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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F

(Mark One)

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2007

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

     Securities registered or to be registered pursuant to Section 12(b) of the Act: Common Shares, $0.01 par value per share

     Securities registered pursuant to Section 12(g) of the Act: NONE

     Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: NONE

     As of December 31, 2007, there were 44,803,735 common shares of the registrant outstanding.

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

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

     Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

     Indicate by check mark whether the registrant: (i)has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (ii) has been subject to such filing requirements for the past 90 days. þ Yes    o No

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

Large accelerated o            Accelerated filer þ           None-accelerated filer o

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

     If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o

o Yes       þ No                    

 

 

Table of Contents

FINANCIAL STATEMENTS AND CURRENCY PRESENTATION			3
INTRODUCTION			3
PART I			3
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS			3
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE			3
ITEM 3. KEY INFORMATION			3
ITEM 4. INFORMATION ON THE COMPANY			23
ITEM 4A. UNRESOLVED STAFF COMMENTS			40
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS			41
ITEM 6. DIRECTORS AND SENIOR MANAGEMENT			56
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			63
ITEM 8. FINANCIAL INFORMATION			64
ITEM 9. THE LISTING			69
ITEM 10. ADDITIONAL INFORMATION			70
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK			79
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			81
PART II			81
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			81
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			81
ITEM 15. CONTROLS AND PROCEDURES			81
Report of Management on Internal Control Over Financial Reporting			81
Attestation Report of the Registered Public Accounting Firm			82
ITEM 16. [RESERVED]			83
ITEM 16 A. AUDIT COMMITTEE FINANCIAL EXPERT			83
ITEM 16 B. CODE OF ETHICS			83
ITEM 16 C. PRINCIPAL ACCOUNTANT FEES AND SERVICES			83
ITEM 16 D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			84
ITEM 16 E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			84
PART III			84
ITEM 17. FINANCIAL STATEMENTS			84
ITEM 18. FINANCIAL STATEMENTS			84
Index to Consolidated Financial Statements			84
ITEM 19. EXHIBITS			85
SIGNATURE			88
EXHIBIT 4.15
EXHIBIT 4.16
EXHIBIT 4.17
EXHIBIT 4.18
EXHIBIT 4.19
EXHIBIT 4.20
EXHIBIT 4.21
EXHIBIT 4.22
EXHIBIT 4.23
EXHIBIT 4.24
EXHIBIT 4.25
EXHIBIT 4.26
EXHIBIT 4.27
EXHIBIT 4.28
EXHIBIT 4.29
EXHIBIT 4.30
EXHIBIT 4.31
EXHIBIT 4.32
EXHIBIT 4.33
EXHIBIT 4.34
EXHIBIT 4.35
EXHIBIT 4.36
EXHIBIT 4.37
EXHIBIT 4.38
EXHIBIT 4.39
EXHIBIT 4.40
EXHIBIT 4.41
EXHIBIT 4.42
EXHIBIT 4.43
EXHIBIT 4.44
EXHIBIT 4.45
EXHIBIT 4.46
EXHIBIT 4.47
EXHIBIT 4.48
EXHIBIT 4.49
EXHIBIT 4.50
EXHIBIT 4.51
EXHIBIT 4.52
EXHIBIT 4.53
EXHIBIT 4.54
EXHIBIT 12.1
EXHIBIT 12.2
EXHIBIT 13.1
EXHIBIT 25.1

     This Annual Report on Form 20-F contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in the section entitled “Risk Factors” under Item3. Key Information.

     Readers should not place undue reliance on forward-looking statements, which reflect management’s view only as of the date of this Report. The Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in management’s expectations. Readers should also carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission.

FINANCIAL STATEMENTS AND CURRENCY PRESENTATION

     The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and publishes its financial statements in United States dollars.

