##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageConsolidated Financial Statements:Report of Independent Auditors
    
    
    12Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    
    13Consolidated Statements of Operations for the Fiscal Years Ended December 31, 2006, 2005 and 2004
    
    
    14Consolidated Statements of Cash Flows for the Fiscal Years Ended December 31, 2006, 2005 and 2004
    
    
    15Consolidated Statements of Quotaholders Equity for the Fiscal Years Ended December 31, 2006, 2005 and 2004
    
    
    16Notes to Consolidated Financial Statements
    
    
    17
 11




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##### 



REPORT OF INDEPENDENT AUDITORS
 
     
 
 12




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
 December 31,2006
    
    
    2005ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    4,785
    
    
    $
    5,314Accounts receivable, less allowance for doubtful accounts of $500 and $373,
in 2006 and 2005, respectively
    
    
    11,609
    
    
    
    7,157Inventories, net
    
    
    10,602
    
    
    
    9,037Taxes recoverable
    
    
    857
    
    
    
    648Related parties
    
    
    160
    
    
    
    120Prepaid expenses and other
    
    
    419
    
    
    
    215Deferred income taxes
    
    
    600
    
    
    
    615Total current assets
    
    
    29,032
    
    
    
    23,106Long-Term Assets:Property, Plant and Equipment, net
    
    
    9,868
    
    
    
    6,868Other Assets:Deferred income taxes
    
    
    1,155
    
    
    
    608Other
    
    
    
    
    
    
    18Total Assets
    
    $
    40,055
    
    
    $
    30,600LIABILITIES AND QUOTAHOLDERS EQUITYCurrent Liabilities:Current portion of long-term debt
    
    $
    2,634
    
    
    $
    1,206Accounts payable
    
    
    4,252
    
    
    
    3,755Wages and salaries
    
    
    2,028
    
    
    
    1,498Taxes payable
    
    
    560
    
    
    
    252Due to related parties
    
    
    24
    
    
    
    51Dividends payable to quotaholders
    
    
    3,747
    
    
    
    2,141Employee profit sharing and management bonuses
    
    
    968
    
    
    
    1,899Accrued expenses and other
    
    
    1,641
    
    
    
    822Total current liabilities
    
    
    15,854
    
    
    
    11,624Long-Term Liabilities:Long-term debt, net of current portion
    
    
    345
    
    
    
    2,082Due to related parties
    
    
    
    
    
    
    2,814Other liabilities
    
    
    2,447
    
    
    
    1,159Total long-term liabilities
    
    
    2,792
    
    
    
    6,055Commitments
and Contingencies (Note 8)Quotaholders Equity:Capital, $0.424 and $0.399 par values, 11,117,280 and 7,113,128 quotas
authorized and issued as of December 31, 2006 and 2005, respectively
    
    
    4,712
    
    
    
    2,837Retained earnings
    
    
    13,594
    
    
    
    8,395Accumulated other comprehensive income
    
    
    3,103
    
    
    
    1,689Total quotaholders equity
    
    
    21,409
    
    
    
    12,921Total Liabilities and Quotaholders Equity
    
    $
    40,055
    
    
    $
    30,600
  13




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
 For the Fiscal Years EndedDecember 31,2006
    
    
    2005
    
    
    2004(Unaudited)Net Sales
    
    $
    94,097
    
    
    $
    70,819
    
    
    $
    47,807Costs and Expenses:Cost of goods sold
    
    
    47,451
    
    
    
    38,700
    
    
    
    27,445Product design and engineering expenses
    
    
    3,113
    
    
    
    2,358
    
    
    
    1,802Selling, general and administrative
    
    
    25,929
    
    
    
    18,136
    
    
    
    13,488Operating Income
    
    
    17,604
    
    
    
    11,625
    
    
    
    5,072Exchange (gains), net
    
    
    (175
    )
    
    
    (188
    )
    
    
    (96
    )Interest expense (income), net
    
    
    (160
    )
    
    
    857
    
    
    
    1,263Income Before Income Taxes
    
    
    17,939
    
    
    
    10,956
    
    
    
    3,905Provision for income taxes
    
    
    3,442
    
    
    
    2,330
    
    
    
    610Net Income
    
    $
    14,497
    
    
    $
    8,626
    
    
    $
    3,295
  14




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 For the Fiscal Years EndedDecember 31,2006
    
    
    2005
    
    
    2004(Unaudited)OPERATING ACTIVITIES:Net income
    
    $
    14,497
    
    
    $
    8,626
    
    
    $
    3,295Adjustments to reconcile net income to net cash provided (used) by
operating acitivies -Depreciation and amortization
    
    
    1,363
    
    
    
    1,247
    
    
    
