             |  |  |     |  |  |   | 38,060     |  
|Selling, general and administrative expense           |  |            | 17,983     |             |  |       |        |             |  |  |     |  |  |   | 17,983     |  
|Research and development expenses                     |  |            | 2,686      |             |  |       |        |             |  |  |     |  |  |   | 2,686      |  
|Impairment of goodwill                                |  |            | 339        |             |  |       |        |             |  |  |     |  |  |   | 339        |  
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|Total operating expenses                              |  |            | 21,008     |             |  |       |        |             |  |  |     |  |  |   | 21,008     |  
|Income (loss) from operations                         |  |            | 17,052     |             |  |       |        |             |  |  |     |  |  |   | 17,052     |  
|Equity in income (loss) of affiliated companies       |  |            | 10,741     |             |  |       | (2,088  | )           |  |  | (1) |  |  |   | 8,653      |  
|Gain on sale of interest in TCL Huizhou               |  |            |           |             |  |       | 83,549  |             |  |  | (2) |  |  |   | 83,549     |  
|Other income (expense), net                           |  |            | (6,043     | )           |  |       |        |             |  |  |     |  |  |   | (6,043     | )
|Interest expense                                      |  |            | (790       | )           |  |       |        |             |  |  |     |  |  |   | (790       | )
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|Income before income taxes and minority
    interests |  |            | 20,960     |             |  |       | 81,461  |             |  |  |     |  |  |   | 102,421    |  
|Income taxes (expense) benefit                        |  |            | (773       | )           |  |       |        |             |  |  |     |  |  |   | (773       | )
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|Income before minority interests                      |  |            | 20,187     |             |  |       | 81,461  |             |  |  |     |  |  |   | 101,648    |  
|Minority interests                                    |  |            | (164       | )           |  |       | (81,347 | )           |  |  | (3) |  |  |   | (81,511    | )
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|Net income                                            |  | $          | 20,023     |             |  | $     | 114     |             |  |  |     |  |  | $ | 20,137     |  
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|Basic earnings per share                              |  | $          | 1.89       |             |  |       |         |             |  |  |     |  |  | $ | 1.90       |  
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|Diluted earnings per share                            |  | $          | 1.86       |             |  |       |         |             |  |  |     |  |  | $ | 1.88       |  
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|Basic weighted average shares outstanding             |  |            | 10,571,323 |             |  |       |         |             |  |  |     |  |  |   | 10,571,323 |  
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  
|Diluted weighted average shares outstanding           |  |            | 10,736,399 |             |  |       |         |             |  |  |     |  |  |   | 10,736,399 |  
|                                                      |  |            |            |             |  |       |         |             |  |  |     |  |  |   |            |  






---



|    |                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------
|   
|(1) | Elimination of the Companys equity method
    interest in Mate Fair from January 1, 2002 through
    November 10, 2002.
|   
|   
|   
|(2) | Gain on sale of Mate Fairs TCL Huizhou
    investment on November 11, 2002.                                            
|   

F-24



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)







|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | Minority interest on earnings of Mate Fair. As
    noted earlier in this note, Mate Fairs shareholders
    unanimously agreed that Mate Fair would distribute its earnings
    on the sale of its 13.8% interest in Huizhou TCL, not in
    accordance with the individual shareholders ownership of
    Mate Fair, but rather based on each individual
    shareholders indirect interest of Huizhou TCL that was
    sold. The minority shareholders portion of the interest
    sold, 12.333%, represented 89.37% of the total interest sold of
    13.8%.




(b) Shanghai
Q&T

In March 2000, NTSZ, a wholly-owned subsidiary of
the Company, acquired 42.5% of the equity interest in Shanghai
Q&T Tech. Co., Ltd. (Shanghai Q&T) (formerly
known as Red Net Technology Co., Ltd.), a company registered in
the PRC for $207. The results of Shanghai Q&T have been
accounted for under the equity method in the consolidated
financial statements from the date of acquisition.

The Companys interest in Shanghai Q&T
was reduced to zero since December 31, 2000 as Shanghai
Q&T incurred losses during the year ended December 31,
2000. The Company does not have any further financial commitment
in this company.




Two of the Companys directors were on the
board of directors of Shanghai Q&T until November 2000.




(c) Group
Sense

In 1998, the Company acquired 20% of the
outstanding shares of Group Sense (International) Limited
(Group Sense), a Hong Kong publicly listed company.
Group Sense and its subsidiaries manufacture consumer
electronics products.

Starting from February 2000, the Company began to
dispose of its shareholding in Group Sense and up to November
2000, the Company had disposed of its entire interest in Group
Sense for cash of $28,089 in aggregate. In February 2000, the
Company sold a portion of its shareholding in Group Sense,
resulting in a gain on disposal of investment in an affiliated
company of $1,346 and the reduction of shareholding in Group
Sense below the 20% level. Upon the reduction of shareholding in
Group Sense below the 20% level in 2000, the equity method was
discontinued and the carrying amount at the date of
discontinuance became the cost of investment, which was
subsequently included in the calculation of the gain on disposal
of investment in 2000 upon sale of the Companys remaining
ownership interest. The Company then continued to dispose of all
of its remaining shareholding in Group Sense, resulting in a
gain of $9,435 in 2000. Total gain on disposal of the entire
shareholdings in Group Sense during 2000 amounted to $10,781.

10. Investments in TCL

The Company has three investments in TCL group of
companies. The Company has not incurred any material operating
revenue or expenses from the TCL group of companies, for the
years ended December 31, 2000, 2001 and 2002.

(a) Convertible
Notes




On November 11, 2002, related to the
disposal of 1.467% indirect interest in Huizhou TCL (see
note 9(a)) 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. The
term of the CB Note is three years with an interest rate of
3% per annum. The CB Note is freely transferable after six
months. The CB Note is convertible into shares of TCL
International Holdings Limited at the conversion price of
approximately $0.33 per share, which represents 120% of the
average closing price of the stock ten days before the
subscription agreement. Conversions, which




F-25



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)





can be made at anytime until the third
anniversary, must be made in minimum traunches of $1,282. If the
Company had converted the notes into shares of TCL International
Holdings Limited on December 31, 2002 the Company would
hold 0.59% of TCL International Holdings Limited, assuming that
no new shares are issued by TCL International Holdings Limited
or conversions by other CB Note holders.




(b) Investments,
at Cost

(i) TCL Corporation

In January 2002, the Company acquired a 6% equity
interest in TCL Corporation (formerly known as TCL Holdings
Corporation Ltd.) for a consideration of $11,968. TCL
Corporation, a PRC state-owned enterprise, 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.

(ii) Huizhou TCL

The Company has a 3.033% indirect interest in
Huizhou TCL through the Companys subsidiary, Mate Fair
(see note 9(a)). This investment, at cost, is $4,014 at
December 31, 2002.

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, 2001 and 2002,
these facilities totaled $76,494 and $58,244, of which $9,730
and $8,889 were utilized at December 31, 2001 and 2002,
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 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.

|                                    |  |      |        |      |  |   |        |  
|----------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|December 31,                        |  | 2001 |        | 2002
|                                    |  |      |        |     
|Outstanding letters of credit       |  | $    | 8,183  |      |  | $ | 7,904  |  
|Trust receipts                      |  |      | 994    |      |  |   | 908    |  
|Usance bills pending maturity       |  |      | 553    |      |  |   | 57     |  
|Documents in transit                |  |      |       |      |  |   | 20     |  
|                                    |  |      |        |      |  |   |        |  
|Total banking facilities utilized   |  |      | 9,730  |      |  |   | 8,889  |  
|Less: Outstanding letters of credit |  |      | (8,183 | )    |  |   | (7,904 | )
|                                    |  |      |        |      |  |   |        |  
|Notes payables                      |  | $    | 1,547  |      |  | $ | 985    |  
|                                    |  |      |        |      |  |   |        |  




The Company has 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 (SIBOR)
for the following three years. The loan is 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,




F-26



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


the Company repaid the entire outstanding balance
due to the bank, resulting in a finance charge on early
repayment of $610.




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 (LIBOR), repayable in 16 quarterly instalments
of approximately $281 beginning August 31, 2002. At
December 31, 2002, the loan had an outstanding balance of
$3,937.




The long term debt is repayable as follows for
the years ending December 31,:

|     |  |   |        | 
|---- |  | - | ------ | 
|2003 |  | $ | 13,985 | 
|2004 |  |   | 1,125  | 
|2005 |  |   | 1,125  | 
|2006 |  |   | 562    | 
|     |  |   |        | 
|     |  | $ | 16,797 | 
|     |  |   |        | 




For the years ended December 31, 2001 and
2002, the Company has made guarantees for debt, loans and credit
facilities held by various wholly owned subsidiaries aggregating
to a maximum guarantee of $85,735 and $62,616, respectively. The
terms of the guarantees correspond with the terms of the
underlying debt, loan and credit facility agreements.




12. Common Shares

(a) Stock
Options




In August 1993, the Board of Directors approved a
stock option plan which authorized the issuance of 300,000
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 650,000 and 1,000,000 and
1,425,000, 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 contributions to the
Company.







In May 2001, the Board of Directors approved
another stock option plan which would grant 5,000 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
1,000,000 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 directors based on
past performance and/or expected contributions to the Company.




Effective January 1, 2003, the Company no
longer plans to issue options to management and employees.
Rather, the Board of Directors approved an incentive bonus
program to reward management and employees with a cash bonus in
lieu of stock options.