INTRODUCTION

     Except where the context otherwise requires and for purposes of this Annual Report only:

	•		“we,” “us,” “our company,” “our,” the “Company” and “Nam Tai” refer to Nam Tai Electronics, Inc. and, in the context of describing our operations, also include our PRC operating companies;
	•		“shares” refer to our common shares, $0.01 par value;
	•		“China” or “PRC” refers to the People’s Republic of China, excluding Taiwan, Hong Kong and Macao;
	•		“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
	•		“Macao” refers to the Macao Special Administrative Region of the People’s Republic of China, and
	•		all references to “Renminbi,” “RMB” or “yuan” are to the legal currency of China; all references to “U.S. dollars,” “dollars,” “$” or “US$” are to the legal currency of the United States.

     Note with respect to our use of “Bluetooth” in this Report: The Bluetooth^® word mark and logos are owned by the Bluetooth SIG, Inc. and any use of such marks by Nam Tai is under license. Other trademarks and trade names used in this Report, if any, are those of their respective owners.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable

ITEM 3. KEY INFORMATION

Selected Financial Data

     Our historical consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, and are presented in U.S. dollars. The following selected statements of income data for each of the three years in the period ended December 31, 2007 and the balance sheet data as of December 31, 2006 and 2007 are derived from our consolidated financial statements and notes thereto included in this Report. The selected statements of income data for each of the two-year periods ended December 31, 2003 and 2004 and the balance sheet data as of December 31, 2003, 2004 and 2005 were derived from our audited financial statements, which are not included in this Report. The following data should be read in conjunction with the Section of the Report entitled Item 5, Operating and Financial Review and Prospects, and our consolidated financial statements including the related footnotes. All reference to numbers of common shares, per share data and stock option data, and our earnings per share have been adjusted retroactively to give effect to a three-for-one stock split effective on June 30, 2003 and have been adjusted to reflect an issuance of a stock dividend to shareholders at a ratio of one dividend share for every ten shares, or a one-for-ten stock dividend, effective on November 7, 2003.

		Year ended December 31,
		2003				2004				2005				2006				2007
		(in thousands, except per share data)
Consolidated statements of income data:
Net sales — third parties		$	385,524			$	499,680			$	791,042			$	870,174			$	780,822
Net sales — related party			20,782				34,181				6,195				—				—
Total net sales			406,306				533,861				797,237				870,174				780,822
Cost of sales			340,016				457,385				704,314				783,953				693,804
Gross profit			66,290				76,476				92,923				86,221				87,018
Gain on disposal of asset held for sale			—				—				—				9,258				—
Operating costs and expenses:
Selling, general and administrative			24,866				28,053				33,057				30,668				36,550
Research and development			4,037				5,045				7,210				7,866				9,798
Losses arising from the judgment to reinstate redeemed shares			—				—				—				14,465				—
Total operating expenses			28,903				33,098				40,267				52,999				46,348
Income from operations			37,387				43,378				52,656				42,480				40,670
Other (expenses) income — net			(815	)			(1,012	)			(125	)			(1,265	)			2,219
Dividend income received from marketable securities and investment			3,714				18,295				579				—				—
Gain on sale of subsidiaries’ shares			1,838				77,320				10,095				—				390
Gain on disposal of an affiliated company			—				—				3,631				—				—
Gain (loss) on disposal of marketable securities			—				—				(3,686	)			—				43,815
Impairment loss on marketable securities			—				(58,316	)			(6,525	)			—				—
Loss on marketable securities arising from split share structure reform			—				—				—				(1,869	)			—
Interest income			788				1,110				3,948				8,542				9,163
Interest expense			(121	)			(195	)			(438	)			(602	)			(452	)
Income from continuing operations before income tax expenses, minority interests and equity in income (loss) of affiliated companies			42,791				80,580				60,135				47,286				95,805
Income taxes expenses			(399	)			(879	)			(651	)			(377	)			(4,030	)
Income before minority interests and equity income (loss) of affiliated companies			42,392				79,701				59,484				46,909				91,775
Minority interests			(1,067	)			(6,010	)			(7,992	)			(6,153	)			(22,272	)
Income after minority interests			41,325				73,691				51,492				40,756				69,503
Equity in income (loss) of affiliated companies			498				(6,806	)			(186	)			—				—
Net income from continuing operations			41,823				66,885				51,306				40,756				69,503
Discontinued operation			1,979				—				—				—				—
Net income			43,802				66,885				51,306				40,756				69,503
Earnings per share:
Basic		$	1.09			$	1.57			$	1.19			$	0.93			$	1.56
Diluted		$	1.07			$	1.57			$	1.19			$	0.93			$	1.55

