Exhibit
99.1




Consolidated
financial statements





PST
Eletrônica S.A.





December
31, 2008, 2007 and 2006


With
Report of Independent Auditors











PST
ELETRÔNICA S.A.





CONSOLIDATED
FINANCIAL STATEMENTS





December
31, 2008, 2007 and 2006





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















Ernst
& Young | 1





PST
ELETRÔNICA S.A.





Consolidated
balance sheets


December
31, 2008 and 2007


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





December 31,2008
                                        
                                        
                                        2007AssetsCurrent
      assets:Cash
      and cash equivalents
                                        
                                        $
                                        5,678
                                        
                                        
                                        $
                                        7,124Accounts
      receivable, less allowance for doubtful accounts of $497 and $461 in 2008
      and 2007, respectively
                                        
                                        
                                        12,533
                                        
                                        
                                        
                                        12,306Inventories,
      net
                                        
                                        
                                        21,091
                                        
                                        
                                        
                                        20,144Taxes
      recoverable
                                        
                                        
                                        925
                                        
                                        
                                        
                                        477Related
      parties
                                        
                                        
                                        156
                                        
                                        
                                        
                                        189Prepaid
      expenses and other
                                        
                                        
                                        475
                                        
                                        
                                        
                                        1,320Deferred
      income taxes
                                        
                                        
                                        1,020
                                        
                                        
                                        
                                        1,784Total
      current assets
                                        
                                        
                                        41,878
                                        
                                        
                                        
                                        43,344Property,
      plant and equipment, net
                                        
                                        
                                        18,379
                                        
                                        
                                        
                                        16,865Other
      assets:Deferred
      income taxes
                                        
                                        
                                        1,607
                                        
                                        
                                        
                                        1,336Other
                                        
                                        
                                        89
                                        
                                        
                                        
                                        195Total
      assets
                                        
                                        $
                                        61,953
                                        
                                        
                                        $
                                        61,740





Ernst
& Young | 2





December 31,2008
                
                
                2007Liabilities
      and shareholders’ equityCurrent
      liabilities:Current
      portion of long-term debt
                
                $
                1,838
                
                
                $
                843Accounts
      payable
                
                
                4,181
                
                
                
                4,997Wages
      and salaries
                
                
                3,117
                
                
                
                3,346Taxes
      payable
                
                
                735
                
                
                
                985Due
      to related parties
                
                
                6
                
                
                
                9Dividends
      payable
                
                
                3,902
                
                
                
                9,874Employee
      profit sharing and management bonuses
                
                
                2,035
                
                
                
                2,189Warranty
      reserve
                
                
                515
                
                
                
                917Commissions
      payable
                
                
                452
                
                
                
                1,124Accrued
      expenses and other
                
                
                487
                
                
                
                1,285Total
      current liabilities
                
                
                17,268
                
                
                
                25,569Long-term
      liabilities:Long-term
      debt, net of current portion
                
                
                7,661
                
                
                
                430Provision
      for contingencies
                
                
                2,522
                
                
                
                3,528Total
      long-term liabilities
                
                
                10,183
                
                
                
                3,958Commitments
      and contingencies (Note 7)Shareholders
      equity:Capital,
      $0.2823 par value,45,000,000 common shares authorized and issued at
      December 31, 2008 and 2007
                
                
                12,702
                
                
                
                7,887Retained
      earnings
                
                
                24,629
                
                
                
                15,072Accumulated
      other comprehensive income
                
                
                (2,829
                )
                
                
                9,254Total
      shareholders equity
                
                
                34,502
                
                
                
                32,213Total
      liabilities and shareholders equity
                
                $
                61,953
                
                
                $
                61,740





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





Ernst
& Young | 3





PST
ELETRÔNICA S.A.





