EXHIBIT
99.1





Consolidated
financial statements





PST
Eletrônica S.A.





December
31, 2009, 2008 and 2007


With
Report of Independent Auditors










PST
ELETRÔNICA S.A.





CONSOLIDATED
FINANCIAL STATEMENTS





December
31, 2009, 2008 and 2007




Contents




Report
      of independent auditors
              
              1Consolidated
      balance sheets
              
              2Consolidated
      statements of income
              
              4Consolidated
      statements of shareholders’ equity and comprehensive
income
              
              5Consolidated
      statements of cash flows
              
              6Notes
      to consolidated financial statements
              
              7








Report
of independent auditors





To the
Board of Directors and Shareholders of


PST
Eletrônica S.A.


Manaus -
AM





We have
audited the accompanying consolidated balance sheets of PST Eletrônica S.A. and
subsidiary at December 31, 2009 and 2008, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2009. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.





We
conducted our audits in accordance with auditing standards generally accepted in
the United States. 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 audit 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 PST Eletrônica S.A.
and subsidiary at December 31, 2009 and 2008, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2009, in conformity with accounting principles generally
accepted in the United States.





Campinas,
March 16, 2010





ERNST
& YOUNG


Auditores
Independentes S.S.


CRC
2SP015199/O-6-S-AM





/s/ José
Antonio de A. Navarrete





José
Antonio de A. Navarrete


Accountant
CRC 1SP198698/O-4-S-AM


1




PST
ELETRÔNICA S.A.





Consolidated
balance sheets


December
31, 2009 and 2008


(In
thousands of U.S. Dollars, except share/quota data)




December
      31,2009
            
            
            2008AssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            1,246
            
            
            
            5,678Accounts
      receivable, less allowance for doubtful accounts of $468 and $497 in 2009
      and 2008, respectively
            
            
            21,427
            
            
            
            12,533Inventories,
      net
            
            
            25,952
            
            
            
            21,091Taxes
      recoverable
            
            
            3,945
            
            
            
            925Accounts
      receivable from related parties
            
            
            40
            
            
            
            156Prepaid
      expenses and other
            
            
            822
            
            
            
            475Deferred
      income taxes
            
            
            1,941
            
            
            
            1,020Total
      current assets
            
            
            55,373
            
            
            
            41,878Property,
      plant and equipment, net
            
            
            27,592
            
            
            
            18,379Other
      assets:Deferred
      income taxes
            
            
            2,525
            
            
            
            1,607Other
            
            
            216
            
            
            
            89Total
      assets
            
            $
            85,706
            
            
            $
            61,953




2




December
      31,2009
            
            
            2008Liabilities
      and shareholders’ equityCurrent
      liabilities:Current
      portion of long-term debt
            
            $
            8,923
            
            
            $
            1,838Accounts
      payable
            
            
            8,226
            
            
            
            4,181Wages
      and salaries
            
            
            4,648
            
            
            
            3,117Taxes
      payable
            
            
            898
            
            
            
            735Due
      to related parties
            
            
            8
            
            
            
            6Dividends
      payable
            
            
            3,181
            
            
            
            3,902Employee
      profit sharing and management bonuses
            
            
            2,603
            
            
            
            2,035Warranty
      reserve
            
            
            598
            
            
            
            515Commissions
      payable
            
            
            859
            
            
            
            452Accrued
      expenses and other
            
            
            362
            
            
            
            487Total
      current liabilities
            
            
            30,306
            
            
            
            17,268Long-term
      liabilities:Long-term
      debt, net of current portion
            
            
            2,565
            
            
            
            7,661Provision
      for contingencies
            
            
            3,701
            
            
            
            2,522Total
      long-term liabilities
            
            
            6,266
            
            
            
            10,183Commitments
      and contingencies (Note 7)Shareholders
      equity:Capital,
      $ 0.3691, per value, 45,000,000 common shares authorized and issued at
      December 31, 2009 and 2008
            
            
            16,610
            
            
            
            12,702Retained
      earnings
            
            
            24,258
            
            
            
            24,629Accumulated
      other comprehensive income (loss)
            
            
            8,266
            
            
            
            (2,829
            )Total
      shareholders equity
            
            
            49,134
            
            
            
            34,502Total
      liabilities and shareholders equity
            
            
            85,706
            
            
            $
            61,953




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


3




PST
ELETRÔNICA S.A.





Consolidated
statements of income


Years
ended December 31, 2009, 2008 and 2007


(In
thousands of U.S. Dollars)




For
      the years ended December 31,2009
            
            
            2008
            
            
            2007Net
      sales
            
            $
            140,690
            
            
            $
            174,305
            
            
            $
            133,039Costs
      and expenses:Cost
      of goods sold and services rendered
            
            
            69,291
            
            
            
            80,924
            
            
            
            61,575Product
      design and engineering expenses
            
            
            8,861
            
            
            
            9,405
            
            
            
            5,094Selling,
      general and administrative
            
            
            45,636
            
            
            
            51,698
            
            
            
            39,292Operating
      income
            
            
            16,902
            
            
            
            32,276
            
            
            
            27,078Exchange
      losses (gains), net
            
            
            (508
            )
            
            
            (348
            )
            
            
            468Financial
      expense, net
            
            
            1,787
            
            
            
            836
            
            
            
            1,458Income
      before income taxes
            
            
            15,623
            
            
            
            31,788
            
            
            
            25,152Income
      taxes
            
            
            1,032
            
            
            
            6,829
            
            
            
            4,803Net
      income
            
            $
            14,591
            
            
            $
            24,959
            
            
            $
            20,349




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


4


PST
ELETRÔNICA S.A.