		At December 31,
		2003				2004				2005				2006				2007
		(in thousands, except per share data)
Consolidated balance sheet data:
Cash and cash equivalents		$	61,827			$	160,649			$	213,843			$	221,084			$	272,459
Working capital			93,474				218,243				234,674				238,105				266,306
Land use right and property, plant and equipment, net			77,647				97,441				100,741				105,394				98,599
Total assets			297,695				460,473				520,011				529,235				544,818
Short-term debt, including current portion of long-term debt			3,004				4,955				9,400				6,266				6,570
Long-term debt, less current portion			1,688				5,163				2,850				1,100				1,558
Total debt			4,692				10,118				12,250				7,366				8,128
Shareholders’ equity			217,118				305,053				310,391				317,094				330,181
Common shares			412				426				435				438				448
Total dividend per share			1.00				0.48				1.32				1.52				0.84
Total number of common shares issued			41,231				42,665				43,506				43,787				44,804
Total number of common shares to be issued			—				—				—				1,017				—

Risk Factors

     We may from time to time make written or oral forward-looking statements. Written forward-looking statements may appear in this document and other documents filed with the Securities and Exchange Commission, in press releases, in reports to shareholders, on our website, and other documents. The Private Securities Reform Act of 1995 contains a safe harbor for forward-looking statements on which the Company relies in making such disclosures. In connection with this “safe harbor”, we are hereby identifying important factors that could cause actual results to differ materially from those contained in any forward-looking statements made by us or on our behalf. Any such statements are qualified by reference to the following cautionary statements.

We are dependent on a few large customers, the loss of any of which could substantially harm our business and operating results.

     Historically, a substantial percentage of our sales have been to a small number of customers. During the years ended December 31, 2005, 2006 and 2007, sales to our customers accounting for 10% or more of our net sales aggregated approximately 57.7%, 57.6% and 46.9% respectively, of our net sales. Our three largest customers during the year ended December 31, 2007 were Epson Imaging Device Corporation (formerly known as Sanyo Epson Imaging Device), Sharp Corporation and GN Netcom, each of which accounted for more than 10% of our net sales during the year. The loss of any one of our largest customers or a substantial reduction in orders from any of them would adversely impact our sales and decrease our net income or cause us to incur losses unless and until we were able to replace the customer or order with one or more of comparable size.

Our quarterly and annual operating results are subject to significant fluctuations as a result of a wide variety of factors.

     Substantially all of our sales are made on a purchase order basis, and we are not always able to predict with certainty the timing or magnitude of these orders. We cannot guarantee that we will continue to receive any orders from our customers, and our net sales will be harmed if we are unable to obtain a sufficient number of orders from, or ship a sufficient number of products to, customers in each quarter. In addition, our customers may cancel, change or delay product purchase orders with little or no advance notice to us. Also, we believe customers may be increasing the number of vendors upon which they rely for manufacturing. Our quarterly and annual operating results are affected by a wide variety of factors that could materially and adversely affect our business and operating results during any period. This could result from any one or a combination of factors, such as:

	•		the timing, cancellation or postponement of orders;
	•		the type of product and related margins;
	•		our customers’ announcement and introduction of new products or new generations of products;
	•		the life cycles of our customers’ products;
	•		variability in our manufacturing yields;
	•		long lead times and advance financial commitments for our factories and equipment expenditures;
	•		long lead times and advance financial commitments for components required to complete anticipated customer orders
	•		our effectiveness in managing manufacturing processes, including, interruptions or slowdowns in production and changes in cost and availability of components;
	•		changes in the specific products or quantities our customers order; and
	•		price reductions due to competitive pressure.

     The volume and timing of orders received during a quarter are difficult to forecast. From time to time, our customers encounter uncertain and changing demand for their products. Customers generally order based on their forecasts. Further, we do not typically operate with any significant backlog in orders, and this makes it difficult for us to forecast our revenues, plan our production and allocate resources for future periods (including our capital expenditures). If demand falls below such forecasts or if customers do not control inventories effectively, they may reduce, cancel or postpone shipments of orders.