Consolidated
statements of income


Years
ended December 31, 2008, 2007 and 2006


(In
thousands of U.S. Dollars)





For the years ended December 31,2008
                
                
                2007
                
                
                2006Net
      sales
                
                $
                174,305
                
                
                $
                133,039
                
                
                $
                94,097Costs
      and expenses:Cost
      of goods sold and services rendered
                
                
                80,924
                
                
                
                61,575
                
                
                
                47,451Product
      design and engineering expenses
                
                
                9,405
                
                
                
                5,094
                
                
                
                3,113Selling,
      general and administrative
                
                
                51,698
                
                
                
                39,292
                
                
                
                25,929Operating
      income
                
                
                32,276
                
                
                
                27,078
                
                
                
                17,604Exchange
      losses (gains), net
                
                
                (348
                )
                
                
                468
                
                
                
                (175
                )Financial
      expense (income), net
                
                
                836
                
                
                
                1,458
                
                
                
                (160
                )Income
      before income taxes
                
                
                31,788
                
                
                
                25,152
                
                
                
                17,939Income
      taxes
                
                
                6,829
                
                
                
                4,803
                
                
                
                3,442Net
      income
                
                $
                24,959
                
                
                $
                20,349
                
                
                $
                14,497





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





Ernst
& Young | 4





PST
ELETRÔNICA S.A.





Consolidated
statements of shareholders’ equity and comprehensive income


Years
ended December 31, 2008, 2007 and 2006


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





Retained earningsNumber of
                  shares/quotas
                
                
                Capital
                
                
                Appropriated
                
                
                Unappropriated
                
                
                Accumulated
                  other
                  comprehensive
                  income
                
                
                Total
                  shareholders
                  equityBalance, December 31, 2005
                
                
                7,113,128
                
                
                
                2,837
                
                
                
                1,731
                
                
                
                6,664
                
                
                
                1,689
                
                
                
                12,921Capitalization
      of tax incentive reserve
                
                
                4,004,152
                
                
                
                1,875
                
                
                
                (1,875
                )
                
                
                -
                
                
                
                -
                
                
                
                -Net
      income
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                14,497
                
                
                
                -
                
                
                
                14,497Transfer
      to appropriated retained earnings
                
                
                -
                
                
                
                -
                
                
                
                2,913
                
                
                
                (2,913
                )
                
                
                -
                
                
                
                -Dividends
      distribution
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (7,423
                )
                
                
                -
                
                
                
                (7,423
                )Other
      comprehensive income:Currency
      translation adjustments
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                1,414
                
                
                
                1,414Balance,
      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
                )
                
                $
                34,502





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





Ernst
& Young | 5





PST
ELETRÔNICA S.A.





Consolidated
statements of cash flows


Years
ended December 31, 2008, 2007 and 2006


(In
thousands of U.S. Dollars)





For the years ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006OPERATING
      ACTIVITIES:Net
      income
                    
                    $
                    24,959
                    
                    
                    $
                    20,349
                    
                    
                    $
                    14,497Adjustments
      to reconcile net income to net cash provided by operating
      activitiesExchange
      losses and interest expenses
                    
                    
                    878
                    
                    
                    
                    -
                    
                    
                    
                    -Depreciation
                    
                    
                    4,193
                    
                    
                    
                    1,496
                    
                    
                    
                    1,363Provision
      for contingencies
                    
                    
                    (199
                    )
                    
                    
                    527
                    
                    
                    
                    1,157Deferred
      income taxes
                    
                    
                    (339
                    )
                    
                    
                    (913
                    )
                    
                    
                    (409
                    )Warranty
      reserve
                    
                    
                    (233
                    )
                    
                    
                    232
                    
                    
                    
                    -Proceeds
      from disposals of property, plant and equipment
                    
                    
                    165
                    
                    
                    
                    (30
                    )
                    
                    
                    115Changes
      in operating assets and liabilitiesAccounts
      receivable, net
                    
                    
                    (4,163
                    )
                    
                    
                    1,534
                    
                    
                    
                    (3,710
                    )Inventories,
      net
                    
                    
                    (7,560
                    )
                    
                    
                    (6,698
                    )
                    
                    
                    (702
                    )Prepaid
      expenses and other current assets
                    
                    
                    (67
                    )
                    
                    
                    (230
                    )
                    
