**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**











**FORM
      20-F**


ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d)


OF
      THE
      SECURITIES EXCHANGE ACT OF 1934


*For
      the fiscal year ended December 31, 2005*





Commission
      File Number 1-14742





**JINPAN
      INTERNATIONAL LIMITED**





(Exact
      Name of Registrant as Specified in its Charter and Translation of Registrant’s
      Name into English)





**British
      Virgin Islands**


(Jurisdiction
      of incorporation or organization)





**c/o
      Hainan** **Jinpan
      Electric Company, Ltd**


**Section
      D-2**


**No.
      100 Nanhai Avenue**


**Jinpan
      Development Area**


**Haikou,
      Hainan PRC**


(Address
      of principal executive offices)










Securities
      registered or to be registered pursuant to Section 12(b) of the
      Act:





**Common
      Stock, $0.018 par value**


(Title
      of
      Class)





**American
      Stock Exchange**


(Name
      of
      each exchange on which registered)





Securities
      registered or to be 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.





Indicate
      the number of outstanding shares of each of the issuer’s classes of capital or
      common stock as of the close of the period covered by the annual report: **6,708,946
      shares**





Indicate
      by check mark is the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act. Yes  ̈  No ý





If
      this
      report is an annual or transition report, indicate by check mark if the
      registrant is not required to file reports pursuant to Section 13 or 15(d)
      of
      the Securities Exchange Act of 1934. Yes  ̈  No ý





Indicate
      by check mark whether the registrant (1) 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 (2) has been subject to such filing requirements
      for
      the past 90 days. Yes ý No  ̈










Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
      one): Large accelerated filer  ̈  Accelerated
      filer  ̈  Non-accelerated
      filer ý





Indicate
      by check mark which financial statement item the registrant has elected to
      follow.


Item
      17  ̈   Item
      18  ý





If
      this
      is an annual report, indicate by check mark whether the registrant is a shell
      company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈ No ý





**Table
      of Contents**




Page**Part
                  I**Item
                  1.
              Identity
                  of Directors, Senior Management and Advisors
              1Item
                  2.
              Offer
                  Statistics and Expected Timetable
              1Item
                  3.
              Key
                  Information
              1Item
                  4.
              Information
                  on the Company
              13Item
                  4A.
              Unresolved
                  Staff Comments
              27Item
                  5.
              Operating
                  and Financial Review and Prospects - Management’sDiscussion
                  and Analysis
              27Item
                  6.
              Directors,
                  Senior Management and Employees
              35Item
                  7.
              Major
                  Shareholders and Related Party Transactions
              38Item
                  8.
              Financial
                  Information
              39Item
                  9.
              Offer
                  and Listing
              39Item
                  10.
              Additional
                  Information
              40Item
                  11.
              Quantitative
                  and Qualitative Disclosure About Market Risk
              43Item
                  12.
              Description
                  of Securities Other than Equity Securities
              43**Part
                  II**Item
                  13.
              Defaults,
                  Dividend Arrearages and Delinquencies
              43Item
                  14.
              Material
                  Modifications to the Rights of Security Holders and Use of
                  Proceeds
              43Item
                  15.
              Controls
                  and Procedures
              43Item
                  16A.
              Audit
                  Committee Financial Expert
              44Item
                  16B.
              Code
                  of Ethics
              44Item
                  16C.
              Principal
                  Accountant Fees and Services
              44Item
                  16D.
              Exemptions
                  From the Listing Standards for Audit Committees
              45Item
                  16E
              Purchases
                  of Equity Securities by the Issuer and Affiliated
                  Purchasers
              45**Part
                  III**Item
                  17.
              Financial
                  Statements
              45Item
                  18.
              Financial
                  Statements
              46Item
                  19.
              Exhibits
              46**Financial
                  Statements**


Report
                  of Independent Auditors
              F-3Consolidated
                  Balance Sheets as of December 31, 2005 and 2004
              F-5Consolidated
                  Statements of Incomefor
                  the years ended December 31, 2005, 2004 and 2003
              F-6Consolidated
                  Statements of Shareholders' Equity and Comprehensive
                  Incomefor
                  the years ended December 31, 2005, 2004 and 2003
              F-7Consolidated
                  Statements of Cash Flowsfor
                  the years ended December 31, 2005, 2004 and 2003
              F-9Notes
                  to Consolidated Financial Statements
              F-10


i


**PART
      I**





**Currency
      Translation**





We,
      Jinpan International Limited (“Jinpan International”), together with our 85%
      owned subsidiary Hainan Jinpan Electric Company, Ltd (“Hainan Jinpan”), a
      Sino-foreign cooperative joint venture, and Hainan Jinpan’s predecessor, Haikou
      Jinpan Special Transformer Works (“Haikou Jinpan”), are referred to in this
      annual report collectively as “we,” unless Jinpan International, Hainan Jinpan,
      or Haikou Jinpan are specifically referenced. We prepared our financial
      statements in accordance with U.S. GAAP, however, the monetary unit used in
      the financial statements is Renminbi Yuan, referred to in the financial
      statements as “RMB” or “Renminbi,” the lawful currency of the People’s Republic
      of China. For the reader’s convenience, some financial information was converted
      from Renminbi into U.S. Dollars, referred to herein as “U.S.$” using the noon
      buying rate in New York City for cable transfers in foreign currencies as
      certified for customs purposes by the Federal Reserve Bank of New York on
      December 31, 2005, of RMB8.07 = U.S.$1.00. The dollar amounts reflected in
      these
      conversions should not be construed as representing amounts that can actually
      be
      received or paid or convertible into dollars (unless otherwise indicated),
      nor
      do such conversions mean that the Renminbi amounts (i) actually represent the
      corresponding dollar amounts stated, or (ii) can be converted into dollars
      at
      the assumed rate.





**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**





The
      following selected financial data should be read in conjunction with Item 5,
      “Management’s Discussion and Analysis of Financial Condition and Results of
      Operations” and the consolidated financial statements and notes included in this
      annual report.





Set
      forth
      below is selected consolidated financial data with respect to our statements
      of
      operations for the years ended December 31, 2005, 2004, 2003, 2002 and 2001.





-
          1
          -




Year
                ended December 31,2001
            
            2002
            
            2003
            
            2004
            
            2005RMB
            
            RMB
            
            RMB
            
            RMB
            
            RMB
            
            U.S.$(1)(Amounts
                in thousands, except net income per share data)Income
                Statement Data:Sales
            
            
            184,480
            
            
            229,421
            
            
            276,564
            
            
            349,609
            
            
            438,219
            
            
            53,613Costs
                of goods sold
            
            
            (104,686
            )
            
            (128,770
            )
            
            (157,559
            )
            
            (228,519
            )
            
            (297,818
            )
            
            (36,436
            )Gross
                profit
            
            
            79,794
            
            
            100,651
            
            
            119,005
            
            
            121,090
            
            
            140,401
            
            
            17,177Selling
                and administrative expenses
            
            
            (57,396
            )
            
            (81,325
            )
            
            (86,883
            )
            
            (84,772
            )
            
            (88,311
            )
            
            (10,804
            )Interest
                Expenses
            
            
            (600
            )
            
            (541
            )
            
            (354
            )
            
            (423
            )
            
            (1,499
            )
            
            (184
            )Other
                income
            
            
            8,413
            
            
            14,186
            
            
            4,717
            
            
            3,032
            
            
            2,711
            
            
            332Income
                before taxation
            
            
            30,211
            
            
            32,971
            
            
            36,485
            
            
            38,927
            
            
            53,302
            
            
            6,521Income
                Tax
            
            
            (2,911
            )
            
            (3,116
            )
            
            (3,727
            )
            
            (4,031
            )
            
            (8,744
            )
            
            (1,070
            )Income
                before Minority Interest
            
            
            27,300
            
            
            29,855
            
            
            32,758
            
            
            34,896
            
            
            44,558
            
            
            5,451Minority
                interest
            
            
            (4,229
            )
            
            (4,972
            )
            
            (5,845
            )
            
            (6,032
            )
            
            (7,482
            )
            
            (915
            )Net
                income
            
            
            23,071
            
            
            24,883
            
            
            26,913
            
            
            28,864
            
            
            37,076
            
            
            4,536Earnings per
                share:Basic
            
            
            3.66
            
            
            3.96
            
            
            4.21
            
            
            4.44
            
            
            5.70
            
            
            0.70Fully
                diluted
            
            
            3.65
            
            
            3.93
            
            
            4.15
            
            
            4.33
            
            
            5.58
            
            
            0.68Number
                of shares outstanding: (2)
              Basic
            
            
            6,298,978
            
            
            6,279,866
            
            
            6,390,804
            
            
            6,489178
            
            
            6,499,898
            
            
            6,499,898Fully
                diluted
            
            
            6,326,556
            
            
            6,329,854
            
            
            6,487,116
            
            
            6,663,305
            
            
            6,640,396
            
            
            6,640,396





December
              
              December
              
              December
              
              December
              
              December31,
                  2001
              
              31,
                  2002
              
              31,
                  2003
              
              31,
                  2004
              
              31,
                  2005RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              U.S.$(1)Balance
                  Sheet Data:Cash
                  and cash equivalents
              
              
              44,510
              
              
              63,800
              
              
              66,571
              
              
              46,433
              
              
              63,417
              
              
              7,857Total
                  assets
              
              
              203,711
              
              
              267,261
              
              
              283,890
              
              
              351,228
              
              
              411,197
              
              
              50,948Minority
                  interest
              
              
              7,028
              
              
              10,899
              
              
              6,841
              
              
              5,437
              
              
              6,200
              
              
              768Equity
              
              
              160,464
              
              
              184,604
              
              
              208,854
              
              
              233,857
              
              
              258,807
              
              
              32,066







(1)  For
      your
      convenience, conversion of amounts from Renminbi into U.S. dollars has been
      made
      at the noon buying rate in New York City for cable transfers in foreign
      currencies as certified for customs purposes by the Federal Reserve Bank of
      New
      York on December 31, 2005 of RMB8.07 = U.S.$1.00. No representation is made
      that
      the Renminbi amounts could have been, or could be, converted into U.S. dollars
      at this rate or at any other established rate.





(2)  There
      are
      20,000,000 shares of common stock authorized and 1,000,000 shares of preferred
      shares authorized.





**Forward
      Looking Statements**





We
      make
      forward-looking statements in this report, in other materials we file with
      the
      SEC or otherwise release to the public, and on our website. In addition, our
      senior management might make forward-looking statements orally to analysts,
      investors, the media and others. Statements concerning our future operations,
      prospects, strategies, financial condition, future economic performance
      (including growth and earnings) and demand for our products and services, and
      other statements of our plans, beliefs, or expectations, including the
      statements contained in this report regarding our future plans, strategies
      and
      expectations are forward-looking statements. In some cases these statements
      are
      identifiable through the use of words such as “anticipate,” “believe,”
“estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,”
“may,” “should,” “will,” “would” and similar expressions. We intend such
      forward-looking statements to be covered by the safe harbor provisions under
      the
      Private Securities Litigation Reform Act of 1995. You are cautioned not to
      place
      undue reliance on these forward-looking statements because these forward-looking
      statements we make are not guarantees of future performance and are subject
      to
      various assumptions, risks, and other factors that could cause actual results
      to
      differ materially from those suggested by these forward-looking statements.
      Thus, our ability to predict results or the actual effect of future plans or
      strategies is inherently uncertain. Factors which could have a material adverse
      effect on our operations and future prospects include, but are not limited
      to,
      changes in: economic conditions generally and the transformer market
      specifically, legislative or regulatory changes that affect us, the availability
      of working capital, the introduction of competing products, and other risk
      factors described herein. These risks and uncertainties, together with the
      other
      risks described from time to time in reports and documents that we filed with
      the SEC should be considered in evaluating forward-looking statements, and
      undue
      reliance should not be placed on such statements. (There also are other factors
      that we do not describe, generally, because we currently do not perceive them
      to
      be material that could cause actual results to differ materially from our
      expectations.) Indeed, it is likely that some of our assumptions will prove
      to
      be incorrect. Our actual results and financial position will vary from those
      projected or implied in the forward-looking statements, and the variances may
      be
      material. We expressly disclaim any obligation to update or revise any
      forward-looking statements, whether as a result of new information, future
      events or otherwise, except as required by law.




-
          2 -




**Risk
        Factors**
 
 *You
        should carefully consider the risks described below before making an investment
        decision. Any of these risks may have a material adverse effect on our business,
        financial condition or results of operations. The trading price of our shares
        could decline due to any of these risks and you may lose all or part of your
        investment. The risks described below are not the only ones facing our company.*
 
 **Risks
        Related to Our Business**
 
 **The
        continued existence of our joint venture is contingent on certain
        factors.**
 
 We
        were
        established for an initial term of 50 years, which may be extended by the
        mutual
        consent of the parties to the joint venture agreement, subject to the approval
        of the relevant Chinese government authorities. In the event that our term
        is
        not extended, the joint venture will be dissolved and liquidated pursuant
        to the
        provisions of applicable law and the joint venture agreement. In addition,
        we
        may be terminated prior to the expiration of the joint venture agreement
        upon
        the occurrence of certain events, including, without limitation, the inability
        of the enterprise to conduct its business due to financial losses or a breach
        of
        the joint venture agreement by one of the parties thereto.
 
 **Because
        a significant portion of our revenues are derived from sales of our cast
        resin
        transformers, any decrease in sales of cast resin transformers could harm
        our
        operating results.**
 
 Sales
        generated by cast resin transformers will continue to account for virtually
        all
        of our revenues. Accordingly, our business and results of operations are
        dependent on the demand for this single product, thus, any decrease in the
        demand for this product, whether as a result of competition, technological
        changes, economic conditions in China, restrictions on our ability to market
        this product, or other factors would have a material adverse effect on our
        business, financial condition, and results of operations.
 
  -
            3 -
  **Accidents
        involving the use of our transformers could result in injury or damage to
        our
        customers, expose us to financial liability, and adversely affect our ability
        to
        market our product.**
 
 Although
        we have never experienced a significant accident such as a fire or an explosion
        resulting from the operation of our transformers and we generally believe
        that
        our transformers are safe and do not pose a significant risk of combustion,
        fire, or explosion, there can be no assurance that an accident, which may
        cause
        injury or damage to the users of our transformers, will not occur. Any such
        incident could expose us to potential claims or liabilities which may damage
        our
        reputation among potential customers, resulting in a potentially adverse
        effect
        on our ability to market our products.
 
 **Changes
        in China’s present policy of economic reform and economic protection for foreign
        investment enterprises could harm our operating results.**
 
 As
        part
        of its economic reform, China has designated certain areas, including the
        Hainan
        Province, where we maintain our offices and manufacturing facilities, as
        Special
        Economic Zones (“SEZs”). Foreign investment enterprises in these areas generally
        benefit from greater economic autonomy and advantageous tax treatment in
        China.
        Although we are not aware of any pending or proposed changes in the policies
        or
        laws governing SEZs that could have a material adverse effect on our business,
        financial condition and results of operations, there can be no assurance
        that
        such changes will not occur.
 
 **If
        any of our current suppliers delay, interrupt, or halt supply we could be
        forced
        to obtain our raw materials at higher prices from alternative
        sources.**
 
 The
        principal raw materials we require in our business are (1) cast resin, used
        to
        coat the copper coils of our transformers, (2) silicon steel, used to construct
        the cores of our transformers, and (3) copper foil and wire for our copper
        windings. We obtain all of our cast resin from Bakelite, a German corporation,
        the silicon steel from Thyssenkrupp Electrial Street GmbH, a European company
        and Legnano
        Teknoelectric Company and Spa , and
        the copper foil and wire from TongLing
        Nonferrous Metals (Group) Inc and Jiangying Jinqiu Group Co. Ltd. in
        China. Although we usually have a two to three month supply of these raw
        materials in our inventory and we believe that we are able to obtain our
        cast
        resin, silicon steel or copper foil materials from several other companies
        besides our current suppliers, if we were to experience significant delays,
        interruptions, or reductions in our supply of cast resin, silicon steel,
        or
        copper foil and wire, we could face increased costs which may have a material
        adverse effect on our results of operations.
 
 Other
        raw
        materials required to manufacture our products include copper wire, glass
        fiber,
        and quartz powder. We maintain at least two suppliers for each of our major
        raw
        materials, other than cast resin and silicon steel, in order to enhance our
        ability to obtain an adequate supply of high quality, competitively-priced
        raw
        materials. We purchase our copper wire, glass fiber, and quartz powder from
        local suppliers in nearby regions and believe that these materials are readily
        available. We have never experienced any disruption in the supply of any
        raw
        material that has had a material impact on our operations, we cannot be certain
        however, that a disruption in supply by our raw material suppliers will not
        occur in the future. If such a disruption occurs and we experience a significant
        delay in the supply of these materials, there may be a material adverse effect
        on our results of operations.
  -
            4 -
 
 **Competition
        with other large and small transformer manufacturers may result in a reduced
        prices and a loss of market share. We may also face competition from foreign
        companies.**
 
 The
        market for cast resin transformers in China is highly competitive and we
        expect
        increased competition in the future. We primarily compete with several large
        transformer manufacturers as well as a number of small transformer
        manufacturers. Most of our competitors are government-owned entities and
        only
        few of our competitors have greater name recognition and more extensive
        engineering, manufacturing, and marketing capabilities than we do. Our future
        success will largely depend on our marketing efforts and ability to expand
        production capacity.
 
 Although
        price has historically not been a major factor in competing against other
        cast
        resin transformer manufacturers, it does remain a factor in competing against
        oil-filled transformer manufacturers and other more traditional, less expensive
        transformer devices. Increased competition may result in price reductions
        or
        loss of market share, which would adversely affect our business, results
        of
        operations or financial condition.
 
 Due
        to
        high production costs, foreign companies do not currently compete against
        us in
        the transformer market in China. There can be no assurance, however, that
        foreign manufacturers will not enter into joint venture arrangements or
        establish wholly foreign-owned enterprises, which would subject us to increased
        competition with foreign companies and adversely affect our results of
        operations.
 
 We
        believe that the principal competitive factors affecting the transformer
        market
        in China include, in order of significance, product reputation, product
        performance and safety, product quality, marketing expertise, and product
        price.
        There can be no assurance that we will be able to compete successfully in
        the
        future with existing or new competitors. Following China’s entry into the World
        Trade Organization, we may have additional competitors in China such as ABB,
        Siemens, and Alstom.
 
 **We
        may face product liability claims that may result in costly litigation and
        divert the attention of our management.**
 
 Our
        business exposes us to potential liability risks that are inherent in the
        manufacturing and marketing of potentially dangerous electrical equipment.
        Consistent with industry practice in China, we do not currently maintain
        product
        liability insurance for our products. Such a product liability claim may
        adversely affect our business, operating results or financial condition.
        Currently, we do not know of any such product liability suits pending against
        us.
 
 **If
        we are unable to maintain our expertise in manufacturing processes or identify
        new technologies as they arise we will be unable to compete
        successfully.**
 
 The
        electrical transformer industry may be subject to changing technology, evolving
        industry standards, emerging competition and innovative product introductions.
        Although we are not presently aware of a technology more advanced than our
        products, there can be no assurance that we will successfully identify new
        technologies as they arise and develop and bring new products and services
        to
        the market in a timely manner or that products, services or technologies
        developed by others will not render our products, services, or technologies
        noncompetitive, obsolete, or less marketable.
 
 **We
        may be subject to infringement claims by third parties that could subject
        us to
        financial liability or limit our product offerings, and our competitive position
        could be harmed if we are unable to protect our intellectual
        property.**
 
 We
        own
        the rights to the trademark “JST,” which is registered with the Trademark Bureau
        of the State Administration of Industry and Commerce of China. We believe
        that
        this trademark has significant value and is important to our marketing and
        expansion efforts. However, with regard to our current trademark or any future
        trademarks, we cannot be sure that any one or all of the following scenarios
        has
        not occurred or will not occur, any one of which could have a material adverse
        effect upon us:
 
  -
            5 -
  •
              we
                  are unable to register other names or service marks that we may
                  consider
                  important;
 •
              our
                  currently registered trademark or any future registered trademark
                  currently does or will violate the proprietary rights of
                  others;
 •
              our
                  trademarks are not upheld by the Chinese government or its judicial
                  system
                  if challenged;
 •
              we
                  are prevented from using our trademarks; or
 •
              because
                  enforcing our proprietary rights or defending against the ownership
                  claims
                  of others may be extremely costly, we may not have the financial
                  resources
                  necessary to enforce or defend our
                  trademarks.
 
 **If
        we lose our key personnel, our ability to operate our company and our results
        of
        operations may suffer.**
 
 Our
        success is largely dependent upon our ability to hire and retain additional
        marketing personnel. We employ highly qualified employees but competition
        for
        qualified personnel is intense and there can be no assurances that we will
        be
        able to hire or retain additional qualified marketing personnel. Any inability
        to attract and retain qualified marketing personnel would have a material
        adverse effect on our business.
 
 **Our
        growth may be slow if the demand for electric power in China does not
        continue.**
 
 Demand
        for our products is linked closely to increased demand for electric power
        in
        China. While such demand has experienced tremendous growth over the past
        several
        years, there can be no assurance that such growth will continue. Any material
        decline in the use of electricity in China is likely to adversely impact
        on our
        business. Based on economic analysis and studies, however, we do not expect
        the
        demand for electric power in China to decline during the next 10
        years.
 
 **British
        Virgin Islands law is less defined than the laws governing corporations
        organized in the United States and may provide less protection for
        shareholders** .
 
 Our
        corporate affairs are governed by our Memorandum and Articles of Association
        and
        by the International Business Companies Act of the British Virgin Islands.
        Principles of law relating to matters such as the validity of corporate
        procedures, the fiduciary duties of our management, directors, and controlling
        shareholders, and the rights of our shareholders differ from those that would
        apply if we were incorporated in a jurisdiction within the United States.
        Further, the rights of shareholders under British Virgin Islands law are
        not as
        clearly established as the rights of shareholders under legislation or judicial
        precedent in existence in most United States jurisdictions. Thus, our public
        shareholders may have more difficulty protecting their interests in actions
        against our management, directors, or controlling shareholders than they
        might
        have as shareholders of a corporation incorporated in a United States
        jurisdiction.
 
 **British
        Virgin Islands law does not provide for directors to have fiduciary duties
        to
        the corporation and its shareholders, rather, a director’s liability is
        generally limited to cases of willful malfeasance in the performance of a
        director’s duties.**
 
 Under
        the
        laws of most jurisdictions in the United States, majority and controlling
        shareholders generally have certain “fiduciary” responsibilities to the minority
        shareholders. Shareholder actions must be taken in good faith and actions
        by
        controlling shareholders which are obviously unreasonable may be declared
        null
        and void. British Virgin Islands law protecting the interests of minority
        shareholders, however, may not be as protective as the laws protecting minority
        shareholders in the United States. In addition, in most United States
        jurisdictions, directors owe a fiduciary duty to the corporation and its
        shareholders, including a duty of care, pursuant to which directors must
        properly apprise themselves of all reasonably available information, and
        a duty
        of loyalty, pursuant to which they must protect the interests of the corporation
        and refrain from conduct that injures the corporation or its shareholders
        or
        that deprives the corporation or its shareholders of any profit or advantage.
        Under British Virgin Islands law, however, liability of a corporate director
        to
        the corporation is basically limited to cases of willful malfeasance in the
        performance of his duties or to cases where the director has not acted honestly
        and in good faith and with a view to the best interests of the
        corporation.
  -
            6 -
  **Directors
        of British Virgin Islands corporations may act without shareholder approval
        to
        implement reorganizations, certain mergers or consolidations, asset sales
        or
        transfers, and the dissolution of a corporation.**
 
 The
        directors of a British Virgin Islands corporation, subject to court approval
        but
        without shareholder approval, may, among other things, implement a
        reorganization, certain mergers or consolidations, the sale, transfer, exchange
        or disposition of any assets, property, part of the business or securities
        of
        the company, the winding-up or dissolution of the company, or any combination
        thereof, if they determine it is in the best interests of the company, its
        creditors, or its stockholders.
 
 **British
        Virgin Islands courts may not enforce judgments rendered by United States
        courts.**
 
 There
        is
        doubt whether the courts of the British Virgin Islands would enforce, either
        in
        an original action or an action for enforcement of judgments of United States
        courts, liabilities which are predicated upon the securities laws of the
        United
        States.
 
 **Risks
        Related to Our Chinese Operations**
 
 **We
        may be subject to the political, economic, legal and other uncertainties
        of
        China, which is a socialist state controlled by the Communist Party of
        China.**
 
 Because
        we are a foreign company conducting our operations and owning assets primarily
        in China, our operations and assets are subject to political, economic, legal
        and other uncertainties which affect companies operating in China.
 
 China
        is
        a socialist state which since 1949, has been controlled by the Communist
        Party
        of China. Changes in the top political leadership of the Chinese government
        may
        have a significant impact on policy and the political and economic environment
        in China. Furthermore, because economic reforms and growth in China have
        been
        more successful in some provinces than in others, the continuation or increase
        of these economic disparities could affect political or social
        stability.
 
 China
        is
        considered to be a high risk nation for business and investment in the Asian
        region. Although China recently has permitted greater provincial and local
        economic autonomy and private economic activity, the government of China
        has
        exercised and continues to exercise substantial control over virtually every
        aspect of the Chinese economy through regulation and state ownership. Therefore,
        government action in the future, including any decision by the Chinese
        government not to continue to support the economic reform program that it
        commenced in the late 1970’s and the possible return of China to the more
        centrally-planned economy that existed prior to the economic reforms, could
        have
        a significant effect on economic conditions in China and on our operations.
        China’s economic reform plan was designed to bring into China foreign investment
        capital and technological advancements. The result of these reforms has been
        a
        move towards a more mixed economy and away from a more centrally-planned
        economy. The process of shifting more responsibility for various aspects
        of
        economic enterprise to local management and regional authorities continues,
        even
        though the system of Chinese socialism still involves considerable influence
        by
        the central government in economic areas of production and
        marketing.
 
  -
            7 -
  The
        economy of China differs from most countries belonging to the Organization
        for
        Economic Co-operation and Development (“OECD”), in structure, government
        involvement, level of development, growth rate, capital reinvestment, allocation
        of resources, rate of inflation, and balance of payments position. China’s
        economy is managed in part through a series of five-year economic and social
        development plans, each “Five-Year Plan” is formulated by the State Council and
        approved by the National People’s Congress and sets the overall agricultural,
        industrial, financial and other economic and social development targets.
        In
        implementing each Five-Year Plan, the State Planning Commission, a commission
        directly under the State Council, establishes annual production and development
        targets, formulates and supervises the implementation of annual plans designed
        to achieve those targets, and approves major economic projects. Although
        the
        majority of productive assets in China are still owned by the Chinese
        Government, in the past several years the Chinese Government has implemented
        economic reform measures that emphasize decentralization, the utilization
        of
        market forces in the development of the Chinese economy, and the encouragement
        of private economic activity. Such economic reform measures may be inconsistent
        or ineffectual and we may not be able to capitalize on all such reforms.
        Further, there can be no assurance that the Chinese Government will continue
        to
        pursue such policies, that such policies will be successful if pursued, that
        such policies will not be significantly altered from time to time or that
        business operations in China would not become subject to the risk of
        nationalization, which could result in the total loss of investments in
        China.
 
 Since
        1978, the Chinese Government has been reforming its economic systems. Many
        of
        the reforms are unprecedented or experimental and are expected to be refined
        and
        improved. Other political, economic and social factors, such as political
        changes, changes in the rates of economic growth, unemployment or inflation,
        or
        the disparities in per capita wealth between regions within China, could
        also
        lead to further readjustment of the reform measures. This refining and
        readjustment process may not always have a positive effect on our operations.
        Although reforms to China’s economic system have not adversely impacted our
        operations in the past and are not expected to adversely impact our operations
        in the foreseeable future, there can be no assurance that the reforms to
        China’s
        economic system will continue or that we will not be adversely affected by
        changes in the China’s political, economic and social conditions and by changes
        in policies of the Chinese Government, such as changes in laws and regulations
        (or the interpretations thereof), measures which may be introduced to control
        inflation, changes in the rate or method of taxation, imposition of additional
        restrictions on currency conversion and remittance abroad and reduction in
        tariff protection and other import restrictions. Our operating results may
        also
        be significantly affected by the inadequate development of an infrastructure
        for
        power plants and the potential unavailability of adequate power and water
        supplies, transportation, satisfactory roads, communications abilities and
        raw
        materials and parts.
 