    980Deferred income taxes
    
    
    (409
    )
    
    
    (197
    )
    
    
    40Loss on sales of property, plant and equipment
    
    
    
    
    
    
    6
    
    
    
    21Changes in operating assets and liabilities-Accounts receivable, net
    
    
    (3,710
    )
    
    
    (1,165
    )
    
    
    (1,844
    )Inventories, net
    
    
    (702
    )
    
    
    1,050
    
    
    
    (964
    )Prepaid expenses and other
    
    
    (356
    )
    
    
    (49
    )
    
    
    404Other assets
    
    
    18
    
    
    
    12
    
    
    
    35Accounts payable
    
    
    142
    
    
    
    1,297
    
    
    
    (963
    )Accrued expenses and other
    
    
    1,428
    
    
    
    3,097
    
    
    
    335Net cash provided by operating activities
    
    
    12,271
    
    
    
    13,924
    
    
    
    1,339INVESTING ACTIVITIES:Capital expenditures
    
    
    (3,790
    )
    
    
    (1,749
    )
    
    
    (1,523
    )Proceeds from sales of property, plant and equipment
    
    
    115
    
    
    
    81
    
    
    
    16Net cash used by investing activities
    
    
    (3,675
    )
    
    
    (1,668
    )
    
    
    (1,507
    )FINANCING ACTIVITIES:Borrowings of long-term debt
    
    
    
    
    
    
    2,069
    
    
    
    3,809Repayments of long-term debt
    
    
    
    
    
    
    (4,334
    )
    
    
    (69
    )Borrowings of short-term debt
    
    
    303
    
    
    
    1,186
    
    
    
    1,931Repayments of short-term debt
    
    
    (910
    )
    
    
    (4,164
    )
    
    
    (898
    )Decrease in amounts due to related parties
    
    
    (3,022
    )
    
    
    (377
    )
    
    
    (4,941
    )Dividends paid
    
    
    (5,977
    )
    
    
    (2,175
    )
    
    
    Other equity transactions
    
    
    
    
    
    
    2
    
    
    
    78Net cash used by financing activities
    
    
    (9,606
    )
    
    
    (7,793
    )
    
    
    (90
    )Effect of exchange rate changes on cash and cash equivalents
    
    
    481
    
    
    
    344
    
    
    
    482Net change in cash and cash equivalents
    
    
    (529
    )
    
    
    4,807
    
    
    
    224Cash and cash equivalents at beginning of period
    
    
    5,314
    
    
    
    507
    
    
    
    283Cash and cash equivalents at end of period
    
    $
    4,785
    
    
    $
    5,314
    
    
    $
    507Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    269
    
    
    $
    846
    
    
    $
    685Cash paid for income taxes
    
    $
    3,674
    
    
    $
    2,438
    
    
    $
    258
  15




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF QUOTAHOLDERS EQUITY
(in thousands, except for number of quotas)
 Accumulated OtherRetained
    
    
    Comprehensive Income
    
    
    Total Quotaholders'
    
    
    ComprehensiveNumber of Quotas
    
    
    Capital
    
    
    Earnings
    
    
    (Loss)
    
    
    Equity
    
    
    IncomeBALANCE, JANUARY 1, 2004
(Unaudited)
    
    
    200,000
    
    
    $
    119
    
    
    $
    3,542
    
    
    $
    (1,755
    )
    
    $
    1,906Net income
    
    
    
    
    
    
    
    
    
    
    3,295
    
    
    
    
    
    
    
    3,295
    
    
    
    3,295Capitalization of retained earnings
    
    
    4,692,368
    
    
    
    1,767
    
    
    
    (1,767
    )
    
    
    
    
    
    
    Other comprehensive income:Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,152
    
    
    
    2,152
    
    
    
    2,152Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,447BALANCE, DECEMBER 31, 2004
(Unaudited)
    
    
    4,892,368
    
    
    
    1,886
    
    
    
    5,070
    
    
    
    397
    
    
    
    7,353Net income
    
    
    
    
    
    
    
    
    
    
    8,626
    
    
    
    
    
    
    
    8,626
    
    
    
    8,626Capitalization of retained earnings
    
    
    2,220,760
    
    
    
    951
    
    
    
    (951
    )
    
    
    
    
    
    
    Dividend distribution
    
    
    
    
    
    
    
    
    
    
    (4,350
    )
    
    
    
    
    
    
    (4,350
    )Other comprehensive income:Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,292
    
    
    
    1,292
    
    
    
    1,292Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    9,918BALANCE, DECEMBER 31, 2005
    
    
    7,113,128
    
    
    
    2,837
    
    
    
    8,395
    
    
    
    1,689
    
    
    