Consolidated
statements of shareholders’ equity and comprehensive income


Years
ended December 31, 2009, 2008 and 2007


(In
thousands of U.S. Dollars, except for the number of shares/quotas)





Number
      of
            
            
            
            
            
            Retained
      earnings
            
            
            Accumulated
              other
      comprehensive
            
            
            Total
      shareholdersshares/quotas
            
            
            Capital
            
            
            Appropriated
            
            
            Unappropriated
            
            
            income
            
            
            equityBalance,
      December 31, 2006
            
            
            11,117,280
            
            
            
            4,712
            
            
            
            2,769
            
            
            
            10,825
            
            
            
            3,103
            
            
            
            21,409Capitalization
      of tax incentive reserve
            
            
            6,219,570
            
            
            
            3,175
            
            
            
            (3,175
            )
            
            
            -
            
            
            
            -
            
            
            
            -Dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (11,468
            )
            
            
            -
            
            
            
            (11,468
            )Conversion
      of quotas into shares
            
            
            27,663,150
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            20,349
            
            
            
            -
            
            
            
            20,349Transfer
      to appropriated retained earnings
            
            
            -
            
            
            
            
            
            
            
            5,399
            
            
            
            (5,399
            )
            
            
            -
            
            
            
            -Dividends
      payable
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (4,228
            )
            
            
            -
            
            
            
            (4,228
            )Other
      comprehensive income:Currency
      translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            6,151
            
            
            
            6,151Balance,
      December 31, 2007
            
            
            45,000,000
            
            
            $
            7,887
            
            
            $
            4,993
            
            
            $
            10,079
            
            
            $
            9,254
            
            
            $
            32,213Capitalization
      of tax incentive reserve
            
            
            -
            
            
            
            4,815
            
            
            
            (4,815
            )
            
            
            -
            
            
            
            -
            
            
            
            -Dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (6,685
            )
            
            
            -
            
            
            
            (6,685
            )Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            24,959
            
            
            
            -
            
            
            
            24,959Transfer
      to appropriated retained earnings
            
            
            -
            
            
            
            -
            
            
            
            4,466
            
            
            
            (4,466
            )
            
            
            -
            
            
            
            -Dividends
      payable
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,902
            )
            
            
            -
            
            
            
            (3,902
            )Other
      comprehensive income:Currency
      translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (12,083
            )
            
            
            (12,083
            )Balance,
      December 31, 2008
            
            
            45,000,000
            
            
            $
            12,702
            
            
            $
            4,644
            
            
            $
            19,985
            
            
            $
            (2,829
            )
            
            $
            34,502Capitalization
      of tax incentive reserve
            
            
            -
            
            
            
            3,908
            
            
            
            (3,908
            )
            
            
            -Dividends
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (7,873
            )
            
            
            -
            
            
            
            (7,873
            )Net
      income
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            14,591
            
            
            
            -
            
            
            
            14,591Transfer
      to appropriated retained earnings
            
            
            -
            
            
            
            -
            
            
            
            3,540
            
            
            
            (3,540
            )
            
            
            -
            
            
            
            -Dividends
      payable
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (3,181
            )
            
            
            -
            
            
            
            (3,181
            )Other
      comprehensive income:Currency
      translation adjustments
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            11,095
            
            
            
            11,095Balance,
      December 31, 2009
            
            
            45,000,000
            
            
            $
            16,610
            
            
            $
            4,276
            
            
            $
            19,982
            
            
            $
            8,266
            
            
            $
            49,134





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


5




PST
ELETRÔNICA S.A.





Consolidated
statements of cash flows


Years
ended December 31, 2009, 2008 and 2007


(In
thousands of U.S. Dollars)





For
      the years ended December 31,2009
            
            
            2008
            
            
            2007OPERATING
      ACTIVITIES:Net
      income
            
            $
            14,591
            
            
            $
            24,959
            
            
            $
            20,349Adjustments
      to reconcile net income to net cash provided by operating
      activitiesExchange
      losses and interest expenses
            
            
            1,143
            
            
            
            878
            
            
            
            -Depreciation
            
            
            5,523
            
            
            
            4,193
            
            
            
            1,496Deferred
      income taxes
            
            
            (867
            )
            
            
            (339
            )
            
            
            (913
            )Changes
      in operating assets and liabilitiesAccounts
      receivable, net
            
            
            (4,237
            )
            
            
            (4,163
            )
            
            
            1,534Inventories,
      net
            
            
            2,168
            
            
            
            (7,560
            )
            
            
            (6,698
            )Prepaid
      expenses and other current assets
            
            
            (2,501
            )
            
            
            (67
            )
            
            
            (230
            )Other
      assets
            
            
            (157
            )
            
            
            77
            
            
            
            (177
            )Accounts
      payable
            
            
            2,406
            
            
            
            511
            
            
            
            (117
            )Wages
      and salaries
            
            
            427
            
            
            
            754
            
            
            
            820Employee
      profit sharing and management bonuses
            
            
            (118
            )
            
            
            488
            
            
            
            929Commissions
      payable
            
            
            232
            
            
            
            (519
            )
            
            
            138Warranty
      reserve
            
            
            (86
            )
            