                    
                    (356
                    )Other
      assets
                    
                    
                    77
                    
                    
                    
                    (177
                    )
                    
                    
                    18Accounts
      payable
                    
                    
                    511
                    
                    
                    
                    (117
                    )
                    
                    
                    142Wages
      and salaries
                    
                    
                    754
                    
                    
                    
                    820
                    
                    
                    
                    382Employee
      profit sharing and management bonuses
                    
                    
                    488
                    
                    
                    
                    929
                    
                    
                    
                    (1,089
                    )Commissions
      payable
                    
                    
                    (519
                    )
                    
                    
                    138
                    
                    
                    
                    490Accrued
      expenses and others
                    
                    
                    (646
                    )
                    
                    
                    1,083
                    
                    
                    
                    488Net
      cash provided by operating activities
                    
                    
                    18,299
                    
                    
                    
                    18,943
                    
                    
                    
                    12,386INVESTING
      ACTIVITIES:Capital
      expenditures
                    
                    
                    (11,625
                    )
                    
                    
                    (5,987
                    )
                    
                    
                    (3,790
                    )Net
      cash used by investing activities
                    
                    
                    (11,625
                    )
                    
                    
                    (5,987
                    )
                    
                    
                    (3,790
                    )FINANCING
      ACTIVITIES:Borrowings
                    
                    
                    11,666
                    
                    
                    
                    315
                    
                    
                    
                    303Repayments
                    
                    
                    (1,464
                    )
                    
                    
                    (2,422
                    )
                    
                    
                    (910
                    )Decrease
      in amounts due to related parties
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (3,022
                    )Dividends
      paid
                    
                    
                    (16,514
                    )
                    
                    
                    (9,616
                    )
                    
                    
                    (5,977
                    )Net
      cash used by financing activities
                    
                    
                    (6,312
                    )
                    
                    
                    (11,723
                    )
                    
                    
                    (9,606
                    )Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    (1,808
                    )
                    
                    
                    1,106
                    
                    
                    
                    481Net
      change in cash and cash equivalents
                    
                    
                    (1,446
                    )
                    
                    
                    2,339
                    
                    
                    
                    (529
                    )Cash
      and cash equivalents at beginning of period
                    
                    
                    7,124
                    
                    
                    
                    4,785
                    
                    
                    
                    5,314Cash
      and cash equivalents at end of period
                    
                    $
                    5,678
                    
                    
                    $
                    7,124
                    
                    
                    $
                    4,785Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                    
                    $
                    425
                    
                    
                    $
                    472
                    
                    
                    $
                    269Cash
      paid for income taxes
                    
                    $
                    7,014
                    
                    
                    $
                    4,935
                    
                    
                    $
                    3,674





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





Ernst
& Young | 6





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements


Years
ended December 31, 2008, 2007 and 2006


(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, 2008, 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 amounts computed on sale of products subject to
      incentive manufactured by the Company in its Manaus facility. The amount
      corresponding to the computed income tax incentive must not be distributed
      to the quotaholders and should be kept as a tax incentive reserve,
      invested in the Company itself or used for capital
    increase.





Ernst
& Young | 7


PST
ELETRÔNICA S.A.
 
 Notes to
consolidated financial statements (Continued)
 Years
ended December 31, 2008, 2007 and 2006
 (In
thousands of U.S. Dollars, unless otherwise indicated)


1.
            Organization and nature of
      business (Continued)





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.





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.





Ernst
& Young | 8





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





2.
            Summary of significant
      accounting policies(Continued)





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.





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 11.3% and 10.5% of the Company’s sales in 2008,
9.70% and 8.1% in 2007, and 10.0% and 7.5% in 2006. Trade accounts receivables
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, 2008, 2007 and 2006 amounted to $22,
$39 and $91, respectively.