     Because of any of the above factors, our operating results in any period should not be considered indicative of results to be expected in any future period, and fluctuations in operating results may also result in fluctuations in the market price of our common shares. Our operating results in future periods may fall below the expectations of public market analysts and investors. This failure to meet expectations could cause the trading price of our common shares to decline.

We face increasing competition, which has had and may continue to have, an adverse effect on our gross margins.

     Although certain barriers to entry the electronics manufacturing services (“EMS”) industry, including technical expertise, substantial capital requirements, difficulties relating to building customer relationships and a large customer base, the barriers to entry are comparatively low and we are aware that manufacturers in Hong Kong and China may be developing or have developed the required technical capability and customer base to compete with our existing business.

     Competition in the EMS industry is intense, characterized by price erosion, rapid technological change and competition from major international companies. This intense competition has resulted in pricing pressures and lower gross margins in certain years. Over the last several years before 2007, our gross margins have declined substantially. Although our gross margins improved slightly in 2007 when compared with 2006, we may not be able to improve on, or even maintain the level of our 2007 gross margins in the future. In the last three years, our gross margins have fluctuated as indicated in the chart below:

     Recent consolidations in our industry, such as the acquisition of Solectron by Flextronics International Ltd, two of our major competitors, in the fourth quarter of 2007, may permit the competitors involved to devote significantly greater resources to the expansion of EMS services that they offer and the marketing of existing competitive services to their larger installed customer bases or to new customers attracted to larger global manufacturing organizations. We expect that competition will increase substantially because of these and other industry consolidations and alliances, as well as the emergence of new competitors.

     If, as a result of these competitive forces, we are compelled to continue to lower our unit prices and are unable to offset the general trend of decreases in our gross margins by increasing our sales volumes, our gross margins will continue to decline. If we cannot stem the decline in our gross margins, our ability to use internal resources to finance planned expansion may be curtailed, our dividend payments to shareholders may be decreased or eliminated, our financial position may be harmed and our stock price may fall.

We may not be able to compete successfully with our competitors, many of which have substantially greater resources than we do. We will face intense competition when we begin large-scale production of flexible printed circuit, or FPC, boards and FPC subassemblies.

     The electronic manufacturing services we provide are available from many independent sources as well as from our current and potential customers with in-house manufacturing capabilities. The following table identifies those companies, which we believe are our principal competitors by category of products or services we provide:

Product/Service		Competitor
EMS		Celestica, Inc.
		Flextronics International Ltd.
		Hon Hai Precision Industry Co., Ltd.
		Jabil Circuit, Inc
		Sanmina-SCI Corporation
Image capturing devices and their modules		Altus Technology Inc (controlled by Foxconn)
		Lite-On Technology Corporation
		Logitech International S.A.
		The Primax Group
Mobile phone accessories		Balda-Thong Fook Solutions Sdn., Bhd.
		Celestica, Inc.
		Elcoteq Network Corp.
		Flextronics International Ltd.
		Foster Corporation
		Foxlink Group
		Merry Electronics Co. Ltd.
		WKK International (Holdings) Ltd.
RF modules		Wavecom SA
		WKK International (Holdings) Ltd.
Liquid crystal display, or LCD, panels		Elec & Eltek International Holdings Limited
		Truly International Holdings Ltd.
		Varitronix International Ltd.
Telecommunication subassemblies and components		Flextronics International Ltd.
		LG. Philips LCD Co., Ltd.
		Samsung Electronics
		Varitronix International Ltd.
Consumer electronic products (calculators, personal organizers and linguistic products)		Computime Limited Inventec Co. Ltd.
		Kinpo Electronics, Inc.
		VTech Holdings Limited

     Many of our competitors have greater financial, technical, marketing, manufacturing, regional shipping capabilities and logistics support and personnel resources than we do and consolidations among our competitors could result in even larger competitors emerging. As a result, we may be unable to compete successfully with these organizations in the future.