F-27



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


A summary of stock option activity during the
three years ended December 31, 2002 is as follows:

|                                 |           |            |         |                                              |   |                                                        |                                            
|-------------------------------- | --------- | ---------- | ------- | -------------------------------------------- | - | ------------------------------------------------------ | -------------------------------------------
|                                 |           | Number     |         | Option Price Per Share with the             
|                                 |           | of Options |         | Weighted Average Option Price in Parenthesis
|                                 |           |            |         |                                             
|Outstanding at January 1, 2000   |           |            | 263,500 |                                              |   | $10.50 & $15.75 ($10.53)                              
|                                 | Granted   |            |         | 350,220                                      |   |                                                        | $13.875, $14.81, $16.125 & $16.375 ($14.18)
|                                 | Exercised |            |         | (149,500                                     | ) |                                                        | $10.50                                     
|                                 | Cancelled |            |         | (28,220                                      | ) |                                                        | $16.125                                    
|                                 |           |            |         |                                              |   |                                                       
|Outstanding at December 31, 2000 |           |            | 436,000 |                                              |   | $10.50, $13.875, $14.81, $15.75 &
    $16.375 ($13.11)
|                                 | Granted   |            |         | 438,253                                      |   |                                                        | $13.94, $14.50 & $7.0 ($12.34)             
|                                 | Exercised |            |         | (116,000                                     | ) |                                                        | $10.50, $13.875 & $15.75 ($10.63)          
|                                 | Cancelled |            |         | (50,853                                      | ) |                                                        | $13.875, $13.94, $14.81 ($14.02)           
|                                 |           |            |         |                                              |   |                                                       
|Outstanding at December 31, 2001 |           |            | 707,400 |                                              |   | $7.00, $13.875, $13.94, $14.50 & $16.375
    ($12.97) 
|                                 | Granted   |            |         | 300,000                                      |   |                                                        | $19.85                                     
|                                 | Exercised |            |         | (524,400                                     | ) |                                                        | $7.00, $13.875, $13.94 & $19.85 ($12.73)   
|                                 | Cancelled |            |         |                                             |   |                                                        |                                            
|                                 |           |            |         |                                              |   |                                                       
|Outstanding at December 31, 2002 |           |            | 483,000 |                                              |   | $13.875, $13.94, $14.50, $16.375 &
    $19.85 ($17.52)
|                                 |           |            |         |                                              |   |                                                       

Of the 350,220 options granted by the Company in
2000, 5,000 and 10,000 options with an exercise price of
$13.875, expiring on January 31, 2003, and exercisable from
January 1, 2001 and May 31, 2001, respectively, were
granted to its advisors. The compensation expense for these
advisors options, using the Black-Scholes option-pricing
model, was $117 and has been charged to the consolidated
statement of income in 2000. No advisors options were
granted during 2001. During 2002, 2,000 advisors options with an
exercise price of $19.85 exercisable from April 30, 2002
and expiring on April 30, 2005 were granted to an advisor.
The Company recorded compensation expense of $10 for the 2002
advisor options based on the Black-Scholes option-pricing model.

Details of the options granted by the Company in
2000, 2001 and 2002 are as follows:

|                          |         |                |   |                    |  |  |  |                                     | 
|------------------------- | ------- | -------------- | - | ------------------ |  |  |  | ----------------------------------- | 
|Number of Options Granted |         | Exercise Price |   | Exercisable Period
|                          |         |                |   |                   
|In 2000                   |         |                |   |                    |  |  |  |                                    
|                          | 172,000 |                | $ | 13.875             |  |  |  | January 1, 2001 to January 31, 2003 | 
|                          | 130,000 |                | $ | 13.875             |  |  |  | May 31, 2001 to January 31, 2003    | 
|                          | 5,000   |                | $ | 14.810             |  |  |  | January 1, 2001 to July 31, 2003    | 
|                          | 28,220  |                | $ | 16.125             |  |  |  | January 1, 2001 to April 5, 2003    | 
|                          | 15,000  |                | $ | 16.375             |  |  |  | June 9, 2001 to June 8, 2003        | 
|In 2001                   |         |                |   |                    |  |  |  |                                    
|                          | 277,853 |                | $ | 13.94              |  |  |  | March 16, 2001 to March 16, 2004    | 
|                          | 55,000  |                | $ | 14.50              |  |  |  | June 22, 2001 to June 22, 2004      | 
|                          | 105,400 |                | $ | 7.00               |  |  |  | June 27, 2001 to June 22, 2002      | 
|In 2002                   |         |                |   |                    |  |  |  |                                    
|                          | 300,000 |                | $ | 19.85              |  |  |  | April 30, 2002 to April 30, 2005    | 

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
$7 for 105,400 options granted during 2001.

F-28



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


The following summarizes information about stock
options outstanding at December 31, 2002. All stock options
are exercisable as of December 31, 2002.

|                |  |           |         |                       |  |  |      | 
|--------------- |  | --------- | ------- | --------------------- |  |  | ---- | 
|                |  |           |         | Weighted Average     
|                |  | Number of |         | Remaining Contractual
|Exercise Prices |  | Options   |         | Life in Months       
|                |  |           |         |                      
|$13.875         |  |           | 20,000  |                       |  |  | 1.0  | 
|$16.375         |  |           | 15,000  |                       |  |  | 5.2  | 
|$13.940         |  |           | 112,000 |                       |  |  | 14.5 | 
|$14.500         |  |           | 55,000  |                       |  |  | 17.7 | 
|$19.850         |  |           | 281,000 |                       |  |  | 27.9 | 
|                |  |           |         |                       |  |  |      | 
|                |  |           | 483,000 |                       |  |  | 21.8 | 
|                |  |           |         |                       |  |  |      | 

The weighted average remaining contractual life
of the stock options outstanding at December 31, 2000, 2001
and 2002 was 19, 18 and 22 months, respectively. The
weighted average fair value of options granted during 2000, 2001
and 2002 was $5.67, $5.14 and $4.97, respectively, using the
Black-Scholes option-pricing model based on the following
assumptions:

|                              |  |      |              |      |  |      |              |  |  |  |         | 
|----------------------------- |  | ---- | ------------ | ---- |  | ---- | ------------ |  |  |  | ------- | 
|Year Ended December 31,       |  | 2000 |              | 2001 |  | 2002
|                              |  |      |              |      |  |     
|Risk-free interest rate       |  |      | 6.13  6.67% |      |  |      | 5%           |  |  |  | 4.5%    | 
|Expected life                 |  |      | 3 years      |      |  |      | 1  3  years |  |  |  | 3 years | 
|Expected volatility           |  |      | 47.3  65.0% |      |  |      | 45.0%        |  |  |  | 36.0%   | 
|Expected dividend per quarter |  |      | $0.09        |      |  |      | $0.10        |  |  |  | $0.12   | 

(b) Advisors
Warrants

On December 2, 1997, the Company issued
130,000 units to its advisors. The holder of each unit is
entitled to purchase from the Company at the purchase price of
$20.40 per unit one common share and one warrant exercisable to
purchase one common share at $20.40 per share for the period
from November 30, 1998 to November 24, 2000. In 2000,
58,030 advisors warrants were exercised, 61,970
advisors warrants had expired and the expiry date of
exercisable period for the remaining 10,000 advisors
warrants was extended to November 24, 2002. As a result,
58,030 common shares and 58,030 warrants were issued during the
year ended December 31, 2000. The compensation expense for
the extension of the expiry date of the 10,000 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 10,000 of these advisors warrants
expired on November 24, 2002.

On October 5, 1998, the Company issued
300,000 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 $10.25 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 and $263, has been charged
to the consolidated statement of income for the years ended
December 31, 2000 and 2001, respectively. In 2001, all
300,000 of these advisors warrants were exercised.

F-29



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


The fair values of the advisors warrants
were calculated using the Black-Scholes option-pricing model
based on the following assumptions:

|                              |  |                    |                   |                    |  |  |                 | 
|----------------------------- |  | ------------------ | ----------------- | ------------------ |  |  | --------------- | 
|                              |  | $20.4              |                   | $10.25            
|                              |  | Advisors Warrants |                   | Advisors 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 |  |                    | $0.09             |                    |  |  | $0.09           | 

(c) 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 $17.00
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 $20.40
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 $0.05 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 $25.50 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,
3,000,000 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 2,267,917 units at $17.00 per unit and the Standby
Underwriters purchased a total of 729,212 units at a price of
$16.75, 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 extension of the expiry date of the warrants created a new
measurement date for the warrants, however, the resulting amount
was immaterial. During 2002, 1,460,655 warrants were exercised.
On November 24, 2002, all of the remaining warrants expired.

The 58,030 warrants issued pursuant to the
exercise of advisors warrants above bear the same rights
as public warrants.