Ernst
& Young | 9





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





2.
            Summary of significant
      accounting policies(Continued)





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:





2008
                  
                  
                  2007Raw
      materials
                  
                  $
                  8,713
                  
                  
                  $
                  9,032Inventory
      in transit
                  
                  
                  3,232
                  
                  
                  
                  916Work-in-progress
                  
                  
                  2,787
                  
                  
                  
                  2,315Finished
      goods
                  
                  
                  6,724
                  
                  
                  
                  8,400Total
      inventories
                  
                  
                  21,456
                  
                  
                  
                  20,663Less:
      Provision for lower of cost or market valuation and slow-moving
      inventories
                  
                  
                  (365
                  )
                  
                  
                  (519
                  )Inventories,
      net
                  
                  $
                  21,091
                  
                  
                  $
                  20,144





e)
            Property, plant and
      equipment





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





2008
                    
                    
                    2007Land
      and improvements
                    
                    $
                    631
                    
                    
                    $
                    833Buildings
      and improvements
                    
                    
                    4,976
                    
                    
                    
                    3,367Machinery
      and equipment
                    
                    
                    6,527
                    
                    
                    
                    7,164Computer
      equipment and software
                    
                    
                    4,317
                    
                    
                    
                    3,880Office
      furniture and fixtures
                    
                    
                    1,291
                    
                    
                    
                    1,050Tooling
                    
                    
                    6,445
                    
                    
                    
                    7,217Vehicles
                    
                    
                    1,606
                    
                    
                    
                    1,906Tracking
      devices for rent
                    
                    
                    2,572
                    
                    
                    
                    1,334Other
                    
                    
                    1,362
                    
                    
                    
                    824Total
      property, plant and equipment
                    
                    
                    29,727
                    
                    
                    
                    27,575Less:
      accumulated depreciation
                    
                    
                    (11,348
                    )
                    
                    
                    (10,710
                    )Property,
      plant and equipment, net
                    
                    $
                    18,379
                    
                    
                    $
                    16,865





Ernst
& Young | 10





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





2.
            Summary of significant
      accounting policies(Continued)





e)
            Property, plant and
      equipment—Continued





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





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.





At
December 31, 2008 and 2007, property, plant and equipment includes vehicles and
equipment held under capital leasing arrangements with total cost of $2,117 and
$2,325 and accumulated depreciation of $653 and $493, 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 2008, 2007 and 2006.





Ernst
& Young | 11





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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








2.
            Summary of significant
      accounting policies(Continued)





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 upon their date of delivery to the customers. No revenue
is recognized if there are significant uncertainties regarding its
realization.





i)
            Freight
      expenses





Shipping
and handling costs incurred for delivering products sold are reported in selling
expenses and were $5,167, $4,092 and $2,722, for the years ended December 31,
2008, 2007 and 2006, 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:





2008
                    
                    
                    2007Warranty
      reserves at beginning of year
                    
                    $
                    917
                    
                    
                    $
                    549Payments
      made
                    
                    
                    (422
                    )
                    
                    
                    (657
                    )Costs
      recognized for warranties issued during the year
                    
                    
                    669
                    
                    
                    
                    833Changes
      in estimates for pre-existing warranties
                    
                    
                    (649
                    )
                    
                    
                    192Warranty
      reserve at end of year
                    
                    $
                    515
                    
                    
                    $
                    917





Ernst
& Young | 12





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





2.
            Summary of significant
      accounting policies(Continued)





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 $9,407, $5,094 and
$3,113 in 2008, 2007 and 2006, 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.





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 31,2008
                    
                    
                    2007
                    
                    
                    2006Net
      income
                    
                    $
                    24,959
                    
                    
                    $
                    20,349
                    
                    
                    $
                    14,497Other
      comprehensive income:Currency
      translation adjustments
                    
                    
                    (12,083
                    )
                    
                    
                    6,151
                    
                    
                    
                    1,414Comprehensive
      income
                    
                    $
                    12,876
                    
                    
                    $
                    26,500
                    
                    
                    $
                    15,911





Ernst
& Young | 13





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





2.
            Summary of significant
      accounting policies(Continued)





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 2009,
are the following:





In
December 2007, the Financial Accounting Standards Board issued FASB Statement
No. 141 (revised 2007), Business Combinations (SFAS 141(R)), which replaces FASB
Statement No. 141, Business Combinations (SFAS 141). SFAS 141(R) retains the
fundamental requirements in SFAS 141 that the acquisition method of accounting
(which SFAS 141 called the purchase method) be used for all business
combinations, but is broader in scope. It also provides, among other things, new
guidance in defining the acquirer in a business combination, determination of
the acquisition date, recording a step acquisition, and measurement of value of
a non-controlling interest in the acquired company. SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008.