     When we begin large-scale production of flexible printed circuit (“FPC”) boards and FPC subassemblies, we expect to face intense competition from large FPC board manufacturers located in Taiwan, China, Korea, Singapore, North America and Europe as well as from large, established EMS providers that have developed or acquired, or, like we have, are developing their own FPC manufacturing capabilities, and have extensive experience in electronics

assembly. Furthermore, many companies in our target customer base are moving the design and manufacturing of their products to original design manufacturers (“ODMs”) in Asia. Such competition could pressure us to provide discounts or lower prices to gain or maintain market share, which could adversely affect our margins and the profitability of our FPC business and could adversely affect our operating results as a whole. In addition, if we are unable to capture ODMs as customers, we may be unable to sustain or grow our FPC business.

Our inability to utilize capacity at facilities that we have planned for expansion could materially and adversely affect our business and operating results.

     In 2007, we improved our existing facilities in Shenzhen, PRC in order to expand our capacity to produce FPC boards. We are also in the process of constructing the first of two new factories in Wuxi and plan to construct a new factory Shenzhen Guangming Hi-Tech Industrial Park (“Shenzhen Guangming”) China. Construction of the first of our factories in Wuxi to produce FPC boards and FPC subassemblies has begun and we are considering the best use of the second parcel of land in Wuxi and Shenzhen Guangming, given the amalgmated manufacturing operations post our re-organization in December 2007. Through December 31, 2007, we had spent approximately $14.1 million to modify and equip our existing Shenzhen factory for FPC manufacturing and had spent approximately $1.5 million for the construction project in Wuxi, which includes land price, construction and all related expenses. As of December 31, 2007, we spent approximately $9.0 million as the land price to acquire the land of Shenzhen Guangming. We are also required to pay a relocation allowance to local residents in a total of approximately $645,500, which we expect to be made in the first half of 2008. We have financed the improvements to our existing Shenzhen facilities, and plan to continue financing the planned Wuxi and Shenzhen Guangming factories, from internally generated funds, but cannot guarantee that we will be able to utilize fully the additional capacity that each of these new facilities will provide when they come on line. Our factory utilization is dependent on our success in providing manufacturing services for FPC boards, FPC subassemblies and LCD modules at a price and volume sufficient to absorb our increased overhead expenses. Demand for contract manufacturing of these products may not be as great as we expect, and we may fail to realize the expected benefit from our investments in any of our new factories.

Delays in constructing our new factories could adversely affect our operating results.

     We started production of FPC boards in our existing Shenzhen factory in 2007. In December 2006, we purchased two parcels of lands in Wuxi for a total sum of $1.3 million. Our goal is for our new Wuxi facility with respect to one of the parcels to begin production of FPC boards and FPC subassemblies in early to mid-2009. As of December 2007, we spent $9.0 million as the land price to acquire the land of Shenzhen Guangming where we plan to commence the construction of a new factory in early 2009. We are now considering issues relating to maximizing efficiencies in the design, development and construction of our Shenzhen Guangming parcel and the second parcel of Wuxi properties, factoring into those consideration our the in-process integration of management and operations resulting from our recent internal reorganization. In connection with constructing and improving our manufacturing facilities, we could encounter shortages of materials or skilled labor, unforeseen marketing situation or engineering problems, work stoppages, weather interference, flood, delays in obtaining or failure to obtain necessary permits from regulatory authorities, losses as a result of fraud or corruption or unanticipated costs increases. Any of these eventualities could extend the time for these factories to begin significant production, which, in turn would delay our receipt of anticipated revenues to be generated from such production and adversely affect our operating results.

Cancellations or delays in orders could materially and adversely affect our gross margins and operating results.

     Our sales to original equipment manufacturer customers (“OEMs”), are primarily based on purchase orders that we receive from time to time rather than firm, long-term purchase commitments. Although it is our general practice to purchase raw materials only upon receiving a purchase order, for certain customers we will occasionally purchase raw materials based on such customers’ rolling forecasts. Further, during times of potential component shortages, we have purchased, and may continue to purchase, raw materials and component parts in the expectation of receiving purchase orders for products that use these components. In the event actual purchase orders are delayed, are not received or are cancelled, we would experience increased inventory levels or possible write-offs of obsolete inventory, write-downs of raw materials inventory or the underutilization of our manufacturing capacity if, for example, we decline other potential orders because we expect to use our capacity to produce orders that are later delayed, reduced or canceled.