 The
        Chinese economy has experienced significant growth in recent years, but such
        growth has been uneven among various geographical regions and sectors of
        the
        economy. The Chinese Government implemented various policies from time to
        time,
        including, but not limited to, the periods from 1989 to 1991and again commencing
        in 1993, to restrain the rate of economic growth, control inflation and
        otherwise regulate economic expansion. Although we do not expect such policies
        to impact our operations, we may benefit from these types of policies or,
        on the
        other hand, more severe measures or other actions by the Chinese Government
        not
        currently expected could decrease demand for our products and adversely affect
        our earnings.
 
  -
            8 -
  Although
        we believe that the economic reform and the macroeconomic measures adopted
        by
        the Chinese government have had in general, a positive effect on the economic
        development of China, the future direction of these economic reforms is
        uncertain and the uncertainty may decrease the attractiveness of our company
        as
        an investment, which may in turn adversely affect our stock price.
 
 **We
        are subject to government regulation and our operating results could be affected
        by changes in those regulations** .
 
 Our
        operations and assets in China are subject to significant political uncertainty.
        Our business, results of operations and financial condition could be adversely
        affected by policy changes made by the Chinese government to any of the
        following:
  •
                laws
                    and regulations, or their interpretation and enforcement
                    thereof,
 •
                confiscatory
                    or increased taxation,
 •
                restrictions
                    on currency conversion and currency
                    devaluations,
 •
                imports,
                    import duties, and sources of supply,
                    or
 •
                the
                    expropriation of private
                    enterprise.
 
 Under
        its
        current governmental leadership, China has been pursuing economic reform
        policies, including the encouragement of private economic activity and greater
        economic decentralization. We can provide no assurance, however, that the
        Chinese government will continue to pursue these policies, that these policies
        will be successful if pursued or will not be significantly altered without
        notice, or that business operations would not become subject to the risk
        of
        nationalization, which could result in the total loss of any investment in
        China. Under the Chinese government’s program of privatizing many state-owned
        enterprises, the Chinese government has attempted to increase its revenues
        by
        increased tax collection. If these efforts to increase tax revenues continue,
        we
        could incur increased taxation expenses which may impact our profitability.
        Moreover, economic development in China may also be limited by the
        following:
  •
                governmental
                    imposition of restrictive measures intended to reduce inflation,
                    increase
                    taxes, or reform unprofitable state-owned
                    enterprises,
 •
                the
                    inadequate development of the Chinese
                    infrastructure,
 •
                the
                    unavailability of adequate power, water supplies, raw materials,
                    and
                    parts, and
 •
                limited
                    transportation and communications
                    capabilities.
 
 The
        Chinese government regulates the import into China of various raw materials
        and
        also taxes some types of imported capital equipment, which may affect our
        operations. The approval of imports by the Chinese government is based to
        some
        extent on the lack of qualified domestically-produced products and on its
        strategic plans for the development of local Chinese industries. We can provide
        no assurance that China’s policies will continue to allow raw materials needed
        by our operations to be imported into China or will not impose import fees,
        which may raise the cost of raw materials or capital equipment used in our
        operations. The imposition of any of these costs could have a material adverse
        effect on our business, results of operations, and financial
        condition.
 
 **China’s
        entrance in the World Trade Organization may result in increased competition
        from international companies.**
 
 Currently,
        a significant portion of China’s economic activity is export-driven and,
        therefore, is affected by developments in the economies of China’s principal
        trading partners, including the U.S.
 
  -
            9 -
  On
        November 11, 2001, China signed an agreement to become a member of the World
        Trade Organization (the “WTO”), the international body that sets most trade
        rules, further integrating China into the global economy and significantly
        reducing the barriers to international commerce. China’s membership in the WTO
        became effective on December 11, 2001. China has agreed upon its accession
        to
        the WTO to reduce tariffs and non-tariff barriers, remove investment
        restrictions, provide trading and distribution rights for foreign firms,
        and
        opened various service sectors to foreign competition. China’s accession to the
        WTO may favorably affect our business in that reduced market barriers and
        an
        increasingly transparent investment environment will facilitate increased
        investment opportunities in China, while tariff rate reductions and other
        enhancements will enable us to develop better investment strategies and attract
        investment capital. In addition, the WTO’s dispute settlement mechanism provides
        a credible and effective tool to enforce member’s commercial rights. Also, with
        China’s entry into the WTO, it is believed that the relevant laws on foreign
        investment in China will be amplified and will follow common practices. However,
        these factors may also increase the number of foreign competitors and thus
        intensify competition in the transformer industry in China, which may in
        turn
        decrease our market share and adversely affect our business, results of
        operations, and financial condition.
 
 **Despite
        continued economic reforms, the economic conditions in China may adversely
        affect our operations** .
 
 China
        has
        operated a centrally-planned economy since 1949. Since 1978, China has
        implemented a series of economic reform programs in an effort to revitalize
        its
        economy and improve living standards, including the implementation of policies
        designed to attract foreign investment and technology.
 
 According
        to a statistical bulletin provided by China’s National Statistics Bureau,
        China’s economic output in 2005 reached 18.23 trillion RMB (2.25 trillion U.S.
        dollars); imports and exports grew 17.6 % and 28.4 % respectively, reaching
        660
        billion U.S. dollars and 762 billion U.S. dollars; and, the consumer price
        index
        increased 1.8 % in 2005. There
        is
        no assurance that the Chinese economy will continue to grow at such rates
        and if
        it fails to do so our business may be adversely affected.
 
 **Despite
        recent reforms, we may be adversely affected by China’s unsophisticated legal
        system and it may be difficult to enforce our legal rights under Chinese
        law and
        for third parties to enforce the laws of the United States or any other state
        in
        China** .
 
 China’s
        legal system is a civil law system, which is based on written statutes and
        legal
        cases having little precedential value. China does not have a well-developed,
        consolidated body of laws governing foreign investment enterprises. As a
        result,
        the administration of laws and regulations by government agencies may be
        subject
        to considerable discretion in individual cases. As legal systems in China
        develop, we, like other foreign business entities, may be adversely affected
        by
        new laws, changes to existing laws (or new interpretations of the laws) and
        preemption of provincial or local laws by national laws. In addition, in
        circumstances where adequate laws do exist, it still may not be possible
        for us
        to obtain swift and equitable enforcement of those legal rights under Chinese
        law.
 
 Moreover,
        because certain directors and officers are non-residents of the United States,
        it may be difficult for investors to effect service of process upon these
        non-residents in the United States or to enforce United States judgments
        against
        them in China’s courts. There is uncertainty as to whether China’s courts would
        enforce:
 
 •
              Judgments
                  of U.S. courts obtained against us or these non-resident directors
                  and
                  officers based on the civil liability provisions of the securities
                  laws of
                  the United States or any state;
                  or
  -
            10 -
  •
              In
                  original actions brought in the Republic of China, liabilities
                  against us
                  or these non-resident directors and officers predicated upon the
                  securities laws of the United States or any
                  state.
 
 Also,
        since a majority or our assets are located in China, it may be difficult
        for an
        investor who obtains a judgment in the United States or another state to
        enforce
        such foreign judgment in China. Such judgment may be further limited by
        applicable bankruptcy, insolvency, liquidation, arrangement, 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.
 
 **Our
        facilities are subject to Chinese environmental regulations that expose us
        to
        potential financial liability.**
 
 Environmental
        protection in China is regulated in accordance with the Environmental Protection
        Law of the People’s Republic of China, which became effective on December 26,
        1989. This law sets national standards for environmental quality and monitoring
        as well as for the utilization of natural resources and the reduction of
        pollution. As a manufacturer, we are subject to annual inspections. We have
        passed our most recent inspection and believe that we are in material compliance
        with applicable environmental laws. In September 2000, we also obtained ISO
        14001 certification from the Environmental Management Certification Center
        for
        the Machinery Industry.
 
 **The
        expansion of our operations internationally may be adversely affected by
        Chinese
        economic, political, legal and other uncertainties** .
 
 Although
        we sell products to customers based principally in China, we are doing business
        in the U.S. and seek to do business in other countries as well. In the future,
        our international operations and sales may be affected by the following risks,
        which may adversely affect Chinese companies doing business
        internationally:
 •
                political
                    and economic risks, including political
                    instability,
 •
                currency
                    controls and exchange rate
                    fluctuations,
 •
                changes
                    in import/export regulations, tariff and freight rates,
                    and
 •
                various
                    forms of protectionist trade legislation which currently exist
                    or have
                    been proposed in some foreign
                    countries.
 
 **We
        receive our revenues in Renminbi, which experiences volatility in its exchange
        rate to certain foreign currencies and may adversely affect our financial
        performance** .
 
 We
        receive almost all of our revenues in Renminbi, which is not freely convertible
        into foreign currencies. However, we are required to meet foreign currency
        obligations, such as for future purchases of certain equipment and raw materials
        from German. The Chinese government imposes control over our foreign currency
        reserves in part through direct regulation of the conversion of Renminbi
        into
        foreign currency and through restrictions on foreign imports. Effective January
        1, 1994, pursuant to the Notice of the People’s Bank of China Concerning Further
        Reform of the Foreign Currency Control System (“PBOC Notice”), the conversion of
        Renminbi into Hong Kong and United States dollars must be based on rates
        set by
        the PBOC. Such rates are set daily, based on the previous day’s Chinese
        interbank foreign exchange market rate with reference to current exchange
        rates
        on the world financial markets or the “PBOC Rate.” On July 21, 2005, the Chinese
        government revalued the Renminbi against the U.S. dollar and introduced a
        basket
        of currencies system to determine the exchange rate, which is based on the
        interbank foreign exchange market rates and current exchange rates of a basket
        of currencies in the world financial markets. As
        a
        result of adopting a flexible exchange rate, China’s financial sector is now
        more responsive to fluctuations in the international currency market. The
        Renminbi/US Dollar exchange rate has climbed steadily since. As of December
        31,
        2005, the exchange rate was 8.07 Renminbi to every U.S. dollar.
 
  -
            11 -
  Effective
        as of December 1, 1996, Renminbi has become fully convertible for all current
        account transactions. Foreign exchange, which is required for current account
        transactions, can be bought freely at authorized Chinese banks, so long as
        the
        procedural requirements prescribed by law are met. Payment of dividends to
        foreign investors holding equity interests in Chinese companies, including
        Foreign Investment Enterprises, is considered a current account transaction.
        At
        the same time, Chinese companies are also required to sell their foreign
        exchange earnings to authorized Chinese banks. Purchase of foreign currency
        for
        capital account transactions still requires prior approval of the State
        Administration for Foreign Exchange.
 
 Exchange
        rate fluctuations may adversely affect our financial performance because
        of our
        foreign currency denominated liabilities and may materially adversely affect
        the
        value, translated or converted as applicable into United States dollars,
        of our
        net fixed assets, our earnings and our declared dividends. We currently do
        not
        engage in any hedging activities in order to minimize the effect of exchange
        rate risks.
 
 **Future
        inflation in China may inhibit economic activity in China.**
 
 In
        recent
        years, the Chinese economy has experienced periods of rapid expansion and
        high
        rates of inflation.  During the past ten years, the rate of inflation in
        China has been as high as 20.7% and China has experienced deflation as low
        as
        minus 2.2%.  These factors have led the Chinese government to adopt, from
        time to time, various corrective measures designed to restrict the availability
        of credit or regulate growth and contain inflation. While inflation has been
        more moderate since 1995, high inflation may in the future cause the Chinese
        government to impose controls on credit and/or prices, or to take other action,
        which could inhibit economic activity in China, and thereby adversely affect
        the
        market for our products.
 
 **Any
        recurrence of severe acute respiratory syndrome (SARS), an outbreak of the
        avian
        flu, or another widespread public health problem, in the PRC could adversely
        affect our operations.**
 
 From
        December 2002 to June 2003, China and certain other countries
        experienced an outbreak of a new and highly contagious form of atypical
        pneumonia now known as severe acute respiratory syndrome, or SARS. On
        July 5, 2003, the World Health Organization declared that the SARS outbreak
        had been contained. Since September 2003, however, a number of isolated new
        cases of SARS have been reported, most recently in central China in
        April 2004. During May and June of 2003, many businesses in China were
        closed by the PRC government to prevent transmission of SARS. Recently, concerns
        have been raised with respect to the spread of avian flu in various regions
        in
        China. Any recurrence of the SARS outbreak, outbreak of avian flu, or the
        development of a similar health hazard in China, may adversely affect our
        business and operating results. For instance, a recurrence of SARS, outbreak
        of
        avian flu or any other epidemic may reduce the level of economic activity
        in
        affected areas and negatively impact China’s stock markets, which may lead to
        dampened investors’ interest in the stock markets and, as a result, have a
        material and adverse effect on our business. In addition, health or other
        government regulations may require temporary closure of our offices, or the
        offices of our advertisers, content providers or sponsors, which will severely
        disrupt our business operations and have a material adverse effect on our
        financial condition and results of operations.
 
  -
            12 -
  **Item
        4. Information on the Company**
 
 **History
        and Development**
 
 Jinpan
        International Limited was incorporated as an International Business Company
        under the laws of the British Virgin Islands on April 3, 1997. We own 85%
        of
        Hainan Jinpan Special Transformer Works which was renamed Hainan Jinpan Electric
        Company Ltd. on October 9, 2004. Our principal executive offices are located
        at
        c/o Hainan Jinpan Electric Corporation Ltd., No. 100 Nanhai Avenue, Jinpan
        Development Area, Haikou, Hainan China.
 
 Hainan
        Jinpan was established in June 1997 as a Sino-foreign cooperative joint venture
        between Haikou Jinpan and Jinpan International. It is located in the Hainan
        Province in southern China and is principally involved in the design,
        manufacture and sale of cast resin transformers. Until June 30, 1997, Hainan
        Jinpan’s operations were wholly-owned and conducted by Haikou Jinpan, which has,
        since its establishment in August 1993, sold in excess of  15,684
        cast resin transformers in China and has produced aggregate revenues of
        approximately RMB1,951  million
        (U.S.$236 million) as of December 31, 2005. Pursuant to the terms of the
        joint
        venture contract between Haikou Jinpan and Jinpan International, Haikou Jinpan
        received a 15% equity interest in Hainan Jinpan in exchange for the capital
        contribution of its building, equipment, and other production and related
        facilities, while we received an 85% equity interest in Hainan Jinpan in
        return
        for our commitment to contribute capital of U.S.$2.1 million. Hainan Jinpan
        purchased all the remaining assets and liabilities of Haikou Jinpan in exchange
        for U.S.$2.1 million.
 
 In
        2003,
        2004, and 2005, we invested approximately RMB 3.5 million, RMB 11.3 million,
        and
        RMB 7.5 million, respectively, on capital expenditures mainly to purchase
        equipment and expand our manufacturing plant located in the Hainan Province,
        China. We funded these expenditures with our available cash, funds generated
        from operations, and credit facilities from Nan Yan Commercial Bank and the
        Bank
        of China (see Item 5, Liquidity and Capital Resources.) We expect to make
        capital expenditures of approximately RMB 8.3 million in 2006. We expect
        that
        our current cash and funds generated from operations, together with existing
        credit facilities, will be sufficient to meet our capital expenditures in
        2006.
 
 **Business
        Overview**
 
 ***General
        overview***
 
 Through
        our joint venture interest in Hainan Jinpan, we design, manufacture and sell
        cast resin transformers for voltage distribution equipment in China. Our
        cast
        resin transformers allow high voltage transmissions of electricity to be
        distributed to various locations in lower, more usable voltages. According
        to
        the Chinese Association of Transformers, we are the second largest manufacturer
        and distributor of cast resin transformers in China, using the aggregate
        capacity of the transformers as measured in kilovolt-amperes (“KVA”) as a basis
        for comparison. In 2005, Hainan Jinpan had total sales of RMB441 million
        (US$54
        million) based upon sales of our transformers having a total capacity of
        4.6
        million KVA. Hainan Jinpan obtained an ISO9001 certification of its cast
        resin
        transformers in April 1997, which was renewed for an additional period of
        three
        years expiring in 2006. Hainan Jinpan also obtained an ISO14001 certification
        from the Environmental Management Certification Center for the Machinery
        Industry in September 2000, making it one of only a few Chinese transformer
        manufacturers to have received such certification from the International
        Standardizing Organization. Equipment manufactured by Hainan Jinpan also
        underwent complete type testing and was certified by KEMA High Power Laboratory
        in September 1999. In addition, Hainan Jinpan’s transformers have been certified
        by the Chinese Ministry of Machinery and Ministry of Electric Power, indicating
        that Hainan Jinpan has satisfied the required national standards related
        to
        its:
  -
            13 -
  •
                product
                    quality;
 •
                manufacturing
                    processes;
 •
                equipment;
                    and
 •
                personnel.
 
 We
          have
          begun the process of obtaining our core and coil “UL” certification, from the
          Underwriters Laboratories Inc., which specialized in product compliance.
          Such
          certification requires compliance with the UL’s Standards for Safety, under
          which product samples are tested and evaluated in accordance with applicable
          safety requirements. UL Standards for Safety provide for certain technical
          requirements, which products must meet in order to become eligible to bear
          a UL
          mark. Once a product meets these requirements, authorization is given by
          UL to
          apply the appropriate UL mark to the products.
 
 Our
          cast
          resin transformers are used to distribute electricity from the end of electric
          transmission lines to points of electricity usage within various types
          of
          facilities, including residential, commercial, industrial, and other types
          of
          facilities. In order to more efficiently transmit electricity over long
          distances, electrical voltage is typically increased or “stepped up” by a power
          generating facility. Our cast resin transformers “step down” or decrease voltage
          to a level that can be generally used. Most step down transformers in China
          use
          oil to disperse the heat created when high voltage is transformed into
          low
          voltage. Although oil-filled transformers are effective and less expensive
          to
          purchase, relative to some other types of transformers, oil-filled transformers
          require maintenance, produce leakage and pollution, and experience a higher
          incidence of combustion than the cast resin transformers that we produce.
          We
          believe that the problems associated with oil-filled transformers have
          resulted
          in demand for safer and more efficient alternatives like our cast resin
          transformers, especially in urban areas.
 
 We
          manufacture four main types of cast resin transformers, which are distinguished
          by their insulation systems. The insulation systems used are: 155 degree
          Celsius
          Class “F” per IEC60076 (International Electrotechnical Commission) and 188
          degree Celsius Class “H” for the Chinese market and 150 and 185 degree Celsius
          per ANSI (American National Standard Institute), IEEE (Institute of Electrical
          and Electronics Engineers), and NEMA (National Electrical Manufacturers
          Associations) standards for the U.S. and North American markets. In some
          transformers the high and low voltage coils are cast in epoxy resin under
          vacuum
          conditions. In others, the high voltage coils are cast in epoxy resin under
          vacuum conditions and the low voltage coils are encapsulated. Since our
          coils
          are either cast or encapsulated, they use ambient air to cool the transformers
          instead of requiring a liquid, such as oil, to absorb the heat produced.
          The
          Chinese Ministry of Machinery has published guidelines requiring, to the
          extent
          possible, the use of cast resin transformers in buildings containing
          transformers and in factories, which are subject to a high risk of
          fire.
  ***Our
          electric transforming products***
 
 We
          manufacture and sell primarily four types of cast resin transformers. For
          the
          Chinese market we make 155 and 188 degree Celsius insulation (class F and
          class
          H). We manufacture and sell 16 standard sizes of transformers with KVA
          capacities ranging between 100 to 3150 KVA. For transformers with KVA of
          400 and
          under, the high and low voltage coils are cast in epoxy resin under vacuum
          condition. For transformers with KVA above 400, the high voltage coils
          are cast
          in epoxy resin under vacuum conditions and the low voltage coils are
          encapsulated. For the U.S. and North American markets we make 150 degree
          Celsius
          and 185 degree Celsius insulation, per ANSI, IEEE, and NEMA standards.
          For each
          insulation system we manufacture 9 standard sizes with KVA capacities ranging
          from 300 KVA to 3750 KVA. Our current maximum transformer KVA range both
          for the
          Chinese, U.S., and North American markets is 20,000 KVA.
 
  -
              14
              -
  In
          the
          event that our standard size cast resin transformers does not meet a customer’s
          requirements or a customer seeks to purchase a transformer with a capacity
          in
          excess of the maximum KVA capacities of our transformers, we offer design
          engineering services which enable us to manufacture custom made transformers
          to
          fulfill a customer’s particular needs. In order to customize our transformers,
          we employ 25 design engineers who utilize 3D design systems, Mechanic Desk
          Top
          software, and Auto Desk to design custom made transformers. For example,
          our
          engineers designed and we installed a custom made transformer with a capacity
          of
          10,000 KVA for use in the Beijing subway system. The pricing of our transformers
          is based upon capacity as measured in KVA. The price of our transformers
          is
          typically increased by an additional 5% in the event that any design engineering
          services are performed, regardless of the extent of services
          performed.
 
 We
          believe that the main advantages of our cast resin transformers as compared
          to
          other electric transformers are that our transformers:
 
 •
                are
                    manufactured with fire resistant
                    components;
 •
                do
                    not use a potentially environmentally harmful cooling liquid
                    that may
                    leak;
 •
                use
                    less power or produce energy loss than other available
                    transformers;
 •
                require
                    little maintenance;
 •
                are
                    resistant to short circuit shocks;
 •
                have
                    greater emergency overload
                    capability;
 •
                have
                    greater reliability; and
 •
                have
                    smaller dimensions and are less
                    noisy.
 
 *How
          electricity transformers generally work.*
 
 Transformers
          are used to step-up and step-down voltages to transport electric energy
          over
          long distances. A large transformer is commonly used at a generating facility
          to
          increase voltage and decrease current needs in order to transport electric
          energy across transmission lines. At the point the electric energy reaches
          the
          end user, a step-down transformer is required to reduce voltage and increase
          current for general use. The process of transforming high voltage to low
          voltage
          results in some energy loss which produces heat. Therefore, electric
          transformers used to step-down voltages, like our cast resin transformers,
          must
          contain an effective cooling system. Oil-filled transformers, which are
          widely
          used in China, circulate oil through their coils to help disperse the heat
          to
          the surrounding environment. Although oil-filled transformers are less
          expensive
          to purchase than other types of transformers, including cast resin transformers,
          and work effectively, the oil-filled transformers have the following problems,
          including:
 
 •
                the
                    need for periodic maintenance;
 •
                the
                    risk of combustion or explosion;
                    and
 •
                the
                    possibility of leakage, which creates potential environmental
                    problems.
 
 In
          light
          of these problems with oil-filled transformers, other types of transformers,
          including cast resin transformers, have been increasingly used in
          China.
 
 *How
          cast resin transformers generally work.*
 
 Cast
          resin transformers were developed in Germany in the 1960s as an alternative
          to
          oil-filled transformers. In contrast to oil-filled transformers, which
          have
          their coils immersed in oil to absorb and disperse heat, coils in a cast
          resin
          transformer are coated with a dry epoxy resin which is able to withstand
          temperatures as high as 188 degrees Celsius. This dry epoxy resin coating
          serves
          as the insulation medium between coils. To ensure effective insulation,
          appropriate precautions must be maintained to ensure that any moisture
          or
          condensation has been removed when the epoxy resin is cast. Rather than
          requiring a liquid like oil to absorb the heat produced, cast resin transformers
          release the heat produced into the ambient air in the form of hot
          air.
 
  -
              15
              -
  **Business
          strategy**
 
 During
          2005 we adopted a strategy which focused on promoting and developing new
          products, forward integration, and strengthening our sales force. Last
          year we
          continued to execute our strategy along these strategic lines. Our efforts
          enabled us to become second largest cast resin transformer manufacturer
          in
          China, according to the Chinese Association of Transformers, while we continued
          to make advances in other international markets. The following is a summary
          description of our business strategy:
 
 *New
          products*
 
 We
          continue to develop and expand our product line, extending the uses of
          our cast
          resin transformers into areas where we believe we will have a competitive
          edge
          over our competitors. For example, in 2005, we developed the ZQSC10 24
          pulse
          rectifier transformer which benefits the end user by greatly reducing the
          harmonics in rectifier circuits to help protect the network on which it
          runs.
          Another product developed in 2005 is the ZIDCB9-3000 isolation transformer
          utilized in 800 mega-watt power plants and is a technology that was previously
          imported to China. We believe that the development of these new products
          will
          greatly enhance our competitiveness in China and abroad.
 
 *Forward
          Integration*
 
 Since
          2004 we have successfully engaged in developing Jinpan Electric as a supplier
          of
          switch gear products. Switch gear forms the part of the system that enables
          operators to switch system equipment in and out of the network on which
          it runs.
          We have executed a licensing agreement with one of the world’s leading
          manufacturers of circuit breakers for use in our switch gear assemblies.
          These
          efforts have helped us obtain certain large scale projects for switch system
          equipment. We have also realized successful forward integration through
          our unit
          substation business, which was initiated in 1999 and has grown considerably
          since then. A unit substation is a miniature power generation station comprised
          of high voltage switchgear, a transformer, low voltage switchgear, a power
          meter, and a power factor compensation device all interconnected with cables
          or
          buss bars. Jinpan creates unit substations by integrating the aforementioned
          equipment together with our transformers. Unit substations are commonly
          used in
          applications related to construction and reconstruction of city power networks.
          Switch gear and transformers are key components in unit substations. In
          an
          effort to position our company as a total solutions provider of electrical
          equipment we have changed the company’s name to Hainan Jinpan Electric. Based on
          our success with integrated assemblies, we believe that we are on the road
          to
          becoming a major electrical equipment supplier and offering complete electrical
          equipment packages to our customers.
 
 *Strengthen
          our sales force and advance our markets*
 
 By
          December 31, 2005, we strengthened our sales force to include 35 sales
          offices
          in China with 71 direct employees and 5 independent sales agents, and 1
          sales
          office in North America with 4 independent sales agents addressing international
          business, outside of China. We will continue to increase our sales force
          as
          needed to fully exploit various high growth markets.
 
 In
          2004
          and 2005, we made significant progress in the large original equipment
          manufacturers (OEM) market. We successfully passed the qualification program
          of
          one of the world’s largest power generating equipment manufacturers, and since
          then have supplied this manufacturer with transformers for certain projects.
          Moreover, as a measure of our success, Jinpan Electric was presented an
          award
          for best new supplier by this major OEM at a supplier’s conference. In addition
          we were audited and surveyed by several other leading OEMs during 2004
          and 2005
          and scored very high. We will continue working with and supporting our
          U.S.
          partners who purchase our cores and coils for their own transformers. Due
          to a
          change in scope of our requested UL certification, once UL certification
          is
          received, we will be able to offer in North America, UL products on a complete
          line of transformer assemblies as opposed to supplying manufacturers with
          a UL
          recognized core and coil which they in turn would need to have UL listed
          for
          their complete transformer package.
 
  -
              16
              -
  We
          also
          continue to focus our attention on ensuring that our delivery times and
          price
          structure remain competitive and that we satisfy and respond to our customers’
needs. Our engineers in our U.S. office and Haikou headquarters work closely
          to
          ensure timely delivery of core and coils from Haikou to North
          America.
 