F-30



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


(d) Share
Buy-Back Program

The Company repurchased shares under its buy-back
programs as follows. All shares are purchased at the prevailing
market price at the date of the buy back.

|     |  |                    |         |                        |  |   |       | 
|---- |  | ------------------ | ------- | ---------------------- |  | - | ----- | 
|Year |  | Shares Repurchased |         | Average Purchase Price
|     |  |                    |         |                       
|2000 |  |                    | 5,600   |                        |  | $ | 13.00 | 
|2001 |  |                    | 227,900 |                        |  | $ | 14.71 | 
|2002 |  |                    | 197,600 |                        |  | $ | 17.86 | 

(e) Share
Redemption

On January 22, 1999, pursuant to its
Articles of Association, the Company redeemed and cancelled
138,500 shares of the Company registered in the name of
Tele-Art, Inc. at a price of $11.19 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
169,727 shares of the Company beneficially owned by Tele-Art,
Inc. at a price of $18.41 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 |  | Per Share
|Year Ended December 31, 2000   |  | Income |        | Shares           |  | Amount   
|                               |  |        |        |                  |  |          
|Basic earnings per share       |  | $      | 24,001 |                  |  |           | 9,114,175 |  |  | $ | 2.63 | 
|Effect of dilutive securities: |  |        |        |                  |  |           |           |  |  |   |      | 
| Stock options                |  |        |       |                  |  |           | 140,676   |  |  |   |      | 
| Warrants                     |  |        |       |                  |  |           | 120,265   |  |  |   |      | 
|                               |  |        |        |                  |  |           |           |  |  |   |      | 
|Diluted earnings per share     |  | $      | 24,001 |                  |  |           | 9,375,116 |  |  | $ | 2.56 | 
|                               |  |        |        |                  |  |           |           |  |  |   |      | 

Warrants to purchase 3,055,159 common shares at
$20.40 were outstanding at December 31, 2000 but were not
included in the computation of diluted earnings per share
because the exercise price of the warrants was greater than the
average market price of the common shares during the relevant
period.

|                               |  |        |       |                  |  |           |            |  |  |   |      | 
|------------------------------ |  | ------ | ----- | ---------------- |  | --------- | ---------- |  |  | - | ---- | 
|                               |  |        |       | Weighted Average |  | Per Share
|Year Ended December 31, 2001   |  | Income |       | Shares           |  | Amount   
|                               |  |        |       |                  |  |          
|Basic earnings per share       |  | $      | 9,045 |                  |  |           | 10,274,377 |  |  | $ | 0.88 | 
|Effect of dilutive securities: |  |        |       |                  |  |           |            |  |  |   |      | 
| Stock options                |  |        |      |                  |  |           | 56,660     |  |  |   |      | 
| Warrants                     |  |        |      |                  |  |           | 62,374     |  |  |   |      | 
|                               |  |        |       |                  |  |           |            |  |  |   |      | 
|Diluted earnings per share     |  | $      | 9,045 |                  |  |           | 10,393,411 |  |  | $ | 0.87 | 
|                               |  |        |       |                  |  |           |            |  |  |   |      | 

Stock options to purchase 15,000 shares of common
shares at $16.375, warrants to purchase 3,055,159 common shares
at $20.40, and 10,000 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

F-31



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


holder of each advisors warrant is entitled
to purchase from the Company at the purchase price of $20.40 per
unit one common share and one warrant exercisable to purchase
one common share at $20.40 per share.

|                               |  |        |        |                  |  |           |            |  |  |   |      | 
|------------------------------ |  | ------ | ------ | ---------------- |  | --------- | ---------- |  |  | - | ---- | 
|                               |  |        |        | Weighted Average |  | Per Share
|Year Ended December 31, 2002   |  | Income |        | Shares           |  | Amount   
|                               |  |        |        |                  |  |          
|Basic earnings per share       |  | $      | 20,023 |                  |  |           | 10,571,323 |  |  | $ | 1.89 | 
|Effect of dilutive securities: |  |        |        |                  |  |           |            |  |  |   |      | 
| Stock options                |  |        |       |                  |  |           | 144,496    |  |  |   |      | 
| Warrants                     |  |        |       |                  |  |           | 20,580     |  |  |   |      | 
|                               |  |        |        |                  |  |           |            |  |  |   |      | 
|Diluted earnings per share     |  | $      | 20,023 |                  |  |           | 10,736,399 |  |  | $ | 1.86 | 
|                               |  |        |        |                  |  |           |            |  |  |   |      | 

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

14. Other Income (Expense) 
Net

Other income (expense)  net, consists
of:




|                                                                                                                     |  |      |        |      |  |      |       |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ----- | - |  | - | ------ | -
|Year Ended December 31,                                                                                              |  | 2000 |        | 2001 |  | 2002
|                                                                                                                     |  |      |        |      |  |     
|Interest income                                                                                                      |  | $    | 3,300  |      |  | $    | 1,195 |   |  | $ | 799    |  
|Miscellaneous expense                                                                                                |  |      | (623   | )    |  |      | (294  | ) |  |   | (771   | )
|Non-trade receivable write-off                                                                                       |  |      |       |      |  |      | (500  | ) |  |   |       |  
|Gain on disposal of investment in an affiliated
    company                                                          |  |      | 1,346  |      |  |      |      |   |  |   |       |  
|Realized gain on disposal of investments, net                                                                        |  |      | 9,435  |      |  |      |      |   |  |   |       |  
|Currency option premium written off                                                                                  |  |      | (304   | )    |  |      |      |   |  |   |       |  
|Foreign exchange (loss) gain                                                                                         |  |      | 51     |      |  |      | 530   |   |  |   | (345   | )
|Bank charges                                                                                                         |  |      | (328   | )    |  |      | (333  | ) |  |   | (307   | )
|Release of unamortized goodwill of affiliated
    companies  Mate Fair (see note 9(a))                              |  |      |       |      |  |      |      |   |  |   | (520   | )
|Realized gain on disposal of marketable securities                                                                   |  |      |       |      |  |      |      |   |  |   | 642    |  
|Unrealized gain on marketable securities                                                                             |  |      | 433    |      |  |      | 1,568 |   |  |   |       |  
|Dividend income received from marketable
    securities and investment                                               |  |      | 188    |      |  |      | 525   |   |  |   | 917    |  
|Gain on disposal of intangible asset (see
    note 17)                                                               |  |      |       |      |  |      |      |   |  |   | 60     |  
|Gain on disposal of a subsidiary (see
    note 3(b)(iii))                                                            |  |      |       |      |  |      |      |   |  |   | 17     |  
|Gain on disposal of land                                                                                             |  |      | 355    |      |  |      | 18    |   |  |   |       |  
|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 JIC Group, including
    release of unamortized goodwill of $1,483 (see
    note 3(b)(iv)) |  |      |       |      |  |      |      |   |  |   | (2,655 | )
|Legal expenses related to reverse merger of JIC
    Group                                                            |  |      |       |      |  |      |      |   |  |   | (1,411 | )
|Finance charge on early repayment of the bank
    loan (see note 11)                                                 |  |      |       |      |  |      |      |   |  |   | (610   | )
|                                                                                                                     |  |      |        |      |  |      |       |   |  |   |        |  
|                                                                                                                     |  | $    | 13,853 |      |  | $    | 2,709 |   |  | $ | (6,043 | )
|                                                                                                                     |  |      |        |      |  |      |       |   |  |   |        |  




F-32



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


15. Staff Retirement Plans

Prior to December 2000, the Company maintained
staff contributory retirement plans (defined contribution
pension plans) which covered certain of its employees. From
December 2000 onwards, the Company terminated its existing staff
contributory retirement plans and enrolled all of its eligible
employees in Hong Kong into a Mandatory Provident Fund
(MPF) scheme. The MPF is a defined contribution
scheme and the assets of the scheme are managed by the trustees
independent to the Company.

The MPF is 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. 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.

The cost of the Companys contribution to
the contributory retirement plans (including the MPF) amounted
to $174, $151 and $127 for the years ended December 31,
2000, 2001 and 2002, respectively.

16. Income Taxes Benefit
(Expense)

The components of income before income taxes and
minority interests are as follows:

|                         |  |      |        |      |  |      |       |  |  |   |        | 
|------------------------ |  | ---- | ------ | ---- |  | ---- | ----- |  |  | - | ------ | 
|Year Ended December 31,  |  | 2000 |        | 2001 |  | 2002
|                         |  |      |        |      |  |     
|PRC, excluding Hong Kong |  | $    | 6,384  |      |  | $    | 9,002 |  |  | $ | 18,823 | 
|Hong Kong                |  |      | 17,572 |      |  |      | 500   |  |  |   | 2,137  | 
|                         |  |      |        |      |  |      |       |  |  |   |        | 
|                         |  | $    | 23,956 |      |  | $    | 9,502 |  |  | $ | 20,960 | 
|                         |  |      |        |      |  |      |       |  |  |   |        | 

Under the current BVI law, the Companys
income is not subject to taxation. Subsidiaries, primarily
operating in Hong Kong and the PRC, are subject to income taxes
as described below.

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% 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%, 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
NTSZ, Zastron, Namtek, BPC, Jieda, Jetup, and Jieyao (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

F-33



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


years in which a tax holiday is available, there
is an overall minimum tax rate of 10%. The following details the
tax concessions received for the Companys
PRC subsidiaries:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | For the years ended December 31, 1990 and
    1991, NTSZ qualified for a tax holiday; tax was payable at the
    rate of 7.5% on the assessable profits of NTSZ for the years
    ended December 31, 1992 to 1994, and 10% in 1995 to 1998.
    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. NTSZ reinvested the profits for
    1999, 2000 and 2001. NTSZ has claimed and received a tax refund
    of $1,018 from the Shenzhen tax authority in October 2002 for
    taxes paid in 1999 to 2001.
|
| |  | For the years ended December 31, 1992 and
    1993, Zastron qualified for a tax holiday; tax was payable at
    the rate of 7.5% on the assessable profits of Zastron for the
    years ended December 31, 1994 to 1996 and 10% for the years
    ended December 31, 1997 to 2002. In 2002 Zastron claimed a
    refund of $56 from reinvestment of profits for 1999 and 2000.
    During 2002, Zastron received a refund of $20 for being an
    export-oriented enterprise for 2000 and 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | In 1996 and 1997, Jieda qualified for a tax
    holiday. For the years ended December 31, 1998 to 2000, tax
    was payable at the rate of 7.5% on the assessable profit. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | In 1996 and 1997, Namtek also qualified for a tax
    holiday. For the years ended December 31, 1998 to 2000, tax
    was payable at the rate of 7.5% on the assessable profit. 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 2002, Namtek claimed a refund of $41 from the reinvestment of
    profits for 1998 to 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Jetup enjoyed its tax holiday since 1997 and tax
    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. The Shenzhen local tax authority has in June 2002
    agreed to refund to Jetup the corporate tax paid in 2000 of $5,
    and in 2001 of $279, due to Jetups reinvestment of the
    profits for 2000 and 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | For the years ended December 31, 1999 and
    2000, Jieyao qualified for a tax holiday; tax was payable at the
    rate of 7.5% on the assessable profit of Jieyao for the years
    ended December 31, 2001 to 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | For the year ended December 31, 2001, BPC
    qualified for its first year tax holiday. In addition, the
    Company has received notification from the PRC tax authority
    that BPC also qualified for a second year tax holiday in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Notwithstanding the foregoing, 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, Namtek
and Jetup qualified for such refunds of taxes as a result of
reinvesting their profit earned in previous years. As a result,
the Company recorded tax expense net of the benefit related to
the refunds. At December 31, 2001 and 2002, taxes
recoverable under such arrangements were $1,271 and $789,
respectively,