Our customers face numerous competitive challenges, such as rapid technological change and short life cycles for their products, which may materially adversely affect their business, and also ours.

     Factors affecting the industries that utilize electronics components in general, and our customers specifically, could seriously harm our customers and, as a result, us. These factors include:

	•		The inability of our customers to adapt to rapidly changing technology and evolving industry standards, which result in short product life cycles.
	•		The inability of our customers to develop and market their products, some of which are new and untested, the potential that our customers’ products may become obsolete or the failure of our customers’ products to gain widespread commercial acceptance.
	•		Recessionary periods in our customers’ markets.
	•		Increased competition among our customers and their respective competitors which may result in a loss of business, or a reduction in pricing power, for our customers.
	•		New product offerings by our customers’ competitors may prove to be more successful than our customers’ product offerings.

     If our customers are unsuccessful in addressing these competitive challenges, or any others that they may face, then their business may be materially adversely affected, and as a result, the demand for our services could decline.

Our business has been characterized by a rapidly changing mix of products and customers.

     Our business has been characterized by a rapidly changing mix of products and customers, driven in significant part by changes in demand for consumer electronics as well as technological innovation. We manufacture headsets containing Bluetooth wireless technology, mobile phone accessories, home entertainment products, printed circuit board assemblies (“PCBAs”) for headsets containing Bluetooth wireless technology, radio frequency, or RF, modules, thin film transistor liquid crystal display (“TFT LCD”) modules, color LCD modules and complementary metal oxide semiconductor (“CMOS”) sensor modules, FPC boards, FPC subassemblies, and digital audio broadcast (“DAB”) modules. We expect that a substantial portion of our growth will come from the manufacturing of these products. Certain products have become less economically significant to us over time, such as monochrome LCD modules for mobile phone headsets, for which our sales have dropped significantly in each of the past few years since 2002 as end use customers are increasingly choosing color LCD panels instead. We expect that our current mix of customers and products will continue to change rapidly, and we believe this to be relatively common in the EMS industry. If the products of our customers that we manufacture become obsolete or less profitable and we are not able to diversify our product offerings or customer base in a timely manner, our business would be materially and adversely affected.

There may not be a sufficient market for new products that our customers or we develop.

     Our customers may not develop new products in a timely and cost-effective manner, or the market for products they choose to develop may not grow or be sustained in line with their expectations. This would reduce the overall businesses they outsource, which would seriously affect our business and operating results. Even if we develop capabilities to manufacture new products, there can be no guarantee that a market exists or will develop for such products or that such products will adequately respond to market trends. If we invest resources to develop capabilities to manufacture or expand capabilities for existing and new products, like the investments we made to our existing facilities in Shenzhen and the investments we are making to the new factories we are planning to construct in Wuxi and Guangming Shenzhen, PRC to manufacture FPC boards, FPC subassemblies and other products for which sales do not develop, our business and operating results would be seriously harmed. Even if the market for our services grows, it may not grow at an adequate pace.

We must spend substantial amounts to maintain and develop advanced manufacturing processes and engage additional engineering personnel in order to attract new customers and business.

     We operate in a rapidly changing industry. Technological advances, the introduction of new products and new manufacturing and design techniques could materially and adversely affect our business unless we are able to adapt to those changing conditions. As a result, we are continually required to commit substantial funds for, and

significant resources to, engaging additional engineering and other technical personnel and to purchase advanced design, production and test equipment.

     Our future operating results will depend to a significant extent on our ability to continue to provide new manufacturing solutions which, based on time to introduction, cost and performance with the manufacturing capabilities of OEMs and competitive third-party suppliers compare favorably to those offered by our competitors. Our success in attracting new customers and developing new business depends on various factors, including:

	•		utilization of advances in technology;
	•		development of new or improved manufacturing processes for our customers’ products;
	•		delivery of efficient and cost-effective services; and
	•		timely completion of the manufacture of new products.