 ***Background
          information relating to the electric transformer industry in
          China***
 
 Over
          the
          past 26 years, beginning in 1978, when China introduced economic reform
          and
          changed its policy, China's economy has grown at an annual average growth
          rate
          of approximately 9.3%. In 2004 and 2005, the GDP grew 9.9% and 9.3%,
          respectively. China’s capacity to generate electricity increased from 57.12
          million kilowatts in 1978 to 508
          million kilowatts in 2005, representing an annual compounded growth rate
          of 15%.
          In 2005, China ranked second worldwide in electricity output, with such
          output
          totaling 2,469 billion KWH, amounting to an annual compounded growth rate
          of
          8.59%, increasing from 256.6 billion KWH in 1978. In 2005, the total electricity
          output in China grew 13.5% from the previous year. However, the supply
          of
          electricity in China still falls short due to strong economic growth. The
          fast
          growth of industrial output is the key driving force behind the consumption
          of
          electricity. We expect production capacity of the Chinese industrial sector
          to
          further improve in 2006, resulting from the fast growth in fixed asset
          investments. Thus, we expect that the electricity demanded by the industrial
          sector will continue to grow steadily. In 2005, it is anticipated that
          electricity generating capacity will increase by 72 million kilowatts and
          that
          the demand for electricity in 2006 will reach 2.78 trillion kilowatt-hours.
 
 We
          believe that the fast growing Chinese economy has been the main reason
          for the
          significant increase in demand for many consumer products requiring electric
          power for their operations. Furthermore, China’s major cities, such as Beijing,
          Shanghai and Guangzhou, have also required greater amounts of electricity
          in
          comparison to the past because of the significant population increases
          in the
          major cities caused by the large influx of rural migrants in recent
          years.
  The
          electrical equipment and materials industry achieved a total output value
          of
          RMB1,332 billion (166 billion U.S. dollars) in 2005, up 25.44% from 2004.
          Profits in the industry reached RMB62.1 billion (7.8 billion U.S. dollars).
          According to the Chinese National Bureau of Statistics, the total production
          output of China’s transformer industry reached 631 million KVA in 2005, a 29%
          increase compared to 2004.
  According
          to the Chinese Association of Transformers, production and sales of cast
          resin
          transformers in China have increased significantly since 1991. In 1991,
          the
          aggregate production output of installed cast resin transformers was 0.43
          million KVA. Since 1994, installations of cast resin transformers have
          risen
          dramatically as shown in the table below:
 
  -
              17
              -
  Total
                      KVA Capacity of CastYear
                  
                  Resin
                      Transformers Installed (in millions)1995
                  
                  
                  6.191996
                  
                  
                  6.481997
                  
                  
                  6.141998
                  
                  
                  8.761999
                  
                  
                  9.882000
                  
                  
                  11.982001
                  
                  
                  14.402002
                  
                  
                  15.782003
                  
                  
                  17.552004
                  
                  
                  23.002005
                  
                  
                  23.40
 From
          2001
          through 2005, the production and sales of cast resin transformers in China
          was
          94.13 million KVA, translating into an average production and sales per
          year of
          18.83 million KVA , which
          represents a compound annual growth rate of 12.6% in sales of transformers
          in
          China. According to industry experts, the power generating capacity in
          China is
          expected to increase to 900 million kilowatts by the year 2020, which represents
          an annual compound growth rate of 5% to 6%. This increase in power generating
          capacity represents increased market opportunities for us.
  The
          table
          below sets forth our consolidated sales, by geographic region, for the
          years
          ended December 31, 2003, 2004 and 2005:
 
 **Year
                    Ended December 31,****2003**
                
                **2004**
                
                **2005****(U.S.
                    Dollars in millions)**Beijing
                
                
                5.9
                
                
                5.06
                
                
                7.14Guangdong
                
                
                4.9
                
                
                4.10
                
                
                5.10Wuhan
                
                
                1.5
                
                
                2.22
                
                
                3.10Chongqing
                
                
                1.8
                
                
                1.14
                
                
                2.09Yunnan,
                    Guizhou
                
                
                1.0
                
                
                1.17
                
                
                1.88Sichuan
                
                
                2.7
                
                
                2.62
                
                
                2.87Liaoning
                
                
                2.3
                
                
                5.29
                
                
                5.46Shanghai
                
                
                2.8
                
                
                3.30
                
                
                3.61Jiangsu
                
                
                3.1
                
                
                5.05
                
                
                6.19Zhejiang
                
                
                1.5
                
                
                1.81
                
                
                2.67Tianjin
                
                
                
                
                
                2.38
                
                
                2.49Guangxi
                
                
                
                
                
                1.54
                
                
                1.64Changsha
                
                
                
                
                
                1.34
                
                
                1.56Shanxi
                
                
                
                
                
                1.24
                
                
                1.32Hainan
                
                
                
                
                
                0.94Other
                
                
                5.9
                
                
                3.05
                
                
                6.49Total:
                
                
                33.4
                
                
                42.25
                
                
                53.61
 
 ***The
          raw materials used in our cast resin transformers and their sources of
          supply***
 
 The
          principal raw materials we require for our business are (1) epoxy resin,
          used to
          coat the copper coils of our transformers, (2) silicon steel, which comprises
          the cores of our transformers, and (3) copper foil, for our copper foil
          windings. We obtain all of our epoxy resin from Bakelite, a German corporation,
          the silicon steel from Legnano Teknoelectric Company Spa and Thyssenkrupp
          Electrical Street GmbH, both European companies, and the copper foil and
          wire
          from TongLing Nonferrous Metals (Group) Inc and Jiangying Jinqiu Group
          Co. Ltd.
          in China.
 
  -
              18
              -




Other
      raw
      materials required to produce our products include copper wire, glass fiber,
      and
      quartz powder. We maintain at least two suppliers for each of our major raw
      materials, other than cast resin, in order for us to enhance our ability to
      obtain an adequate supply of high quality, competitively-priced raw materials.
      We purchase copper wire, glass fiber, and quartz powder from local suppliers
      in
      nearby regions and believe that these materials are readily available.





The
      costs
      of our raw materials have increased as demand and prices for steel and copper
      have increased and we anticipate that they will continue to increase. Strong
      demands worldwide on these materials and uncertain pricing in steel and copper
      are likely to impact our costs during 2006.





***Our
      sales and marketing network***





We
      sell
      our cast resin transformers through our sales network, which consists of the
      use
      of 35 regional sales offices in various cities in China, including Beijing,
      Shanghai  and
      Chongqing. We employ 71 sales representatives, 52 of whom are based in our
      regional sales offices and 19 are based at our headquarters in Haikou. All
      of
      our sales representatives are salaried employees. We also sell our products
      through 5 independent sales agents who receive commissions based on sales.
      We
      sell the majority of our transformers in Beijing, Guangdong, Jiangsu and the
      northeast of China.





***Our
      significant customers***





Sales
      to
      our five largest customers aggregated approximately 16%, 13%, and 16% of our
      total sales during the fiscal years ended December 31, 2003, 2004, and 2005,
      respectively, and sales to our largest customer for those same periods accounted
      for approximately 4%, 3.2%,  and
      5% of
      our total sales, respectively. There can be no assurance that any of our
      principal customers will maintain their volume of business with us or that
      a
      similar volume of business will be forthcoming from new or existing customers
      to
      replace any lost business. The loss of one or more of these existing principal
      customers without replacement by a customer of similar volume could have a
      material adverse effect on our business and financial condition.





***Our
      trademark, “JST”***





We
      own
      the rights to the trademark “JST,” which is registered with the Trademark Bureau
      of the State Administration of Industry and Commerce of China. We believe that
      this trademark has significant value and is important to our marketing and
      expansion efforts. However, with regard to our trademark or any other future
      trademarks, we cannot be sure that any one or all of the following scenarios
      has
      not occurred or will not occur, any one of which could have a material adverse
      effect upon us:


•
            we
                are unable to register other names or service marks that we may consider
                important;


•
            our
                currently registered trademark or any future registered trademark
                currently does or will violate the proprietary rights of
                others;


•
            our
                trademarks are not upheld by the Chinese government or its judicial
                system
                if challenged;


•
            we
                are prevented from using our trademarks; or


•
            because
                enforcing our proprietary rights or defending against the ownership
                claims
                of others may be extremely costly, we may not have the financial
                resources
                necessary to enforce or defend our
                trademarks.





-
          19
          -


***How
      our cast resin transformers are manufactured***





The
      essential components of our cast resin transformers are their windings and
      cores. Under our current manufacturing process, we use thirteen copper coil
      winding machines to wind copper wire into the high and low voltage coils
      contained in our traditional and copper foil cast resin transformers and one
      copper foil winding machine to produce the low voltage copper foil coils used
      in
      our copper foil cast resin transformers. Our copper coils are insulated with
      fiberglass mats or quartz powder and are then cast with an epoxy resin in an
      automated vacuum casting machine to provide further insulation. The vacuum
      casting machine removes all moisture and condensation between the copper wire
      and the resin coating. We implement such procedures to ensure that our copper
      coils are properly insulated for safety. We use the materials described above
      so
      that none of our windings crack when heat is produced in the transformer since
      the expansion coefficient of copper is similar to the expansion coefficient
      of
      epoxy resin and fiberglass.





The
      high
      and low voltage windings are then wrapped around a silicon steel core. The
      core
      is composed of several rolls of silicon steel, which have been cut on an
      automated steel cutting machine. The rolls of silicon steel are assembled and
      stacked by one of our two assembly table machines to form the core of a
      transformer. As one of the most important components of a transformer, the
      core
      is used as a transforming medium of electric energy during the transforming
      process. Our use of high quality material, advanced cutting machines and the
      design of our products, have resulted in efficiently minimizing the energy
      loss
      and noise produced during the operation of the transformer. We test and inspect
      our transformers in accordance with Chinese national standards and will not
      deliver a transformer to a customer unless each required test has been passed.
      The standard testing procedure is comprised of the following 12
      procedures:





1.
            measurement
                of winding resistance;


2.
            measurement
                of voltage ratio;


3.
            measurement
                of impedance voltage;


4.
            measurement
                of current;


5.
            source
                voltage withstand test;


6.
            induced
                overvoltage withstand test;


7.
            measurement
                of winding insulation resistance;


8.
            measurement
                of partial discharge;


9.
            lightning
                impulse test;


10.
            temperature
                raise test;


11.
            measurement
                of sound level; and


12.
            short-circuit
                test.





***Our
      competitors in the electric transformer business***





We
      believe that there are more than 40 manufacturers of cast resin transformers
      in
      China, most of which are small scale manufacturers. We primarily compete in
      the
      cast resin transformer market with two large transformer manufacturers but
      also
      with a large number of small transformer manufacturers. Most of our competitors
      are government-owned entities. We believe that in 2005, only 11 Chinese cast
      resin transformer manufacturers had an annual electricity production in excess
      of 300,000 KVA per year, whereas we produce approximately 4.6 million KVA per
      year.





Although
      a few of our competitors entered the transformer market before us and have
      achieved greater product recognition than us, we believe that our growing name
      recognition and the quality and efficiency of how we manufacture our products
      allows us to compete effectively against our competitors. We believe that we
      operate more efficiently than our government-owned competitors because, as
      a
      non-government-owned company, our operations are not subject to the additional
      governmental approvals and regulatory processes as are government-owned
      entities. This in particular results in our lower production costs and greater
      flexibility, as compared to our government-controlled competitors. Furthermore,
      since not one of our transformers has been returned to us or, to our knowledge,
      have been the cause of any major accidents, we believe that our competitors
      do
      not manufacture transformers that are safer or of a higher quality than our
      transformers.





-
          20
          -


In
      addition, we believe that foreign cast resin transformer manufacturers presently
      do not pose a significant competitive threat to us because of their relatively
      high production costs. However, there can be no assurance that entry into the
      WTO and the consequent reduction of tariff imports will not increase competition
      or that foreign manufacturers, many of which have greater financial, personnel,
      technical and other resources than we have, will not enter into meaningful
      joint
      venture arrangements, or establish wholly foreign-owned enterprises to
      manufacture transformers within China, either of which could have an adverse
      effect upon our business.





***Government
      Regulation:*** *General
      conditions in China* .





China
      is
      a socialist state which since 1949, has been controlled by the Communist Party
      of China. Changes in the top political leadership of the Chinese government
      may
      have a significant impact on policy and the political and economic environment
      in China. Furthermore, because economic reforms and growth in China have been
      more successful in some provinces than in others, the continuation or increase
      of these economic disparities could affect political or social
      stability.





China
      is
      considered to be a high risk nation for business and investment in the Asian
      region. Although China recently has permitted greater provincial and local
      economic autonomy and private economic activity, the government of China has
      exercised and continues to exercise substantial control over virtually every
      aspect of the Chinese economy through regulation and state ownership. Therefore,
      government action in the future, including any decision by the Chinese
      government not to continue to support the economic reform program that it
      commenced in the late 1970’s and the possible return of China to the more
      centrally-planned economy that existed prior to the economic reforms, could
      have
      a significant effect on economic conditions in China and on our operations.
      China’s economic reform plan was designed to bring into China foreign investment
      capital and technological advancements. The result of these reforms has been
      a
      move towards a more mixed economy and away from a more centrally-planned
      economy. The process of shifting more responsibility for various aspects of
      economic enterprise to local management and regional authorities continues,
      even
      though the system of Chinese socialism still involves considerable influence
      by
      the central government in economic areas of production and
      marketing.





Because
      we are a foreign company conducting our operations and owning assets primarily
      in China, our operations and assets are subject to political, economic, legal
      and other uncertainties which affect companies operating in China.





*Government
      regulation in China.*





Our
      operations and assets in China are subject to significant political uncertainty.
      Our business, results of operations and financial condition could be adversely
      affected by policy changes made by the Chinese government to any of the
      following:




•
            laws
                and regulations, or their interpretation and enforcement
                thereof,


•
            confiscatory
                or increased taxation,


•
            restrictions
                on currency conversion and currency
                devaluations,


•
            imports,
                import duties, and sources of supply,
                or


•
            the
                expropriation of private
                enterprise.








-
            21 -





Under
      its
      current governmental leadership, China has been pursuing economic reform
      policies, including the encouragement of private economic activity and greater
      economic decentralization. We can provide no assurance, however, that the
      Chinese government will continue to pursue these policies, that these policies
      will be successful if pursued or will not be significantly altered without
      notice, or that business operations would not become subject to the risk of
      nationalization, which could result in the total loss of any investment in
      China. Under the Chinese government’s program of privatizing many state-owned
      enterprises, the Chinese government has attempted to increase its revenues
      by
      increased tax collection. If these efforts to increase tax revenues continue,
      we
      could incur increased taxation expenses which may impact our profitability.
      Moreover, economic development in China may also be limited by the
      following:





•
            governmental imposition of restrictive
              measures intended to reduce inflation, increasetaxes,
              or reform unprofitable state-owned enterprises, •
            the
                inadequate development of the Chinese
                infrastructure,


•
            the
                unavailability of adequate power, water supplies, raw materials,
                and
                parts, and


•
            limited
                transportation and communications
                capabilities.





The
      Chinese government regulates the import into China of various raw materials
      and
      also taxes some types of imported capital equipment, which may affect our
      operations. The approval of imports by the Chinese government is based to some
      extent on the lack of qualified domestically-produced products and on its
      strategic plans for the development of local Chinese industries. We can provide
      no assurance that China’s policies will continue to allow raw materials needed
      by our operations to be imported into China or will not impose import fees,
      which may raise the cost of raw materials or capital equipment used in our
      operations. The imposition of any of these costs could have a material adverse
      effect on our business, results of operations, and financial
      condition.





*International
      trade in China* .





Currently,
      a significant portion of China’s economic activity is export-driven and,
      therefore, is affected by developments in the economies of China’s principal
      trading partners, including the U.S.





China’s
      entrance into the WTO, effective December 11, 2001, will result in important
      development opportunities for its economic construction as well as many
      challenges. The “Most Favored Nation” status and the national treatment that
      China will gain from other WTO members will be help increase the country’s
      export volume.




On
      April
      1, 1996, the Chinese government reduced the rate of import duties of 4,971
      tax
      items, thus effectively decreasing the tariff rate from 35% to 23% on average.
      On October 1, 1997, the Chinese government reduced the import duty rate of
      4,874
      commodity items, reducing customs duties from 23% to 17% on average. Starting
      from January 1, 2001, the Chinese government decided to reduce customs duties
      again, decreasing the overall level of customs duties to 15.3%. This decrease
      involved 3,462 items, making up 49% of China’s total tax items. Having entered
      the WTO, the Chinese government will continue to carry out its promise of
      gradually reducing customs duties. Commencing January 1, 2005, China’s overall
      customs duty rate decreased to 9.9% from 10.4%, which includes the reduction
      of
      the average import duty rate for agricultural products which decreased from
      15.6% to 15.3% and the average import duty rate of industrial products which
      decreased from 9.5% to 9%. These tariff reductions may allow a flow of more
      foreign goods into the domestic market at lower prices and will pose competitive
      pressure on Chinese enterprises.




Since
      January 1, 2005, China has entered into the "post-WTO transitional period''
      from
      its WTO entry. The "post-WTO transitional period'' is the period from January
      1,
      2005 to the date when China opens all its sectors it promised to foreign
      participation. This will negatively impact domestic sales of China’s
      agricultural, auto, financial, and services industries, as well as the retail
      sector, because domestic businesses in these industries will lose sales to
      their
      foreign counterparts. In 2005, the transitional period for several important
      service sectors, including banking, securities, insurance, and retail trade
      will
      expire. On July 1, 2006, the auto tariffs will be reduced to 25% and the average
      tariff for auto parts to 10%. After 2005, it is anticipated that certain tariff
      quotas will reach their highest points. For example, tariff quotas for wheat
      and
      corn are expected to comprise 10.7% and 6%, respectively, of gross domestic
      output. After 2005, regional limits on the insurance industry will be cancelled
      and the total assets requirement for foreign brokerage firms will be reduced
      and
      sole foreign-funded brokerage firms will be allowed to establish. In 2006,
      several limitations imposed upon foreign-owned banks will be cancelled and
      foreign banks will be allowed to service Chinese clients in Renminbi. After
      2005, foreign-funded enterprises will be allowed into several industries
      including construction, tourism, and transportation that they previously could
      not enter. In 2007, regional limitations on basic telecommunications will be
      cancelled and the foreigners will be allowed to tap into up to 49% of the
      market.








-
            22 -





In
      accordance with the WTO agreement, China will work to adopt transparent and
      equitable trade and investment policies, continue to improve the investment
      and
      business conditions, encourage fair competition, accord national treatment
      where
      needed and further strengthen the protection of intellectual property rights
      and
      all the legitimate rights and interests of foreign investors. The central
      government is speeding up the drafting of amendments and the abolishment of
      obsolete laws, rules, and regulations in accordance with China’s WTO
      commitments. China’s entrance into the WTO will create many economic
      opportunities for China, as well as many challenges.





According
      to the Customs General Administration, the total volume of China's foreign
      trade
      in 2005 reached a record high of 1.422 trillion U.S. dollars, up 23.3% over
      the
      prior year, moving China up to the number three spot, as the world's third
      largest trading power behind the United States and Germany .
      The
      total foreign trade volume of China more than doubled in the past three years
      since China's entry into WTO. Both import and export volume topped 600 billion
      U.S. dollars in 2005, among which the export volume comprised 762 billion U.S.
      dollars, up 28.4%, and the import volume registered at 660 billion U.S. dollars,
      up 17.6%, with an annual trade surplus of 102 billion U.S. dollars. **** About
      70%
      of China's foreign trade is conducted through foreign-invested and private
      companies. Exports of electromechanical and high-tech products increased rapidly
      last year.





In
      2005,
      China attracted 60 billion U.S. dollars of foreign direct investment, second
      only to the United States. China's foreign exchange reserve surged by as much
      as
      209 billion U.S. dollars to 818.9 billion dollars by the year-end, second only
      to Japan. China has been targeting "basic balance and slight surplus" in
      international payments for many years. Bilateral trade between China and its
      major trade partners continued to maintain rapid growth during the first few
      months of this year. According to the Customs’ statistics, from January to March
      2006, the volume of foreign trade increased 25.8 percent to 371.3 billion U.S.
      dollars. Import and export of foreign-invested enterprises totaled 219.168
      billion US dollars, an increase of 28.26 % over the same period of last year,
      2.51 % higher than the growth rate 25.75 % of the country of China in the same
      period, accounting for 59.03 % of the total import and export of the  country
      of China.





According
      to the Ministry of Commerce, 8,909 new foreign investment companies were
      approved during the first three months of 2006, a decline of 4.26% compared
      to
      the prior year and the actual use of foreign investment reached 14.2billion
      U.S.
      dollars, a growth 6.40% as compared with that of the same period last year.
      .





While
      China’s entry into the WTO and the related relaxation of trade restrictions may
      lead to increased foreign investment, it may also lead to increased competition
      in China’s markets from international companies.








-
            23 -





***Economic
      conditions in China and how they affect us*** .




According
      to the National Bureau of Statistics (“NBS”), China's GDP in 2005 reached
      RMB18.23 trillion (2.25 trillion U.S. dollars), an increase of 9.9% over the
      previous year. The added value of primary industry rose 5.2% to RMB 2.27
      trillion (280 billion U.S. dollars), that of secondary and tertiary industries
      rose 11.4 and 9.6% to RMB8.62 trillion (1.06 trillion dollars) and RMB7.34
      trillion (905 billion dollars), respectively.




China
      recorded RMB7.62 trillion (939 billion U.S. dollars) in overall industrial
      value
      last year, increasing 16.4% over the prior year and remaining the biggest
      contributor to economic expansion.




In
      2005,
      urban per capita disposable income was RMB10,493 (1,295 U.S. dollars), an
      increase of 9.6%in real terms after allowing for price factors and rural per
      capita net income was RMB3,255 (402 U.S. dollars), up 6.2% in real terms after
      allowing for price factors.




Consumer
      spending remained stable but showed invigorating signs in China last year,
      with
      combined retail sales volume growing 12.9% as compared to the prior year to
      RMB6.7 trillion (829 billion U.S. dollars) in 2005. It climbed 12% after
      deducting price factors. According to the National Development and Reform
      Commission of China's Price Monitoring Center, China's CPI rose 1.8% in
      2005.




Investment
      in fixed assets totaled RMB8.86 trillion (1.09 trillion U.S. dollars) in 2005,
      up 25.7% over the prior year. 2005 is the last year of the tenth Five-Year
      Plan
      (2001-2005). The Fifth Plenum of the 16th CPC Central Committee approved
      proposals on the 11th Five-year Guideline for National Economic and Social
      Development (2006-2010) on October 11. This pivotal document outlines China's
      economic and social development over the next five years. It has stated in
      this
      document that China will stick to a people-oriented, comprehensive, coordinated,
      and sustainable approach to development, which prompts a shift of focus from
      the
      increment of wealth and GDP growth obsession, to the development of humanity.
      The plan pointed out that over this period, emphasis will be put on increasing
      the pay of low-income groups, enlarging the proportion of the middle-income
      segment, adjusting the high income of professionals, regulating the mechanism
      of
      personal income distribution and allaying the widening income gap among
      different regions and different social groups. The paramount goals for the
      next
      five years in terms of social and economic development are to double per-capita
      GDP by 2010 against the 2000 level, on the basis of upgrading industrial
      structure, enhancing profitability, reducing the consumption of energy,
      increasing the efficient use of resources, and decreasing the level of energy
      consumption per unit GDP by 20 percent against that of 2005. In the next five
      years, the hi-tech, manufacturing, service, energy, and infrastructure
      sectors/industries will be given preferential treatment for
      development.




The
      government pledged to continue to strengthen and improve macro-regulation,
      to
      follow prudent fiscal and monetary policies and better coordinate macroeconomic
      policies, to rein in the scale of fixed-asset investment, and to vigorously
      expand consumer demand. It will implement fiscal, tax, financial, and industrial
      policies that encourage consumption while focusing on strengthening the rural
      infrastructure, expanding rural markets, and stimulating the distribution of
      agricultural products. The government has committed itself to try its best
      to
      keep the overall price level stable.




A
      document released by the government during 2004, "Notions of the Central
      Committee of the CPC and the State Council on Policies for Promoting Increase
      of
      Income for Farmers," stressed that concerted efforts must be made to support
      the
      grain production in the major grain producing areas and promote the
      grain-producing farmers to increase their income. Under the guidance of this
      document, the year of 2005 has witnessed a series of more direct, powerful
      and
      resolute policies and measures "good for the agricultural development." The
      reform of taxes and fees helped reduce 30% of the burden on farmers and as
      a
      result grain production increased for the first time in five years.







-
            24 -




According
      to data released by China’s Ministry of Commerce, China will consume 1.21
      billion tons of coal to generate electricity in 2006, China's coal output will
      be between 2.5 billion and 2.6 billion tons in 2010, and coal will remain
      China's fundamental energy source, both for production and consumption between
      2006 and 2010. In terms of production, coal accounted for 76 percent of China's
      energy needs in 2005 and that level may reach up to 80 percent after
      2010.




China’s
      Ministry of Commerce has also estimated that China's demand for crude oil will
      grow by around 6 percent in 2006, outpacing a slender 1.6 percent rise in
      domestic output. China has shown expansion of oil use of under 4 percent and
      will need around 328 million ton (6.56 million barrels per day) of crude oil
      next year. However, the IEA predicts a demand increase of around 8 to 10 percent
      as the economy continues to expand .




*China’s
      Corporate Income Tax* .




The
      income tax rate for domestic companies in China is 33% while it is 15% for
      foreign funded companies. This disparate treatment is due in part to China’s
      entry into the WTO. There is a nationwide debate in China on the reforms that
      have gone on for years. The debate gained prominence in 2004, when financial
      authorities pushed hard for the adoption of a unified corporate income tax,
      which would mean higher rates for foreign-funded enterprises. The debate did
      not
      generate results last year. China will offer preferential tax treatment to
      selected sectors instead and foreign investors will receive preferential tax
      treatment if they invest in certain sectors. There will be a transitional period
      for foreign investors to maintain their tax privileges for an unspecified period
      of time. Experts and local companies have complained the policy does not comply
      with WTO principles and that, as a kind of discrimination against domestic
      firms, it also results in a reduction of China's tax revenues. China's top
      legislature, the National People's Congress ("NPC"), listed the law on
      Enterprises' Income Tax in its lawmaking plan for 2005. NPC deputy
      Cheng Faguang revealed that China might unify the income tax rates in 2008.
      The
      possible income tax rate may be set around 25%-28%.





*China’s
      legal system and how it affects us* .





China’s
      legal system is a civil law system, which is based on written statutes and
      legal
      cases having little precedential value. China does not have a well-developed,
      consolidated body of laws governing foreign investment enterprises. As a result,
      the administration of laws and regulations by government agencies may be subject
      to considerable discretion in individual cases. As legal systems in China
      develop, we, like other foreign business entities, may be adversely affected
      by
      new laws, changes to existing laws (or new interpretations of the laws) and
      preemption of provincial or local laws by national laws. In addition, in
      circumstances where adequate laws do exist, it still may not be possible for
      us
      to obtain swift and equitable enforcement of those legal rights under Chinese
      law.





*China’s
      environmental law and how it affects us* .





Environmental
      protection in China is regulated in accordance with the Environmental Protection
      Law of the People’s Republic of China, which became effective on December 26,
      1989. This law sets national standards for environmental quality and monitoring
      as well as for the utilization of natural resources and the reduction of
      pollution. As a manufacturer, we are subject to annual inspections. We have
      passed our most recent inspection and believe that we are materially in
      compliance with applicable environmental laws.








-
            25 -





**Organizational
      Structure**





We
      primarily conduct our business through our subsidiary, Hainan Jinpan Electric
      Company Ltd., a corporation that is located in China. We own 85% of the common
      stock of Hainan Jinpan Electric Company Ltd. We also own 100% of the common
      stock of Jinpan International (U.S.A.) Ltd., a New Jersey corporation that
      conducts our North American operations.