F-34



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


which are included in income taxes recoverable
and expected to be received during 2003. However, during 2002
the Shenzhen government did not refund approximately $501 in
taxes the Company paid in 1999 to 2001. Therefore, the Company
reversed the related receivable into current tax expense in 2002.

The current and deferred components of the income
tax benefit (expense) appearing in the consolidated statements
of income are as follows:

|                        |  |      |     |      |  |      |      |   |  |   |      |  
|----------------------- |  | ---- | --- | ---- |  | ---- | ---- | - |  | - | ---- | -
|Year Ended December 31, |  | 2000 |     | 2001 |  | 2002
|                        |  |      |     |      |  |     
|Current tax             |  | $    | (77 | )    |  | $    | (110 | ) |  | $ | (812 | )
|Deferred tax            |  |      | 110 |      |  |      | (117 | ) |  |   | 39   |  
|                        |  |      |     |      |  |      |      |   |  |   |      |  
|                        |  | $    | 33  |      |  | $    | (227 | ) |  | $ | (773 | )
|                        |  |      |     |      |  |      |      |   |  |   |      |  

Deferred tax liabilities consist of tax
allowances over depreciation and are $151 and $112 at
December 31, 2001 and 2002, respectively.

At December 31, 2000, a subsidiary of the
Company had tax loss carryforwards for Hong Kong tax purposes,
subject to the agreement of the Hong Kong Inland Revenue
Department, amounting to approximately $104. This tax loss
carryforward was used in its entirety during 2001. At
December 31, 2001 and 2002, the Company does not have any
tax loss carryforwards.

A reconciliation of the income tax benefit
(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,                                                                              |                                                                          | 2000 |        | 2001 |   | 2002
|                                                                                                     |                                                                          |      |        |      |   |     
|Income before income taxes and minority interests                                                    |                                                                          | $    | 23,956 |      |   | $    | 9,502  |      |   | $ | 20,960 |     
|PRC tax rate                                                                                         |                                                                          |      | 15     | %    |   |      | 15     | %    |   |   | 15     | %   
|Income tax expense at PRC tax rate on income
    before income tax                                   |                                                                          |      | (3,593 | )    |   |      | (1,425 | )    |   |   | (3,144 | )   
|Effect of difference between Hong Kong and PRC
    tax rates applied to Hong Kong income             |                                                                          |      | (7     | )    |   |      | (7     | )    |   |   | 42     |     
|Effect of income (loss) for which no income tax
    benefit/ expense is receivable/ payable          |                                                                          |      | 2,527  |      |   |      | (35    | )    |   |   | 950    |     
|Tax holidays and tax incentives                                                                      |                                                                          |      | 491    |      |   |      | 786    |      |   |   | 542    |     
|Effect of PRC tax concessions, giving rise to no
    PRC tax liability                               |                                                                          |      | 508    |      |   |      | 564    |      |   |   | 2,153  |     
|Tax benefit (expense) arising from items which
    are not assessable (deductible) for tax purposes: |                                                                          |      |        |      |   |      |        |      |   |   |        |     
|                                                                                                     | Gain on disposal of land in Hong Kong                                    |      |        | 53   |   |      |        | 6    |   |   |        |     |  
|                                                                                                     | Offshore and exempted interest income                                    |      |        | 76   |   |      |        | 21   |   |   |        | 12   |  
|                                                                                                     | Non deductible legal and professional fees                               |      |        |     |   |      |        |     |   |   |        | (234 | )
|                                                                                                     | Non deductible other items                                               |      |        | (252 | ) |      |        | (159 | ) |   |        | (466 | )
|Under provision of income tax expense in prior
    year:                                             |                                                                          |      |        |      |   |      |        |      |   |   |        |     
|                                                                                                     | Taxes due by NTSZ for 10% reserve fund                                   |      |        |     |   |      |        |     |   |   |        | (308 | )
|                                                                                                     | Taxes due by Namtek due to dividends paid and
    profits not reinvested |      |        |     |   |      |        |     |   |   |        | (193 | )
|Other                                                                                                |                                                                          |      | 230    |      |   |      | 22     |      |   |   | (127   | )   
|                                                                                                     |                                                                          |      |        |      |   |      |        |      |   |   |        |     
|                                                                                                     |                                                                          | $    | 33     |      |   | $    | (227   | )    |   | $ | (773   | )   
|                                                                                                     |                                                                          |      |        |      |   |      |        |      |   |   |        |     

No income tax arose in the United States of
America in any of the periods presented.

F-35



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


Tax that would otherwise have been payable
without tax holidays and tax concessions amounts to
approximately $999, $1,350 and $2,695 in the years ended
December 31, 2000, 2001 and 2002, respectively
(representing a decrease in the basic earnings and diluted
earnings per share of $0.11, $0.13 and $0.25, in the years ended
December 31, 2000, 2001 and 2002, respectively).

17. Related Party Transactions

As of December 31, 2001, the balance due to
a related party represents the balance due to TBCL, a minority
shareholder of BPC, and its related companies. Effective
April 30, 2002, the Company sold its 86.67% joint venture
interest in BPC to a TBCL related company (see
note 3(b)(iii)). As of December 31, 2002, the Company
had no balances due to a related party.




Since the establishment of BPC in 2000, the
Company recognized net sales of $6,232, $21,072 and $7,849,
purchased raw materials of $22,370, $23,065 and $7,751, acquired
property, plant and equipment of $814, $50 and NIL, from TBCL
and its related companies for the years ended December 31,
2000, 2001 and the period from January 1, 2002 through
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. During 2002, the license was
disposed of 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.




18. Financial Instruments

The Companys financial instruments that are
exposed to concentrations of credit risk consist primarily of
its cash equivalents, trade receivables and marketable
securities.

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. There
was no allowance for doubtful debt for 2000. Allowance for
doubtful debts was $31 and $122 in 2001 and 2002, respectively.
There were no other movements in the provision for doubtful
accounts.

All of the Companys significant financial
instruments at December 31, 2001 and 2002 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 was not significantly different from the carrying value at
December 31, 2002.

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 $812 in 2000, $1,501
in 2001 and $909 in 2002.

F-36



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


At December 31, 2002, the Company was
obligated under operating leases, which relate to land and
buildings, requiring minimum rentals as follows for the years
ending December 31, :

|                    |  |   |       | 
|------------------- |  | - | ----- | 
|2003                |  | $ | 779   | 
|2004                |  |   | 727   | 
|2005                |  |   | 745   | 
|2006                |  |   | 731   | 
|2007                |  |   | 565   | 
|2008 and thereafter |  |   | 388   | 
|                    |  |   |       | 
|                    |  | $ | 3,935 | 
|                    |  |   |       | 

(b) Significant
Legal Proceedings

In June 1997, the Company filed a petition in the
British Virgin Islands for the winding up of Tele-Art, Inc. on
account of an unpaid judgment debt owing to the Company. 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 its Articles of Association, the Company redeemed
and cancelled 138,500 shares of the Company registered in the
name of Tele-Art, Inc. at a price of $11.19 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.




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, Inc. On
February 4, 1999, the liquidator of Tele-Art, Inc. 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, Inc. to the Bank of China, Nam Tai, and
    other creditors and their respective rights to have their debts
    discharged out the proceeds of the Tele-Art, Inc.s Nam Tai
    shares;
|
| |  | An order setting aside the redemption of 138,500
    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,
    Inc.s Nam Tai shares.                                                                                                                                                                                        

On March 26, 2001, the Company filed a
summons seeking to remove the liquidators 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. As of February 21, 2003, new liquidators have not
been appointed.




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 in favor of the Company and against Tele-Art, Inc. for
approximately $34,000. On August 12, 2002, the Company
redeemed and cancelled, pursuant to its Articles of Association,
the remaining 169,727 shares beneficially owned by Tele-Art,
Inc. at a price of $18.41 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, Inc. The Company recorded the $3,519
redemption as other income in the third quarter of 2002.




F-37



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


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
138,500 shares be set aside and that all Tele-Art Inc.
property withheld by Nam Tai be delivered to Tele-Art, Inc. in
liquidation. The orders granted in the judgment were
substantially different from the relief sought in the
February 12, 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,
for which the application is pending.

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 has
made a 2002 provision for $5,192 for both share redemption plus
all dividends declared and withheld by the Company, pending a
final determination of this matter by the courts. The
$5.2 million provision is recorded on the December 31,
2002 balance sheet as a component of accrued expenses.