            
            (233
            )
            
            
            232Provision
      for contingencies
            
            
            360
            
            
            
            (199
            )
            
            
            527Accrued
      expenses and others
            
            
            (351
            )
            
            
            (646
            )
            
            
            1,083Net
      cash provided by operating activities
            
            
            18,533
            
            
            
            18,134
            
            
            
            18,973INVESTING
      ACTIVITIES:Capital
      expenditures
            
            
            (8,185
            )
            
            
            (11,625
            )
            
            
            (5,987
            )Proceeds
      from disposals of property, plant and equipment
            
            
            (28
            )
            
            
            165
            
            
            
            (30
            )Net
      cash used by investing activities
            
            
            (8,213
            )
            
            
            (11,460
            )
            
            
            (6,017
            )FINANCING
      ACTIVITIES:Borrowings
            
            
            1,107
            
            
            
            11,666
            
            
            
            315Repayments
            
            
            (3,410
            )
            
            
            (1,464
            )
            
            
            (2,422
            )Decrease
      in amounts due to related parties
            
            
            -
            
            
            
            -
            
            
            
            -Dividends
      paid
            
            
            (13,882
            )
            
            
            (16,514
            )
            
            
            (9,616
            )Net
      cash used by financing activities
            
            
            (16,185
            )
            
            
            (6,312
            )
            
            
            (11,723
            )Effect
      of exchange rate changes on cash and cash equivalents
            
            
            1,433
            
            
            
            (1,808
            )
            
            
            1,106Net
      change in cash and cash equivalents
            
            
            (4,432
            )
            
            
            (1,446
            )
            
            
            2,339Cash
      and cash equivalents at beginning of period
            
            
            5,678
            
            
            
            7,124
            
            
            
            4,785Cash
      and cash equivalents at end of period
            
            $
            1,246
            
            
            $
            5,678
            
            
            $
            7,124Supplemental
      disclosure of cash flow information:Cash
      paid for interest
            
            $
            1,289
            
            
            $
            425
            
            
            $
            472Cash
      paid for income taxes
            
            $
            4,554
            
            
            $
            7,014
            
            
            $
            4,935





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




6




PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements


Years
ended December 31, 2009, 2008 and 2007


(In
thousands of U.S. Dollars, unless otherwise indicated)




1.
                Organization
      and nature of business





PST
Eletrônica S.A., with head office in the city of Manaus, State of Amazonas, is a
non-public Brazilian Stock Corporation engaged in the production and trading of
electronic equipment for automobiles (alarms, power windows, door lock sets,
instrument clusters, blocking and tracking devices, antennas and accessories)
and in the rendering of tracking services within the domestic and foreign
markets. PST Eletrônica S.A. holds a 99.98% interest in PST Industrial Ltda.
(“subsidiary”). At December 31, 2009, the subsidiary does not have any
operations. PST Eletrônica S.A. and its subsidiary are hereinafter referred to
as the “Company”.





The
Company’s administrative and financial headquarters are located in the city of
Campinas, State of São Paulo. There are also branches in the cities of Rio de
Janeiro (responsible for after-sale customer services), Campinas (dedicated to
tracking and vehicle block services), and Buenos Aires, Argentina (focused on
product trading activities).





Part of
the manufacturing activity is carried out in the Campinas facility. However the
manufacturing facility established in the Manaus Free-Trade Zone accounts for
most of the production and billing activities with the aim of obtaining the tax
incentives offered by the Federal and State Governments, as
follows:





·
              Exemption
      of IPI (Federal Value-added tax, “VAT”) on
  products;


·
              Suspension
      of import duties on imports of capital assets and reduction of 88% on the
      current tax rate applied to foreign consumable
  inputs;


·
              Refund
      of 55% of the ICMS (State VAT) charged on such product lines as antennas,
      alarms, remote control for alarms, wires and
  cables;


·
              Refund
      of 90.25% of the ICMS charged on assembled electronic circuit
      plates;


·
              Refund
      of 55%, with 45% additional refund, reviewed by State Government each
      three years, totaling 100% of the ICMS charged on other items of the
      Company’s product lines;


·
              75%
      income tax reduction for the amount calculated on sales of products
      manufactured at the Manaus plant, under appropriate tax incentives. Such
      tax reduction is valid until 2012, when the benefit may be reduced. The
      income tax incentive amount cannot be distributed to shareholders, but
      remains as a tax incentive reserve invested in the Company itself or used
      for capital increase.





The
referred to tax benefits will be effective until the end of 2023, when the
Manaus Free-Trade Zone will be extinguished, according to the Federal
Constitution.




7


PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)


2.
                Summary
      of significant accounting
policies





a)
              Basis of
      presentation





The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary. Intercompany transactions and balances
have been eliminated in consolidation.





The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (US
GAAP), which differ in certain respects from accounting practices applied by the
Company in its statutory financial statements, which are prepared in accordance
with accounting practices adopted in Brazil.





Based on
an analysis of the Company’s revenues, expenses and financial structure,
management has concluded that the Company’s functional currency for its
Brazilian operations is the Brazilian real.





The
financial statements are translated into US dollars using exchange rates in
effect at the year end for assets and liabilities and average exchange rates
during each reporting period for the statements of income. Adjustments resulting
from translation of financial statements are reflected as a component of
accumulated other comprehensive income. Foreign currency transactions are
remeasured into functional currency using translation rates in effect at the
time of the transaction, with the resulting adjustments included in the results
of operations.





b)
              Cash and cash
      equivalents





The
Company considers all short-term investments with original maturities of three
months or less to be cash equivalents. Cash equivalents are stated at cost plus
interest earned through the balance sheet date, when applicable, which
approximates fair value, due to the highly liquid nature and short-term duration
of the underlying investments.