**Property,
      Plant and Equipment**





Our
      production facilities are located in Haikou City, Hainan Province in southern
      China. We operate six Chinese-made copper coil winding machines, one German-made
      low voltage copper foil winding machine, two German-made high voltage winding
      machines, one German-made steel cutting machine, which was recently acquired
      to
      upgrade our older steel cutting machine, German-made assembly table machines
      and
      one German-made vacuum casting machine. The vacuum casting machine is being
      used
      for the production of new products such as the filled resin cast coil
      transformers. We believe that the vacuum casting machine represents one of
      the
      most technologically advanced machines of its kind currently in operation in
      China. Our belief is based on a comparison of the attributes of its casting
      system manufactured by Hubers against those of another vacuum casting machine
      manufactured by Hedrich Vacuum Systems Gmbh, which we believe to be widely
      used
      in China. Using the equipment we currently use and maintain our annual
      production capacity is approximately 4.6 million KVA per year. Increasing our
      plant utilization rate does not differ with respect to the different areas
      of
      our manufacturing process. The coil winding machines, copper foil winding
      machine, steel cutting machine and vacuum casting machine are all fully
      utilized.





We
      believe that our facilities, including our machinery and equipment, currently
      are, and in the foreseeable future will be, generally in good condition,
      well-maintained and suitable for their intended uses. We also believe that
      our
      product assembly and sales and service facilities have adequate capacity to
      accommodate our present needs and foreseeable business growth.





Our
      headquarters and administrative and manufacturing facilities are located at
      100
      Nanhai Avenue, Haikou, Hainan Province, China, and encompass approximately
      3,976
      square meters. The property was previously purchased by Haikou Jinpan and was
      contributed to Hainan Jinpan. Our warehouse is located at 168 Nanhai Avenue,
      No.
      6 Factory Building, West F District, Haikou Bonded Zone, Haikou, Hainan
      Province, China. The premise encompasses approximately 3,906 square meters
      and
      is subject to a lease, which expires in February 2007. This lease provides
      for
      rent of approximately RMB35,000 per month. A certain factory building included
      in the Haikou, Hainan Province property was exempted from rent payment for
      three
      years by the government Our subsidiary, Jinpan International (U.S.A.) Ltd.,
      has
      administrative offices in Englewood Cliffs, New Jersey, which encompasses
      approximately 130 square meters and is subject to a lease expiring in March
      2009. This lease provides for rent of approximately $2,887 per month.





We
      lease
      31 and own 4 sales offices in China, located in Beijing, Shanghai, Hefei,
      Nanning, Anshan, Changsha, Hangzhou, Kunming, Tianjin, Wuhan, Chongqing,
      Chengdu, Suzhou, Taiyuan, Shenyang, Xian, Guangzhou, Lanzhou, Shenzhen and
      Dalian, which are subject to leases that provide for monthly rents ranging
      from
      RMB1,200 to RMB3,500 per month. These sales offices range in size from 50 square
      meters to approximately 165 square meters. We also use office space in the
      sales
      offices of three of our independent sales agents, where instead of paying rent
      for the use of the office space, we pay additional commissions to our
      independent sales agents who work from these offices.





During
      year 2005, we manufactured 3,238 units of transformers which equates to
      approximately 3,061,862 KVA. We used approximately 90% of our full manufacturing
      capacity, 3,401,550KVA, in 2005.





-
            26 -





**Item
      4A. Unresolved Staff Comments**





None.





**Item
      5.**  **Operating
      Financial Review and Prospects**





*The
      following discussion and analysis should be read together with our audited
      consolidated financial statements and notes appearing in Item 18
      below.*





**Critical
      Accounting Policies** ****





Our
      discussion and analysis of financial conditions and results of operations is
      based on our consolidated financial statements, which have been prepared in
      accordance with generally accepted accounting principles of the United States
      (U.S. GAAP). The preparation of these financial statements requires us to make
      estimates and judgments that affect the amounts reported in the consolidated
      financial statements and accompanying notes. These estimates form the basis
      for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. We base our estimates and judgments
      on
      historical experience and on various other assumptions that are believed to
      be
      reasonable under the circumstances. Actual results may differ from these
      estimates under different assumptions or conditions. We believe the following
      critical accounting policies reflect the more significant estimates and
      judgments used in the preparation of our consolidated financial statements.





*Provision
      for Doubtful Accounts*





We
      reserve for doubtful accounts for estimated losses resulting from the inability
      of our customers to make required payments. If the financial condition of our
      customers were to deteriorate, resulting in an impairment of their ability
      to
      make payments, additional allowances may be required. We estimate the provision
      for doubtful accounts related to trade receivable based on two methods. The
      amounts calculated using each of these methods are combined to determine the
      total amount we reserve. First, we evaluate specific accounts where we have
      information that certain customers are unable to meet their financial
      obligations. In these cases, we make judgments, based on the best available
      facts and circumstances, including but not limited to, the length of our
      relationship with the customer and customer’s current credit status based on
      third party credit reports and known market factors, to record specific reserve
      for customers against amounts due to reduce our receivables to amounts that
      we
      expect to collect. These specific reserves are re-evaluated and adjusted as
      additional information received affects the amounts estimated. Second, a general
      provision is established as a certain percentage based on the age status of
      receivables. This percentage is based on a collective assessment of historical
      collection, write-off experience, current economic trends, and changes in our
      customer payment terms and other factors that may affect our ability to collect.
      While bad debts have historically been within the provision established, we
      cannot guarantee that we will continue to experience the same bad debt rate
      that
      we have in the past.





As
      of
      December 31, 2004 and 2005, the Provision for Doubtful Accounts was RMB 9.5
      million and RMB 10.6 million respectively. For the year ended December 31,
      2005,
      we recorded an additional provision of RMB 1.3 million for the year ended
      December 31, 2005 based on our estimates.








-
            27 -





*Inventories
      Obsolescence*





Inventories
      are stated at the lower of cost or market value. Market value represents the
      net
      realizable value for inventories. We periodically review our inventory for
      excess inventory, obsolescence and declines in market value below cost and
      record an allowance against the inventory balance for any such declines. We
      write down the value of ending inventory for obsolete and unmarketable inventory
      equal to the difference between the cost of inventory and the estimated market
      value. These reviews require management to estimate future demand for our
      products and the market conditions. Possible changes in these estimates could
      result in revisions to the valuation of inventory. If actual market conditions
      are less favorable than those projected, additional inventory write-downs may
      be
      required. If actual market conditions are more favorable then projected,
      inventory previously written down may be sold, resulting in lower cost of sales
      and higher income from operations than expected in that period.





As
      of
      December 31, 2004 and 2005, we recorded inventory obsolescence allowance in
      the
      amount of RMB 1.4 million and RMB 1.2 million. For the year ended December
      31,
      2004, we did not have to record any additional allowance subsequent to the
      year-end because actual write-offs were lower than the estimated amounts. For
      the year ended December 31, 2005, we also did not have to record any additional
      allowance as of May 31, 2006.





*Deferred
      Tax Valuation Allowance*





Estimates
      and judgments are required in the calculation of certain tax liabilities and
      in
      determining the recoverability of certain of the deferred tax assets, which
      arise from net operating losses, tax carryforwards and temporary differences
      between the timing of the recognition of revenues and expenses for tax and
      financial statement purposes. We record a valuation allowance to reduce our
      deferred tax assets to the amount that is more likely than not to be realized.
      While we have considered future taxable income and ongoing prudent and feasible
      tax planning strategies in assessing the need for the valuation allowance,
      in
      the event we were to determine that we would not be able to realize all or
      part
      of our net deferred tax asset in the future, an adjustment to the deferred
      tax
      asset would be charged to income in the period such determination was made.
      Likewise, should we determine that we would be able to realize our deferred
      tax
      assets in the future in excess of its net recorded amount, an adjustment to
      the
      deferred tax asset would increase income in the period such determination was
      made.





**Operating
      Results**





**Summary
      of Financial Results**





The
      following table presents selected statement of operations data expressed as
      a
      percentage of net sales for the years ended December 31, 2003, 2004 and 2005.





Year
                ended December 312003
            
            2004
            
            2005Net
                sales
            
            
            100%
            
            
            100%
            
            
            100%Cost
                of goods sold
            
            
            (57.00%)
            
            
            (65.40%)
            
            
            (67.96%)Gross
                profit
            
            
            43.0%
            
            
            34.60%
            
            
            32.04%Selling,
                general and administrative expenses
            
            
            (31.5%)
            
            
            (24.30%)
            
            
            (20.48%)Other
                income
            
            
            1.7%
            
            
            0.9%
            
            
            0.6%Income
                tax provision
            
            
            (1.3%)
            
            
            (1.2%)
            
            
            (2.0%)Income
                before minority interest
            
            
            11.9%
            
            
            10%
            
            
            10.16%Minority
                interest
            
            
            (2.1%)
            
            
            (1.7%)
            
            
            (1.7%)Net
                income
            
            
            9.8%
            
            
            8.3%
            
            
            8.46%







-
            28 -





*Year
      ended December 31, 2005 compared with the year ended December 31,
      2004*





**Sales.** Net
      sales
      increased RMB 88.6 million (US$10.8 Million) or approximately 25.35% from RMB
      349.6 million (US$42.2 Million) in the year ended December 31, 2004 to RMB
      438.2
      million (US$53.6 Million) in the year ended December 31, 2005. During 2005,
      the
      number of units sold increased by 3% to 3,273 units as compared with 3,167
      units
      in the year 2005, however, our sales revenues increased by 25.35%, primarily
      the
      result of selling more high priced units, those with high KVA capacity as
      compared with 2004. During 2005, we successfully increased sales of our higher
      priced units which accounted for approximately 10% of our sales growth. We
      also
      raised the standard selling price during 2005, which accounted for approximately
      10% of our sales growth.





**Cost
      of goods sold** .
      Cost of
      goods sold increased RMB 69.3million (US$8.5 Million) or approximately 30%
      from
      RMB 228.5 million in the year ended December 31, 2004, to RMB 297.8 million
      in
      the year ended December 31, 2005. Cost of goods sold as a percentage of sales
      increased by 2.6% in the year ended December 31, 2005, from 65.4% in the year
      ended December 31, 2004, to 67.96% in the year ended December 31, 2005. The
      increase was a result of worldwide price increases of raw materials associated
      with steel and copper during the year 2005. The average steel price was RMB
      36,700 per ton in 2005, which was an increase of approximately 84% as compared
      with 2004, and the average copper wire price was RMB 46,000 per ton, which
      was
      an increase of approximately 28% as compared with 2004. The cost of goods sold
      as percentage of sales would have increased 36% if we did not take the measures
      mentioned below. We fully utilized our financial strength to purchase a large
      volume of materials which cut costs by approximately 13.4%. We increased our
      selling price, as mentioned above, which reduced the ratio of cost of goods
      sold
      to sales by approximately 20%. Overall, the cost of goods sold as a percentage
      of sales increase by 2.6%.





**Gross
      Profit.** Gross
      profit increased RMB 19.3 million (US$2.36 Million) or approximately 15.95%
      to
      RMB 140.4 million in the year ended December 31, 2005 from RMB 121.1 million
      in
      the year ended December 31, 2004. As a percentage of sales, gross profit
      decreased from 34.64% in the year ended December 31, 2004, to 32.04% in the
      year
      ended December 31, 2005. This decrease also resulted from the aforementioned
      raw
      material price increase.




**Selling
      and Administrative** .
      Selling
      and Administrative expenses, including provision for doubtful debt, increased
      by
      RMB 4.0 **** million
      (US$493,000) or approximately 4.7%  from
      RMB
      84.4 million in the year ended December 31, 2004, to RMB 88.4 million in the
      year ended December 31, 2005. As a percentage of sales, selling and
      administrative expenses decreased 3.9%, from 24.1 %
      in the year
      2004 to 20.2 % in
      the
      year ended December 31, 2005. The decrease of 3.9 % was primary the result
      of
      reduction in the areas of sales agent’s fee, traveling and meal entertainment
      expenses. We are continuing to focus on achieving operating efficiencies by
      reviewing and enhancing business process and cost structure.





**Net
      Income** .
      Net
      income increased RMB8.21 million ( US$ 1
      Million) or approximately 28.45% from
      RMB28.9 **** m illion
      (US$3.49 Million) in the year ended December 31, 2004 to RMB37.1 million (US$4.5
      Million) in the year ended December 31, 2005. As a percentage of sales, net
      income increased from 8.26 %
      in the year
      ended December 31, 2004, to 8.46% in the year ended December 31, 2005.





**Basic
      Earnings Per Share** .
      Earnings per share increased RMB1.26 (US$0.16) or approximately 28.38% from
      RMB4.44(US$0.54) in the year ended December 31, 2004 to RMB5.70(US$0.70) in
      the
      year ended December 31, 2005.





*Year
      ended December 31, 2004 compared with the year ended December 31,
      2003*




**Sales** *.* Net
      sales increased RMB73 million or approximately 26.4% from RMB276.6 million
      in
      the year ended December 31, 2003 to RMB349.6 million in the year ended December
      31, 2004. The increase in sales was primarily driven by the increase in sales
      volume. During 2004, units sold increased by 27% to 3,167 units as compared
      with
      2,503 units in 2003. During 2004, the company continued to gain market share
      and
      new customers contributed to 90% of the sales increase in 2004.








-
            29 -





**Cost
      of goods sold.** Cost of
      goods sold increased by RMB71 million or approximately 45% from RMB157.6 million
      in the year ended December 31, 2003 to RMB228.6 million in the year ended
      December 31, 2004. Cost of goods sold as a percentage of sales increased by
      8.4%
      in the year ended December 31, 2004, from 57% in the year ended December 31,
      2003, to 65.4% in the year ended December 31, 2004. This was primarily the
      result of increasing raw material prices. The average steel price was RMB20,
      000
      per ton in year 2004, which was an approximate 60% increase as compared with
      2003, and the average copper wire price was RMB36,000 per ton, which was an
      approximate 34.5% increase as compared with 2003. If the company did not take
      the actions mentioned below, the cost of goods sold as percentage of sales
      would
      have increased 30%, however, the company fully utilized its financial strength
      to purchase a large volume of materials which a cut costs by approximately 16%
      and improved the production design and efficiency which cut costs by an
      additional approximate of 5.6%. Overall, the cost of goods sold as a percentage
      of sales increased by 8.4%.





**Gross
      Profit.** Gross
      profit increased RMB2.1 million or approximately 1.75% to RMB121.1 million
      in
      the year ended December 31, 2004 from RMB119 million in the year ended December
      31, 2003. As a percentage of sales, gross profit decreased from 43% in the
      year
      ended December 31, 2003, to 34.6% in the year ended December 31, 2004, primarily
      as a result of the increase in cost of goods sold.





**Selling
      and administrative expenses.** Selling
      and Administrative expenses, including the provision for doubtful debt,
      decreased by RMB2.5 million or approximately 3% from RMB86.9 million in the
      year
      ended December 31, 2003, to RMB84.4 million in the year ended December 31,
      2004.
      As a percentage of sales, selling and administrative expenses decreased from
      31%
      in the year 2003, to 24.1% in the year ended December 31, 2004. The decrease
      of
      RMB2.5 million was primarily the result of (1) RMB1 million decrease in the
      provision for doubtful debt; (2) RMB1.5 million reduction in discretionary
      spending in areas such as marketing, commissions, and administration expenses.
      The decrease in the provision for doubtful debt is the result of better a
      accounts receivable aging structure and collection of certain aged receivables.
      We are continuing to focus our efforts on achieving additional operating
      efficiencies by reviewing and improving upon our existing business process
      and
      cost structure.





**Net
      Income.** ** Net
      income increased by RMB2 million or approximately 7.2% from RMB26.9 million
      in
      the year ended December 31, 2003, to RMB28.9 million in the year ended December
      31, 2004. As a percentage of sales, net income decreased from 9.8% in the year
      ended December 31, 2003, to 8.3% in the year ended December 31, 2004.





**Basic
      Earnings Per Share.** Basic
      earnings per share increased by RMB0.23 or approximately 5.5% from RMB4.21
      in
      the year ended December 31, 2003 to RMB4.44 in the year ended December 31,
      2004.





*Impact
      of Inflation*





We
      do not
      believe that inflation over the past three years have had a material impact
      on
      our revenues or operating results.





*Foreign
      Currency Fluctuations*





We
      receive almost all of our revenues in Renminbi which is not freely convertible
      into foreign currency. **** However,
      we are required to meet certain foreign currency obligations, for things such
      as
      future purchases of certain equipment and raw materials. The Chinese government
      controls our foreign currency reserves in part through direct regulation of
      the
      conversion of Renminbi into foreign currency and through restrictions on foreign
      imports. Effective January 1, 1994, pursuant to the PBOC Notice, the conversion
      of Renminbi into Hong Kong and United States dollars must be based on the PBOC
      Rate. Effective as of December 1, 1996, Renminbi has become fully convertible
      for all current account transactions. Foreign currency which is required for
      current account transactions can be bought freely at authorized Chinese banks,
      so long as the procedural requirements prescribed by law are met. Payment of
      dividends to foreign investors holding equity interests in Chinese companies,
      including Foreign Investment Enterprises, is considered a current account
      transaction. At the same time, Chinese companies are also required to sell
      their
      foreign exchange earnings to authorized Chinese banks. Purchase of foreign
      currency for capital account transactions still requires prior approval of
      the
      State Administration for Foreign Exchange. On July 21, 2005, the Chinese
      government revalued the Renminbi against the U.S. dollar and introduced a basket
      of currencies system to determine the exchange rate, which is based on the
      interbank foreign exchange market rates and current exchange rates of a basket
      of currencies in the world financial markets. As
      a
      result of adopting a flexible exchange rate, China’s financial sector is now
      more responsive to fluctuations in the international currency market. The
      Renminbi/US Dollar exchange rate has climbed steadily since.








-
            30 -





During
      2005, the fluctuations in the Renminbi has not materially impacted the Company. We
      currently do not engage in any hedging activities that could minimize the effect
      of exchange rate risks.





*Political
      and Economic Risks*





Our
      operations in China are subject to several potential political and economic
      risks. See Item 3. Key Information - Risk Factors - Risks Related to our Chinese
      Operations.





*Trade
      Agreements*





China’s
      entrance into the WTO on December 11, 2001 will result in development
      opportunities for its economic construction as well as many challenges. The
      “Most Favored Nation” status and the national treatment that China will gain
      from other WTO members will be helpful in increasing the country’s export
      volume. China’s State Council announced that beginning January 1, 2002, tariffs
      will be reduced to 12% from 15.3%, and tariffs were reduced further to 10%
      in
      2005. This reduction in tariffs will allow more foreign goods to enter into
      China’s domestic market at lower prices which will pose competitive pressure on
      Chinese enterprises. China’s machinery industry is expected to be affected by
      China’s entrance into the WTO.





As
      a
      result of its entrance into the WTO, China will become more involved in
      international economic cooperation and competition. The transitional period
      for
      China after it enters the WTO is expected to last three to five years. China
      will gradually open up a wide range of sectors such as financial services,
      insurance, telecommunications, trade, commerce, transportation, construction,
      tourism, and intermediary services to foreign investment. In accordance with
      the
      WTO agreement, China will work to adopt transparent and equitable trade and
      investment policies, continue to improve the investment and business conditions,
      encourage fair competition, accord national treatment where needed and further
      strengthen the protection of intellectual property rights and all the legitimate
      rights and interests of foreign investors. The central government is speeding
      up
      the drafting of amendments and the abolishment of obsolete laws, rules, and
      regulations in accordance with China’s WTO commitments.





*Taxation*





Hainan
      Jinpan is subject to PRC income tax at the applicable tax rate of 15%; however,
      Hainan Jinpan has enjoyed a 50% tax exemption approved by China’s government
      since 1997. The 50% tax exemption ended on January 1, 2005.








-
            31 -





**Liquidity
      and Capital Resources**





Historically,
      we financed our operations principally through cash generated from our
      operations, bank borrowings and securities offerings.




We
      have a
      credit facility of RMB48.4 million with the Nan Yan Commercial Bank. This credit
      facility is guaranteed by Jinpan International Ltd. and accrued interest at
      a
      weighted average rate of 5.86% per annum for the year ended December 31, 2005.
      We also have an
      unsecured credit facility from the Bank of China for RMB 40 million, accruing
      an
      average interest rate of 5.58% per annum. The Nan
      Yan Commercial bank credit facility will expire in July 2006 and the Bank of
      China credit facility was extended in May 2006 for one more year. As of December
      31, 2005, the total amount borrowed was RMB36.2 million.





On
      December 31, 2005, we had working capital of RMB229.7 million compared to
      RMB201.9 million at December 31, 2004. This increase is due to an increase
      in
      cash and inventories. At December 31, 2005, we had approximately RMB63.4 million
      in cash and cash equivalents as compared to RMB46.4 million at December 31,
      2004. On December 31, 2005, we had accounts receivable and notes Receivable
      of
      RMB178  million
      as compared to RMB182 million at December 31, 2004.The increase in cash and
      decrease in accounts receivable was due to the changes in our credit policy
      and
      an improvement in collections.





In
      our
      opinion, we believe that our working capital is sufficient for our present
      capital requirements.





As
      of
      December 31, 2005, we had inventories of RMB107.3 million as compared to RMB67.6
      million as of December 31, 2004. The increase of RMB39.4 million is primarily
      as
      a result of (1) RMB15.5 million increase in raw materials; (2) RMB18.2 million
      increase in finished goods; and(3) RMB5.7 million increase in work in process.
      The build-up in finished goods was due to certain large orders that were
      delivered in January 2006.





Net
      cash
      provided from operating activities in 2005 was RMB25.6 million which is
      RMB 34.5 million more than the cash flows used by operating activities
      during year 2004. Cash provided from operating activities during 2005 was
      primarily the result of increase in advanced deposits from customers of RMB
      21.1
      million, increases in inventory of RMB 39.7 million, and net income of RMB
      43.5
      million after adjusting for non-cash depreciation expense of RMB 6.4 million.
      Net cash used in investing activities in 2005 was RMB 2.4 million which was
      primarily the result of expanding production facilities for RMB 2.2 million
      and purchasing equipment of RMB 2.3 million and proceeds from sales of
      available for sales securities for RMB 1.7 million. We do not expect any
      material changes in cash receipts from sales to our customers and payments
      made
      to our vendors to acquire inventory.





Our
      principal commitment consists of a long-term obligation outstanding under our
      operating lease. We expect to increase capital expenditures of RMB 8.3 million
      in the year 2006.





We
      anticipate, based on management’s internal forecasts and assumptions relating to
      our operations, that our existing cash and funds generated from our operations,
      together with our existing financing agreements, will be sufficient to meet
      our
      working capital and capital expenditure requirements for the next 12 months.
      In
      the event that our plans change, our assumptions change or prove inaccurate,
      or
      other capital resources and projected cash flow otherwise prove to be
      insufficient to fund our operations (due to, for example, unanticipated
      expenses, technical problems or otherwise), we could be required to seek
      additional financing sooner than currently anticipated. We have no current
      arrangements with respect to sources of additional financing and there can
      be no
      assurance that we would be able to obtain additional financing on terms
      acceptable to us, if at all.





-
            32 -





**Aggregate
      Contractual Obligations**





Apart
      from the operating lease commitment disclosed in note 12 to the audited
      financial statements, we have no other material contractual obligations. As
      of
      December 31, 2005, our operating lease obligated us to the following payments:





Payments
                due by period (RMB in thousands)**Contractual
                Obligations**
            **Total**
            **Less
                than 1 year**
            **1-3
                Years**
            **3-5
                years**
            **More
                than 5 years**Operating
                Lease Obligations
            3,071
            1,590
            765
            716
            0Total
            3,071
            1,590
            765
            716
            0





**Research
      and Development, Patents and Licenses, etc.**





During
      2005 we maintained our position as a technologically advanced supplier of cast
      coil transformers in China. Our success is based partly on our research and
      development policies over the past three years, which included focusing on
      developing advanced transformer technologies driven by power distribution and
      generation applications. We have also focused on developing other equipment,
      peripheral to transformers, in an effort to increase product offerings, and
      incorporating the latest manufacturing technologies into our production
      processes. We will continue to invest in technology through research and
      development along these lines, which will ultimately enable us to reach new
      markets and supply technologically advanced products that possess superior
      quality and performance and create more value for our customers.





Our
      recent research and development activities include:





•
            Development
                of the ZICB9 isolation transformer for use in 800 Mega-watt power
                plants.





•
            Development
                of our ZQSC line of multiple coil rectifier transformers. These units
                incorporate 2 sets of 12 pulse outputs to form a single 24 pulse
                rectifier
                transformer with 15 degrees of phase shift per winding to reduce
                harmonic
                loading by 50%. These units are used in infrastructure which supports
                subway and commuter rail systems.





•
            UL
                product recognition: The scope of the project has been increased
                to cover
                the full range of complete transformer products. Phase one testing
                which
                defines the parameters and criterion to be used during thermal ageing
                (phase two) has been completed. UL product recognition will open
                the North
                American market.





•
            Forward
                integration technologies: Development of switchgear included KYN28A-12
                switchgear with a modular construction facilitating retrofitting
                and
                equipment upgrading, GCMS/GCL low voltage switchgear, and DC low
                voltage
                switchgear for uninterruptible power supplies (UPS). Two new substations
                were also developed: YBM3A &
ZGS9.





In
      2005,
      2004, and 2003, we incurred RMB 4,459,000, RMB1,962,000 and RMB1,056,000,
      respectively, in research and development costs.








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            33 -





*Keeping
      abreast of the latest developments in the industry*





Our
      technical staff remains well informed with respect to advances in manufacturing
      equipment raw materials and processing methods. Detailed information is gathered
      by attending major industrial fairs and trade shows related to our industry.
      Typically, our technical staff attends such events as the Industrial Fair in
      Hanover, Germany, the International Electri-technical Exhibition in Beijing,
      China, and the IEEE Power Engineering Society’s ("PES") Transmission and
      Distribution show in the U.S. Members of our technical staff recently
      participated in all of these major shows and held technical discussions with
      major equipment and material suppliers and manufacturers.





**Trends**





Based
      on
      our increased sales force, we foresee that sales will continue to grow during
      2006. However, the costs of our raw materials have increased as demand and
      prices for steel and copper have increased and we anticipate that they will
      continue to increase. Strong demands worldwide on these materials and uncertain
      pricing in steel and copper are likely to impact our costs during 2006. To
      counteract the effects of the rising costs of raw materials, we may increase
      the
      prices of our products during 2006, so that sales revenues and net income
      continue to rise at a steady rate.





**Dividends**





Any
      future payment of dividends is within the discretion of our board of directors
      and will be dependent upon, among other things, our earnings, capital
      requirements, financing agreement covenants, our financial condition, and
      applicable laws. In February 2005, the board declared a cash dividend of
      U.S.$0.20 per share. We made the first distribution of U.S.$0.10 per share
      on
      March 10, 2005 and the second distribution of U.S.$0.10 per share in August
      of
      2005. On January 17, 2006, the board of directors declared a cash dividend
      of
      US$0.24 per share of common stock for 2006. We made the first distribution
      of
      US$0.12 per share on February 28, 2006, to shareholders of  record
      on
      February 10, 2006. The board may or may not declare additional dividends in
      the
      foreseeable future; however, to the extent that the board may decide to pay
      cash
      dividends in the future, these dividends will be declared from the retained
      earnings, *e.g.,* surplus,
      as determined by resolution of the board. As we are a holding company, the
      amount of our retained earnings will be limited by the amount of dividends
      which
      can be declared by our subsidiaries under applicable law as discussed directly
      below.





Applicable
      Chinese laws and regulations require that before a Sino-foreign equity joint
      venture enterprise, such as Hainan Jinpan, distributes profits to its joint
      venture partners, in our case Jinpan International and Hainan Jinpan, it must
      first do the following:





•
            satisfy
                all of its tax liabilities;


•
            provide
                for any losses still unpaid from previous years;
                and


•
            make
                allocations, in the proportions as determined by the discretion of
                the
                board, to acapital
                reserve fund and a public welfare fund.





Furthermore,
      if there is to be any distribution of profits, it is required to be in the
      proportion of each party’s investment in the joint venture.








-
            34 -





**Legal
      Proceedings**





We
      nor
      our subsidiaries is a party to, nor is our property or the property of our
      subsidiaries’ the subject of, any pending legal or arbitration proceeding that
      is material.





**Off-Balance
      Sheet Arrangements**





We
      are
      not party to any off-balance sheet arrangements.