In
December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements (“SFAS 160”). This Standard improves the
relevance, comparability and transparency of financial information provided to
investors by requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way. Additionally, SFAS 160 eliminates the
diversity that currently exists in accounting for transactions. SFAS 160 is
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Early adoption of this Standard is prohibited. In the absence
of any noncontrolling (minority) interests, management does not currently expect
SFAS 160 to have a material impact on the Company’s financial condition or
results of operations.





Ernst
& Young | 14





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





2.
            Summary of significant
      accounting policies(Continued)





n)
            Recently issued
      accounting
standards—Continued





In March
2008, the Financial Accounting Standards Board issued FASB Statement No. 161:
Disclosures about Derivative Instruments and Hedging Activities (SFAS 161), an
amendment of FASB Statement No. 133 Accounting for Derivative Instruments and
Hedging Activities (SFAS 133). SFAS 161 changes the disclosure requirements for
derivative instruments and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under SFAS 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. SFAS 161 is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008, with early application encouraged. This Statement encourages,
but does not require, comparative disclosures for earlier periods at initial
adoption. The adoption of such standard would not have any impact on the
Company’s financial statements as the Company did not enter into any derivative
financial instruments in 2008 and 2007 (Note 10).





Ernst
& Young | 15





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





3.
            Long-term
      debt





Long-term
debt consists of the following:





December 31,2008
                    
                    
                    2007Working
      capital loans
                    
                    $
                    8,630
                    
                    
                    $
                    -Capital
      lease obligations
                    
                    
                    869
                    
                    
                    
                    1,273Total
      debt
                    
                    
                    9,499
                    
                    
                    
                    1,273Less:
      current portion
                    
                    
                    (1,838
                    )
                    
                    
                    (843
                    )Total
      long term debt less current portion
                    
                    $
                    7,661
                    
                    
                    $
                    430





In 2008,
the Company obtained working capital loans from BNDES (National Development
Bank), which represents the majority of the amount noted above. The loans are
secured by guarantees from a Brazilian financial institution and bear the TJLP
(long-term interest rate) – 6.25% as of December 31, 2008 - plus 3% per
year.





The long
term portion of the debt at December 31, 2008 refers to working capital loans
that will mature in 2010 and 2011.





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





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
2008, $983 of principal and interest of $178 were paid on the lease (in 2007,
$753 and $106 respectively).





Ernst
& Young | 16





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





4.
            Capital lease
      obligations—Continued





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





20082009
                  
                  $
                  6092010
                  
                  $
                  3322011
                  
                  $
                  122$
                  1,063Imputed
      interest amount
                  
                  $
                  (194
                  )Present
      value of lease payments
                  
                  $
                  869(-)
      Amount recorded in current liabilities
                  
                  $
                  (506
                  )(=)
      Amount due in the long term
                  
                  $
                  363





5.
            Advertising
      costs





The cost
of advertising is expensed as incurred. Advertising expense was $868, $832 and
$425, in 2008, 2007 and 2006, 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, 2008, 2007 and 2006. 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.