Our business is capital intensive and the failure to generate sufficient cash could require that we curtail capital expenditures.

     To remain competitive, we must continue to make significant investments in capital equipment, facilities and technological improvements. We expect that substantial capital will be required to continue to expand our manufacturing capacity and capability and provide working capital for growth. We plan to finance our expansion with capital we generate from operations. If we are unable to generate sufficient funds to conduct existing operations and fund our expansion, we may have to curtail our capital expenditures. Any curtailment of our capital expenditures could result in a reduction in net sales, reduction or elimination of our dividends to shareholders, reduced quality of our products, increased manufacturing costs for our products, harm to our reputation, reduced manufacturing efficiencies or other harm to our business.

We generally have no written agreements with suppliers to obtain components and our margins and operating results could suffer from increases in component prices.

     For certain customers, we are responsible for purchasing components used in manufacturing their products. We do not have written agreements with some of our suppliers of components. This typically results in our bearing the risk of component price increases because we may be unable to procure the required materials at a price level necessary to generate anticipated margins from the orders of our customers. Accordingly, increases in component prices could materially and adversely affect our gross margins and operating results.

Our business and operating results would be materially and adversely affected if our suppliers of needed components fail to meet our needs.

     At various times, we have experienced and expect to continue to experience, shortages of some of the electronic components that we use, and suppliers of some components lack sufficient capacity to meet the demand for these components. In some cases, supply shortages and delays in deliveries of particular components have resulted in curtailed production, or delays in production, of assemblies using that component, which contributed to an increase in our inventory levels and reduction in our gross margins. We expect that shortages and delays in deliveries of some components will continue. If we are unable to obtain sufficient components on a timely basis, we may experience manufacturing delays, which could harm our relationships with current or prospective customers and reduce our sales. We also depend on a small number of suppliers for certain components that we use in our business. If we were to be unable to continue to purchase components from these limited source suppliers, our business and operating results would be materially and adversely affected.

Labor shortages in Southern China has adversely affected our gross margins and will likely continue to do so in the future.

     To date, we have conducted all of our manufacturing operations in Southern China, specifically in Guangdong province, where we were able to take advantage of the lower overhead costs and inexpensive labor rates as compared to Hong Kong. Historically, there has been an abundance of labor in Southern China, but since 2002, intensifying in 2004 and continuing to worsen since then, factories in Southern China have been facing a labor shortages as migrant workers engaged in production (typically young women and men who come from various rural provinces in the PRC for the purpose of working for wages higher than are available in such rural regions), technical workers and middle level management seek better wages and working conditions in other provinces of China. A recent survey conducted by Guangdong labor authorities predicts that the labor shortage in Guangdong will worsen in 2008

as demand for technically skilled workers rises by 20% and the number of ordinary workers needed rises by 10%. Past efforts by Guangdong authorities seeking to arrest the labor shortages by removing the ban on hiring new migrant laborers in the month after the Lunar New Year holiday and raising the minimum wage do not appear to have been successful at luring workers back to Southern China and such changes to the minimum wage have adversely impacted our gross margins. This trend of labor shortages is expected to continue, fueled by the effects of the one-child policy imposed by the Chinese government over the past three decades and will likely result in increasing wages as companies seek to keep their existing work forces. Continuing labor shortages can be expected to adversely impact our future operating results by, for example, preventing us from manufacturing at peak capacity and forcing us to increase wages and benefits to attract the diminishing pool of available workers. This would result in lower revenues and increased manufacturing costs, which would adversely affect gross margins.

Recent changes in the PRC’s labor law restricts Nam Tai’s ability to reduce its workforce in the event of an economic downturn.