**Item
      6. Directors, Senior Management and Employees.**





**Directors
      and Senior Management**





Our
      directors and executive officers are as follows:





**Name**
            
            **Age**
            
            **Position**Li
                Zhiyuan
            
            51
            
            Chairman
                of the Board of Directors, President, and Chief Executive
                OfficerLing
                Xiangsheng
            
            54
            
            Vice
                Chairman of the Board of Directors and Vice PresidentJing
                Yuqing
            
            43
            
            SecretaryWilliam
                D. Nagel
            
            69
            
            DirectorLi-wen
                Zhang
            
            51
            
            DirectorDonald
                S. Burris
            
            62
            
            DirectorMark
                Du
            
            45
            
            Principal****Financial
                Officer




**Li
      Zhiyuan** has
      served as our Chairman of the Board of Directors, President, and Chief Executive
      Officer since April 1997, and of our predecessor, Haikou Jinpan, since August
      1993, and as Chairman of the Board of Directors and Chief Executive Officer
      of
      Jinpan Hainan since June 1997. From October 1991 to present, Mr. Li served
      as
      General Manager of Haikou Rongda Enterprise Company and Director of Hainan’s
      KaDa Manufacturing Company, a Sino-Japanese joint-venture. From August 1988
      to
      October 1991, Mr. Li served as General Manager of Hainan Jindao Yacht Company.
      From August 1982 to October 1988, Mr. Li was employed as an engineer at Guangxi
      Electric Power Institute. Mr. Li is responsible for the overall management
      of
      our operations. He is married to Jing Yuqing.





**Ling
      Xiangsheng** has
      served as our Vice Chairman of the Board of Directors and Vice President since
      May 1997, and of our predecessor, Haikou Jinpan, since August 1993 and is
      responsible for the design, manufacture and development of our cast resin
      transformers. He has also served as the Vice President of Jinpan Hainan since
      June 1997. From June 1990 to December 1992, Mr. Ling was the chief consultant
      for the Danycast Company in Thailand where he was responsible for the entire
      production process of its cast resin transformer line. From January 1980 to
      June
      1990, Mr. Ling was employed by the Beijing Transformer Company ultimately
      serving as Chief Engineer and General Manager for its cast resin transformer
      plant. Between October 1985 and February 1986, Mr. Ling attended Fuji Electric
      Company in Japan to study vacuum cast resin insulated transformer manufacturing
      technology. Mr. Ling was responsible for designing China’s first cast resin
      transformer.





**Jing
      Yuqing** has
      served as one of our directors and a director of our predecessor, Haikou Jinpan,
      since August 1993. She also has served as a director of Jinpan Hainan since
      June
      1997. From October 1988 to December 1992, Ms. Jing was employed by the Hainan
      Electric Bureau Electric Planning Department as manager of the electrical
      engineering department. From September 1984 to October 1988, Ms. Jing performed
      designing services for the Liaoning Electric Designing Institute. Ms. Jing
      is
      the wife of Li Zhiyuan.








-
            35 -





**William
      D. Nagel**  has
      served as one of our directors since January 2000. He has a Mechanical
      Engineering degree from Villanova University and an MBA degree from Syracuse
      University. From 1961 to 1997, Mr. Nagel was employed by the General Electric
      Company where he held various executive positions including Director of
      Marketing for GE’s semiconductor businesses and Director of Strategic Planning
      and Development for GE’s power delivery businesses. While at General Electric,
      Mr. Nagel helped to establish offshore partnerships and develop licensee
      arrangements using GE’s advanced transformer technologies. Much of Mr. Nagel’s
      work with General Electric was performed in China, Japan, Australia, Europe,
      Korea, and Taiwan. Mr. Nagel retired from GE in 1998.





**Dr.
      Li-Wen Zhang** was
      elected to our Board of Directors in June 2003. Dr. Zhang is a permanent staff
      member of the United Nations Department of General Assembly Management Affairs
      currently in Economic and Social Council Servicing Branch. As part of the
      managing staff, Dr. Zhang provided consulting services to the Delegation of
      Beijing Fiscal Bureau on socioeconomic issues in November of 2000. In 1996,
      Dr
      Zhang helped organize a conference in Shanghai with Chinese authorities
      regarding the Development and Management of Special Economic Zones in a
      Transitional Economy. Dr. Zhang received a Ph.D. in International Comparative
      Education from Columbia University in 2001 and holds a Masters degree in
      Economic Policy Management from Columbia University Graduate School of Business
      and International Affairs.





**Donald
      S. Burris** was
      elected to our Board of Directors in June 2001. Mr. Burris is the senior
      principal in the firm of Burris & Hairrell, LLP, an AV-rated West Coast
      based law firm with a national and international practice. Mr. Burris served
      as
      editor-in-chief of the Georgetown Law Journal and as a law clerk to the
      Honorable James R. Browning of the United States Court of Appeals for the Ninth
      Circuit and has taught at the Georgetown Law Center, Loyola University School
      of
      Law, and the International Law Institute in Washington, D.C. Mr. Burris also
      served with distinction as a Special Counsel for the United States Senate
      Watergate Committee. Mr. Burris brings to the Company thirty-one years of
      experience as a successful businessman and business litigation attorney who
      has
      counseled clients from both a business and legal perspective.





**Mark
      Du** has
      served as our financial controller since September 2002. Since January 1993,
      Mr.
      Du has been Controller of PC Warehouse, Inc., a worldwide company headquartered
      in New Jersey, with 24 subsidiaries companies located throughout the United
      States. From September 1987 to December 1992, Mr. Du served in different
      accounting positions in various accounting firms and companies. Mr. Du received
      his Masters in Business Administration in Accounting from Pace University in
      1987 and is a CPA.





**Compensation
      of Directors and Officers** **.**





The
      total
      compensation paid to our directors and officers during the last fiscal year
      was
      RMB4,825,820 comprised of salaries in the amount of RMB3,400,000and bonuses
      in
      the amount of RMB1,425,820. The aggregate amount set aside by Hainan Jinpan
      during its last fiscal year to provide for pension, retirement or similar
      benefits for directors and officers was RMB157,824.





In
      February 2001, we granted stock options to five of our directors and our Chief
      Financial Officer, to purchase an aggregate of 120,000 shares of our common
      stock. Such options are exercisable at $1.35 per share and, subject to
      termination of employment, expire 8 years from the date of grant. The options
      are not transferable other than on death. ******








-
            36 -





In
      September 2003, we granted stock options to seven of our employees to purchase
      an aggregate of 140,000 shares of common stock. Such options are exercisable
      at
      the price of U.S. $3.55 per share and are subject to termination of employment,
      furthermore, the options expire 10 years from the date granted, are not
      transferable other than on death and are exercisable from the date of grant.





In
      January 2004, the Company entered into stock option agreement with three of
      its
      independent directors, to purchase 30,000 shares of common stock of the Company.
      Options granted are exercisable at the price of US$7.34 per share. The term
      of
      the options is 10 years from the dated granted. the options are not transferable
      other then death, and are exercisable from the date granted.





**Board
      Practices**





All
      of
      our directors hold office until the next annual meeting of shareholders and
      until their successors have been elected and qualified. Our officers are elected
      by the Board of Directors at the first Board of Directors meeting after each
      annual meeting of shareholders and hold office until death, resignation, or
      upon
      removal from office.





None
      of
      our directors have service contracts with us providing for benefits upon
      termination of their employment.





Our
      audit
      committee consists of Donald S. Burris, Dr. Li-Wen Zhang, and William D. Nagel,
      all of whom are independent directors. Dr. Li-Wen Zhang is the chair of audit
      committee. The Audit Committee oversees our auditing procedures, receives and
      accepts the reports of our independent certified public accountants, oversees
      our internal systems of accounting and management controls, and makes
      recommendations to the Board of Directors as to the selection and appointment
      of
      our auditors. The audit committee is governed by the terms of the Charter of
      the
      Audit Committee of the Board of Directors.





Our
      compensation committee consists of Donald S. Burris, Li-Wen Zhang, and William
      D. Nagel. Mr. Donald S. Burris is the chair of the compensation committee.
      The
      function of the Compensation Committee is to administer the 1997 Plan and to
      have authority over the salaries, bonuses, and other compensation arrangements
      of our executive officers.





The
      Board
      of Directors of the Company established the Nominating and Corporate Governance
      Committee of the Board to (1) identify individuals qualified to become members
      of the Board, (2) select, or recommend to the Board, the director nominees
      for
      the next annual stockholders meeting, (3) select candidates to fill any
      vacancies on the Board; and (4) develop and recommend to the Board a set of
      corporate governance principles applicable to the corporation. The members
      of
      this committee will initially be William D. Nagel, Donald S. Burris, and Dr.
      Li-Wen Zhang. William D. Nagel is the chair of the committee.





**Employees**





As
      of
      December 31, 2005, we had approximately 364 employees in China, including 61
      engineers or technicians, 46 management and administrative personnel, 71
      marketing and sales personnel, 182 factory personnel and 4 employees in the
      United States, including 2 management and administrative personnel, 1 marketing
      and sales personnel, and 1 accounting personnel. All of our employees are
      contract employees, except our U.S. employees, and have entered into renewable
      employment contracts with us. Terms of our employment agreements with
      management, engineers, sales persons, and technicians range from two to three
      years and the terms of our employment agreements with support personnel range
      from six months to one year.







-
            37 -





Our
      employees are not currently members of a trade union. We have not experienced
      any strikes or other labor disputes that have interfered with our operations
      and
      we believe that our relations with our employees is good.




**Share
      Ownership**





Under
      the
      1997 Stock Option Plan, we may issue stock options to our officers, directors,
      and consultants or officers, directors, and consultants of our subsidiaries.
      The
      committee that administers the plan has the discretionary authority to grant
      options, subject to certain limitations as set forth in the plan. Generally,
      the
      exercise price for the options cannot be less than 110% of the fair market
      value
      of the common stock on the date of grant, and the term of the option may not
      exceed 10 years from the date of grant, or five years for persons who own more
      than 10% of the total
      combined voting power of all classes of our stock, of any of our subsidiaries
      or
      a parent.





**Item
      7. Major Shareholders and Related Party Transactions.**





**Major
      Shareholders**





The
      following table sets forth specific information as of May 19, 2006, to the
      best
      of our knowledge, concerning the beneficial ownership of (i) persons or entities
      who, to our knowledge, beneficially own more than 5% of our outstanding ordinary
      shares, (ii) each of our directors, and (ii) the number of our ordinary shares
      beneficially owned by all officers and directors as a group.





Title
                of Class
            
            Name
                of Beneficial Owner
            
            Amount
                Owned(1)
            
            Percent
                of ClassCommon
                Stock
            
            Li
                Zhiyuan (2)
            
            1,852,829
            
            27.82%Common
                Stock
            
            Jing
                Yuqing (3)
            
            1,852,829
            
            27.82%Common
                Stock
            
            Ling
                Xiangsheng (4)
            
            953,314
            
            14.32%Common
                Stock
            
            William
                D. Nagel (5)
            
            49,800
            
            *Common
                Stock
            
            Li-wen
                Zhang (6)
            
            10,000
            
            *Common
                Stock
            
            Donald
                S. Burris
            
            10,000
            
            *Common
                Stock
            
            All
                officers and directors as a group (6 persons) (7)
            
            2,875,943
            
            42.14%





*
            Represents
                share ownership of less than one percent
                (1%).





(1)
            We
                believe that all persons named in the table have sole investment
                power
                with respect to all shares of common stock beneficially owned by
                them,
                unless otherwise noted in these
                footnotes.





(2)
            Includes:
                (i) 1,249,363 shares of common stock, (ii) 603,466 shares of common
                stock
                beneficially owned by Jinq Yuqing, the wife of Mr. Li , as to which
                Mr. Li
                disclaims beneficial ownership.








-
            38 -





(3)
            Includes:
                (i) 583,466 shares of common stock (ii) 20,000 shares of common stock
                issuable upon exercise of currently exercisable stock options, and
                (iii)
                1,249,363 shares of common stock beneficially owned by Li Zhiyuan,
                the
                husband of Ms. Jing and our Chairman of the Board, Chief Executive
                Officer, and President, as to which Ms. Jing disclaims beneficial
                ownership. .





(4)
            Includes:
                (i) 933,314 shares of common stock, and (ii) 20,000 shares of common
                stock
                issuable upon exercise of currently exercisable stock
                options.





(5)
            Includes
                (i) 19,800 shares of common stock, and (ii) 30,000 shares of common
                stock
                issuable upon exercise of currently exercisable stock
                options.





(6)
            Represents
                10,000 shares of common stock issuable upon exercise of currently
                exercisable stock options.





(7)
            Includes
                90,000 shares of common stock issuable upon exercise of currently
                exercisable stock options issued to all directors and executive officers.




To
      the
      best of our knowledge, as of May 19, 2006, 2,766,143 shares of common stock
      or
      41.54% of all shares of common stock outstanding were held by 3 record holders
      in the United States.





Our
      shareholders who beneficially own 5% or more of the common stock outstanding
      do
      not have different voting rights from other shareholders of common
      stock.





Since
      June 23, 2003, beneficial ownership percentages for Mr. Li, Ms. Jing, and Mr.
      Ling have decreased by 9.58%, 9.58%, and 4.68%, respectively, to the percentages
      as indicated in the chart above.





**Related
      Party Transactions**





During
      the year ended December 31, 2003, the minority shareholder in the joint venture,
      borrowed RMB11,277,000 from Jinpan JV which carries an annual interest rate
      of
      5.31%. RMB8,947,000 was repaid in November 2003 and the remainder was repaid
      in
      December 2003. Interest income of RMB475,000 was received from the minority
      shareholder in June 2004.





**Item
      8. Financial Information.**





**Consolidated
      Statements and Other Financial Information**





See
      Consolidated Financial Statements attached to this Form 20-F.





**Significant
      Changes**





None.





**Item
      9. The Offer and Listing.**





**Trading
      Prices and Markets**





The
      following table sets forth the high and low sales prices for our common stock,
      as publicly traded on the American Stock Exchange (the “AMEX”), for: (i) the
      five most recent full financial years, (ii) each full financial quarter for
      the
      two most recent full financial years, and (iii) for each month, during the
      six
      months of November 2005 through May 2006.








-
            39 -




Common
                Stock


Year
                Ended
            
            High
            
            Low2001
            
            1.5
            
            .552002
            
            2.075
            
            1.02003
            
            8.0
            
            1.5852004
            
            7.9
            
            4.922005
            
            7.20
            
            5.29





Quarter
                Ended
            
            High
            
            LowMarch
                30, 2004
            
            8.760
            
            6.320June
                30, 2004
            
            7.90
            
            5.510September
                30, 2004
            
            7.030
            
            4.970December
                31, 2004
            
            6.570
            
            4.920March
                30, 2005
            
            7.200
            
            5.460June
                30, 2005
            
            7.120
            
            5.390September
                30, 2005
            
            6.500
            
            5.550December
                31, 2005
            
            6.150
            
            5.290





Six
                Months
            
            High
            
            LowDecember,
                2005
            
            6.10
            
            5.61January,
                2006
            
            9.60
            
            5.95February,
                2006
            
            10.40
            
            7.52March,
                2006
            
            9.38
            
            7.96April,
                2006
            
            10.24
            
            7.53May,
                2006
            
            9.19
            
            7.10





Our
      common stock has traded on the AMEX since February 8, 1998 under the symbol
      “JST.”





**Item
      10. Additional Information.**





**Memorandum
      and Articles of Association**





Our
      registered office is located at the offices of Offshore Incorporations Limited,
      P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin
      Islands. Our purpose, as stated in Article 4 of our Memorandum of Association,
      is to engage in any lawful act not prohibited under any law of the British
      Virgin Islands. We may not, however: (i) engage in business with British Virgin
      Islands residents, (ii) own an interest in real property situated in the British
      Virgin Islands, (iii) carry on banking or trust business, unless licensed to
      do
      so under the Banks and Trust Companies Act of 1990, (iv) carry on business
      as an
      insurance or reinsurance company, insurance agent, or insurance broker, unless
      licensed to do so under an enactment authorizing us to carry on that business,
      (v) carry on business of company management, unless licensed under the Company
      Management Act of 1990, or (vi) carry on the business of providing the
      registered office or the registered agent for companies incorporated in the
      British Virgin Islands.





According
      to our Articles of Association, our directors can vote on a proposal,
      arrangement or contract in which they are materially interested and such
      transaction is not void or voidable so long as such director’s interest in the
      transaction is disclosed in good faith or is known by the other directors.
      Our
      directors are empowered to cause us to borrow money, to mortgage or charge
      our
      undertakings and property and to issue debentures, debenture stock or other
      securities when money is borrowed. Under our Articles of Association, a director
      shall not require a share qualification. **** Our
      Articles of Association do not state whether in the absence of an independent
      quorum, a director has, or does not have, the power to vote compensation to
      himself or another director. There is no age limit requirement causing
      retirement of any director.








-
            40 -





Holders
      of our common stock are entitled to receive dividends if and when declared
      by
      our Board of Directors out of funds legally available under British Virgin
      Islands law. All shares of common stock are equal to each other with respect
      to
      liquidation and dividend rights. ** In
      the
      event of our liquidation, all assets available for distribution to the holders
      of common stock are distributable among them according to their respective
      share
      holdings. ** Holders
      of our common stock are entitled to one vote for each share held of record
      on
      all matters to be voted upon by the shareholders, including the election of
      directors. Holders of our common stock do not have cumulative voting rights
      in
      the election of our directors. The Company’s convertible preferred stock (the
“Preferred Stock”) is convertible at any time to shares of common stock and each
      share of Preferred Stock entitles its holder to the same number of votes as
      a
      share of common stock. Holders of our convertible preferred stock are entitled
      to receive a preferred dividend per share (6% per annum) payable in kind,
      compounded quarterly. All accrued and unpaid dividends on the convertible
      preferred stock are to be cancelled upon conversion of such convertible
      preferred stock into common stock. In the event of our liquidation, dissolution
      or winding up, the holders of our convertible preferred stock are entitled
      to a
      preference over the holders of our common stock in the distribution of our
      assets in an amount equal to the sum of: (i) $4.375 per share, and (ii) an
      amount equal to declared but unpaid dividends on each such share. After payment
      of the full amount of the liquidation distributions to which the holders of
      our
      convertible preferred stock are entitled, holders of our convertible preferred
      stock and holders of our common stock will be entitled to any further
      distributions of our assets on a *pari
      passu* basis.
      Each share of convertible preferred stock entitles its holder to the same number
      of votes as a share of common stock with respect to any vote of our
      shareholders. Holders of our convertible preferred stock are entitled, at any
      time, to convert their convertible preferred stock into shares of common stock,
      subject to the anti-dilution adjustments described below. Holders of our
      convertible preferred stock have certain anti-dilution protection upon the
      occurrence of certain events including stock dividends, stock splits,
      reclassifications, mergers and issuances of shares of our common stock.





The
      rights attached to any class or series of our stock may be varied with the
      written consent of the holders of not less than three-fourths of the issued
      shares of that class or series and the written consent of the holders of not
      less than three-fourths of the issued shares of any other class or series which
      may be affected by such variation.





Our
      directors may convene shareholder meetings as they deem necessary. The directors
      must convene a meeting upon the written request of members holding 10% or more
      of our outstanding voting shares. The directors must give at least 7 days notice
      of any meeting to members whose names appear as members in our share register
      and are entitled to vote as of the date such notice is given. A meeting may
      be
      called on short notice if: (i) members holding not less than 90% of the total
      number of shares entitled to vote on the matters to be considered at the
      meeting, or 90% of the votes of each class or series of shares where members
      are
      entitled to vote thereon as a class or series, together with not less than
      a 90%
      majority of the remaining votes, have agreed to short notice of the meeting,
      or
      (ii) all members holding shares entitled to vote on all or any matters to be
      considered at the meeting have waived notice of the meeting, presence at such
      meeting being indicative of such waiver.





Our
      Memorandum of Association and Articles of Association have no limitations on
      the
      rights to own securities.





Our
      Memorandum of Association and Articles of Association do not have any
      provisions, which would effectively delay, defer or prevent a change of control
      of our company.








-
            41 -





Our
      Memorandum of Association and Articles of Association do not have any provisions
      governing the ownership threshold above which shareholder ownership must be
      disclosed.





**Material
      Contracts**





None.





**Exchange
      Controls**





There
      are
      no exchange control restrictions on the payment of dividends on our common
      stock
      in the British Virgin Islands, where we are incorporated. Other jurisdictions
      in
      which we conduct operations may have various exchange controls. Dividend
      distribution and repatriation by Hainan Jinpan is regulated by China’s laws and
      regulations. To date, these controls have not had and are not expected to have
      a
      material impact on our financial results. There are no material British Virgin
      Islands laws which impose foreign exchange controls on us or that affect the
      payment of dividends, interest or other payments to nonresident holders of
      our
      common stock. 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 common stock.





**Taxation**





The
      following discussion is a summary of all material anticipated British Virgin
      Islands and Chinese tax consequences of an investment in our common stock for
      security holders located in the United States. This discussion does not deal
      with all possible tax consequences relating to an investment in our common
      stock
      and does not purport to deal with the tax consequences applicable to all
      categories of investors, some of which (such as dealers in securities, insurance
      companies, and tax-exempt entities) may be subject to special rules. In
      particular, the discussion does not address the tax consequences under state,
      local and other national ( *e.g.* ,
      non-Chinese and non-British Virgin Islands) tax laws. Accordingly, each investor
      should consult his own tax advisor regarding the particular tax consequences
      to
      him of an investment in our common stock. The following discussion is based
      upon
      laws and relevant interpretations relating to our common stock currently in
      effect, all of which are subject to change.





***British
      Virgin Islands taxation policy*** *.* Under
      the International Business Companies Act of the British Virgin Islands as is
      currently in effect, a holder of common stock who is not a resident of the
      British Virgin Islands is exempt from the British Virgin Islands income tax
      on
      dividends paid with respect to common stock and all holders of common stock
      are
      not liable to the British Virgin Islands income tax on gains realized during
      the
      year on sale or disposal of any shares of common stock. The British Virgin
      Islands does not impose a withholding tax on dividends paid by a company
      incorporated under the International Business Companies Act.





There
      are
      no capital gains, gift or inheritance taxes levied by the British Virgin Islands
      on companies incorporated under the International Business Companies Act. In
      addition, the common stock of these companies is not subject to transfer taxes,
      stamp duties or similar charges.





Presently,
      there is no income tax treaty, convention or reciprocal tax treaty regarding
      withholdings currently in effect between the United States and the British
      Virgin Islands.




***Chinese
      taxation policy*** *.* There
      are no material Chinese tax consequences to holders of common stock solely
      as a
      result of the purchase, ownership and disposition of common stock or receipt
      of
      dividends, if declared.








-
            42 -





**Documents
      on Display**





We
      are
      subject to the informational requirements of the Securities Exchange Act of
      1934, as amended. In accordance with these requirements, we file reports and
      other information with the Securities and Exchange Commission (the
“Commission”). These materials, including this annual report on Form 20-F and
      its exhibits, may be inspected and copied at the Commission’s Public Reference
      Room at 100 F Street, N.E., Washington, D.C. 20549 and at the Commission’s
      regional office at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
      Copies of the materials may be obtained from the Public Reference Room of the
      Commission at 100 F. Street, N.E., Washington, D.C. 20549 at prescribed rates.
      The public may obtain information on the operation of the Commission’s Public
      Reference Room by calling the Commission in the United States at 1-800-SEC-0330.





**Item
      11. Quantitative and Qualitative Disclosure of Market
      Risk.**





We
      do not
      invest in derivative financial instruments or other market risk sensitive
      instruments, except for certain corporate securities. Accordingly, our exposure
      to financial market risk derives primary from changes in interest rate. The
      primary objective of our investments in corporate securities is to preserve
      principal while maximizing yields, without significantly increasing risk. These
      available for sale securities are subject to interest rate risk. The fair market
      value of these securities may fluctuate with changes in interest rate.





**Item
      12. Description of Securities Other than Equity
      Securities.**





Not
      applicable.





**Part
      II**





**Item
      13. Defaults, Dividend Arrearages and Delinquencies.**





None.





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





None.





**Item
      15. Controls and Procedures**





**Disclosure
      Controls and Procedures**




As
      of the
      end of the period covered by this Annual Report, the Company’s management (with
      the participation of its Chief Executive Officer and Chief Financial Officer)
      conducted an evaluation pursuant to Rule 13a-15 promulgated under the Exchange
      Act, of the effectiveness of the design and operation of the Company’s
      disclosure controls and procedures. In evaluating the disclosure controls and
      procedures, management recognizes that any controls and procedures, no matter
      how well designed and operated, can provide only a reasonable assurance of
      achieving the desired control objectives, and management is necessarily is
      required to apply its judgment in evaluating the cost-benefit relationship
      of
      possible controls and procedures and implementing controls and procedures based
      on the application of management’s judgment.




In
      connection with the audit of our consolidated financial statements for the
      year
      ended December 31, 2005, we and our independent public accounting firm, Grant
      Thornton, identified the following material weakness (as defined by the Public
      Company Accounting Oversight Board, Auditing Standard No.2) in our internal
      control over financial reporting:







-
            43 -





·
            We
                lack of appropriate segregation of duties in initiating journal entries
                and approval of entries.


·
            We
                do not have adequate controls over financial reporting to ensure
                that
                materials errors do not occur in preparation.





We
      have
      taken steps and will continue to take steps to correct material weaknesses.
      We
      are in the process of engaging external consultants to provide recommendations
      with respect to data collection, financial reporting, and internal control
      procedures pursuant to section 404 of the Sarbanes-Oxley Act, which will take
      effect beginning with the year ending December 31, 2007.




Based
      on
      that evaluation, taking into account the reportable conditions and material
      weaknesses described above, the company’s Chief Executive Officer and Chief
      Financial Officer have concluded that the Company’s disclosure controls and
      procedures were not effective as of the end of the period covered by this
      report. Other than as described above, there have been no material changes
      in
      our internal control over financial reporting during 2005 that has materially
      affected, or is reasonably likely to material effect our internal controls
      over
      financial reporting.





**Item
      16A.    Audit Committee Financial Expert**




Li-wen
      Zhang, a member of our Audit Committee, meets the criteria of an “Audit
      Committee Financial Expert” under the applicable rules and regulations of the
      SEC, and her designation as the Audit Committee’s Financial Expert has been
      ratified by the Board. Ms. Zhang is “independent,” as that term is defined in
      the American Stock Exchange listing standards.





**Item
      16B.    Code of Ethics**




We
      adopted a code of ethics that is applicable to all of our directors, officers
      and employees, including our principal executive, financial and accounting
      officers, and persons performing similar functions (the “Code of Ethics”). The
      Code of Ethics covers areas of professional and business conduct, and is
      intended to promote honest and ethical behavior, including fair dealing and
      the
      ethical handling of conflicts of interest, support full, fair, accurate, timely,
      and understandable disclosure in reports and documents we file with, or submits
      to, the SEC and other governmental authorities, and in our other public
      communications; deter wrongdoing; encourage compliance with applicable laws
      and
      governmental rules and regulations; and ensure the protection of our legitimate
      business interests. We encourage all of our directors, officers, and employees
      to promptly report any violations of the Code of Ethics, and have provided
      mechanisms by which they may do so. We will provide a copy of the Code of Ethics
      to any person, without charge, upon written request addressed to the Corporate
      Secretary of the Company at the Company’s corporate headquarters in Hainan,
      China.