If the Companys appeal is successful and
all legal matters related to Tele-Art, Inc. are finalized, then
the $5,192 will be reversed into income in the related period.




If the Companys appeal is not successful,
and the 308,227 share redemption is set aside, the Company
believes that these shares would be sold by Tele-Art,
Inc.s liquidator, once appointed, in the open market at
the market price prevailing at the time of sale. For example, if
these shares had been sold at the February 21, 2003 closing
price of $26.50, the proceeds the liquidator would have realized
before commissions, plus withheld dividends of $518, would have
been approximately $8,686 for the estate of Tele-Art, Inc. (in
liquidation). Nam Tai has two judgments debts against Tele-Art
Inc. in the aggregate amount, including interest, costs, and
related expenses, of approximately $38,000. Furthermore, per the
last liquidator report that was filed with the court there
appear to be no proven unsecured creditors of Tele-Art, Inc. and
the estimated liabilities for all other unsecured creditors are
approximately $80. The Bank of China is claiming to be a secured
creditor in the amount of $2,200, and the January 21, 2003
judgment found that the Bank of China is secured and Nam Tai is
unsecured. Nam Tai disputes that finding, and among other
matters, has argued that the Bank of China has not yet submitted
any proof of an outstanding debt. The now resigned liquidator is
claiming to have incurred approximately $385 in costs for work
as liquidator. Accordingly, if the Company is not successful on
its appeal of the January 21, 2003 judgment, the Company
will seek to recover its $38,000 in judgment debts (including
interest, costs, and related expenses) from the estate of
Tele-Art, Inc. Accordingly, any amounts recovered from the
estate of Tele-Art, Inc., which in managements opinion
could exceed the $5,192 provision based on the current market
price of Nam Tais shares and current information regarding
Tele-Art Inc. creditors, would be recognized as other income
upon recovery. 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 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.

20. Segment Information

Prior to October 2000, the Company operated in a
single segment of the CEP industry. As a result of the
acquisition of the JIC Group in late 2000, the Company added a
second segment, LPT, principally relating to the operation of
the JIC 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.

F-38



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


The following table provides operating financial
information for the two reportable segments. The information
presented below for the year ended December 31, 2000 has
been restated to reflect two operating segments.




|                                                             |  |      |          |      |  |       |        |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|------------------------------------------------------------ |  | ---- | -------- | ---- |  | ----- | ------ | --- |  | --- | -------- | ----- |  | --- | -------- | --- |  | ----- | ------- | - |  | - | -------- | - |  | - | -------- | - |  | - | ------- | - |  | - | -------- | -
|                                                             |  |      |          |      |  |      
|                                                             |  | 2000 |          | 2001 |  | 2002 
|                                                             |  |      |          |      |  |      
|                                                             |  | CEP  |          | LPT  |  | Total |        | CEP |  | LPT |          | Total |  | CEP |          | LPT |  | Total
|                                                             |  |      |          |      |  |       |        |     |  |     |          |       |  |     |          |     |  |      
|Net sales  third parties                                    |  | $    | 197,172  |      |  | $     | 10,284 |     |  | $   | 207,456  |       |  | $   | 176,976  |     |  | $     | 35,958  |   |  | $ | 212,934  |   |  | $ | 192,906  |   |  | $ | 35,261  |   |  | $ | 228,167  |  
|Net sales  related party                                    |  |      | 6,232    |      |  |       |       |     |  |     | 6,232    |       |  |     | 21,072   |     |  |       |        |   |  |   | 21,072   |   |  |   | 7,849    |   |  |   |        |   |  |   | 7,849    |  
|                                                             |  |      |          |      |  |       |        |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Total net sales                                              |  |      | 203,404  |      |  |       | 10,284 |     |  |     | 213,688  |       |  |     | 198,048  |     |  |       | 35,958  |   |  |   | 234,006  |   |  |   | 200,755  |   |  |   | 35,261  |   |  |   | 236,016  |  
|Cost of sales                                                |  |      | (173,878 | )    |  |       | (8,218 | )   |  |     | (182,096 | )     |  |     | (174,863 | )   |  |       | (29,111 | ) |  |   | (203,974 | ) |  |   | (167,440 | ) |  |   | (30,516 | ) |  |   | (197,956 | )
|                                                             |  |      |          |      |  |       |        |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Gross profit                                                 |  |      | 29,526   |      |  |       | 2,066  |     |  |     | 31,592   |       |  |     | 23,185   |     |  |       | 6,847   |   |  |   | 30,032   |   |  |   | 33,315   |   |  |   | 4,745   |   |  |   | 38,060   |  
|Selling, general and administrative expenses                 |  |      | (15,196  | )    |  |       | (2,450 | )   |  |     | (17,646  | )     |  |     | (16,521  | )   |  |       | (5,453  | ) |  |   | (21,974  | ) |  |   | (14,940  | ) |  |   | (3,043  | ) |  |   | (17,983  | )
|Research and development expenses                            |  |      | (3,489   | )    |  |       |       |     |  |     | (3,489   | )     |  |     | (2,746   | )   |  |       | (208    | ) |  |   | (2,954   | ) |  |   | (2,162   | ) |  |   | (524    | ) |  |   | (2,686   | )
|Impairment of goodwill                                       |  |      |         |      |  |       |       |     |  |     |         |       |  |     |         |     |  |       |        |   |  |   |         |   |  |   | (339     | ) |  |   |        |   |  |   | (339     | )
|Interest expense                                             |  |      | (149     | )    |  |       | (16    | )   |  |     | (165     | )     |  |     | (170     | )   |  |       | (8      | ) |  |   | (178     | ) |  |   | (705     | ) |  |   | (85     | ) |  |   | (790     | )
|Equity in (loss) income of affiliated companies              |  |      | (189     | )    |  |       |       |     |  |     | (189     | )     |  |     | 1,867    |     |  |       |        |   |  |   | 1,867    |   |  |   | 10,741   |   |  |   |        |   |  |   | 10,741   |  
|Other income (expense)                                       |  |      | 13,772   |      |  |       | 81     |     |  |     | 13,853   |       |  |     | 885      |     |  |       | 1,824   |   |  |   | 2,709    |   |  |   | (4,879   | ) |  |   | (1,164  | ) |  |   | (6,043   | )
|                                                             |  |      |          |      |  |       |        |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Income (loss) before income taxes and minority
    interests |  |      | 24,275   |      |  |       | (319   | )   |  |     | 23,956   |       |  |     | 6,500    |     |  |       | 3,002   |   |  |   | 9,502    |   |  |   | 21,031   |   |  |   | (71     | ) |  |   | 20,960   |  
|Income taxes benefit (expense)                               |  |      | (144     | )    |  |       | 177    |     |  |     | 33       |       |  |     | (137     | )   |  |       | (90     | ) |  |   | (227     | ) |  |   | (710     | ) |  |   | (63     | ) |  |   | (773     | )
|                                                             |  |      |          |      |  |       |        |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Income (loss) before minority interests                      |  |      | 24,131   |      |  |       | (142   | )   |  |     | 23,989   |       |  |     | 6,363    |     |  |       | 2,912   |   |  |   | 9,275    |   |  |   | 20,321   |   |  |   | (134    | ) |  |   | 20,187   |  
|Minority interests                                           |  |      | 12       |      |  |       |       |     |  |     | 12       |       |  |     | (230     | )   |  |       |        |   |  |   | (230     | ) |  |   | (107     | ) |  |   | (57     | ) |  |   | (164     | )
|                                                             |  |      |          |      |  |       |        |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Net income (loss)                                            |  | $    | 24,143   |      |  | $     | (142   | )   |  | $   | 24,001   |       |  | $   | 6,133    |     |  | $     | 2,912   |   |  | $ | 9,045    |   |  | $ | 20,214   |   |  | $ | (191    | ) |  | $ | 20,023   |  
|                                                             |  |      |          |      |  |       |        |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  
|Depreciation and amortization                                |  | $    | 7,059    |      |  | $     | 639    |     |  | $   | 7,698    |       |  | $   | 8,454    |     |  | $     | 2,717   |   |  | $ | 11,171   |   |  | $ | 8,739    |   |  | $ | 1,880   |   |  | $ | 10,619   |  
|Stock option costs                                           |  | $    | 117      |      |  | $     |       |     |  | $   | 117      |       |  | $   |         |     |  | $     | 839     |   |  | $ | 839      |   |  | $ |         |   |  | $ |        |   |  | $ |         |  
|Capital expenditures                                         |  | $    | 3,141    |      |  | $     | 438    |     |  | $   | 3,579    |       |  | $   | 34,060   |     |  | $     | 1,953   |   |  | $ | 36,013   |   |  | $ | 5,962    |   |  | $ | 12,523  |   |  | $ | 18,485   |  
|Identifiable assets                                          |  | $    | 164,963  |      |  | $     | 43,407 |     |  | $   | 208,370  |       |  | $   | 188,262  |     |  | $     | 36,311  |   |  | $ | 224,573  |   |  | $ | 225,754  |   |  | $ | 49,332  |   |  | $ | 275,086  |  
|                                                             |  |      |          |      |  |       |        |     |  |     |          |       |  |     |          |     |  |       |         |   |  |   |          |   |  |   |          |   |  |   |         |   |  |   |          |  




There were no material inter-segment sales for
the years ended December 31, 2000, 2001 and 2002. During
2002, property, plant and equipment with a net book value of
$312 was transferred from the CEP segment to the LPT segment.
The Company charges 100% of its corporate level related expenses
to its reportable segments as management fees.