Ernst
& Young | 17





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


(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 31,2008
                      
                      
                      2007
                      
                      
                      2006Income
      before income taxes:Brazilian
                      
                      $
                      31,026
                      
                      
                      $
                      24,510
                      
                      
                      $
                      17,329Other
      foreign
                      
                      
                      762
                      
                      
                      
                      642
                      
                      
                      
                      610$
                      31,788
                      
                      
                      $
                      25,152
                      
                      
                      $
                      17,939Income
      tax expenseCurrent:Brazilian
      federal
                      
                      $
                      7,013
                      
                      
                      $
                      5,434
                      
                      
                      $
                      3,674Other
      foreign
                      
                      
                      309
                      
                      
                      
                      282
                      
                      
                      
                      1777,322
                      
                      
                      
                      5,716
                      
                      
                      
                      3,851Deferred:Brazilian
      federal
                      
                      
                      (493
                      )
                      
                      
                      (913
                      )
                      
                      
                      (409
                      )$
                      6,829
                      
                      
                      $
                      4,803
                      
                      
                      $
                      3,442





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





2008
                    
                    
                    2007
                    
                    
                    2006Brazilian
      federal income tax rate
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %
                    
                    
                    34.0
                    %Earnings
      of foreign branch
                    
                    
                    0.2
                    %
                    
                    
                    0.2
                    %
                    
                    
                    (0.2
                    )%Manaus
      free-tax zone income tax incentives
                    
                    
                    (14.1
                    )%
                    
                    
                    (16.0
                    )%
                    
                    
                    (15.9
                    )%Other
                    
                    
                    1.4
                    %
                    
                    
                    0.9
                    %
                    
                    
                    1.3
                    %Effective
      income tax rate
                    
                    
                    21.5
                    %
                    
                    
                    19.1
                    %
                    
                    
                    19.2
                    %





Ernst
& Young | 18





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





6.
            Income taxes
      (Continued)





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





2008
                      
                      
                      2007Inventory
      reserves and provision for losses on other assets
                      
                      $
                      124
                      
                      
                      $
                      301Provision
      for product warranties
                      
                      
                      175
                      
                      
                      
                      312Provision
      for contingency losses
                      
                      
                      877
                      
                      
                      
                      1,200Product
      design and development costs deferred for tax purposes
                      
                      
                      697
                      
                      
                      
                      540Deferred
      revenues subject to current taxation
                      
                      
                      198
                      
                      
                      
                      755Depreciation
      rate differences
                      
                      
                      218
                      
                      
                      
                      -Provision
      for bonuses payment
                      
                      
                      153
                      
                      
                      
                      -Other
      nondeductible reserve
                      
                      
                      185
                      
                      
                      
                      12Net
      deferred income tax assets
                      
                      
                      2,627
                      
                      
                      $
                      3,120Less:
      Current assets
                      
                      
                      (1,020
                      )
                      
                      
                      (1,784
                      )Non-current
      assets
                      
                      $
                      1,607
                      
                      
                      $
                      1,336





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. Following the opinion
of its legal advisors, 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 and will be maintained as a provision for contingencies until the
Company is judicially granted the right to recognize it.





The
Company is judicially challenging the extension of the calculation basis of
Social Integration Program Contribution (PIS) and Social Security Financing
Contribution (COFINS) on exchange gains enacted by Brazilian Law 9,718/98. As
such, these amounts represent a legal obligation under enacted legislation. A
full provision for the amounts not paid has been recorded.





Ernst
& Young | 19





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





7.
            Commitments and
      contingencies—Continued





The
recorded provisions for probable loss contingencies, including the matters
above, are comprised as follows at December 31, 2008 and 2007:





2008
                    
                    
                    2007IPI
      extemporaneous credits offset
                    
                    $
                    1,399
                    
                    
                    $
                    2,045PIS
      and COFINS on exchange gains
                    
                    
                    1,067
                    
                    
                    
                    1,304Labor
      claims
                    
                    
                    56
                    
                    
                    
                    179Total
                    
                    $
                    2,522
                    
                    
                    $
                    3,528





In
addition to the said amounts, the Company has other civil and labor
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 $944 at December 31, 2008 ($736 at December 31,
2007).