**Item
      16C.    Principal Accountant Fees and Services**




The
      Audit
      Committee maintains a policy of approving and recommending only those services
      to be performed by the Company’s external auditors which are permitted under the
      Sarbanes-Oxley Act and the applicable rules of the SEC relating to auditor’s
      independence, and which are otherwise consistent with and will encourage, and
      are remunerated at levels that accord with, the basic principles of auditor
      independence. The practice of the Audit Committee is to receive from the
      Company’s management, at the time of approval of the Company’s annual financial
      statements for the preceding fiscal year, a list of all services, including
      audit, audit-related, tax and other services, proposed to be provided during
      the
      current fiscal year to the Company and its subsidiaries by Grant Thornton as
      well as a report regarding the extent of such services actually provided by
      Grant Thornton during the previous fiscal year and the fees paid for such
      services performed. After reviewing and considering the services proposed to
      be
      provided during the current fiscal year and, where appropriate in order better
      to understand their nature, discussing them with management, the Audit Committee
      pre-approves such of the proposed services, with a specific pre-approved budget,
      as it considers appropriate in accordance with the above principles. Management
      also maintains a practice of discussing these matters on an ongoing basis during
      the year with Liwen Zhang, the Audit Committee’s appointed delegate in respect
      of audit-related and non audit-related services. Additional services from Grant
      Thornton and any increase in budgeted amounts will similarly be pre-approved
      during the year by the Audit Committee on a case-by-case basis.







-
            44 -





All
      (100%) audit-related and non-audit-related services performed by Grant Thornton
      during 2005 were reported to, and the services proposed to be provided during
      2006 pre-approved by, the Audit Committee on January 20, 2006, in accordance
      with the procedures outlined above.




The
      following table provides information regarding fees we paid to Grant Thornton
      and Ernst & Young for all services, including audit services, for the years
      ended December 31, 2005 and 2004, respectively.





**Year
                Ended December 31, 2004**
            **Year
                Ended December 31, 2005**Audit
                Fees
            RMB800,00
            RMB
                880,000Audit
                Related Fees
            RMB
                20,000
            RMB     7,000Tax
                Fees
            RMB
                14,904All
                Other feesTotal
            RMB834,904
            RMB
                887,000


“Audit
      Fees” are the aggregate fees billed for the audit of our annual financial
      statements. This category also includes services that generally the independent
      accountant provides, such as statutory audits, consents and assistance with
      and
      review of documents filed with the SEC.





“Audit-Related
      Fees” are the aggregate fees billed for assurance and related services that are
      reasonably related to the performance of the audit and are not reported under
      Audit Fees. These fees include mainly accounting consultations regarding the
      accounting treatment of matters that occur in the regular course of business,
      implications of new accounting pronouncements and other accounting issues that
      occur from time to time.





“Tax
      Fees” are the aggregate fees billed for professional services rendered for tax
      compliance, tax advice, other than in connection with the audit. Tax compliance
      involves preparation of original and amended tax returns, tax planning
      and **** tax
      advice. ****





**Item
      16D. Exemptions from the Listing Standards for Audit Committees**




Not
      applicable.




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




None.


**Part
      III**





**Item
      17. Financial Statements.**





Not
      applicable.








-
            45 -





**Item
      18. Financial Statements.**





See
      Item
      19 below for consolidated financial statements filed as a part of this annual
      report.





**Item
      19. Exhibits.**





(a)  Index
      to
      Financial Statements


PageReport
                    of Independent Registered Public Accounting Firm
                F-3Consolidated
                    Balance Sheets
                F-5Consolidated
                    Statements of Income
                F-6Consolidated
                    Statements of Shareholders Equity and Comprehensive Income
                F-7Consolidated
                    Statements of Cash Flows
                F-9Notes
                    to Consolidated Financial Statements
                F-10


(b)  Exhibits




1.1
              Memorandum
                  of Association and Articles of Association of Jinpan International
                  Limited. (1)1.2
              Amendments
                  to the Memorandum of Association and Articles of Association.
                  (1)12.1*
              Certification
                  of the Principal Executive Officer pursuant to 17 C.F.R. 240.13a-14(a),
                  as
                  adopted pursuant to § 302 of the Sarbanes-Oxley Act.12.2*
              Certification
                  of Principal Financial Officer pursuant to 17 C.F.R. 240.13a-14(a),
                  as
                  adopted pursuant to § 302 of the Sarbanes-Oxley Act.13.1*
              Certification
                  of Principal Executive Officer and Principal Financial Officer
                  pursuant to
                  18 U.S.C. 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley
                  Act.14.1*
              Consent
                  of Grant Thornton, Hong Kong.14.2*
              Consent
                  of Ernst & Young, Hong
                  Kong.


_______________________________


*
            Filed
                herewith.


(1)
            Filed
                as an exhibit to Jinpan International Limited’s Registration Statement on
                Form F-1 (File No. 333-8198), filed with the Securities and Exchange
                Commission on November 22, 1997, and incorporated herein by
                reference.








-
            46 -





**SIGNATURES**





The
      registrant hereby certifies that it meets all of the requirements for filing
      on
      Form 20-F and that it has duly caused and authorized the undersigned to sign
      this annual report on its behalf.




JINPAN
                  INTERNATIONAL LIMITEDBy:
                  /s/ Li ZhiyuanName:
                  Li ZhiyuanTitle:  
                  Chief Executive Officer


July
      10,
      2006








-
            47 -








Financial
      Statements





JINPAN
      INTERNATIONAL LIMITED AND SUBSIDIARIES





Years
      ended December 31, 2005, 2004 and 2003








F-1





INDEX
      TO
      FINANCIAL STATEMENTS




PagesJINPAN
                  INTERNATIONAL LIMITED AND SUBSIDIARIES:Report
                  of Independent Auditors
              
              
              F-3Consolidated
                  Balance Sheets as of December 31, 2005 and 2004
              
              
              F-5Consolidated
                  Statements of Incomefor
                  the years ended December 31, 2005, 2004 and 2003
              
              
              F-6Consolidated
                  Statements of Shareholders' Equity and Comprehensive
                  Incomefor
                  the years ended December 31, 2005, 2004 and 2003
              
              
              F-7Consolidated
                  Statements of Cash Flowsfor
                  the years ended December 31, 2005, 2004 and 2003
              
              
              F-9Notes
                  to Consolidated Financial Statements
              
              
              F-10








F-2





**Report
      of Independent Registered Public Accounting Firm**




Board
      of
      Directors and Shareholders of


Jinpan
      International Limited




We
      have
      audited the accompanying consolidated balance sheet of Jinpan International
      Limited as of December 31, 2005, and the related consolidated statements of
      operations, changes in shareholders’ equity and comprehensive income and cash
      flows for the fiscal year ended December 31, 2005. These financial statements
      are the responsibility of the Company's management. Our responsibility is to
      express an opinion on these financial statements based on our
      audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. 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 financial statements referred to above present fairly, in all
      material respects, the financial position of Jinpan International Limited as
      of
      December 31, 2005, and the results of its operations and its cash flows for
      the fiscal year ended December 31, 2005 in conformity with accounting
      principles generally accepted in the United States of America.









/s/
      GRANT
      THORNTON




Hong
      Kong


May
      23,
      2006







F-3





**Report
      of Independent Registered Public Accounting Firm**








The
      Board
      of Directors and Shareholders of


Jinpan
      International Limited





We
      have
      audited the accompanying consolidated balance sheets of Jinpan International
      Limited and subsidiaries as of December 31, 2004 and 2003, and the related
      consolidated statements of income, shareholders' equity, and cash flows for
      each
      of the two years in the period ended December 31, 2004. These financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. We were not engaged to perform
      an
      audit of the Company's internal control over financial reporting. Our audits
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company's internal control over financial reporting. Accordingly, we express
      no
      such opinion. An audit also includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the financial statements, assessing
      the accounting principles used and significant estimates made by management,
      and
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the consolidated financial position of Jinpan International
      Limited and subsidiaries at December 31, 2004 and 2003, and the consolidated
      results of their operations and their cash flows for each of the two years
      in
      the period ended December 31, 2004, in conformity with U.S. generally accepted
      accounting principles.





/s/Ernst
      & Young





Hong
      Kong


June
      30,
      2005




F-4





**Jinpan
      International Limited and Subsidiaries**


**Consolidated
      Balance Sheets**


**As
      of December 31, 2005 and 2004**




December
                31,2005
            
            2005
            
            2004Notes
            
            US$
            
            RMB
            
            RMB*(In
                thousands, except number of shares and
                per*
              *share
                data)***Assets**Current
                assets:Cash
                and cash equivalents
            
            
            
            
            
            7,857
            
            
            63,417
            
            
            46,433Investments
                available for sale
            
            
            4
            
            
            163
            
            
            1,313
            
            
            3,367Notes
                receivable
            
            
            
            
            
            900
            
            
            7,262
            
            
            10,189Accounts
                receivable, net
            
            
            5
            
            
            21,154
            
            
            170,732
            
            
            171,914Inventories,
                net
            
            
            6
            
            
            13,297
            
            
            107,320
            
            
            67,614Prepaid
                expenses
            
            
            
            
            
            2,193
            
            
            17,703
            
            
            8,930Prepaid
                tax
            
            
            
            
            
            38
            
            
            309
            
            
            -Other
                receivables
            
            
            
            
            
            974
            
            
            7,863
            
            
            5,410Total
                current assets
            
            
            
            
            
            46,576
            
            
            375,919
            
            
            313,857Property,
                plant and equipment, net
            
            
            7
            
            
            3,898
            
            
            31,459
            
            
            35,894Construction
                in progress
            
            
            
            
            
            370
            
            
            2,983
            
            
            766Deferred
                tax assets
            
            
            8
            
            
            104
            
            
            836
            
            
            711Total
                assets
            
            
            
            
            
            50,948
            
            
            441,197
            
            
            351,228Liabilities
                and Shareholders' EquityCurrent
                liabilities:Short
                term bank loans
            
            
            9
            
            
            4,489
            
            
            36,231
            
            
            23,591Accounts
                payable
            
            
            
            
            
            2,968
            
            
            23,953
            
            
            27,594Income
                tax
            
            
            8
            
            
            -
            
            
            -
            
            
            151Value
                added tax
            
            
            
            
            
            110
            
            
            890
            
            
            4,122Advance
                from customers
            
            
            
            
            
            3,270
            
            
            26,389
            
            
            5,257Commission
                payable
            
            
            
            
            
            4,103
            
            
            33,111
            
            
            28,392Accrual
                employee benefits
            
            
            
            
            
            837
            
            
            6,759
            
            
            6,108Government
                grant
            
            
            10
            
            
            1,221
            
            
            9,854
            
            
            10,258Dividend
                payable
            
            
            
            
            
            -
            
            
            -
            
            
            23Other
                liabilities
            
            
            
            
            
            1,116
            
            
            9,003
            
            
            6,438Total
                current liabilities
            
            
            
            
            
            18,114
            
            
            146,190
            
            
            111,934Minority
                interest
            
            
            
            
            
            768
            
            
            6,200
            
            
            5,437Commitments
                and contingent liabilities
            
            
            12Shareholders'
                equity:Common
                stock, US$0.009 par value:Authorized
                shares - 20,000,000Issued
                and outstanding shares - 6,708,946 in 2005 and 6,702,112 in 2004
            
            
            18
            
            
            60
            
            
            499
            
            
            499Convertible
                preferred stock, US$0.009 par value:Authorized
                shares - 1,000,000Issued
                and outstanding shares - 6,111 in 2005 and 12,245 in 2004 , 6%
                p.a.
            
            
            18
            
            
            -
            
            
            1
            
            
            1Additional
                paid-in capital
            
            
            
            
            
            10,574
            
            
            87,535
            
            
            87,515Reserves
            
            
            18
            
            
            2,647
            
            
            21,870
            
            
            19,245Retained
                earnings
            
            
            
            
            
            19,061
            
            
            155,799
            
            
            131,972Accumulated
                other comprehensive income
            
            
            
            
            
            547
            
            
            (118
            )
            
            6932,889
            
            
            265,586
            
            
            239,301Less:
                Treasury shares at cost,Common
                stock -212,470 in 2005 and 184,270 in 2004
            
            
            
            
            
            (823
            )
            
            (6,779
            )
            
            (5,444
            )Total
                shareholders' equity
            
            
            
            
            
            32,066
            
            
            258,807
            
            
            233,857Total
                liabilities and shareholders' equity
            
            
            
            
            
            50,948
            
            
            411,197
            
            
            351,228


*The
      accompanying notes form an integral part of these consolidated financial
      statements.*




F-5






**Jinpan
      International Limited and Subsidiaries**


**Consolidated
      Statements of Income**


**For
      the years ended December 31, 2005, 2004 and 2003**




Year
                  ended December 31,2005
              
              2005
              
              2004
              
              2003Notes
              
              US$
              
              RMB
              
              RMB
              
              RMB*(In
                  thousands, except per share data)*Net
                  sales
              
              
              17
              
              
              53,613
              
              
              438,219
              
              
              349,609
              
              
              276,564Other
                  income
              
              
              
              
              
              332
              
              
              2,711
              
              
              1,702
              
              
              3,85353,945
              
              
              440,930
              
              
              351,311
              
              
              280,417Costs
                  and expenses:Cost
                  of products sold
              
              
              
              
              
              (36,436
              )
              
              (297,818
              )
              
              (228,519
              )
              
              (157,559
              )Provision
                  for doubtful debts
              
              
              
              
              
              (195
              )
              
              (1,347
              )
              
              392
              
              
              (665
              )Selling
                  and administrative
              
              
              
              
              
              (10,621
              )
              
              (
                  87,060
              )
              
              (
                  84,772
              )
              
              (
                  86,218
              )(47,252
              )
              
              (386,225
              )
              
              (312,899
              )
              
              (244,442
              )Non
                  operating income(Loss):Gain/(Loss)
                  from sales of investment
              
              
              
              
              
              (33
              )
              
              (273
              )
              
              222
              
              
              -Dividend
                  income of investment
              
              
              
              
              
              2
              
              
              14
              
              
              339
              
              
              9Interest
                  Income
              
              
              
              
              
              43
              
              
              355
              
              
              377
              
              
              85512
              
              
              96
              
              
              938
              
              
              864Non
                  operating expenses:Interest
                  expenses
              
              
              
              
              
              (184
              )
              
              (1,499
              )
              
              (423
              )
              
              (354
              )Income
                  before income taxes
              
              
              
              
              
              6,521
              
              
              53,302
              
              
              38,927
              
              
              36,485Income
                  taxes
              
              
              8
              
              
              (1,070
              )
              
              (8,744
              )
              
              (4,031
              )
              
              (3,727
              )Income
                  before minority interest
              
              
              
              
              
              5,451
              
              
              44,558
              
              
              34,896
              
              
              32,758Minority
                  interest
              
              
              
              
              
              (915
              )
              
              (7,482
              )
              
              (6,032
              )
              
              (5,845
              )Net
                  income
              
              
              
              
              
              4,536
              
              
              37,076
              
              
              28,864
              
              
              26,913Earnings
                  per share-Basic
              
              
              
              
              
              US$0.70
              
              
              RMB5.70
              
              
              RMB4.44
              
              
              RMB4.21-Diluted
              
              
              
              
              
              US$0.68
              
              
              RMB5.58
              
              
              RMB4.33
              
              
              RMB4.15Weighted
                  average number of shares-Basic
              
              
              
              
              
              6,499,898
              
              
              6,499,898
              
              
              6,489,178
              
              
              6,390,804-Diluted
              
              
              
              
              
              6,640,396
              
              
              6,640,396
              
              
              6,663,305
              
              
              6,487,116





*The
      accompanying notes form an integral part of these consolidated financial
      statements.*





F-6





**Jinpan
      International Limited and Subsidiaries**


**Consolidated
      Statements of Shareholders' Equity and Comprehensive
      Income**


**For
      the years ended December 31, 2005, 2004 and 2003**


AccumulatedNumber
              
              Number
              
              
              
              
              
              Convertible
              
              Additional
              
              
              
              
              
              other
                  com-
              
              Compre-Treasury
              
              of
              
              of
              
              Treasury
              
              Common
              
              preferred
              
              paid-in
              
              
              
              Retained
              
              prehensive
              
              hensivestock
              
              common
              
              preferred
              
              stock
              
              stock
              
              stock
              
              capital
              
              Reserves
              
              earnings
              
              income
              
              income
              
              Totalshares
              
              shares
              
              shares
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB*(In
                  thousands, except for number of shares)*Balance
                  at January 1,
                2003
              
              
              (59,154
              )
              
              6,301,845
              
              
              24,511
              
              
              (742
              )
              
              469
              
              
              2
              
              
              77,157
              
              
              14,922
              
              
              92,680
              
              
              116
              
              
              
              
              
              184,604Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              26,913
              
              
              -
              
              
              26,913
              
              
              26,913Transfer
                  to reserves
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,206
              
              
              (2,206
              )
              
              -
              
              
              -
              
              
              -Cash
                  dividends declared($0.40
                  per share)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (10,794
              )
              
              -
              
              
              -
              
              
              (10,794
              )Cash
                  dividendsdistributed
                  ($0.05 pershare)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,368
              )
              
              -
              
              
              -
              
              
              (1,368
              )Reacquired
                  shares
              
              
              (14,004
              )
              
              -
              
              
              -
              
              
              (335
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (335
              )Converted
                to Common Stock
              
              
              
              
              
              6,133
              
              
              (6,133
              )Exercise
                  of stock optionsfor
                  cash
              
              
              -
              
              
              360,000
              
              
              -
              
              
              -
              
              
              27
              
              
              -
              
              
              6,303
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              6,330Unrealized
                  gains oninvestments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              112
              
              
              112
              
              
              112Employee
                  stock-basedcompensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,347
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              3,347Currency
                  translationadjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              45
              
              
              45
              
              
              4527,070Balance
                    at December 31,
                  2003
              
              
              (73,158
              )
              
              6,667,978
              
              
              18,378
              
              
              (1,077
              )
              
              496
              
              
              1
              
              
              86,807
              
              
              17,128
              
              
              105,225
              
              
              273
              
              
              
              
              
              208,854Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              28,864
              
              
              -
              
              
              28,864
              
              
              28,864Transfer
                  to reserves
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,117
              
              
              (2,117
              )
              
              -
              
              
              -
              
              
              -Reacquired
                  shares
              
              
              (111,112
              )
              
              -
              
              
              -
              
              
              (4,367
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,367
              )Converted
                to Common Shares
              
              
              
              
              
              6,134
              
              
              (6,134
              )Exercise
                  of stock optionsfor
                  cash
              
              
              -
              
              
              28,000
              
              
              -
              
              
              -
              
              
              3
              
              
              -
              
              
              457
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              459Unrealized
                  loss oninvestments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (74
              )
              
              (74
              )
              
              (74
              )Reclassificationadjustment
                  for gains
                included
                  in net income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (112
              )
              
              (112
              )
              
              (112
              )




F-7




**Jinpan
                International Limited and Subsidiaries**
              **Consolidated
                Statements of Shareholders' Equity and Comprehensive
                Income**
              **For
                the years ended December 31, 2005, 2004 and 2003**
              **(continued)**


AccumulatedNumber
              
              Number
              
              
              
              
              
              Convertible
              
              Additional
              
              
              
              
              
              other
                  com-
              
              Compre-Treasury
              
              of
              
              of
              
              Treasury
              
              Common
              
              preferred
              
              paid-in
              
              
              
              Retained
              
              prehensive
              
              hensivestock
              
              common
              
              preferred
              
              stock
              
              stock
              
              stock
              
              capital
              
              Reserves
              
              earnings
              
              income
              
              income
              
              Totalshares
              
              shares
              
              shares
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB
              
              RMB*(In
                  thousands, except for number of shares)*Employee
                  stock-basedcompensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              251
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              251Currency
                  translationadjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (18
              )
              
              (18
              )
              
              (18
              )(28,660
              )Balance
                  at December 31,2004
              
              
              (184,270
              )
              
              6,702,112
              
              
              12,245
              
              
              (5,444
              )
              
              499
              
              
              1
              
              
              87,515
              
              
              19,245
              
              
              131,972
              
              
              69
              
              
              
              
              
              233,857Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              37,076
              
              
              -
              
              
              37,076
              
              
              37,076Transfer
                  to reserves
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              2,625
              
              
              (2,625
              )
              
              -
              
              
              -
              
              
              -Cash
                  dividendsdistributed
                  ($0.20 pershare)
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (10,624
              )
              
              -
              
              
              -
              
              
              (10,624
              )Reacquired
                  shares
              
              
              (28,200
              )
              
              -
              
              
              -
              
              
              (1,335
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (1,335
              )Converted
                  to common stock
              
              
              
              
              
              6,134
              
              
              (6,134
              )Exercise
                  of stock optionsfor
                  cash
              
              
              -
              
              
              700
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              20
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              20Unrealized
                  gains oninvestments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Employee
                  stock-basedcompensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -Currency
                  translationadjustments
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (187
              )
              
              (187
              )
              
              (187
              )36,889Balance
                  at December 31,2005
              
              
              (212,470
              )
              
              6,708,946
              
              
              6,111
              
              
              (6,779
              )
              
              499
              
              
              1
              
              
              87,535
              
              
              21,870
              
              
              155,799
              
              
              (118
              )
              
              
              
              
              258,807




*The
      accompanying notes form an integral part of these consolidated financial
      statements*





F-8





**Jinpan
      International Limited and Subsidiaries**


**Consolidated
      Statements of Cash Flows**


**F** **or
      the years ended December 31, 2005, 2004 and 2003**





Year
                ended December 31,2005
            
            2005
            
            2004
            
            2003US$
            
            RMB
            
            RMB
            
            RMB*(In
                thousands)*Operating
                activitiesNet
                income
            
            
            4,536
            
            
            37,076
            
            
            28,864
            
            
            26,913Adjustments
                to reconcile net income tonet
                cash provided by/(used in) operating activities:Depreciation
            
            
            782
            
            
            6,393
            
            
            5,721
            
            
            5,450Deferred
                income taxes
            
            
            (15
            )
            
            (125
            )
            
            266
            
            
            49Provision
                for doubtful debts
            
            
            165
            
            
            1,347
            
            
            (392
            )
            
            665Provision
                for inventories
            
            
            -
            
            
            -
            
            
            -
            
            
            1,677Loss/(gain)
                on disposal of property, plant and equipment
            
            
            (1
            )
            
            (6
            )
            
            (16
            )
            
            112Minority
                interest
            
            
            915
            
            
            7,482
            
            
            6,032
            
            
            5,845Employee
                stock-based compensation
            
            
            
            
            
            
            
            
            251
            
            
            3,347Loss
                /(Gain) from sales of available-for-sales securities
            
            
            33
            
            
            273
            
            
            (222
            )
            
            -Changes
                in operating assets and liabilitiesAccounts
                receivable
            
            
            (20
            )
            
            (165
            )
            
            (47,107
            )
            
            (12,056
            )Notes
                receivable
            
            
            358
            
            
            2,927
            
            
            (1,391
            )
            
            (8,798
            )Inventories
            
            
            (4,858
            )
            
            (39,706
            )
            
            (29,744
            )
            
            (10,114
            )Prepaid
                expenses
            
            
            (1,073
            )
            
            (8,772
            )
            
            (2,159
            )
            
            4,806Prepaid
                tax
            
            
            (38
            )
            
            (309
            )
            
            -
            
            
            -Other
                receivables
            
            
            (300
            )
            
            (2,453
            )
            
            (387
            )
            
            (5,860
            )Accounts
                payable
            
            
            (445
            )
            
            (3,641
            )
            
            14,779
            
            
            7,368Income
                tax
            
            
            (18
            )
            
            (151
            )
            
            133
            
            
            (815
            )Value
                added tax
            
            
            (395
            )
            
            (3,232
            )
            
            2,997
            
            
            (2,230
            )Advance
                from customers
            
            
            2,585
            
            
            21,132
            
            
            3,175
            
            
            (1,656
            )Commission
                payable
            
            
            577
            
            
            4,719
            
            
            4,353
            
            
            4,966Accrual
                employee benefits
            
            
            80
            
            
            651
            
            
            953
            
            
            (4,230
            )Government
                grant
            
            
            (49
            )
            
            (404
            )
            
            2,856
            
            
            2,598Other
                liabilities
            
            
            311
            
            
            2,542
            
            
            2,074
            
            
            785Net
                cash provided by/(used in) operating activities
            
            
            3,130
            
            
            25,578
            
            
            (8,964
            )
            
            18,822Investing
                activitiesDecrease/(increase)
                in restricted time deposit
            
            
            -
            
            
            -
            
            
            -
            
            
            20,000Purchases
                of property, plant and equipment
            
            
            (277
            )
            
            (2,266
            )
            
            (11,339
            )
            
            (3,571
            )Proceeds
                from sales of property, plant and equipment
            
            
            51
            
            
            419
            
            
            445
            
            
            700Payment
                for construction in progress
            
            
            (273
            )
            
            (2,235
            )
            
            (1,189
            )
            
            (1,612
            )Proceeds
                from sales of available-for-sales securities
            
            
            207
            
            
            1,694
            
            
            1,468
            
            
            -Purchases
                of available-for-sale securities
            
            
            -
            
            
            -
            
            
            -
            
            
            (4,686
            )Net
                cash provided by (used in) investing activities
            
            
            (292
            )
            
            (2,388
            )
            
            (10,615
            )
            
            10,831Financing
                activitiesProceeds
                from bank loan
            
            
            17,533
            
            
            143,308
            
            
            91,760
            
            
            45,485Repayment
                of bank loan
            
            
            (15,986
            )
            
            (130,668
            )
            
            (70,185
            )
            
            (67,136
            )Acquisition
                of treasury stock
            
            
            (163
            )
            
            (1,336
            )
            
            (4,367
            )
            
            (335
            )Proceeds
                from exercise of stock options
            
            
            2
            
            
            20
            
            
            459
            
            
            6,330Decrease
                in dividend payable to minority shareholders
            
            
            (822
            )
            
            (6,719
            )
            
            (7,437
            )
            
            (9,903
            )Dividends
                paid
            
            
            (1,300
            )
            
            (10,624
            )
            
            (10,771
            )
            
            (1,368
            )Net
                cash provided by/(used in) financing activities
            
            
            (736
            )
            
            (6,019
            )
            
            (541
            )
            
            (26,927
            )Effect
                of exchange rate changes on cash
            
            
            143
            
            
            (187
            )
            
            (18
            )
            
            45Net
                increase/(decrease) in cash and cash equivalents
            
            
            2,245
            
            
            16,984
            
            
            (20,138
            )
            
            2,771Cash
                and cash equivalents at beginning of year
            
            
            5,612
            
            
            46,433
            
            
            66,571
            
            
            63,800Cash
                and cash equivalents at end of year
            
            
            7,857
            
            
            63,417
            
            
            46,433
            
            
            66,571Interest
                paid
            
            
            184
            
            
            1,500
            
            
            423
            
            
            354Income
                taxes paid
            
            
            1,019
            
            
            8,328
            
            
            1,271
            
            
            3,018





*The
      accompanying notes form an integral part of these consolidated financial
      statements.*




F-9


**Jinpan
      International Limited and Subsidiaries**


**Notes
      to Consolidated Financial Statements**




1.
            ORGANIZATION
                AND PRINCIPAL ACTIVITIES





Jinpan
      International Limited (the “Company”) was incorporated under the laws of the
      British Virgin Islands on April 3, 1997.




As
      of
      December 31, 2005, the Company had direct interests in the following
      subsidiaries:





Name
                of entity
            
            Date
                of
              establishment
            
            Percentage
                of equity
              interest
                attributable to
              the
                Company
            
            Paid-up
                capital
            
            Principal
                activitiesHainan
                Jinpan
              Electric
                Co., Ltd.
              (“Jinpan
                JV” )
            
            June
                3, 1997
            
            85%
            
            RMB21,520,000
            
            Manufacturing
                and sale of cast resin transformersJinpan
                International
              (USA)
                Limited
              (“Jinpan
                USA”)
            
            February
                18, 1998
            
            100%
            
            US$10,000
            
            Marketing
                of cast resin transformers





The
      Company, Jinpan JV and Jinpan USA are hereinafter collectively referred to
      as
      the “Group”.