    12,921Net income
    
    
    
    
    
    
    
    
    
    
    14,497
    
    
    
    
    
    
    
    14,497
    
    
    
    14,497Capitalization of retained earnings
    
    
    4,004,152
    
    
    
    1,875
    
    
    
    (1,875
    )
    
    
    
    
    
    
    Dividend distribution
    
    
    
    
    
    
    
    
    
    
    (7,423
    )
    
    
    
    
    
    
    (7,423
    )Other comprehensive income:Currency translation adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,414
    
    
    
    1,414
    
    
    
    1,414Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    15,911BALANCE, DECEMBER 31, 2006
    
    
    11,117,280
    
    
    $
    4,712
    
    
    $
    13,594
    
    
    $
    3,103
    
    
    $
    21,409
  16




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts and data related to 2004 are unaudited)
(in thousands, unless otherwise indicated)
 1. Organization and Nature of Business
   
    
    Exemption from IPI (federal excise tax) on products;
    
    Suspension of import duties on imports of capital assets and reduction of the current
tax rate applied to foreign raw materials;
    
    Refund of up to 90.25% of the ICMS (State value-added tax) charged on product lines
such as antennas, electric locks, replacement parts and printed circuit plates;
    
    100% refund of the ICMS tax charged on other items for PSTs product lines;
    
    75% reduction of the income tax for amounts computed on sales of products manufactured
by PST in its Manaus unit. The related tax benefit must not be distributed to the
quotaholders and may only be used to absorb losses or increase capital.
 2. Summary of Significant Accounting Policies
 Basis of Presentation
     Cash and Cash Equivalents
  17




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts and data related to 2004 are unaudited)
(in thousands, unless otherwise indicated)
 Accounts Receivable and Concentrations of Credit Risk
  Inventories
  2006
    
    
    2005Raw materials
    
    $
    5,019
    
    
    $
    3,983Work in progress
    
    
    1,558
    
    
    
    1,142Finished goods
    
    
    4,266
    
    
    
    4,030Total inventories
    
    
    10,843
    
    
    
    9,155Less: Provision for lower of cost or market valuation and slow-moving inventories
    
    
    (241
    )
    
    
    (118
    )Total
    
    $
    10,602
    
    
    $
    9,037
 Property, Plant and Equipment
  2006
    
    
    2005Land and land improvements
    
    $
    691
    
    
    $
    632Buildings and improvements
    
    
    2,646
    
    
    
    1,810Machinery and equipment
    
    
    4,627
    
    
    
    3,573Computer equipment and software
    
    
    2,650
    
    
    
    1,756Office furniture and fixtures
    
    
    561
    
    
    
    347Tooling
    
    
    4,664
    
    
    
    3,368Vehicles
    
    
    1,026
    
    
    
    644Other
    
    
    523
    
    
    
    343Total property, plant and equipment
    
    
    17,388
    
    
    
    12,473Less: Accumulated depreciation
    
    
    (7,520
    )
    
    
    (5,605
    )Property, plant and equipment, net
    
    $
    9,868
    
    
    $
    6,868
 18




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts and data related to 2004 are unaudited)
(in thousands, unless otherwise indicated)
  Buildings and improvements
    25
    yearsMachinery and equipment
    10
    yearsComputer equipment and software
    5
    yearsOffice furniture and fixtures
    10
    yearsTooling
    3 - 10
    yearsVehicles
    5
    years
   Accrued Expenses and Other Current Liabilities
  2006
    
    
    2005Commission-related obligations
    
    $
    807
    
    
    $
    282Warranty-related obligations
    
    
    549
    
    
    
    502Other
    
    
    285
    
    
    
    38Total
    
    $
    1,641
    
    
    $
    822
 Income Taxes
 Accounting for Income
Taxes.
 Revenue Recognition and Sales Commitments
  Bad Debts
   19




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts and data related to 2004 are unaudited)
(in thousands, unless otherwise indicated)
 Freight expenses
  Warranty Reserves
  2006
    
    
    2005Warranty reserves at beginning of period
    
    $
    502
    
    
    $
    309Payments made
    
    
    (466
    )
    
    
    (190
    )Costs recognized for warranties issued during the period
    
    
    539
    
    
    
    490Changes in estimates for preexisting warranties
    
    
    (26
    )
    
    
    (107
    )Warranty reserve at end of period
    
    $
    549
    
    
    $
    502
 Product Development Expenses
  Financial Instruments
  Accounting Estimates
  20




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts and data related to 2004 are unaudited)
(in thousands, unless otherwise indicated)
 Comprehensive Income
 Reporting Comprehensive Income,
 For the Fiscal Years EndedDecember 31,2006
    