8


PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)


2.
                Summary of significant
      accounting policies(Continued)





c)
              Accounts receivable,
      allowance for doubtful accounts and concentration of credit
      risk





Revenues are
principally generated from the automotive vehicle markets, with approximately
25% from auto dealers (original equipment services), 8% from the original
equipment manufacturers and the remaining portion from aftermarket customers.
The Company’s products are sold through distributors and resellers. Two
customers accounted for 11.6% and 8.5% of the Company’s sales in 2009, 11.3% and
10.5% in 2008, and 9.70% and 8.1% in 2007. Trade accounts receivable are not
secured by collateral.





The
Company evaluates the collectibility of accounts receivable based on a
combination of factors.  In circumstances where the Company is aware
of a specific customer’s inability to meet its financial obligations, a specific
allowance for doubtful accounts is recorded against amounts overdue to write
down the recognized receivable to the amount the Company reasonably believes
will be collected. Additionally, the Company reviews historical trends for
collectibility in determining an estimate for its allowance for doubtful
accounts.





Bad debt
expense for the years ended December 31, 2009, 2008 and 2007 amounted to $832,
$438 and $219, respectively.





d)
              Inventories





Inventories
are valued at the lower of cost or market. Cost is determined at the average
cost of purchase or production, which includes material, labor and overhead.
Inventories consist of the following at December 31:





2009
            
            
            2008Raw
      materials
            
            $
            11,955
            
            
            $
            8,713Inventory
      in transit
            
            
            3,556
            
            
            
            3,232Work-in-progress
            
            
            3,221
            
            
            
            2,787Finished
      goods
            
            
            7,822
            
            
            
            6,724Total
      inventories
            
            
            26,554
            
            
            
            21,456Less:
      Provision for lower of cost or market valuation and slow-moving
      inventories
            
            
            (602
            )
            
            
            (365
            )Inventories,
      net
            
            $
            25,952
            
            
            $
            21,091




9




PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)


2.
              Summary of significant
      accounting policies(Continued)





e)
              Property, plant and
      equipment





Property,
plant and equipment are recorded at cost and consist of the following at
December 31:





2009
            
            
            2008Land
      and improvements
            
            $
            847
            
            
            $
            631Buildings
      and improvements
            
            
            8,304
            
            
            
            4,976Machinery
      and equipment
            
            
            10,549
            
            
            
            6,527Computer
      equipment and software
            
            
            7,053
            
            
            
            4,317Office
      furniture and fixtures
            
            
            1,852
            
            
            
            1,291Tooling
            
            
            8,913
            
            
            
            6,445Vehicles
            
            
            2,254
            
            
            
            1,606Tracking
      devices for rent
            
            
            6,525
            
            
            
            2,572Other
            
            
            2,528
            
            
            
            1,362Total
      property, plant and equipment
            
            
            48,825
            
            
            
            29,727Less:
      accumulated depreciation
            
            
            (21,233
            )
            
            
            (11,348
            )Property,
      plant and equipment, net
            
            $
            27,592
            
            
            $
            18,379





Depreciation
is provided using the straight-line method over the estimated useful lives of
the assets.


Depreciable
lives within each property classification are as follows:





Buildings
      and improvements
            
            25
      yearsMachinery
      and equipment
            
            10
      yearsComputer
      equipment and software
            
            5
      yearsOffice
      furniture and fixtures
            
            10
      yearsTooling
            
            3-10
      yearsVehicles
            
            5
      yearsTracking
      devices for rent
            
            5
      years





Depreciation
expense for the years ended December 31, 2009, and 2008 amounted to $5,523 and
$4,193 respectively.





Maintenance
and repair expenditures that are not considered improvements and do not extend
the useful life of property are charged to expense as incurred. Expenditures for
improvements and major renewals are capitalized.  When assets are
retired or otherwise disposed of, the related cost and accumulated depreciation
are removed from the accounts, and any gain or loss on the disposal is credited
or charged to the statements of income.




10


PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)





2.
              Summary of significant
      accounting policies(Continued)





e)
              Property, plant and
      equipment--Continued





At
December 31, 2009 and 2008, property, plant and equipment includes vehicles and
equipment held under capital leasing arrangements with total cost of $ 1,174 and
$2,117 and accumulated depreciation of $ 251 and $653,
respectively.





f)
            Impairment of
      assets





The
Company reviews its long-lived assets with finite lives for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Impairment is recognized when events or changes in
circumstances indicate that the carrying amount of the asset may not be
recovered. Measurement of the amount of impairment may be based on appraisal,
market values of similar assets or estimated discounted future cash flows
resulting from the use and ultimate disposal of the asset. No impairment charges
were recorded in 2009, 2008 and 2007.





g)
              Income
      taxes





Current
income tax liabilities and assets are recognized for the estimated taxes payable
or refundable on the tax returns for the current year. Deferred income tax
assets or liabilities are recognized for the estimated future tax effects
attributable to temporary differences that result from events that have been
recognized in either the financial statements or the tax returns, but not both.
The measurement of current and deferred income tax assets is based on provisions
of enacted tax laws. Future tax benefits are recognized to the extent the
realization of such benefits is more likely than not. Current and non-current
components of deferred income tax balances are reported separately based on
financial statement classification of the related asset or liability giving rise
to the temporary difference. Deferred income tax assets and liabilities are not
offset unless attributable to the same tax jurisdiction. The Company classifies
interest on tax positions as Financial expenses and penalties as selling,
general and administrative expenses.





h)
              Revenue recognition
      and sales commitments





Revenues
and expenses are recognized on the accrual basis. Revenues from sales of
products are recognized, net for actual and estimated returns, upon their date
of delivery to the customers. Actual and estimated returns are based on
authorized returns. No revenue is recognized if there are significant
uncertainties regarding its realization.