The
      principal activity of the Company is investment holding. Substantially all
      of
      the Group’s operations are conducted in the People’s Republic of China (the
“PRC”), and its principal market is in the PRC. The term of Jinpan JV is 50
      years, ending on September 3, 2047, and can be extended with mutual consent
      of
      the joint venture parties, subject to the approval of the relevant PRC
      government authorities. Income and losses and the net assets on termination
      of
      the co-operative joint venture are shared on the basis of percentage ownership.
      The co-operative joint venture can be terminated upon the unanimous agreement
      of
      the Board of Directors of Jinpan JV. In
      the
      event that Jinpan JV is not extended, the joint venture will be dissolved and
      liquidated pursuant to the provisions of applicable law and the joint venture
      agreement. In addition, Jinpan JV may be terminated prior to the expiration
      of
      the joint venture agreement upon the occurrence of certain events, including
      but
      not limited, the inability of the enterprise to conduct its business due to
      financial losses or a breach of the joint venture agreement by one of the
      parties thereto.





The
      Group
      is subject to some considerations and risks not typically associated with
      investments in equity securities of North America and Western European
      companies. These include risks associated with, among others, the political,
      economic and legal environments, foreign currency exchange and the transformer
      manufacturing industry in the PRC. These are described further in the following
      paragraphs:





F-10


**Jinpan
        International Limited and Subsidiaries**
 **Notes
        to Consolidated Financial Statements**


a)  Political
      environment





All
      of
      the Group’s manufacturing facilities are located in the PRC and, as a result,
      the Group’s operations and assets are subject to political, economic, legal and
      other uncertainties. The economy of the PRC differs from the economies of most
      countries belonging to the Organization for Economic Co-operation and
      Development (the “OECD”) in such respects as structure, government involvement,
      level of development, growth rate, capital reinvestment, allocation of
      resources, rate of inflation and balance of payments position. PRC
      is a
      socialist state which, since 1949, has been controlled by the Communist Party
      of
      China. In the late 1970's, China's government permitted greater provincial
      and
      local economic autonomy and private economic activity, away from a more
      centrally-planned economy. Although
      the majority of productive assets in the PRC are still owned by the PRC
      government, in the past two decades the PRC government has implemented economic
      reform measures that emphasize decentralization, the utilization of market
      forces in the development of the PRC economy and the encouragement of private
      economic activity. Such economic reform measures may be inconsistent or
      ineffectual and the Group may not be able to capitalize on all such reforms.
      Further, there can be no assurance that the PRC government will continue to
      pursue such policies, that policies will be successful if pursued, the such
      policies will not be significantly altered from time to time or that business
      operations in the PRC would not become subject to the risk of nationalization,
      which could result in the total loss of investment in that country.





b)
      Economic environment





Since
      the
      1970’s, the PRC government has been reforming and is expected to continue to
      reform its economic and political systems. Many of the reforms are unprecedented
      or experimental and are expected to be refined and improved over time. Other
      political, economic and social factors could also lead to further readjustment
      of the reform measures. This refining and readjustment process may not always
      have a positive effect on the operations of the Group.





Accordingly,
      the Group’s operating results may be adversely affected by changes in the PRC’s
      political, economic and social conditions and changes in policies of the PRC
      government, such as changes in laws and regulations (or the interpretation
      thereof), measures which may be introduced to control inflation, changes in
      the
      rate or method of taxation, imposition of additional restrictions on currency
      conversion and remittance abroad and reduction in tariff protection and other
      import restrictions. The inadequate development of an infrastructure and the
      potential unavailability of adequate power and water supplies, transportation,
      satisfactory roads and communications and raw materials and parts may also
      significantly affect the Group’s operating results.





The
      PRC
      economy has experienced significant growth in recent years, but such growth
      has
      been uneven among various geographical regions and among various sectors of
      the
      economy. The PRC government has implemented various policies from time to time,
      such as during 1989 to 1991 and again commencing in 1993, to restrain the rate
      of such economic growth and control inflation and otherwise regulate economic
      expansion. Although the Group might benefit from these types of policies, more
      severe measures or other actions by the PRC government could decrease demand
      for
      the Group’s products or otherwise significantly adversely affect the Group’s
      earnings.








F-11


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


c)  Legal
      environment





The
      legal
      system of the PRC relating to foreign investments is both new and continually
      evolving, and currently there can be no certainty as to the application of
      its
      laws and regulations in particular instances. Enforcement of existing laws
      or
      agreements may be sporadic and implementation or interpretation of laws
      inconsistent. The PRC’s judiciary is relatively inexperienced in enforcing the
      laws that exist, leading to a higher than usual degree of uncertainty as to
      the
      outcome of any litigation. Even when adequate law exists in the PRC, it may
      not
      be possible to obtain swift and equitable enforcement of the law.





d)
      Foreign currency exchange





The
      Group
      receives almost all of its revenues in Renminbi, which is not freely convertible
      into foreign exchange. However, the Group will require foreign currency to
      meet
      foreign currency obligations, such as for further purchases of certain equipment
      and raw materials, and payment of dividends. The PRC government imposes control
      over its foreign currency reserves in part through direct regulation of the
      conversion of Renminbi into foreign exchange and through restriction on foreign
      imports. Effective January 1, 1994, the conversion of Renminbi into United
      States Dollars must be based on rates set by the People’s Bank of China (the
“PBOC”), which rates are set daily based on the previous day’s PRC interbank
      foreign exchange market rate with reference to current exchange rates on the
      world financial markets (the “PBOC Rate”). The Renminbi/United States Dollar
      exchange rate has been relatively stable since January 1, 1994. However, China
      revalued Renminbi against US Dollar on July 21, 2005 and introduced a basket
      of
      currencies to determine the exchange rate against previous peg to dollar. As
      a
      result of adoption flexible exchange rate, China’s financial sector becomes more
      responsive to fluctuation of international currency market. The Renminbi/US
      Dollar exchange rate has climbed steadily since July 2005.





The
      Group
      currently does not engage in any hedging activities to minimize the effect
      of
      exchange rate risks.





2.
            BASIS
                OF PRESENTATION





The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries. Significant intercompany accounts and transactions have been
      eliminated in consolidation.





The
      consolidated financial statements were prepared in accordance with accounting
      principles generally accepted in the United States of America (“US GAAP”). This
      basis of accounting differs from that used in the statutory financial statements
      of Jinpan JV, which were prepared in accordance with the accounting principles
      and relevant financial regulations applicable to foreign investment enterprises
      as established by the Ministry of Finance of China.





The
      functional currency of the Company is Renminbi (“RMB”), the national currency of
      China. Solely for the convenience of the reader, the financial statements have
      been translated into United States dollars (“US$”) using PBOC rate of RMB8.07 to US$1,
      the prevailing rate on December 31, 2005. No representation is made that the
      Renminbi amounts could have been, or could be, converted into United States
      dollars at this rate or any other.








F-12


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


3.
              SUMMARY
                  OF SIGNIFICANT ACCOUNTING
                  POLICIES





(a)  Principles
      of Consolidation





The
      consolidated financial statements include the accounts of the Company and its
      subsidiaries, substantially all of which are wholly-owned. All significant
      intercompany accounts and transactions have been eliminated.





(b)  Cash
      and
      Cash Equivalents





The
      Group
      considers all highly liquid investments with a maturity of three months or
      less
      when purchased to be cash equivalents. There was approximately RMB 58 million
      held in non-US banks or financial institutions as of December
      31,2005.





(c)  Trade
      Receivables





Trade
      receivables, which generally have 30-120 day terms, are recognized and carried
      at original invoice amount less an allowance for any uncollectable amounts.
      An
      estimate for doubtful debts is made when collection of the full amount is no
      longer probable and a general provision of a certain percentage is established
      based on the age status of receivables. This percentage is based on a collective
      assessment of historical collection, write-off experience, current economic
      trends, and changes in our customer payment terms and other factors that may
      affect our ability to collect.





(d)  Investment
      Available for Sale





The
      Group
      classifies its marketable debt and equity securities at the date of acquisition
      as available-for-sale. These securities are reported at fair value with the
      related unrealized gains and losses included in other comprehensive income
      (loss), a component of shareholder’s equity.





When
      determining whether an impairment of investments exists or a decline in value
      of
      an available-for-sale security is other-than-temporary, the Group evaluates
      evidence to support a realizable value in excess of the current market price
      for
      securities with readily determinable fair value. Such information may include
      the investment’s financial performance (including such factors as earnings
      trends, dividend payments, asset quality and specific events), the near term
      prospects of the investment, the financial condition and prospects of the
      investment’s region and industry, and the Group’s investment intent. Typically,
      a sustained decline in the market value of a quoted security for six months
      is
      generally indicative of an other-than-temporary impairment. When a decline
      in
      value is deemed to be other-than-temporary, an impairment loss is recognized
      through a charge to interest income and other, net in the current period to
      the
      extent of the decline below the carrying value of the investment. Adverse
      changes in market conditions or poor operating results of underlying investments
      could result in additional other-than-temporary losses in future
      periods.





(e)  Notes
      Receivable





Notes
      receivable are unsecured, interest-free and payable within six
      months.





(f)  Inventories





Inventories
      are priced at the lower of cost or market value. Market value represents the
      net
      realizable value for inventories. Cost is determined using the weighted average
      cost method.







F-13


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


(g)  Property,
      Plant and Equipment





Property,
      plant and equipment are stated at cost, less accumulated depreciation.
      Depreciation is computed using the straight-line method over the estimated
      useful life of the asset, after taking into account the estimated residual
      value
      of 10% of the cost. Estimated useful lives are as follows:





Buildings
            
            
            10
                - 20 yearsMachinery
                and equipment
            
            
            6
                - 10 yearsMotor
                vehicles
            
            
            6
                yearsFurniture,
                fixtures and office equipment
            
            
            5
                years





Maintenance
      and repair costs of a routine nature are expensed as incurred. Expenditures
      for
      major renewals and improvements that extend the life of an asset are
      capitalized.





(h)  Construction
      in Progress




Construction
      in progress is stated at cost which includes the cost of construction and other
      direct costs attributable to the construction. No provision for depreciation
      is
      made on construction in progress until such time as the relevant assets are
      completed and put into use. Construction in progress at December 31, 2005
      represented office building and manufacturing factory acquired but not ready
      for
      occupancy at year end and machinery under installation.





(i)  Impairment
      of Long-lived Assets





The
      Group
      accounts for the impairment of long-lived assets in accordance with Statement
      of
      Financial Accounting Standards No. 144, “Accounting for the Impairment or
      Disposal of Long-Lived Assets”. For long-lived assets used in operations, the
      Group records impairment losses when events and circumstances indicate that
      these assets might be impaired and the undiscounted cash flows estimated to
      be
      generated by those assets are less than the carrying amounts of those assets.
      If
      less, the impairment losses are based on the excess of the carrying amounts
      of
      these assets over their respective fair values. Their fair values would then
      become the new cost basis. The fair values are determined by quoted market
      prices if available. When quoted market prices are not available, the present
      value of the future estimated net cash flow is generally used. For assets held
      for sale, impairment losses are measured at the lower of the carrying amount
      of
      the assets or the fair value of the assets less costs to sell. For assets to
      be
      disposed of other than by sale, impairment losses are measured as their carrying
      amount less salvage value, if any, at the time the assets cease to be
      used.





(j)  Income
      Taxes





The
      Group
      uses the asset and liability method of accounting for income taxes in accordance
      with Financial Accounting Standard Board (“FASB”) Statement No. 109, *Accounting
      for Income Taxes* .
      Under
      the asset and liability method, deferred tax assets and liabilities are
      recognized for the estimated future tax consequences attributable to differences
      between the financial statement carrying amounts of existing assets and
      liabilities and their respective tax bases. This method also requires the
      recognition of future tax benefits such as net operating loss carry forwards,
      to
      the extent that realization of such benefits is more likely than not. Deferred
      tax assets and liabilities are measured using enacted tax rates expected to
      apply to taxable income in the years in which those temporary differences are
      expected to be recovered or settled.








F-14


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


(k)  Value
      Added Tax





In
      the
      PRC, Jinpan JV is subject to Value Added Tax (“VAT”) payable at 17% on purchases
      of raw materials or semi-finished goods, except for certain limited types of
      goods, which can be offset against the VAT payable on sales.





(l)  Foreign
      Currency Translation





The
      functional currency of the Group is the Renminbi. The financial statements
      of
      foreign subsidiaries having functional currency other than Renminbi have been
      translated into Renminbi in accordance with FASB Statement No. 52, *Foreign
      Currency Translation* .
      All
      balance sheet accounts have been translated using the exchange rates in effect
      at the balance sheet date. Income statement amounts have been translated using
      the average exchange rate for the year. The gains and losses resulting from
      the
      changes in exchange rates from year to year have been reported in other
      comprehensive income. The effect on the consolidated statements of income of
      transaction gains and losses is insignificant for all years
      presented.





(m)
      Operating Leases





Leases
      where substantially all the rewards and risks of ownership of assets remain
      with
      the leasing company are accounted for as operating leases. Rentals applicable
      to
      such operating leases are charged to the statement of income on the
      straight-line basis over the lease terms. The operating lease rental incurred
      by
      the Group during the years ended December 31, 2005, 2004 and 2003 amounted
      to
      RMB1,671,000, RMB1,149,000 and RMB982,000, respectively.





(n)  Revenue
      Recognition




Revenue
      is recognized when persuasive evidence of an arrangement exists, delivery
      occurs, the sales price is fixed or determinable and collectibility is
      reasonably assured. There are no acceptance provisions, installation or other
      services required after the delivery. The following policies apply to the
      Group’s revenue transactions:





(i)
            on
                the sale of goods, when the significant risks and rewards of ownership
                have been transferred to the buyer upon delivery, provided that the
                Company maintains neither managerial involvement to the degree usually
                associated with ownership, nor effective control over the goods sold;





(ii)
            interest
                income from bank deposits, on a time proportion basis on the principal
                outstanding and at the applicable interest
                rate.





(o)  Use
      of
      Estimates





The
      preparation of the consolidated financial statements in conformity with US
      GAAP
      requires management to make estimates and assumptions that affect amounts
      reported in the financial statements and accompanying notes. Actual results
      could differ from those estimates.





(p)  Earnings
      Per Common and Common Equivalent Share





On
      January 21, 2004, the Board of Directors of the Group declared a two-for-one
      stock split to be effective February 6, 2004. Accordingly, all outstanding
      shares and per share data in all periods presented have been restated to reflect
      the stock split.








F-15


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


Basic
      earnings per share for the years ended December 31, 2005, 2004 and 2003 have
      been computed by dividing net income of RMB37,076,000,RMB 28,864,000 and RMB
      26,913,000 by the weighted average number of 6,499,898, 6,498,178 and 6,390,804
      shares of common stock outstanding, respectively, after giving effect of
      two-for-one stock split.





Diluted
      earnings per share for the years ended December 31, 2005, 2004 and 2003 have
      been computed by dividing net income of RMB37,076,000,RMB28,864,000 and RMB
      26,913,000 by the weighted average number of  6,640,396, 6,663,305 and
      6,487,116 shares of common stock outstanding, respectively, after giving effect
      in 2003 of two-for-one stock split. Reconciliation of for the denominator is
      as
      follows:





2005
            
            2004
            
            2003Denominator
                for basic earnings per share -
              weighted
                average shares
            
            
            6,499,898
            
            
            6,498,178
            
            
            6,390,804Effect
                of dilutive securities:Convertible
                preferred stock
            
            
            9,177
            
            
            27,578
            
            
            27,578Exercisable
                stock options
            
            
            131,321
            
            
            137,549
            
            
            68,734Denominator
                for diluted earnings per share -
              adjusted
                weighted average shares and
              assumed
                conversions
            
            
            6,640,396
            
            
            6,663,305
            
            
            6,487,116





(q)  Accumulated
      Other Comprehensive Income (Loss)





Unrealized
      gains or losses on the Group’s available-for-sale securities and foreign
      currency translation adjustments are included in accumulated other comprehensive
      income (loss).





The
      following are the components of accumulated other comprehensive income
      (loss):





Unrealized
              Gains/(loss)
                on Securities
            
            Foreign
              Currency
                Translation Adjustments
            
            TotalRMB
            
            RMB
            
            RMB(*in
                thousands)*Balance
                at January 1, 2004
            
            
            112
            
            
            161
            
            
            273Unrealized
                losses on available-for-sale securities
            
            
            (74
            )
            
            
            
            
            (74
            )Reclassification
                adjustment for gains included in net income
            
            
            (112
            )
            
            
            
            
            (112
            )Foreign
                currency translation adjustments
            
            
            -
            
            
            (18
            )
            
            (18
            )Balance
                at December 31, 2004
            
            
            (74
            )
            
            143
            
            
            69Foreign
                currency translation adjustments
            
            
            -
            
            
            (187
            )
            
            (187
            )Balance
                at December 31, 2005
            
            
            (74
            )
            
            (44
            )
            
            (118
            )








F-16


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


(r)  Research
      and Development Costs





Research
      and development costs consist of expenditures incurred during the course of
      planned research and investigation aimed at the discovery of knowledge which
      will be useful in developing new products or processes, or significantly
      enhancing existing products or production processes, and implementation of
      such
      through design, testing of product alternatives or construction of prototypes.
      The Group expenses all research and development costs as incurred. The research
      and development costs incurred by the Group during the years ended December
      31,
      2005, 2004 and 2003 amounted to RMB 4,459,000, RMB1,962,000 and RMB1,056,000,
      respectively.





(s)  Advertising
      Expense





The
      cost
      of advertising is expensed as incurred. The Group incurred RMB460,000,
      RMB372,000 and RMB1,007,000 in advertising costs during 2005, 2004 and 2003,
      respectively.





F-17


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


3.
            SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES
                (CONTINUED)





(t)  Shipping
      and Handling Expenses





The
      cost
      of shipping and handling is expensed into selling and administration expenses
      as
      incurred. The Group incurred RMB 12.8 million, RMB10.0 million and RMB7.3
      million in shipping and handling costs during 2005, 2004 and 2003,
      respectively.





(u)  Stock
      Based Compensation





The
      Group
      has adopted the disclosure-only provision of FAS Statement No. 123, *Accounting
      for Stock Based Compensation* (“SFAS123”) and applies Accounting Principles Board Opinion No. 25, *Accounting
      for Stock Issued to Employees* (“APB
      25”) and related interpretations in accounting for its employee stock-based
      compensation plans. Compensation expense, both recorded and pro forma, is
      recognized over the options’ vesting period.





At
      December 31, 2005, the Group has one stock-based employee compensation plan,
      which is described more fully in Note 17 the “1997 Stock Option
      Plan”.





The
      following table illustrates the effect on net income and earnings per share
      if
      the Group had applied the fair value recognition provisions of SFAS123 to
      stock-based employee compensation.





Year
                ended December 31,2005
            
            2004
            
            2003RMB
            
            RMB
            
            RMB*(In
                thousands, except per share data)*Net
                income, as reported
            
            
            37,076
            
            
            28,864
            
            
            26,913Add:
                Employee stock-based compensation, net of taxes, as calculated under
                APB
                25 included in net income as reported
            
            
            -
            
            
            251
            
            
            3,347Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of related tax
                effects
            
            
            -
            
            
            -
            
            
            (2,705
            )Pro
                forma net income
            
            
            37,076
            
            
            29,115
            
            
            27,555Earnings
                per common share (cents):Basic
                - as reported
            
            
            5.70
            
            
            4.44
            
            
            4.21Basic
                - pro forma
            
            
            5.70
            
            
            4.48
            
            
            4.31Diluted
                - as reported
            
            
            5.58
            
            
            4.33
            
            
            4.15Diluted
                - pro forma
            
            
            5.58
            
            
            4.37
            
            
            4.25





(v)  Product
      Warranty





The
      Group
      provides a basic limited warranty, including parts and labor, for all products
      for one year. The Group incurred RMB 1,748,000, RMB72,000, and RMB81,000 in
      product warranty expense during 2005, 2004 and 2003, respectively.








F-18


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


(w)  New
      accounting pronouncement





On
      December 16, 2004, the Financial Accounting Standards Board (FASB) issued
      Statement of Financial Accounting Standard (“SFAS”)No. 123 (revised 2004) (“SFAS
      123(R)”), Share-Based Payment, which is a revision of FASB Statement No. 123,
      Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB Opinion
      No.
      25, Accounting for Stock Issued to Employees, and amends FASB Statement No.
      95,
      Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar
      to
      the approach described in SFAS 123. However, SFAS 123(R) requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the income statement based on their fair values. Pro forma
      disclosure is no longer an alternative.





Early
      adoption will be permitted in periods in which financial statements have not
      yet
      been issued. The Group is required to adopt SFAS 123(R) no later than January
      1,
      2006.





SFAS
      123(R) permits public companies to adopt its requirements using one of two
      methods:





1.
      A
“modified prospective” method in which compensation cost is recognized beginning
      with the effective date (a) based on the requirements of SFAS 123(R) for all
      share-based payments granted after the effective date and (b) based on the
      requirements of Statement 123 for all awards granted to employees prior to
      the
      effective date of SFAS 123(R) that remain unvested on the effective
      date.





2.
      A
“modified retrospective” method which includes the requirements of the modified
      prospective method described above, but also permits entities to restate based
      on the amounts previously recognized under SFAS 123 for purposes of pro forma
      disclosures either (a) all prior periods presented or (b) prior interim periods
      of the year of adoption.





The
      Company plans to adopt SFAS 123(R) using the modified-prospective
      method.





As
      permitted by Statement 123, the Group currently accounts for share-based
      payments to employees using Opinion 25’s intrinsic value method and, as such,
      generally recognizes no compensation cost for employee stock options.
      Accordingly, the adoption of Statement 123(R)’s fair value method will have a
      significant impact on our result of operations, although it will have no impact
      on our overall financial position. The impact of adoption of Statement 123(R)
      cannot be predicted at this time because it will depend on levels of share-based
      payments granted in the future. However, had we adopted Statement 123(R) in
      prior periods, the impact of that standard would have approximated the impact
      of
      Statement 123 as described in the disclosure of pro forma net income and
      earnings per share in Note 3 to our consolidated financial statements. Statement
      123(R) also requires the benefits of tax deductions in excess of recognized
      compensation cost to be reported as a financing cash flow, rather than as an
      operating cash flow as required under current literature. This requirement
      will
      reduce net operating cash flows and increase net financing cash flows in periods
      after adoption. While the Group cannot estimate what those amounts will be
      in
      the future (because they depend on, among other things, when employees exercise
      stock options), the amount of operating cash flows recognized in prior periods
      for such excess tax deductions were nil, nil and nil in 2005, 2004 and 2003,
      respectively.





In
      November 2004, the FASB issued SFAS No. 151, "Inventory Costs—An
      Amendment of ARB No. 43, Chapter 4" ("SFAS 151"). SFAS 151 amends
      the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
      the accounting for abnormal amounts of idle facility expense, freight, handling
      costs, and wasted material (spoilage). Among other provisions, the new rule
      requires that items such as idle facility expense, excessive spoilage, double
      freight, and rehandling costs be recognized as current-period charges regardless
      of whether they meet the criterion of "so abnormal" as stated in ARB
      No. 43. Additionally, SFAS 151 requires that the allocation of fixed
      production overheads to the costs of conversion be based on the normal capacity
      of the production facilities. SFAS 151 is effective for fiscal years
      beginning after June 15, 2005. The Group does not expect the adoption of
      SFAS No. 151 to have a material effect on its results of operations or financial
      condition.








F-19


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


In
      December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
      Assets-An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
      Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair
      value measurement for nonmonetary exchanges of similar productive assets in
      paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
      Transactions," and replaces it with an exception for exchanges that do not
      have
      commercial substance. SFAS 153 specifies that a nonmonetary exchange has
      commercial substance if the future cash flows of the entity are expected to
      change significantly as a result of the exchange. SFAS 153 is effective for
      the fiscal periods beginning after June 15, 2005. The Group does not expect
      the adoption of SFAS No. 153 to have a material effect on its results of
      operations or financial condition.





4.
            INVESTMENTS
                AVAILABLE FOR SALE





Available-for-sale
      securities held by the Group at December 31, 2005, 2004 are as
      follows:





2005
            
            2005
            
            2004US$
            
            RMB
            
            RMB*(In
                thousands)*Corporate
                bondsCost
            
            
            201
            
            
            1,626
            
            
            3,441Gross
                unrealized loss
            
            
            (38
            )
            
            (313
            )
            
            (74
            )Fair
                market value
            
            
            163
            
            
            1,313
            
            
            3,367Total
                investments available for sale
            
            
            163
            
            
            1,313
            
            
            3,367





The
      time
      periods during which the available-for-sale securities have been in a continuous
      unrealized loss position as of December 31, 2005 and 2004 are less than 12
      months. The group received RMB 1,694,090 from sales of available for sales
      security and there was approximately RMB 360,000 loss from the
      sale.





The
      net
      carrying value and estimated fair value of debt and marketable equity securities
      at December 31, 2005, by contractual maturity, are shown below. Excepted
      maturities will differ from contractual maturities because the issuers of the
      securities may have the right to prepay obligations without prepayment
      penalties.





Available-for-Sale
            
            Cost
            
            Fair
                Market ValueUS$
            
            RMB
            
            US$
            
            RMB*(In
                thousands)*Due
                in one year or less
            
            
            -
            
            
            -
            
            
            -
            
            
            -Due
                after one year through four years
            
            
            201
            
            
            1,626
            
            
            163
            
            
            1,313Total
            
            
            201
            
            
            1,626
            
            
            163
            
            
            1,313








F-20


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


5.
            ACCOUNTS
                RECEIVABLE, NET




Accounts
      receivable comprised:




Accounts
                  receivable comprised:2005
              
              2005
              
              2004*US$*
              
              *RMB*
              
              *RMB**(In
                  thousands)*Accounts
                  receivable - trade
              
              
              22,470
              
              
              181,351
              
              
              181,398Less:
                  provision for doubtful debts
              
              
              (
                  1,316
              )
              
              (10,619
              )
              
              (
                  9,484
              )Accounts
                  receivable, net
              
              
              21,154
              
              
              170,732
              
              
              171,914
  2005
              
              2005
              
              2004
              
              2003US$
              
              RMB
              
              RMB
              
              RMB*(In
                  thousands)*Movement
                  of provision for doubtful debtsBalance
                  as at January 1
              
              
              (
                  1,147
              )
              
              (9,484
              )
              
              (11,066
              )
              
              (11,177
              )Reversal/(provided)
                  during the year
              
              
              (195
              )
              
              (1,347
              )
              
              392
              
              
              (
                  665
              )Less:
                  Written off during the year
              
              
              26
              
              
              212
              
              
              1,190
              
              
              776Balance
                  as at December 31
              
              
              (1,316
              )
              
              (10,619
              )
              
              (9,484
              )
              
              (11,066
              )





6.
            INVENTORIES,
                NET





Inventories
      comprised:





2005
            
            2005
            
            2004US$
            
            RMB
            
            RMB*(In
                thousands)*Finished
                products
            
            
            4,716
            
            
            38,061
            
            
            19,796Products
                in process
            
            
            1,658
            
            
            13,382
            
            
            7,789Raw
                materials
            
            
            7,068
            
            
            57,044
            
            
            41,48213,442
            
            
            108,487
            
            
            69,067Less:
                provision for inventories
            
            
            (145
            )
            
            (1,167
            )
            
            (1,453
            )Inventories
            
            
            13,297
            
            
            107,320
            
            
            67,614





2005
            
            2005
            
            2004
            
            2003US$
            
            RMB
            
            RMB
            
            RMB*(In
                thousands)*Movement
                of provision for inventoriesBalance
                as at January 1
            
            
            (176
            )
            
            (1,453
            )
            
            (1,644
            )
            
            -Provided
                during the year
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,677
            )Less:
                Written off during the year
            
            
            31
            
            
            286
            
            
            191
            
            
            33Balance
                as at December 31
            
            
            (145
            )
            
            (1,167
            )
            
            (1,453
            )
            
            (1,644
            )


F-21
 **Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


7.
            PROPERTY,
                PLANT AND EQUIPMENT





2005
            
            2005
            
            2004US$
            
            RMB
            
            RMB*(In
                thousands)*Buildings
            
            
            1,605
            
            
            12,951
            
            
            11,869Machinery
                and equipment
            
            
            6,269
            
            
            50,596
            
            
            52,536Motor
                vehicles
            
            
            1,194
            
            
            9,637
            
            
            9,318Furniture,
                fixtures and office equipment
            
            
            545
            
            
            4,400
            
            
            4,8499,613
            
            
            77,584
            
            
            78,572Less:
                accumulated depreciation
            
            
            (5,715
            )
            
            (46,125
            )
            
            (42,678
            )3,898
            
            
            31,459
            
            
            35,894





The
      Group’s buildings are located in the PRC and the land on which the Group’s
      buildings are situated is State-owned.