F-39



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)


The following summary sets forth the percentage
of net sales of each of the Companys product lines for
each segment is as follows:

|                        |                                 |                               |     |      |    |      |     |   |    |   |     |   |    |  
|----------------------- | ------------------------------- | ----------------------------- | --- | ---- | -- | ---- | --- | - | -- | - | --- | - | -- | -
|Year Ended December 31, |                                 | 2000                          |     | 2001 |    | 2002
|                        |                                 |                               |     |      |    |     
|CEP:                    |                                 |                               |     |      |    |      |     |   |    |   |     |  
|                        |  Assembling                    |                               |     |      |    |      |     |   |    |   |     |   |   
|                        |                                 |  LCD consumer products       |     |      | 46 | %    |     |   | 32 | % |     |   | 40 | %
|                        |                                 |  Telecom components assembly |     |      | 48 | %    |     |   | 52 | % |     |   | 44 | %
|                        |  Software development services |                               |     | 1    | %  |      |     | 1 | %  |   |     | 1 | % 
|                        |                                 |                               |     |      |    |      |     |   |    |   |     |  
|                        |                                 |                               | 95  | %    |    |      | 85  | % |    |   | 85  | %
|LPT:                    |                                 |                               |     |      |    |      |     |   |    |   |     |  
|                        |  Parts & components            |                               |     |      |    |      |     |   |    |   |     |   |   
|                        |                                 |  LCD panels                  |     |      | 3  | %    |     |   | 11 | % |     |   | 10 | %
|                        |                                 |  Transformers                |     |      | 2  | %    |     |   | 4  | % |     |   | 5  | %
|                        |                                 |                               |     |      |    |      |     |   |    |   |     |  
|                        |                                 |                               | 5   | %    |    |      | 15  | % |    |   | 15  | %
|                        |                                 |                               |     |      |    |      |     |   |    |   |     |  
|                        |                                 |                               | 100 | %    |    |      | 100 | % |    |   | 100 | %
|                        |                                 |                               |     |      |    |      |     |   |    |   |     |  

A summary of net sales, income from operations
and identifiable assets by geographical area is as follows:

|                                  |                                        |      |         |          |   |      |         |          |   |   |         |          |  
|--------------------------------- | -------------------------------------- | ---- | ------- | -------- | - | ---- | ------- | -------- | - | - | ------- | -------- | -
|Year Ended December 31,           |                                        | 2000 |         | 2001     |   | 2002
|                                  |                                        |      |         |          |   |     
|Net sales from operations within: |                                        |      |         |          |   |      |         |          |   |   |         |         
|                                  |  Hong Kong:                           |      |         |          |   |      |         |          |   |   |         |          |  
|                                  | Unaffiliated customers                 |      | $       | 202,364  |   |      | $       | 206,902  |   |   | $       | 223,709  |  
|                                  | Intercompany sales                     |      |         |         |   |      |         |         |   |   |         | 979      |  
|                                  |                                        |      |         |          |   |      |         |          |   |   |         |         
|                                  |                                        |      | 202,364 |          |   |      | 206,902 |          |   |   | 224,688 |         
|                                  |  PRC, excluding Hong Kong:            |      |         |          |   |      |         |          |   |   |         |          |  
|                                  | Affiliated customers (see
    note 17) |      |         | 6,232    |   |      |         | 21,072   |   |   |         | 7,849    |  
|                                  | Unaffiliated customers                 |      |         | 5,092    |   |      |         | 6,032    |   |   |         | 4,458    |  
|                                  | Intercompany sales                     |      |         | 180,065  |   |      |         | 160,503  |   |   |         | 179,411  |  
|                                  |                                        |      |         |          |   |      |         |          |   |   |         |         
|                                  |                                        |      | 191,389 |          |   |      | 187,607 |          |   |   | 191,718 |         
|                                  |                                        |      |         |          |   |      |         |          |   |   |         |         
|                                  |  Intercompany eliminations            |      |         | (180,065 | ) |      |         | (160,503 | ) |   |         | (180,390 | )
|                                  |                                        |      |         |          |   |      |         |          |   |   |         |         
|Total net sales                   |                                        | $    | 213,688 |          |   | $    | 234,006 |          |   | $ | 236,016 |         
|                                  |                                        |      |         |          |   |      |         |          |   |   |         |         
|Net income within:                |                                        |      |         |          |   |      |         |          |   |   |         |         
|                                  |  PRC, excluding Hong Kong             |      | $       | 6,549    |   |      | $       | 4,848    |   |   | $       | 17,930   |  
|                                  |  Hong Kong                            |      |         | 17,452   |   |      |         | 4,197    |   |   |         | 2,093    |  
|                                  |                                        |      |         |          |   |      |         |          |   |   |         |         
|                                  |                                        | $    | 24,001  |          |   | $    | 9,045   |          |   | $ | 20,023  |         
|                                  |                                        |      |         |          |   |      |         |          |   |   |         |         

F-40



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)





|                          |                            |      |        |        |  |      |        |        |  |   |        |        | 
|------------------------- | -------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|December 31,              |                            | 2000 |        | 2001   |  | 2002
|                          |                            |      |        |        |  |     
|Long-lived assets within: |                            |      |        |        |  |      |        |        |  |   |        |       
|                          |  PRC, excluding Hong Kong |      | $      | 37,638 |  |      | $      | 43,299 |  |   | $      | 54,481 | 
|                          |  Hong Kong                |      |        | 6,961  |  |      |        | 27,115 |  |   |        | 21,433 | 
|                          |                            |      |        |        |  |      |        |        |  |   |        |       
|Total long-lived assets   |                            | $    | 44,599 |        |  | $    | 70,414 |        |  | $ | 75,914 |       
|                          |                            |      |        |        |  |      |        |        |  |   |        |       




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




|                                             |                                               |      |   |         |  |      |   |         |  |  |   |         | 
|-------------------------------------------- | --------------------------------------------- | ---- | - | ------- |  | ---- | - | ------- |  |  | - | ------- | 
|Year Ended December 31,                      |                                               | 2000 |   | 2001    |  | 2002
|                                             |                                               |      |   |         |  |     
|Net sales to customers by geographical area: |                                               |      |   |         |  |      |   |         |  |  |   |        
|                                             |  Hong Kong                                   |      | $ | 97,685  |  |      | $ | 64,391  |  |  | $ | 57,157  | 
|                                             |  Europe (excluding Estonia)                  |      |   | 20,032  |  |      |   | 22,437  |  |  |   | 42,943  | 
|                                             |  United States                               |      |   | 51,719  |  |      |   | 35,662  |  |  |   | 33,054  | 
|                                             |  PRC (excluding Hong Kong)                   |      |   | 11,056  |  |      |   | 25,378  |  |  |   | 28,518  | 
|                                             |  Japan                                       |      |   | 19,388  |  |      |   | 22,767  |  |  |   | 25,276  | 
|                                             |  Estonia                                     |      |   |        |  |      |   |        |  |  |   | 19,660  | 
|                                             |  North America (excluding United
    States) |      |   | 525     |  |      |   | 19,332  |  |  |   | 6,640   | 
|                                             |  Other                                       |      |   | 13,283  |  |      |   | 44,039  |  |  |   | 22,768  | 
|                                             |                                               |      |   |         |  |      |   |         |  |  |   |        
|                                             | Total net sales                               |      | $ | 213,688 |  |      | $ | 234,006 |  |  | $ | 236,016 | 
|                                             |                                               |      |   |         |  |      |   |         |  |  |   |        




The Companys sales to the customers which
accounted for 10% or more of its sales are as follows:

|                        |   |      |         |        |  |      |         |        |  |   |         |        | 
|----------------------- | - | ---- | ------- | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | 
|Year Ended December 31, |   | 2000 |         | 2001   |  | 2002
|                        |   |      |         |        |  |     
|By customers:           |   |      |         |        |  |      |         |        |  |   |         |       
|                        | A |      | $       | 50,767 |  |      | $       | 69,996 |  |   | $       | 75,965 | 
|                        | B |      |         | N/A    |  |      |         | N/A    |  |   |         | 39,854 | 
|                        | C |      |         | 51,124 |  |      |         | 33,143 |  |   |         | 26,217 | 
|                        | D |      |         | 31,442 |  |      |         | N/A    |  |   |         | N/A    | 
|                        | E |      |         | 21,448 |  |      |         | N/A    |  |   |         | N/A    | 
|                        |   |      |         |        |  |      |         |        |  |   |         |       
|                        |   | $    | 154,781 |        |  | $    | 103,139 |        |  | $ | 142,036 |       
|                        |   |      |         |        |  |      |         |        |  |   |         |       

21. Subsequent Events






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | In January 2003, the Company further expanded its
    business to include wireless communication technology and
    related products. The Company has made a strategic investment of
    $10,000 by purchasing a 25% shareholding in Alpha Star
    Investments Limited (Alpha Star), a BVI company,
    which is the ultimate holding company of the Hong Kong based 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 manufactures wireless communication terminals and
    related modules for JCT. As part of the investment, Alpha Star
    agreed to have the Company manufacture the RF modules for 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 price. The Company has one representative on Alpha




F-41



---



##### 



Nam Tai Electronics, Inc. and
Subsidiaries


Notes to Consolidated Financial
Statements  (Continued)