11





PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)


2.
              Summary of significant
      accounting policies(Continued)





i)
              Freight
      expenses





Shipping
and handling costs incurred for delivering products sold are reported in selling
expenses and were $ 4,671, $5,167 and $4,092, for the years ended December 31,
2009, 2008 and 2007, respectively.





j)
              Warranty
      reserve





The
Company’s warranty reserve is established based on the Company’s best estimate
of the amounts necessary to settle future and existing claims on products sold
as of the balance sheet date. The following is a reconciliation of the changes
in the Company’s warranty reserve at December 31:





2009
            
            
            2008Warranty
      reserves at beginning of year
            
            $
            515
            
            
            $
            917Payments
      made
            
            
            (646
            )
            
            
            (422
            )Costs
      recognized for warranties issued during the year
            
            
            550
            
            
            
            669Changes
      in estimates for preexisting warranties
            
            
            179
            
            
            
            (649
            )Warranty
      reserve at end of year
            
            $
            598
            
            
            $
            515





k)
              Product development
      expenses





Expenses
associated with the development of new products and changes to existing products
are charged to expense as incurred. These costs amounted to $8,861, $9,407 and
$5,094 in 2009, 2008 and 2007, respectively.





l)
            Accounting
      estimates





The
preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, including disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Because
actual results could differ from those estimates, the Company revises its
estimates and assumptions as new information becomes available.


12




PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)


2.
              Summary of significant
      accounting policies(Continued)





m)
              Comprehensive
      income





Statement
of Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive
Income,” establishes standards for the reporting of comprehensive income. Other
comprehensive income consists of foreign currency translation adjustments.
Balances of each after-tax component of accumulated other comprehensive income,
as reported in the Statement of Consolidated Shareholders’ Equity at December
31, are as follows:





For
      the Years Ended December 31,2009
            
            
            2008
            
            
            2007Net
      income
            
            $
            14,591
            
            
            $
            24,959
            
            
            $
            20,349Other
      comprehensive income:Currency
      translation adjustments
            
            
            11,095
            
            
            
            (12,083
            )
            
            
            6,151Comprehensive
      income
            
            $
            25,686
            
            
            $
            12,876
            
            
            $
            26,500





n)
              Recently issued
      accounting standards





New
accounting pronouncements issued by the Financial Accounting Standards Board
(“FASB”) which will be effective for the Company in or after fiscal year 2010,
are the following:





SFAS
No. 166, Accounting for Transfers of Financial Assets – an amendment of
FASB Statement No. 140 (“SFAS No. 166”):In June 2009, the FASB
issued SFAS No. 166, which removes the concept of a qualifying
special-purpose entity (“QSPE”) from SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities-a replacement
of FASB Statement No. 125. The QSPE concept had initially been
established to facilitate off-balance sheet treatment for certain
securitizations. SFAS No. 166 also removes the exception from applying FASB
Interpretation (“FIN”) No. 46(R), Consolidation of Variable Interest
Entities (“FIN No. 46(R)”), to QSPEs. SFAS No. 166 has not been
incorporated into the FASB Accounting Standards Codification (ASC) and is
effective for fiscal years beginning after November 15, 2009. The Company
does not expect that the adoption of SFAS No. 166 will have an impact on
its financial statements.




13




PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2009, 2008 and 2007


(In
thousands of U.S. Dollars, unless otherwise indicated)




2.
            Summary of significant
      accounting policies(Continued)





n)
                Recently issued
      accounting
standards--Continued





SFAS
No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS
No. 167”):In June 2009, the FASB issued SFAS No. 167, which amends FIN 46(R)
to among other things, require an entity to qualitatively rather than
quantitatively assess the determination of the primary beneficiary of a variable
interest entity (“VIE”). This determination should be based on whether the
entity has 1) the power to direct matters that most significantly impact the
activities of the VIE and 2) the obligation to absorb losses or the right to
receive benefits of the VIE that could potentially be significant to the VIE.
Other key changes include: the http://www.sec.gov/Archives/edgar/data/874761/000119312509167427/d10q.htm
- tocrequirement for an ongoing reconsideration of the primary
beneficiary, the criteria for determining whether service provider or decision
maker contracts are variable interests, the consideration of kick-out and
removal rights in determining whether an entity is a VIE, the types of events
that trigger the reassessment of whether an entity is a VIE and the expansion of
the disclosures previously required under FASB Staff Position (“FSP”) SFAS 140-4
and FIN 46(R), Disclosures by
Public Entities (Enterprises) about Transfers of FinancialAssets and
Interests in Variable Interest Entities. SFAS No. 167 has not been
incorporated into ASC and is effective for fiscal years beginning after
November 15, 2009. The Company does not expect that the adoption of SFAS
No. 166 will have an impact on its financial statements.