8.
            DEFERRED
                TAX ASSETS AND INCOME TAXES





The
      Company was incorporated in the British Virgin Islands and, under the current
      laws of the British Virgin Islands, is not subject to tax on income or on
      capital gains.





Jinpan
      USA, a wholly-owned subsidiary of the Company, is incorporated in the United
      States of America. Jinpan USA has suffered operating losses in the current
      year
      and previous years, accordingly no income tax is provided.





Jinpan
      JV, a cooperative joint venture registered in the PRC in which the Company
      has
      an 85% interest, is subject to PRC income taxes at the applicable tax rate
      of
      15% for Sino-foreign joint venture enterprises registered in Hainan Province,
      the PRC. In addition, in accordance with the relevant PRC income tax laws
      applicable to Sino-foreign joint venture enterprises, Jinpan JV is exempt from
      corporate income tax for two years commencing from the first year with
      assessable profit after deducting the tax losses brought forward, and is
      entitled to a 50% tax exemption for the next three years. The first profitable
      year of Jinpan JV was 1997 and the tax holiday expired on December 31, 2001.
      However, being a technically advanced enterprise, as defined by Ministry of
      Science and Technology, Jinpan JV is entitled to a 50% tax exemption after
      the
      tax holiday for three further years commencing from January 1, 2002 as approved
      by the relevant government authorities. The benefit of 50% tax exempt was
      expired on 12/31/2004, the company was taxed at the applicable tax rate of
      15%
      in the year 2005.





Total
      dollar and per share effect of tax holidays of Jinpan JV for the years ended
      December 31, 2005, 2004 and 2003 were as follows:





2005
            
            2005
            
            2004
            
            2003US$
            
            RMB
            
            RMB
            
            RMB*(In
                thousands, except for per share data)*Effect
                on net income of the year
            
            
            -
            
            
            -
            
            
            4,031
            
            
            3,727Effect
                on basic earnings per share
            
            
            -
            
            
            -
            
            
            0.62
            
            
            0.58Effect
                on diluted earnings per share
            
            
            -
            
            
            -
            
            
            0.60
            
            
            0.57





Pretax
      income for the years ended December 31, 2005, 2004 and 2003 was taxed in the
      following jurisdictions:





F-22


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


2005
            
            2005
            
            2004
            
            2003US$
            
            RMB
            
            RMB
            
            RMB*(In
                thousands)*British
                Virgin Islands
            
            
            (789
            )
            
            (6,451
            )
            
            (6,609
            )
            
            (8,070
            )United
                States of America
            
            
            (137
            )
            
            (1,119
            )
            
            (829
            )
            
            (3,694
            )The
                People’s Republic of China
            
            
            7,447
            
            
            60,872
            
            
            46,365
            
            
            48,2496,521
            
            
            53,302
            
            
            38,927
            
            
            36,485




Significant
      components of the provision for income taxes attributable to income before
      income taxes are as follows:




2005
            
            2005
            
            2004
            
            2003*US$*
            
            RMB
            
            RMB
            
            RMB*(In
                thousands)*CurrentNon-US
            
            
            (1,086
            )
            
            (8,878
            )
            
            (3,765
            )
            
            (3,678
            )DeferredNon-US
            
            
            16
            
            
            134
            
            
            (266
            )
            
            (49
            )(1,070
            )
            
            (8,744
            )
            
            (4,031
            )
            
            (3,727
            )








Deferred
      tax assets comprised the following at December 31, 2005 and
      2004:


2005
              
              2005
              
              2004US$
              
              RMB
              
              RMB*(In
                  thousands)*Deferred
                  tax assetsProvision
                  for doubtful debts
              
              
              99
              
              
              707
              
              
              479Inventory
                  Reserved
              
              
              -
              
              
              88
              
              
              88Deferred
                  income
              
              
              5
              
              
              41
              
              
              144Net
                  operating loss carry forward of Jinpan USA
              
              
              942
              
              
              7,606
              
              
              7,158Total
                  deferred tax assets
              
              
              1,046
              
              
              8,442
              
              
              7,869Less:
                  Valuation allowance for deferred tax assets
              
              
              (942
              )
              
              (7,606
              )
              
              (7,158
              )104
              
              
              836
              
              
              711Deferred
                  tax liabilitiesInterest
                  income
              
              
              -
              
              
              
              
              
              -Total
                  deferred tax liabilities
              
              
              -
              
              
              
              
              
              -Net
                  deferred tax assets
              
              
              104
              
              
              836
              
              
              711





Management
      of the Group does not believe that sufficient objective, positive evidence
      currently exists to conclude that recoverability of net operating loss of Jinpan
      USA is more likely than not. Consequently, the Group has provided a RMB7,606,000
      (2004: RMB7,158,000) valuation allowance covering 100% of net operating loss
      of
      Jinpan USA. The change in the valuation allowance for the current year is
      RMB448,000 (2004: RMB331,000). At December 31, 2005, the Group has available
      net
      operating loss of RMB19,014,000 (2004: RMB17,895,000), which will expire in
      the
      years 2017 to 2023.








F-23


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


There
      were no deferred tax liabilities as at December 31, 2005.





The
      reconciliation of income tax computed at the PRC statutory income tax rate
      of
      15% (2002:15% and 2001:15%) in Hainan Province, the PRC to income before
      minority interests is as follows:





2005
            
            2005
            
            2004
            
            2003US$
            
            RMB
            
            RMB
            
            RMB(In
                thousands)Computed
                expected income taxes
            
            
            985
            
            
            8,052
            
            
            5,839
            
            
            5,473Impact
                of tax holiday of Jinpan JV
            
            
            (18
            )
            
            (150
            )
            
            (3,477
            )
            
            (3,715
            )Non-deductible
                losses
            
            
            33
            
            
            272
            
            
            969
            
            
            1,210Effect
                of difference between the PRC and USA tax rate
            
            
            (34
            )
            
            (280
            )
            
            (207
            )
            
            (924
            )Change
                in valuation allowance
            
            
            55
            
            
            448
            
            
            331
            
            
            1,478Others
            
            
            49
            
            
            402
            
            
            576
            
            
            2051,070
            
            
            8,744
            
            
            4,031
            
            
            3,727





9.
            SHORT
                TERM BANK LOANS




Bank
                  loans comprised:2005
              
              2005
              
              2004US$
              
              RMB
              
              RMB*(In
                  thousands)*Short
                  term bank loan
              
              
              620
              
              
              5,000
              
              
              15,000Letters
                  of credit
              
              
              3,869
              
              
              31,231
              
              
              8,591Less:
                  current portion
              
              
              (4,489
              )
              
              (36,231
              )
              
              (23,591
              )-
              
              
              -
              
              
              -





The
      bank
      loan is unsecured, bears an interest at the rate of 5.58% per annum and is
      repayable on May 28, 2006.The total bank loan credit line is RMB
      10,000,000.





Letters
      of credit from Nan-Yang commercial bank are secured by three directors and
      guaranteed by Jinpan International Limited, bears interest at a weighted average
      rate of 5.86%%, 4.84% and 4.74% per annum for the years ended December 31,
      2005,
      2004 and 2003, respectively, and are repayable within 90 days. . The total
      credit facility is RMB48,484,000 (US$6,000,000) from Nan-Yang Commercial Bank
      ,of which RMB1,347,440 (US$166,950) is unused and will expire in July
      2006. In May 2005, the company received an unsecured letter of credit loan
      from
      Bank of China for the total credit facility of RMB40,000,000. There was RMB
      2,000,000 unused as of December 31, 2005. This credit facility will expire
      in
      May 2006.





F-24


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


10.
            GOVERNMENT
                GRANT





Since
      1998, Jinpan JV received grants-in-advance from the PRC local government for
      its
      past business performance. The Group recognizes revenue in the statement of
      income upon receipt of approval from the government. The Group recognized income
      of RMB1,000,000, RMB70,000 and nil in 2005, 2004 and 2003, respectively. As
      of
      December 31, 2005, Jinpan JV received RMB160,000 for which relevant approval
      documents from the government were not received. As management of the Group
      does
      not believe that sufficient objective, positive evidence currently exists to
      conclude that approval of the grant from the government is probable, the receipt
      has not been recognized in the statement of income as of December 31,
      2005.





11.
            DISTRIBUTION
                OF INCOME





According
      to the Articles of Association of Jinpan JV, Jinpan JV is required to maintain
      reserves which include a statutory reserve fund, an enterprise expansion fund
      and a staff welfare and bonus fund based on the net income as reported in the
      statutory accounts prepared in accordance with PRC GAAP. The amount of earnings
      of Jinpan JV available for distribution under PRC GAAP was approximately RMB49
      million, RMB42
      million and RMB44 million for the
      year ended December 31, 2005, 2004 and 2003.





The
      statutory reserve fund, enterprise expansion fund and the staff welfare and
      bonus fund represent appropriations made at the sole discretion of the board
      of
      directors. The enterprise expansion fund is used for future expansion. The
      staff
      welfare and bonus fund is used for the collective welfare of the staff and
      workers of Jinpan JV.





During
      the years ended December 31, 2005, 2004 and 2003, the directors of Jinpan JV
      proposed the following appropriations to reserves.





2005
            
            2005
            
            2004
            
            2003US$
            
            RMB
            
            RMB
            
            RMB*(In
                thousands)*Statutory
                reserve fund
            
            
            
            
            
            321
            
            
            2,625
            
            
            2,117
            
            
            2,206Enterprise
                expansion fund
            
            
            -
            
            
            -
            
            
            -Staff
                welfare and bonus fund
            
            
            -
            
            
            -
            
            
            -
            
            
            
            
            
            -Dividends
            
            
            -
            
            
            -
            
            
            
            
            
            12,162321
            
            
            2,625
            
            
            2,117
            
            
            14,368





The
      Group
      declared a cash dividend of US$0.20 per share of common stock on February 1,
      2005, which was paid on March 10, 2005 and August 26,2005.





F-25


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


12.
            COMMITMENTS
                AND CONTINGENT LIABILITIES





(1)  Contingent
      liabilities





As
      of
      December 31, 2005 the Group had bank guarantees to the Nan Yang Commercial
      Bank
      for irrevocable Letters of credit of RMB11,118,000 for the purchase of raw
      materials. Details of bank guarantees are as follows:





(a)
            The
                Group should jointly and severally pay and satisfy to Nan Yang Commercial
                Bank on demand all sums of money debts and liabilities whether certain
                or
                contingent whether now or at any time herein after owing or incurred
                to
                the bank from or by the Jinpan JV.





(b)
            The
                guarantee shall be a continuing security, starting from the effective
                day
                of the principal contract until the two calendar years of the expiration
                of principal contract.





(2)  Commitments





*Operating
      lease commitments*





The
      Group
      leases certain buildings and apartments under non-cancelable lease arrangements.
      These operating leases expire in various years through 2009. These leases may
      be
      renewed for periods ranging from one to two years.





Future
      minimum payments under non-cancelable operating leases with initial terms of
      one
      year or more consisted of the following at December 31, 2005:




US$
            
            RMB*(In
                thousands)*2006
            
            
            197
            
            
            1,5902007
            
            
            50
            
            
            4072008
            
            
            44
            
            
            3582009
            
            
            44
            
            
            3582010
            
            
            44
            
            
            358Total
                minimum lease payments
            
            
            379
            
            
            3,071





*Capital
      commitments*





As
      of
      December 31, 2005 the Group has commitments of RMB8,360,090 for the purchase
      of
      new office and plant and machinery.




*Employment
      contracts*





The
      Group’s employees in the PRC, include engineers technicians, management
      administrative personnel, marketing and sales personnel, and factory personnel
      while employees in United States include management, administration, and
      marketing personnel. All
      of
      the employees except US employees are contract employees and have entered into
      renewable employment contracts with the Group. Terms of the employment
      agreements with management, engineers, sales persons and technicians range
      from
      two to five years and terms of the employment agreements with support personnel
      range from six months to one year.







F-26


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


Future
      minimum payments to employees under employment contracts consisted of the
      following at December 31, 2005:




US$
            
            RMB*(In
                thousands)*2006
            
            
            568
            
            
            4,5792007
            
            
            61
            
            
            4892008
            
            
            34
            
            
            27562009
            
            
            22
            
            
            180Total
                minimum employment contract payments
            
            
            685
            
            
            5,523





13.
            LOANS
                TO THE MINORITY SHAREHOLDER





There
      were no such transactions in 2005.




14.
            FINANCIAL
                INSTRUMENTS





*Concentrations
      of credit risk*





Financial
      instruments that potentially subject the Group to significant concentrations
      of
      credit risk consist principally of cash and cash equivalents, accounts
      receivable and short-term investments.





The
      Group
      maintains cash and cash equivalents with Bank of China, Industrial and
      Commercial Bank of China, China Construction Bank and Bank of Communications
      in
      the PRC and Citibank, N.A. in the United States.





Concentrations
      of credit risk with respect to accounts receivable are limited due to the large
      number of entities comprising the Group’s customer base. The Group performs
      ongoing credit evaluations of its customers’ financial conditions and does not
      require collateral for accounts receivable.





The
      provision for doubtful accounts the Group maintains is based upon the expected
      collectibility of all accounts receivable. Losses have been within management’s
      expectations.





*Fair
      Value*





*Cash
      and cash equivalents* :
      The
      carrying amount reported in the balance sheet for cash and cash equivalents
      approximates their fair value because of the short maturity of those
      instruments.





*Investments,
      Accounts receivable, notes receivable, other receivables, advance from customers
      and bank loans* :
      The
      carrying amounts reported in the balance sheet for these items approximate
      their
      fair value. The carrying value of accounts receivable, notes receivable, other
      receivables, advance from customers, accruals, and bank loans approximate their
      market values based on their short-term maturities. The fair value of
      investments as of December 31, 2005 is RMB1,313,000, which is based on quoted
      market prices.





15.
            CONCENTRATION
                OF RISK





During
      2005, the Group was dependent on one major suppliers Bakelite for cast resin,
      which accounted for approximately 1.6% (2004: 3%) of total purchases. And the
      Group was dependent on two major suppliers, Legnano Teknoelectric Company Spa.
      and Thyssenkrupp Electrical Steel GmbH. for silicon steel, which accounted
      for
      approximately 24.2% (2004: 27%) and 13% (2004: 14%) of total purchase. And
      dependent on TongLing Nonferrous Metals Group)
      Inc and Jiangying Jinqiu Group Co. Ltd . for copper foil, which accounted for
      approximately 7.6% (2004: 3%) and 3.5% (2004: 27%) of total purchases,
      respectively.








F-27


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


16.
            PENSION
                AND OTHER POSTRETIREMENT BENEFITS





The
      Company and Jinpan USA do not have any retirement plans while Jinpan JV has
      a
      defined contribution retirement plan for its employees. As stipulated by the
      PRC
      government regulations, Jinpan JV participates in a defined contribution
      retirement plan organized by the government of Hainan Province, the PRC. All
      permanent employees are entitled to an annual pension which is equal to a fixed
      proportion of their final basic salary at their retirement date. Jinpan JV
      and
      its employees are required to make contributions to the retirement plan at
      rates
      of 20% and 6% of the employees’ basic salary, respectively. Payment is made, on
      a monthly basis, to a PRC insurance company organized by the PRC government
      which is responsible for the payments of pension benefits to retired employees.
      Jinpan JV has no obligations for the pension benefits beyond the annual
      contributions as described above. The pension costs recognized by Jinpan JV
      during the years ended December 31, 2005, 2004 and 2003 amounted to RMB784,000
      (US$97,304), RMB523,000 and RMB367,000, respectively.





17.
            OPERATIONS
                BY INDUSTRY SEGMENT AND GEOGRAPHIC
                AREA




**Description
      of products by segment**





Cast
      resin transformers is the only reportable segment of the Group.





Geographic
      area data




Year
                ended December 31,2005
            
            2005
            
            2004
            
            2003US$
            
            RMB
            
            RMB
            
            RMB*(In
                thousands)*Revenues
                from external customers:United
                States
            
            
            1,487
            
            
            12,152
            
            
            4,416
            
            
            1,776PRC
            
            
            52,126
            
            
            426,067
            
            
            345,193
            
            
            274,78853,613
            
            
            438,219
            
            
            349,609
            
            
            276,564Long
                lived assets by area:United
                States
            
            
            
            
            
            3
            
            
            19
            
            
            50PRC
            
            
            4,267
            
            
            34,439
            
            
            36,641
            
            
            28,6174,267
            
            
            34,442
            
            
            36,660
            
            
            28,667





18.
            EQUITY





Pursuant
      to the board resolution of the Company dated January 21, 2002, the officers
      of
      the Group were authorized and empowered, in the name and on behalf of the Group,
      to purchase up to 640,000 shares of the Group’s common stock from time to time
      in the open market and through privately, negotiated transactions; such
      repurchase program is to be financed from internally generated corporate funds,
      with the acquired stock to be available for use under the Group’s stock option
      plan or for other corporate purposes. As of December 31, 2005, 212,470 (2004:
      184,270) shares of the Group's common stock were transferred back into treasury
      at an aggregate cost of US$823,417(2004:US$657,915), approximately RMB6,779,000
      (2004: RMB5,444,000).








F-28


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


The
      Group’s convertible preferred stock (“preferred stock”) is convertible at any
      time to shares of common stock and each share of preferred stock entitles its
      holder to the same number of votes as a share of common stock. Holders of
      preferred stock are entitled to receive a non-cumulative preferred per share
      dividend (6% per annum) payable in kind, compounded quarterly. All accrued
      and
      unpaid dividends (approximately RMB6,047 as at December 31, 2004 and RMB5,924
      as
      at December 31, 2003) on the preferred stock are to be cancelled upon conversion
      into common stock. In the event of the Group’s liquidation, dissolution or
      winding up, the holders of preferred stock are entitled to a preference over
      the
      holders of common stock in the distribution of assets in an amount equal to
      the
      sum of: (i) US$2.188 per share, and (ii) an amount equal to declared but unpaid
      dividends on each such share.





(a)  1997
      stock option plan





A
      total
      of 1,000,000 shares of Common Stock have been reserved for issuance under the
      Company’s 1997 Stock Option Plan (the “Stock Option Plan”). The Stock Option
      Plan provides for options to employees, officers, directors and consultants
      of
      the Company. The Stock Option Plan, which was established in October 1997,
      is
      administered by the board of directors or a committee appointed by the board,
      which determines the terms of options granted, including the exercise price,
      the
      number of shares subject to the option and the option’s exercisability. The
      exercise price of all options granted under the Stock Option Plan must be at
      least equal to the fair market value of each share on the date of grant. Options
      shall be fully vested and become exercisable at the date of grant. The maximum
      term of options granted under the Stock Option Plan is 10 years.





In
      July
      2003, seven directors, officers and employees of the Group exercised stock
      options to purchase a total 360,000 shares of common stock of the Group, which
      were granted to them on July 31, 1998 by the compensation committee of the
      board
      of directors of the Company, pursuant to the Stock Option Plan. Of the options
      granted, the senior management purchased 360,000 shares of common stock at
      the
      exercise price of US$2.125 per share. Total amount received from the exercise
      of
      the share options was US$765,000.




(b)  2001
      stock option agreements





In
      February 2001, the Group entered into stock option agreements with five of
      its
      directors and Chief Financial Officer, to purchase 120,000 shares of common
      stock of the Group. Options granted are exercisable at the price of US$1.35
      per
      share and subject to expiration 8 years from the date of grant, are not
      transferable other than on death, and are exercisable from the date of grant.





The
      Group
      accounts for this plan under APB 25 and related interpretations and no
      compensation cost was recognized.





Ms.
      Cherry Li and Ms. Grace Zhu, who were nominated as a director and Chief
      Financial Officer of the Company, each terminated their relationships with
      the
      Company in June and August 2002, respectively. Option grant in 2001 permitted
      Mr. Li and Ms. Zhu to retain the option.




In
      February 2004, one of the directors exercised stock option to purchase total
      20,000 shares of common stock of the Company at the exercise price of US$1.35
      per share. Total amount received from the exercise of the share option was
      US$27,000.








F-29


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


(c)  2003
      stock option agreement





In
      September 2003, the Group entered into stock option agreements with seven of
      its
      employees, to purchase 140,000 shares of common stock of the Group. Options
      granted are exercisable at the price of US$3.55 per share and subject to
      termination of employment, expire 10 years from the date of grant, are not
      transferable other than on death, and are exercisable from the date of
      grant.





The
      options are exercisable in either US$ or RMB, consequently the measurement
      date
      is not fixed. Compensation is measured each reporting period until the options
      are exercised, forfeited or expire unexercised. The Group recorded compensation
      expense of RMB nil (2004: RMB251,000) for the year ended December 31, 2005
      in
      connection with these options.





In
      March
      2004, two employees exercised stock options to purchase 8,000 shares of common
      stock of the Group at the exercise price of US$3.55 per share. Total amount
      received from the exercise of the share option was US$28,400.




In
      April
      2005, one employee exercised stock option to purchase total 700 shares of common
      stock of the Group at the exercise price of US$3.55 per share. Total amount
      received from the exercise of the share option was US$2,485.00





(d)  2004
      stock option agreement


In
      January 2004, the Group entered into stock option agreement with three of its
      independent directors, to purchase 30,000 shares of common stock of the Group.
      Options granted are exercisable at the price of US$7.34 per share. The term
      of
      the options is 10 years from the dated granted. the options are not transferable
      other then death, and are exercisable from the date granted.





(e)  Warrants
      granted to non-employees





In
      February 1999, warrants to purchase 115,050 shares of the Group’s common stock
      were issued by the Group in connection with the issuance and sale of common
      stock by the Group in a private placement to accredited investors. The exercise
      price of the warrants was US$4.00 each. The warrants expired in February
      2003.





Number
      of
      common stock reserved for issuance upon exercise of warrants, stock options
      and
      preferred stock





2005
            
            2004Warrants
            
            
            -
            
            
            -Stock
                options
            
            
            261,300
            
            
            262,000Preferred
                stock
            
            
            9,177
            
            
            15,311Total
            
            
            270,477
            
            
            277,311




(f)  Disclosure
      of information pursuant to FAS 123





The
      fair
      value of options granted in 2005, 2004 and 2003 reported below has been
      estimated at the date of grant using the Black-Scholes option pricing model
      with
      the following weighted average assumptions:





F-30


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**





2005
            
            2004
            
            2003Risk-free
                interest rate
            
            
            -
            
            
            -
            
            
            3.10
            %Dividend
                yield
            
            
            -
            
            
            -
            
            
            -Volatility
                factor
            
            
            -
            
            
            -
            
            
            80.3
            %Weighted
                average expected life
            
            
            -
            
            
            -
            
            
            5
                years





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options, which have no vesting restrictions and are fully
      transferable. In addition, option valuation models require the input of highly
      subjective assumptions including the expected stock price volatility. The
      Group’s stock options have characteristics significantly different from those of
      traded options and changes in the subjective input assumptions can materially
      affect the fair value estimate. In management’s opinion, the existing models do
      not necessarily provide a reliable single measure of the fair value of its
      stock
      options.





A
      summary
      of the Group’s stock option activities, and related information for the years
      ended December 31, 2005, 2004 and 2003 are as follows:





2005
            
            2004
            
            2003Options
            
            Weighted
              average
              exercise
              price
            
            Options
            
            Weighted
              average
              exercise
              price
            
            Options
            
            Weighted
              average
              exercise
              priceUS$
            
            
            
            US$
            
            
            
            US$Outstanding
                at beginning of year
            
            
            262,000
            
            
            2.602
            
            
            260,000
            
            
            2.869
            
            
            880,000
            
            
            2.074Granted
            
            
            -
            
            
            -
            
            
            30,000
            
            
            7.34
            
            
            140,000
            
            
            3.550Exercised
            
            
            (700
            )
            
            3.55
            
            
            (28,000
            )
            
            1.979
            
            
            (360,000
            )
            
            2.084Cancelled
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            
            
            
            
            
            
            -
            
            
            -
            
            
            (400,000
            )
            
            -Outstanding
                at the end of year
            
            
            261,300
            
            
            3.143
            
            
            262,000
            
            
            2.602
            
            
            260,000
            
            
            2.869Exercisable
                at the year end
            
            
            261,300
            
            
            3.143
            
            
            262,000
            
            
            2.602
            
            
            260,000
            
            
            2.869Weighted
                average fair value of options granted during the year
            
            
            
            
            
            
            
            
            N/A
            
            
            
            
            
            USD2.34




Weight-average
      exercise prices for options outstanding as December 31, 2005 are US$3.143.
      The
      weighted-average remaining contractual life of those options is eight
      years.




19.
            SUBSEQUENT
                EVENT





On
      January 17, 2006, the Board of Directors the Group declared a cash dividend
      of
      US$.24 per share of common stock for the year 2006. The Group made the first
      distribution of US$.12 per share on February 28, 2006, to shareholders of record
      on February 10, 2006.





20.
            PARENT’S
                ONLY FINANCIAL INFORMATION  Jinpan
              International Limited (the Company) is the parent company of the Jinpan
              JV
              and Jinpan USA, below are the parent’s only balance sheet as of December
              31, 2005 and Income statement for the year ended December 31,
              2005.







F-31


**Jinpan
          International Limited and Subsidiaries**
 **Notes
          to Consolidated Financial Statements**


Jinpan
      International Limited


Balance
      Sheet





December
                312005
            
            2004RMB
            
            RMBCash
            
            
            2,214,881
            
            
            1,149,217Investment
            
            
            1,312,651
            
            
            3,367,106Other
                Receivable
            
            
            1,982,350
            
            
            2,032,161Due
                from Subsidiaries
            
            
            15,819,941
            
            
            17,162,657Investment
                in Subsidiaries
            
            
            246,184,930
            
            
            217,707,800Total
                Assets
            
            
            267,514,753
            
            
            241,418,941Accounts
                Payable
            
            
            38,135
            
            
            -Bonus
                Payable
            
            
            1,420,478
            
            
            1,365,160Professional
                Fee Payable
            
            
            1,049,217
            
            
            758,358Total
                Liabilities
            
            
            2,507,830
            
            
            2,123,518Minority
                Interest
            
            
            6,200,322
            
            
            5,437,622Common
                Stock
            
            
            498,131
            
            
            498,212Preferred
                Stock
            
            
            2,055
            
            
            2,055Paid
                In Capital
            
            
            87,535,009
            
            
            87,514,746Reserved
            
            
            21,870,031
            
            
            19,244,871Retained
                Earnings
            
            
            155,798,766
            
            
            131,971,957Accumulated
                other Comprehensive Income
            
            
            (118,006
            )
            
            69,595Treasury
                Stock
            
            
            (6,779,385
            )
            
            (5,443,635
            )258,806,601
            
            
            233,857,801Total
                Liabilities and Shareholders’ Equity
            
            
            267,514,753
            
            
            241,418,941





Jinpan
                International Limited
              Income
                Statement





For
                the year ended December 312005
            
            2004RMB
            
            RMBEarnings
                from Subsidiaries
            
            
            59,753,175
            
            
            45,639,796General
                and Administration Expenses
            
            
            (6,811,438
            )
            
            (7,526,825
            )Operating
                profit
            
            
            52,941,737
            
            
            38,112,971Other
                Income
            
            
            360,158
            
            
            814,302Net
                income before Tax
            
            
            53,301,895
            
            
            38,927,273Income
                Tax
            
            
            (8,743,920
            )
            
            (4,030,605
            )Net
                Income before Minority Interest
            
            
            44,557,975
            
            
            34,896,668Minority
                Interest
            
            
            (7,481,707
            )
            
            (6,032,596
            )Net
                Income
            
            
            37,076,268
            
            
            28,864,072








F-32