December 31, 2001 and 2002


(In thousands of US dollars, except share and
per share data)




| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     | Stars board of directors. In March 2003,
    the Company agreed to support JCT in the production of
    1 million cellular phones by providing assembling services
    and support for the manufacturing of liquid crystal display, or
    LCD, modules and RF modules.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
|
|
| | (b) | On January 20, 2003, one of the
    Companys subsidiaries, J.I.C. Technology Company Limited,
    entered into a subscription agreement with iMagic Infomedia
    Technology Limited (iMagic) pursuant to which the
    J.I.C. Technology Company Limited 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
    $385. On the same date, J.I.C. Technology Company Limited also
    entered into a deed of put option with a director of iMagic
    under which the director of iMagic grants J.I.C. Technology
    Company Limited an option to require the director to purchase
    the shares from J.I.C. Technology Company Limited at the
    consideration of $385. The put option shall commence 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
|
|
| | (c) | In January 2003, the Company distributed 20% of
    its interest in Namtek Software Development Company Limited for
    $160 to an unrelated company that is owned by the management of
    Namtek Software Development Company Limited. The consideration
    was paid for in cash. At the time of the distribution, 20% of
    Namtek Software Development Company Limiteds net book
    value was approximately $405.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
|
|
| | (d) | On March 11, 2003, the Company was served
    with a complaint in an action captioned Michael Rocco v. Nam
    Tai, et al., 03 Civ. 1148 (S.D.N.Y.) (the Rocco
    Action). Plaintiff in the Rocco Action purports to
    represent a putative class of persons who purchased the common
    stock of Nam Tai from July 29, 2002 through
    February 14, 2003. In addition to the Company, 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.) (the Steigler
    Action) (together with the Rocco Action, the
    Actions). The Company has not yet been served in the
    Steigler Action. Plaintiff in the Steigler Action purports to
    represent a putative class of persons who purchased the
    Companys common stock during the period December 13,
    2002 through February 14, 2003. One director is also named
    as a defendant in the Steigler Action. 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. The
    plaintiff in the Rocco Action also appears to allege that the
    Company failed to make timely disclosures concerning certain
    pending litigation. The Actions are in their preliminary stages,
    the Company believes it has meritorious defenses and it intends
    to defend vigorously. The Company 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.
|
|
|
| | (e) | In March 2003, the Companys subsidiary,
    Mate Fair earned a dividend of $2,018 from its investment in
    Huizhou TCL. Mate Fair subsequently declared and paid a dividend
    to the Company for $1,457 in April 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|

F-42



---



##### 



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 (incorporated by reference to Exhibit 2.1 of the
    Companys Form 20-F for the year ended
    December 31, 1998 filed with the SEC on March 31,
    1999.)                                                                                                                                                                                                                                                                      
|        | 4.1  |             |  | Nam Tais Amended and Restated 1993 Stock
    Option Plan (incorporated by reference to the Amended and
    Restated 1993 Stock Option Plan of Nam Tai Electronics, Inc. as
    adopted August 18, 1993, amended December 15, 1993,
    January 12, 1996, and amended and restated April 26,
    1999) included as part of Nam Tais definite Proxy
    Statement for its 1999 Annual Meeting of Shareholders filed with
    the SEC as part of Nam Tais Form 6-K on June 24,
    1999).
|        | 4.2  |             |  | Nam Tais 2001 Stock Option Plan
    (incorporated by reference to the 2001 Stock Option Plan
    included as part of Nam Tais Proxy Statement for its 2001
    Annual Meeting of Shareholders filed with the SEC as part of Nam
    Tais Form 6-K on June 27, 2001)                                                                                                                                                                                                                   
|        | 4.3  |             |  | Sale and Purchase Agreement for the 15th Floor of
    China Merchants Tower, Shun Tak Centre, Nos. 168-200
    Connaught Road Central, Hong Kong between Shun Tak Centre
    Limited and Nam Tai Group Management Limited dated
    March 27th 2001 (incorporated by reference to
    Exhibit 4.6 of registrants Form 20-F for the
    year ended December 31, 2001 filed with the SEC on
    March 18, 2002).                                                                          
|        | 4.4  |             |  | Agreement on Proposal for the listing of JIC
    Group common shares on the Hong Kong Stock Exchange dated
    January 14, 2002 between 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).
|        | 4.5  |             |  | Letter dated September 24, 2001 between The
    Hong Kong and Shanghai Banking Corporation Limited and the
    Company for a seven-year term-loan of $15,000,000 (incorporated
    by reference to Exhibit 4.8 of the Companys
    Form 20-F for the year ended December 31, 2001 filed
    with the SEC on March 18, 2002).                                                                                                                                                            
|        | 4.6  |             |  | Form of Indemnification Agreement entered into
    between the Company and each of its Directors as of the
    9th day of July 2001 (incorporated by reference to
    Exhibit 4.9 of the Companys Form 20-F for the
    year ended December 31, 2001 filed with the SEC on
    March 18, 2002).                                                                                                                                                                                        
|        | 4.7  |             |  | 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.                                                                                                                                                                                                                                                                                            
|        | 4.8  |             |  | Subscription Agreement dated January 6, 2003
    between Alpha Star Investments Ltd and the Company for the
    purchase of 1,625,000 ordinary shares.                                                                                                                                                                                                                                                                                                                                  
|        | 4.9  |             |  | Shareholders Agreement dated January 8, 2003
    among Alpha Star Investments and its investors, including the
    Company.                                                                                                                                                                                                                                                                                                                                                             
|        | 4.10 |             |  | Share Transfer Agreement of TCL Holdings dated
    January 25, 2002 between Hui Zhou City Investment Holdings
    Co., Ltd and Namtai Electronic (Shenzhen) Co., Ltd.                                                                                                                                                                                                                                                                                                                   
|        | 4.11 |             |  | 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.                                                                                                                                                                                                                                                                                   
|        | 4.12 |             |  | Sale and Purchase Agreement dated April 24,
    2002 between A&T Battery Corporation, Nam Tai Electronic
    & Electrical Products Limited and Toshiba Battery Co.,
    Ltd.                                                                                                                                                                                                                                                                                                            
|        | 4.13 |             |  | Sale and Purchase Agreement of 5 bearer shares in
    Mate Fair Group Limited between Spin King Limited and Nam Tai
    Electronics, Inc. dated September 6, 2000. (5% Indirect
    Ownership in TCL Mobile). (incorporated by reference to
    Exhibit 4.5 of the Companys Form 20-F for the
    year ended December 31, 2000 filed with the SEC on
    March 21, 2001).                                                                                                               
|        | 4.14 |             |  | Common Share Purchase Agreement between Leesha
    Holdings Limited and Nam Tai Electronics, Inc. dated
    September 19, 2000 for purchase of 500,000 Deswell
    Industries Inc. common shares (incorporated by reference to
    Exhibit A of the Schedule 13D of the Company in
    relation to Deswell Industries, Inc. filed with the SEC on
    October 6, 2000).                                                                                                                  




71



---



##### 






|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ---- | ----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 4.15 |             |  | Sale and Purchase Agreement of entire issued
    share capital of J.I.C. Group between J.I.C. Holdings (B.V.I.)
    Ltd., Mr. Joseph Li Shi Yuen, Mr. Chui Kam Wai and Nam
    Tai Electronics, Inc. dated September 26, 2000, including
    service agreements with Messrs. Li and Chui (incorporated
    by reference to Exhibit A of the Schedule 13D of
    Joseph Li Shi Yuen, Chui Kam Wai and J.I.C. Holdings (B.V.I.)
    Limited filed with the SEC on November 7, 2000).
|        | 4.16 |             |  | Contract for Use of Land dated March 25,
    1996 between Shenzhen City Baoan Xinan Gu Su Estate Residents
    Committee and Namtai Electronic (Shenzhen) Co. Ltd. regarding
    the use for 50 years of land situated at Zhuao, Gu Su
    Industrial Estate, Xihan, Baoan (incorporated by reference to
    Exhibit 2.7 of the Companys Form 20-F for the
    year ended December 31, 1996 filed with the SEC on
    April 2, 1997).                                            
|        | 4.17 |             |  | Contract to Transfer the Right of Utilization of
    Land in Shenzhen dated April 26, 1999 between Shenzhen
    National Land Planning Bureau and Namtai Electronic (Shenzhen)
    Co., Ltd. (incorporated by reference to Exhibit 2.1 of the
    Companys Form 20-F for the year ended
    December 31, 1999 filed with the SEC on March 29,
    2000.)                                                                                                                         
|        | 8.1  |             |  | Diagram of Companys subsidiaries. See
    Pages 25 to 27 of this Report.                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 10.1 |             |  | Certifications pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                  
|        | 10.2 |             |  | Letter from MCW. Todman & Co. dated
    February 10, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 10.3 |             |  | Letter from MCW. Todman & Co. dated
    February 17, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 23.1 |             |  | Consent of Grant Thornton.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 23.2 |             |  | Consent of Deloitte Touche Tohmatsu.                                                                                                                                                                                                                                                                                                                                                                                                                                              






---






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




72



---



##### 



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: June 11, 2003






---



##### 



CERTIFICATIONS

I, Joseph Li, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 20-F of Nam Tai Electronics,
    Inc.;                                                                                                                                                                                                                                                           
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and have:                                                                                                          



| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.     designed such
    disclosure controls and procedures to ensure that material
    information relating to the registrant, including its
    consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
    annual report is being prepared;
|
| | b.     evaluated the
    effectiveness of the registrants disclosure controls and
    procedures as of a date within 90 days prior to the filing
    date of this annual report (the Evaluation Date); and                                                                                                          
|
| | c.     presented in this
    annual report our conclusions about the effectiveness of the
    disclosure controls and procedures based on our evaluation as of
    the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.     all significant
    deficiencies in the design or operation of internal controls
    which could adversely affect the registrants ability to
    record, process, summarize and report financial data and have
    identified for the registrants auditors any material
    weaknesses in internal controls; and
|
| | b.     any fraud,
    whether or not material, that involves management or other
    employees who have a significant role in the registrants
    internal controls; and                                                                                                                                                



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this annual report whether or not there were significant
    changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of
    our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.