SFAS
No. 168, FASB Codification and the Hierarchy of GAAP (“SFAS
No. 168”):In June 2009, the FASB issued SFAS No. 168, which identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with U.S. GAAP. SFAS No. 168 replaces SFAS
No. 162, The Hierarchy of
Generally Accepted Accounting Principles, and establishes the FASB
Accounting Standards Codification (“the Codification”) as the single source of
authoritative guidance recognized by the FASB. Under the Codification, all
guidance carries an equal level of authority. SFAS No. 168 has not been
incorporated into ASC and is effective for interim and annual periods ending
after September 15, 2009. The Company do not expect any impact on the
results of operations or financial position.





o)
                Subsequent
      events





The
Company evaluated subsequent events through March 16, 2010, the issuance date of
these financial statements.




14




PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)




3.
                Long-term
      debt





Long-term
debt consists of the following:





Type
            
            Index
            
            Final
              maturity
            
            2009
            
            
            2008Working
      capital loans:National
      Bank forEconomic
      and
      Social Development(BNDES)
      financing
            
            Long-term
      Interest Rate (TJLP) + 3% p.y.
            
            2011
            
            
            9,443
            
            
            
            8,032Import
      financing (Finimp)
            
            Libor
      + 3.75% p.y. + Dollar exchange rate
            
            2010
            
            
            291
            
            
            
            598Itau
      Bank
            
            CDI
      + interests of 3.3% p.y.
            
            2010
            
            
            1,152
            
            
            
            -Capital
      lease obligations
            
            Monthly
      interest from 1.06% to 1.65% p.m.
            
            2012
            
            
            602
            
            
            
            86911,488
            
            
            
            9,499Noncurrent
            
            
            
            
            
            
            (8,923
            )
            
            
            (1,838
            )Current
            
            
            
            
            
            $
            2,565
            
            
            $
            7,661





The long
term portion of the debt at December 31, 2009 refers to working capital loans
that will mature in 2011 and 2012.





The
Company has additional revolving credit facilities in the amount of $10,336
($10,368 in 2008) (no balance outstanding as of December 31, 2009 and 2008) with
Brazilian financial institutions. These facilities expire throughout
2010.




15




PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)




4.
              Capital
      lease obligations





The
Company has entered into certain capital lease agreements, most of them
containing purchase options, as a form to finance its acquisition of vehicles
and equipment.





During
2009, $630 of principal and interest of $131 were paid on the lease (in 2008,
$983 and $178 respectively).





Future
payments under those agreements having a remaining term in excess of one year at
December 31 are as follows:





20092010
            
            $
            4842011
            
            $
            2322012
            
            $
            37$
            753Imputed
      interest amount
            
            $
            (151
            )Present
      value of lease payments
            
            $
            602(-)
      Amount recorded in current liabilities
            
            $
            (388
            )(=)
      Amount due in the long term
            
            $
            214





5.
            Advertising
      costs





The cost
of advertising is expensed as incurred. Advertising expense was $530, $868 and
$832, in 2009, 2008 and 2007, respectively.




6.
            Income
      taxes





Under
Brazilian tax law income taxes are paid monthly based on the actual or estimated
monthly taxable income. Income taxes in Brazil include federal income tax and
social contribution (which is an additional federal income tax). The applicable
statutory income tax and social contribution rates were 25% and 9%,
respectively, during the Years ended December 31, 2009, 2008 and 2007. The
composite tax rate is 34%. There are no State or local income taxes in
Brazil.





The
Company’s Manaus plant operates in an economic development area (Free-Trade
Zone) and, therefore, its operating income from the production at that plant is
exempt from federal income tax through 2023, as commented in Note
1.




16




PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)




6.
            Income taxes
      (Continued)





The
provisions for taxes on income included in the consolidated financial statements
represent Brazilian federal and other foreign income taxes. The components of
income before income taxes and the provision for income taxes consist of the
following:





For
      the years ended December 31,2009
            
            
            2008
            
            
            2007Income
      (loss) before income taxes:Brazilian
            
            $
            16,190
            
            
            $
            31,026
            
            
            $
            24,510Other
      foreign
            
            
            (567
            )
            
            
            762
            
            
            
            642$
            15,623
            
            
            $
            31,788
            
            
            $
            25,152Income
      tax expense (credit)Current:Brazilian
      federal
            
            $
            1,963
            
            
            $
            7,013
            
            
            $
            5,434Other
      foreign
            
            
            (111
            )
            
            
            309
            
            
            
            2821,852
            
            
            
            7,322
            
            
            
            5,716Deferred:Brazilian
      federal
            
            
            (820
            )
            
            
            (493
            )
            
            
            (913
            )$
            1,032
            
            
            $
            6,829
            
            
            $
            4,803




17




PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)


6.
            Income taxes
      (Continued)





The
reconciliation of the Company’s effective income tax rate to the statutory
federal tax rate is as follows:





2009
            
            
            2008
            
            
            2007Brazilian
      federal income tax rate
            
            
            34.0
            %
            
            
            34.0
            %
            
            
            34.0
            %Earnings
      of foreign branch
            
            
            0.5
            %
            
            
            0.2
            %
            
            
            0.2
            %Manaus
      free-tax zone income tax incentives
            
            
            (16.1
            %)
            
            
            (14.1
            )%
            
            
            (16.0
            )%Other
      tax incentives (*)
            
            
            (13.8
            %)
            
            
            -
            
            
            
            -Other
            
            
            2.0
            %
            
            
            1.4
            %
            
            
            0.9
            %Effective
      income tax rate
            
            
            6.6
            %
            
            
            21.5
            %
            
            
            19.1
            %







(*)
              Refers
      to tax incentive calculated based on Law no 11196/05 on research and
      development expenses. From the total amount of the tax incentives used
      during the fiscal year of 2009, amounting $2,150, $1,160 refer to expenses
      incurred in 2008 and $990 refer to expense incurred in
    2009.