8.
            Related
      party transactions





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





2008
                      
                      
                      2007
                      
                      
                      2006TransactionsCommissions/royalties
                      
                      $
                      238
                      
                      
                      $
                      231
                      
                      
                      $
                      215BalancesAccounts
      receivable
                      
                      $
                      156
                      
                      
                      $
                      189
                      
                      
                      $
                      160Accounts
      payable
                      
                      $
                      6
                      
                      
                      $
                      9
                      
                      
                      $
                      24





Ernst
& Young | 20





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





9.
            Shareholders’equity





The
following table sets forth the ownership and the percentages of the Company’s
common shares (quotas in 2006) at December 31, 2008, 2007 and 2006:





% of shares (2008 and 2007)
                      and quotas (2006)2008
                    
                    
                    2007
                    
                    
                    2006Stoneridge,
      Inc.
                    
                    
                    25.56
                    %
                    
                    
                    25.56
                    %
                    
                    
                    50.00
                    %Alphabet
      do Brasil Ltda.
                    
                    
                    24.44
                    %
                    
                    
                    24.44
                    %
                    
                    
                    -Sérgio
      de Cerqueira Leite
                    
                    
                    16.67
                    %
                    
                    
                    16.67
                    %
                    
                    
                    33.33
                    %Potamotryngi
      Participações Ltda.
                    
                    
                    16.67
                    %
                    
                    
                    16.67
                    %
                    
                    
                    -Marcos
      Ferretti
                    
                    
                    8.33
                    %
                    
                    
                    8.33
                    %
                    
                    
                    16.67
                    %Brienzer
      Participações Ltda.
                    
                    
                    8.33
                    %
                    
                    
                    8.33
                    %
                    
                    
                    -100.00
                    %
                    
                    
                    100.00
                    %
                    
                    
                    100.00
                    %





On
October 18, 2006 and September 10, 2007, the quotaholders made capital increases
of $1,875 and $3,175, respectively, through capitalization of the tax incentive
reserve (included in Retained earnings), corresponding to issuance of 4,004,152
and 6,219,570 new quotas, respectively.





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.





At
December 31, 2008 and 2007 the Company had 45,000,000 shares of common stock,
issued and outstanding, which is the maximum amount allowed by the Company’s
bylaws.





Ernst
& Young | 21





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





9.
            Shareholders’/quotaholders’
      equity (Continued)





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 $1,010 as “legal reserve” at December 31, 2008 ($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, 2008, the allocation of retained earning to tax incentives was
$3,456 ($4,509 in 2007 and $2,913 in 2006).





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.





On
December 5, 2006, October 15, 2007, April 30, 2008 and October 17, 2008, the
quotaholders (2006) and shareholders (2007 and 2008) approved the distribution
of retained earnings in the amount of $7,423, $11,468, $4,562 and $2,123,
respectively.





Ernst
& Young | 22





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





9.
            Shareholders’ equity
      (Continued)





Dividends—Continued





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, 2008, the Company
allocated $3,902 to those compulsory dividends to be paid in 2009.





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 risk as commented in Note 2c, are as follows:





a)
            Exchange rate
      risk





In 2008,
2007 and 2006 asset amounts surpassed the liabilities in foreign currency.
Variation of exchange rate has not materially affected the Company’s business.
At December 31, 2008, 2007 and 2006, Company and its subsidiary have the
following net exposure to the exchange rate variation:





2008
                        
                        
                        2007AssetsTrade
      receivables
                        
                        
                        3,170
                        
                        
                        
                        2,022LiabilitiesDebt
                        
                        
                        (598
                        )
                        
                        
                        -Trade
      accounts payable
                        
                        
                        (3,020
                        )
                        
                        
                        (1,860
                        )Royalties
      payable
                        
                        
                        (6
                        )
                        
                        
                        (9
                        )(454
                        )
                        
                        
                        153





The
Company did not enter into derivative financial instruments for hedging or other
purposes in 2008 and 2007.





Ernst
& Young | 23





PST
ELETRÔNICA S.A.





Notes to
consolidated financial statements (Continued)


Years
ended December 31, 2008, 2007 and 2006


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





10.
            Risk management and financial
      instruments (Continued)





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 and (e) upon the employee or
management termination.





Until
December 31, 2008, 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 2008
and 2007 with respect to the Stock Option Plan.





Ernst
& Young | 24