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




Date:     June 11,
2003






---



##### 



I, M. K. Koo, certify that:



| |                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.     I have reviewed
    this annual report on Form 20-F of Nam Tai Electronics,
    Inc.;                                                                                                                                                                                                                                                           
|
| | 2.     Based on my
    knowledge, this annual report does not contain any untrue
    statement of a material fact or omit to state a material fact
    necessary to make the statements made, in light of the
    circumstances under which such statements were made, not
    misleading with respect to the period covered by this annual
    report;
|
| | 3.     Based on my
    knowledge, the financial statements, and other financial
    information included in this annual report, fairly present in
    all material respects the financial condition, results of
    operations and cash flows of the registrant as of, and for, the
    periods presented in this annual report;                       
|
| | 4.     The
    registrants other certifying officers and I are
    responsible for establishing and maintaining disclosure controls
    and procedures (as defined in Exchange Act Rules 13a-14 and
    15d-14) for the registrant and have:                                                                                                          



| |                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.     designed such
    disclosure controls and procedures to ensure that material
    information relating to the registrant, including its
    consolidated subsidiaries, is made known to us by others within
    those entities, particularly during the period in which this
    annual report is being prepared;
|
| | b.     evaluated the
    effectiveness of the registrants disclosure controls and
    procedures as of a date within 90 days prior to the filing
    date of this annual report (the Evaluation Date); and                                                                                                          
|
| | c.     presented in this
    annual report our conclusions about the effectiveness of the
    disclosure controls and procedures based on our evaluation as of
    the Evaluation Date;                                                                                                                                



| |                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 5.     The
    registrants other certifying officers and I have
    disclosed, based on our most recent evaluation, to the
    registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a.     all significant
    deficiencies in the design or operation of internal controls
    which could adversely affect the registrants ability to
    record, process, summarize and report financial data and have
    identified for the registrants auditors any material
    weaknesses in internal controls; and
|
| | b.     any fraud,
    whether or not material, that involves management or other
    employees who have a significant role in the registrants
    internal controls; and                                                                                                                                                



| |                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6.     The
    registrants other certifying officers and I have indicated
    in this annual report whether or not there were significant
    changes in internal controls or in other factors that could
    significantly affect internal controls subsequent to the date of
    our most recent evaluation, including any corrective actions
    with regard to significant deficiencies and material weaknesses.



| |                                                                            
| | ---------------------------------------------------------------------------
| | /s/ M. K. KOO 
     _______________________________________ 
     M. K. Koo
| | Chief Financial Officer                                                    




Date:     June 11,
2003






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##### 



EXHIBIT INDEX




|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|------- | ---- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 1.1  |             |  | Memorandum and Articles of Association, as
    amended (incorporated by reference to Exhibit 2.1 of the
    Companys Form 20-F for the year ended
    December 31, 1998 filed with the SEC on March 31,
    1999.)                                                                                                                                                                                                                                                                      
|        | 4.1  |             |  | Nam Tais Amended and Restated 1993 Stock
    Option Plan (incorporated by reference to the Amended and
    Restated 1993 Stock Option Plan of Nam Tai Electronics, Inc. as
    adopted August 18, 1993, amended December 15, 1993,
    January 12, 1996, and amended and restated April 26,
    1999) included as part of Nam Tais definite Proxy
    Statement for its 1999 Annual Meeting of Shareholders filed with
    the SEC as part of Nam Tais Form 6-K on June 24,
    1999).
|        | 4.2  |             |  | Nam Tais 2001 Stock Option Plan
    (incorporated by reference to the 2001 Stock Option Plan
    included as part of Nam Tais Proxy Statement for its 2001
    Annual Meeting of Shareholders filed with the SEC as part of Nam
    Tais Form 6-K on June 27, 2001)                                                                                                                                                                                                                   
|        | 4.3  |             |  | Sale and Purchase Agreement for the 15th Floor of
    China Merchants Tower, Shun Tak Centre, Nos. 168-200
    Connaught Road Central, Hong Kong between Shun Tak Centre
    Limited and Nam Tai Group Management Limited dated
    March 27th 2001 (incorporated by reference to
    Exhibit 4.6 of registrants Form 20-F for the
    year ended December 31, 2001 filed with the SEC on
    March 18, 2002).                                                                          
|        | 4.4  |             |  | Agreement on Proposal for the listing of JIC
    Group common shares on the Hong Kong Stock Exchange dated
    January 14, 2002 between 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).
|        | 4.5  |             |  | Letter dated September 24, 2001 between The
    Hong Kong and Shanghai Banking Corporation Limited and the
    Company for a seven-year term-loan of $15,000,000 (incorporated
    by reference to Exhibit 4.8 of the Companys
    Form 20-F for the year ended December 31, 2001 filed
    with the SEC on March 18, 2002).                                                                                                                                                            
|        | 4.6  |             |  | Form of Indemnification Agreement entered into
    between the Company and each of its Directors as of the
    9th day of July 2001 (incorporated by reference to
    Exhibit 4.9 of the Companys Form 20-F for the
    year ended December 31, 2001 filed with the SEC on
    March 18, 2002).                                                                                                                                                                                        
|        | 4.7  |             |  | 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.                                                                                                                                                                                                                                                                                            
|        | 4.8  |             |  | Subscription Agreement dated January 6, 2003
    between Alpha Star Investments Ltd and the Company for the
    purchase of 1,625,000 ordinary shares.                                                                                                                                                                                                                                                                                                                                  
|        | 4.9  |             |  | Shareholders Agreement dated January 8, 2003
    among Alpha Star Investments and its investors, including the
    Company.                                                                                                                                                                                                                                                                                                                                                             
|        | 4.10 |             |  | Share Transfer Agreement of TCL Holdings dated
    January 25, 2002 between Hui Zhou City Investment Holdings
    Co., Ltd and Namtai Electronic (Shenzhen) Co., Ltd.                                                                                                                                                                                                                                                                                                                   
|        | 4.11 |             |  | 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.                                                                                                                                                                                                                                                                                   
|        | 4.12 |             |  | Sale and Purchase Agreement dated April 24,
    2002 between A&T Battery Corporation, Nam Tai Electronic
    & Electrical Products Limited and Toshiba Battery Co., Ltd.
                                                                                                                                                                                                                                                                                                               
|        | 4.13 |             |  | Sale and Purchase Agreement of 5 bearer shares in
    Mate Fair Group Limited between Spin King Limited and Nam Tai
    Electronics, Inc. dated September 6, 2000. (5% Indirect
    Ownership in TCL Mobile). (incorporated by reference to
    Exhibit 4.5 of the Companys Form 20-F for the
    year ended December 31, 2000 filed with the SEC on
    March 21, 2001).                                                                                                               
|        | 4.14 |             |  | Common Share Purchase Agreement between Leesha
    Holdings Limited and Nam Tai Electronics, Inc. dated
    September 19, 2000 for purchase of 500,000 Deswell
    Industries Inc. common shares (incorporated by reference to
    Exhibit A of the Schedule 13D of the Company in
    relation to Deswell Industries, Inc. filed with the SEC on
    October 6, 2000).                                                                                                                  
|        | 4.15 |             |  | Sale and Purchase Agreement of entire issued
    share capital of J.I.C. Group between J.I.C. Holdings (B.V.I.)
    Ltd., Mr. Joseph Li Shi Yuen, Mr. Chui Kam Wai and Nam
    Tai Electronics, Inc. dated September 26, 2000, including
    service agreements with Messrs. Li and Chui (incorporated
    by reference to Exhibit A of the Schedule 13D of
    Joseph Li Shi Yuen, Chui Kam Wai and J.I.C. Holdings (B.V.I.)
    Limited filed with the SEC on November 7, 2000).       






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##### 






|        |      |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ---- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |            
|Number  |      | Description
|        |      |            
|        | 4.16 |             |  | Contract for Use of Land dated March 25,
    1996 between Shenzhen City Baoan Xinan Gu Su Estate Residents
    Committee and Namtai Electronic (Shenzhen) Co. Ltd. regarding
    the use for 50 years of land situated at Zhuao, Gu Su
    Industrial Estate, Xihan, Baoan (incorporated by reference to
    Exhibit 2.7 of the Companys Form 20-F for the
    year ended December 31, 1996 filed with the SEC on
    April 2, 1997).
|        | 4.17 |             |  | Contract to Transfer the Right of Utilization of
    Land in Shenzhen dated April 26, 1999 between Shenzhen
    National Land Planning Bureau and Namtai Electronic (Shenzhen)
    Co., Ltd. (incorporated by reference to Exhibit 2.1 of the
    Companys Form 20-F for the year ended
    December 31, 1999 filed with the SEC on March 29, 2000.                                                                                  
|        | 8.1  |             |  | Diagram of Companys subsidiaries. See
    Pages 25 to 27 of this Report.                                                                                                                                                                                                                                                                                                                                                             
|        | 10.1 |             |  | Certifications pursuant to 18 U.S.C.
    Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                      
|        | 10.2 |             |  | Letter from MCW. Todman & Co. dated
    February 10, 2003.                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.3 |             |  | Letter from MCW. Todman & Co. dated
    February 17, 2003.                                                                                                                                                                                                                                                                                                                                                                           
|        | 23.1 |             |  | Consent of Grant Thornton.                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 23.2 |             |  | Consent of Deloitte Touche Tohmatsu.                                                                                                                                                                                                                                                                                                                                                                                                  






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