Deferred
income tax assets consist of the following at December 31:





2009
            
            
            2008Inventory
      reserves and provision for losses on other assets
            
            $
            204
            
            
            $
            124Provision
      for product warranties
            
            
            203
            
            
            
            175Provision
      for contingency losses
            
            
            1,285
            
            
            
            877Product
      design and development costs deferred for tax purposes
            
            
            1,211
            
            
            
            697Deferred
      revenues subject to current taxation
            
            
            474
            
            
            
            198Depreciation
      rate differences
            
            
            684
            
            
            
            218Provision
      for bonuses payment
            
            
            117
            
            
            
            153Other
      nondeductible reserve
            
            
            288
            
            
            
            185Net
      deferred income tax assets
            
            
            4,466
            
            
            
            2,627Less:
      Current assets
            
            
            (1,941
            )
            
            
            (1,020
            )Non-current
      assets
            
            $
            2,525
            
            
            $
            1,607




18


PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)




7.
            Commitments
      and contingencies





In the
ordinary course of business, the Company is involved in various legal
proceedings, principally related to tax and labor claims. Respective provisions
for contingencies were recorded considering those cases in which the likelihood
of loss has been rated as probable.





The
recorded provisions are comprised as follows at December 31, 2009 and
2008:





2009
            
            
            2008PIS
      and COFINS on commissions expenses
            
            $
            3,604
            
            
            $
            -PIS
      and COFINS on exchange gains
            
            
            -
            
            
            
            1,067IPI
      extemporaneous credits offset
            
            
            -
            
            
            
            1,399Labor
      claims
            
            
            97
            
            
            
            56Total
            
            $
            3,701
            
            
            $
            2,522





During
2009, PST used PIS and COFINS credits amounting to $3,604 (including penalty and
interest) to offset PIS and COFINS payable. These credits are related to
commissions expense on sales for the period from July 2004 to December 2009. The
related tax credits were offset against current PIS and Cofins payable and will
be maintained as a provision for contingencies until the Company is judicially
granted the right to recognize it.





During
2009, the Company and its legal counsel assessed the progress of legal cases
related to the increase in the calculation base for the PIS and the COFINS on
exchange gains as provided in Law No. 9718/98 and revoked by Law No. 11941/09.
Based on the results of this assessment, revocation of the legal provision which
created the increased calculation base and the existence of favorable case law
related to this matter, the Company reversed its provision of $ 1,067. The
adjustment was recorded as a reduction in financial expenses.





The
Company has taken Federal VAT (IPI) credit related to purchases of raw materials
and other materials that are tax exempt, non-taxed or taxed at zero rate. The
related tax credits were offset against current IPI payable. The provision
recorded for these credits in 2008, in the amount of $1,399 was reversed in
2009, based on legal opinion, where the Company’s legal advisors concluded that
a favorable outcome is more likely than an unfavorable one on this
subject.





In
addition to the said amounts, the Company has other civil, labor and tributary
contingencies for which the outcome is deemed to be of a possible loss by its
legal advisors, and, therefore, were not recorded. Such contingencies amount to
approximately $4,795 at December 31, 2009 ($944  at December 31,
2008).





19





PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)




8.
            Related
      party transactions





Related
party transactions and balances with Stoneridge, Inc. for years ended December
31 are as follows:





2009
            
            
            2008
            
            
            2007TransactionsCommissions/royalties
            
            $
            193
            
            
            $
            238
            
            
            $
            231BalancesAccounts
      receivable
            
            $
            40
            
            
            $
            156
            
            
            $
            189Accounts
      payable
            
            $
            39
            
            
            $
            6
            
            
            $
            9




9.
            Shareholders’
      equity





The
following table sets forth the ownership and the percentages of the Company’s
common shares at December 31, 2009, 2008 and 2007:





%
      of sharesStoneridge,
      Inc.
            
            
            25.56
            %Alphabet
      do Brasil Ltda.
            
            
            24.44
            %Sérgio
      de Cerqueira Leite
            
            
            16.67
            %Potamotryngi
      Participações Ltda.
            
            
            16.67
            %Marcos
      Ferretti
            
            
            8.33
            %Brienzer
      Participações Ltda.
            
            
            8.33
            %100.00
            %





On
September 10, 2007, the quotaholders made capital increase of $3,175 through
capitalization of tax incentive reserve, corresponding to issuance of 6,219,570
new quotas.





On
October 19, 2007 the Company was converted into a non-public stock corporation
(sociedade anônima) and
was renamed PST Eletrônica S.A.. As a result, all existing quotas were converted
into shares and 27,663,150 additional shares were issued by the Company with no
change to the total amount of the capital.





On April
30, 2008 the shareholders made a capital increase of $4,815 through
capitalization of the tax incentive reserve, without issuance of new
shares.