    
    2005
    
    
    2004(Unaudited)Net income
    
    $
    14,497
    
    
    $
    8,626
    
    
    $
    3,295Other comprehensive income:Currency translation adjustments
    
    
    1,414
    
    
    
    1,292
    
    
    
    2,152Comprehensive income
    
    $
    15,911
    
    
    $
    9,918
    
    
    $
    5,447
 Impairment of Assets
  3. Capital Lease Obligations
   2007
    
    $
    3442008
    
    
    3122009
    
    
    121Total
    
    $
    777Imputed interest amounts
    
    
    (157
    )Present value of lease payments
    
    
    620(-) Amount recorded in the current liabiliites
    
    
    275(=) Amount due in the long term
    
    $
    345
 21




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts and data related to 2004 are unaudited)
(in thousands, unless otherwise indicated)
 4. Long-Term Debt
  December 31,2006
    
    
    2005Working capital loans
    
    $
    2,359
    
    
    $
    3,019Leasing obligations
    
    
    620
    
    
    
    269Total debt
    
    
    2,979
    
    
    
    3,288Less: Current portion
    
    
    (2,634
    )
    
    
    (1,206
    )Total long-term debt less current portion
    
    $
    345
    
    
    $
    2,082
   5. Advertising costs
  6. Income Taxes
   22




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts and data related to 2004 are unaudited)
(in thousands, unless otherwise indicated)
  For the Fiscal Years EndedDecember 31,2006
    
    
    2005
    
    
    2004(Unaudited)Income before income taxes:Brazilian
    
    $
    17,329
    
    
    $
    10,324
    
    
    $
    3,633Foreign
    
    
    610
    
    
    
    632
    
    
    
    272Total income before income taxes
    
    $
    17,939
    
    
    $
    10,956
    
    
    $
    3,905Income tax (benefit) provision:Current:Brazilian federal
    
    $
    3,674
    
    
    $
    2,465
    
    
    $
    570Foreign
    
    
    177
    
    
    
    63
    
    
    
    Total current provision
    
    
    3,851
    
    
    
    2,528
    
    
    
    570Deferred:Brazilian federal
    
    
    (409
    )
    
    
    (198
    )
    
    
    40Total deferred (benefit) provision
    
    
    (409
    )
    
    
    (198
    )
    
    
    40Total income tax provision
    
    $
    3,442
    
    
    $
    2,330
    
    
    $
    610The reconciliation
of the Companys effective income tax rate to the statutory federal tax rate is as follows:2006
    
    2005
    
    2004(Unaudited)Brazilian federal income tax rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %Earnings of foreign branch
    
    
    (0.2
    )
    
    
    (1.8
    )
    
    
    (3.1
    )Manaus free-trade zone income tax incentives
    
    
    (15.9
    )
    
    
    (15.3
    )
    
    
    (19.5
    )Other
    
    
    1.3
    
    
    
    4.4
    
    
    
    4.2Effective income tax rate
    
    
    19.2
    %
    
    
    21.3
    %
    
    
    15.6
    %
  2006
    
    
    2005Deferred tax assets:Inventory reserves
    
    $
    82
    
    
    $
    47Provision for product warranties
    
    
    187
    
    
    
    171Provision for loss contingencies
    
    
    831
    
    
    
    394Product design and development costs deferred for tax purposes
    
    
    286
    
    
    
    179Deferred revenues subject to current taxation
    
    
    337
    
    
    
    412Other
nondeductible reserve
    
    
    32
    
    
    
    20Net deferred tax asset
    
    $
    1,755
    
    
    $
    1,223
 7. Fair Value of Financial Instruments
   23




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts and data related to 2004 are unaudited)
(in thousands, unless otherwise indicated)
 8. Commitments and Contingencies
    2006
    
    
    2005IPI extemporaneous credits offset
    
    $
    1,287
    
    
    $
    871PIS and COFINS on exchange gains
    
    
    848
    
    
    
    171Labor claims
    
    
    312
    
    
    
    117Total
    
    $
    2,447
    
    
    $
    1,159
 9. Related Party Transactions
  2006
    
    2005Transactions:Commissions/Royalties
    
    $
    215
    
    
    $
    194Purchases
    
    $
    
    
    
    $
    6
  2006
    
    2005Balances:Accounts receivable
    
    $
    160
    
    
    $
    120Accounts payable
    
    
    24
    
    
    
    51Loans payable
    
    $
    
    
    
    $
    2,814
  24




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##### 



PST INDÚSTRIA ELETRÔNICA DA AMAZONIA LTDA. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts and data related to 2004 are unaudited)
(in thousands, unless otherwise indicated)
 10. Quotaholders Equity
  25