On March
25, 2009 the shareholders made a capital increase of $3,908 through
capitalization of the tax incentive reserve, without issuance of new
shares.





20





PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)


9.
            Shareholders’ equity
      (Continued)





At
December 31, 2009 and 2008 the Company had 45,000,000 shares of common stock,
issued and outstanding, which is the maximum amount allowed by the Company’s
bylaws. In the end of 2009 The total amount of capital recorded was $16,610
($12,702 in 2008).





Appropriated
retained earnings





a)
              Legal
      reserve





Under
Brazilian Corporation Law and according to its bylaws, the Company is required
to maintain a “legal reserve” to which it must allocate 5% of its net income,
less accumulated losses as determined on the basis of the statutory financial
statements for each fiscal year until the amount of the reserve equals 20% of
capital. Accumulated losses, if any, may be charged against the legal reserve.
The legal reserve can only be used to increase the capital of the Company. The
legal reserve is subject to approval by the shareholders voting at the annual
shareholders meeting and may be transferred to capital however it is not
available for the payment of dividends in subsequent years. The shareholders
allocated $813 as “legal reserve” at December 31, 2009 ($1,010 in 2008 and $890
in 2007).





b)
              Incentive
      reserve





As
commented in Note 1, the amount corresponding to the computed income tax
incentive may not be distributed to the shareholders and should be kept as a tax
incentive reserve, invested in the Company itself or used for capital increase.
At December 31, 2009, the allocation of retained earning to tax incentives was
$2,727 ($3,456 in 2008 and $4,509 in 2007).





Unappropriated
retained earnings





The
Company management will propose at the next shareholders’ meeting that
unappropriated earnings be retained in order to support the ongoing operations
of the Company and to fund planned growth and expansion of the
business.





Dividends





Payment
of dividends is limited to the amount of retained earnings in the Company's
local currency financial statements prepared in accordance with accounting
principles adopted in Brazil.




21





PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)


9.
            Shareholders’ equity
      (Continued)





Dividends(Continued)





On
October 15, 2007, April 30, 2008, October 17, 2008 and April 30, 2009, the
shareholders approved the distribution of retained earnings in the amount of
$11,468, $4,562, $2,123 and $7,873, respectively.





According
to the Company’s bylaws, shareholders are entitled to minimum compulsory
dividends of 25% of the year’s net income, adjusted in accordance with article
202 of Law 6,404/76 (Brazilian Corporate Law). At December 31, 2009, the Company
allocated $3,181 ($3,902 in 2008) to those compulsory dividends to be paid in
2010.





Dividends
are payable in Brazilian reais and may be remitted to shareholders abroad,
provided the foreign capital is registered with the Brazilian Central
Bank.





10.
              Risk
      management and financial
instruments





The
Company has operational policies and strategies aiming at liquidity,
profitability and safety, as well as procedures to monitor financial instrument
balances. Additionally, the Company operates with established financial
institutions.





The main
risk factors affecting the Company and its subsidiary business, other than
concentration of credit risk as commented in Note 2c, are as
follows:





a)
              Exchange rate
      risk





In 2009
and 2008 asset amounts surpassed the liabilities in foreign currency. Variation
of exchange rate has not materially affected the Company’s business. At December
31, 2009 and 2008, the Company and its subsidiary have the following net
exposure to the exchange rate variation:





2009
            
            
            2008Assets
      – substantially related to Argentinean pesosTrade
      receivables
            
            $
            3,130
            
            
            $
            3,170Trade
      receivables from related party
            
            
            40
            
            
            
            156Liabilities-
      substantially related to the American dollars and EuroDebt
            
            
            (291
            )
            
            
            (598
            )Trade
      accounts payable
            
            
            (3,499
            )
            
            
            (3,020
            )Royalties
      payable
            
            
            (39
            )
            
            
            (6
            )$
            (659
            )
            
            $
            (298
            )




22





PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2009, 2008 and 2007
 (In
thousands of U.S. Dollars, unless otherwise indicated)
  10.
              Risk management and financial
      instruments
(Continued)





a)
                Exchange rate
      risk (Continued)





The
Company did not enter into derivative financial instruments for hedging or other
purposes in 2009 and 2008.





b)
                Fair value of
      financial
instruments





The
carrying values of cash and cash equivalents, accounts receivable and payables
and loans and financing are considered to be representative of their fair value
because of the short maturity of these instruments.





11.
              Share-based
      payment





On
November 23, 2007, the Company authorized a share option scheme (the “Stock
Option Plan”) that provides for the issuance of options to purchase up to 3% of
the total common shares of the Company. Under the Stock Option Plan, the Board
of directors may, at their discretion, grant any officers (including directors)
options to subscribe for common shares. These awards vest over a five year
period starting the 13th month after the grant date of the options, with 25% of
the options to vest on each of the first (from the 13th to the 24th month as
from the grant date), second (25th to 36th), third (37th to 48th) and fourth
(49th to 72nd month) anniversaries of the award date as stipulated in the Stock
Option Plan. The options expire (a) upon their full exercise, (b) after 6 years
from the grant date, (c) after cancellation of the individual contracts, (d)
upon dissolution and bankruptcy of the Company or (e) upon the employee or
management termination.





Until
December 31, 2009, no individual contracts have been entered by the Company with
any officers or employees and, as a result, no options have been granted by the
Company under the plan. Therefore, no compensation cost was recognized in 2009
and 2008 with respect to the Stock Option Plan.


23