     In June 2007, the National People’s Congress of the PRC enacted new labor law legislation called the Labor Contract Law, which became effective on January 1, 2008. It formalizes workers’ rights concerning overtime hours, pensions, layoffs, employment contracts and the role of trade unions. Considered one of the strictest labor laws in the world, among other things, this new law requires an employer to conclude an “open-ended employment contract” with any employee who either has worked for the employer for 10 years or more or has had two consecutive fixed-term contracts. An “open-ended employment contract” is in effect a lifetime, permanent contract, which is terminable only in specified circumstances, such as a material breach of the employer’s rules and regulations, or for a serious dereliction of duty. Such employment contracts with qualifying workers would not be terminable if, for example, Nam Tai determined to downsize its workforce in the event of a economic downturn. Under the new law, downsizing by 20% or more may occur only under specified circumstances, such as a restructuring undertaken pursuant China’s Enterprise Bankruptcy Law, or where a company suffers serious difficulties in production and/or business operations. Nam Tai’s entire staff, who are employed to work exclusively within the PRC, is covered by the new law and thus, Nam Tai’s ability to adjust the size of its operations when necessary in periods of recession or less severe economic downturns has been curtailed. Accordingly, if Nam Tai faces future periods of decline in business activity generally or adverse economic periods specific to Nam Tai’s business, this new law can be expected to exacerbate the adverse effect of the economic environment on Nam Tai’s results of operations and financial condition.

Factors affecting the electronics industry in general and our customers in particular have harmed our operations and could do so again in the future.

     Most of our sales are to customers in the electronics industry, which is subject to rapid technological change, product obsolescence and short product life cycles. The factors affecting the electronics industry in general, or any of our major customers or competitors in particular, could have a material adverse effect on our business and operating results. Our success depends to a significant extent on the success achieved by our customers in developing and marketing their products, especially products that use RF modules, color straight-twisted nematic (“CSTN”) LCD modules, TFT LCD modules, CMOS sensor modules, FPC subassemblies and boards, and DAB modules, some of which may be new and untested. If our customers’ products become obsolete, fail to gain widespread commercial acceptance or become the subject of intellectual property disputes, our business and operating results could be materially and adversely affected.

     From time to time, our customers have experienced significant decreases in demand for their products and services. This volatility has resulted, and may result in the future, in our customers delaying purchases of the products we manufacture for them and our customers placing purchase orders for lower volumes of products than previously anticipated. For example, during 2007 one of our indirect customers, engaged in the manufacture and sale of mobile phones and other mobile devices, suffered a substantial drop in sales volume in its mobile devices business in Asia and Europe which, in turn, adversely affected sales in our telecommunication components assembly (“TCA”) products segment, resulting in our 2007 net sales from that segment decreasing by over $214 million, or 34.1%, from comparable 2006 net sales. To date, we have seen no signs that the decreases in demand in the mobile phone market is reversing and we accordingly expect, at least in the near term during 2008, that sales in our TCA segment will continue the trend evidenced in 2007, will decline from levels we experienced in 2006 and may decrease from TCA product sales levels we reported in 2007.

     In the first few years of the new century, as a result of the economic downturn in the United States and internationally, and reduced capital spending, sales to OEMs in the electronics industry declined substantially. While

our market has recovered, we cannot assure you that this recovery is sustainable or that the industry will not again suffer declines similar to those occurring in 2001 and 2002, or worse.

We are exposed to impact of global business trends in the mobile phone industry, which could result in even lower gross margins on the mobile phone components and subassemblies we manufacture.

     During the year ended December 31, 2007, approximately 71.4% of our sales were derived from subassemblies and components for mobile phones and mobile phone accessories. Accordingly, any fluctuations in the size of the mobile phone market, market trends, increased competition or pricing pressure of mobile phone industry may affect our business and operating results. For example, the mobile phone industry has been experiencing rapid growth, particularly from emerging economies such as India and China. The growth in these markets, however, does not necessarily translate into increased margins or growing profits as mobile phones sold in developing countries are typically stripped down to basic features and sold for low prices. Competition in developing markets is fierce, even more intense than in countries with advanced economies. Accordingly, we expect that our margins and profitability of the components and assemblies we manufacture for use in mobile phones that our customers target for emerging economies to continue to undergo severe pricing pressures, resulting in lower margins on these products than those we have experienced historically.

Our customers are dependent on shipping companies for delivery of our products and interruptions to shipping could materially and adversely affect our business and operating results.

     Our customers rely on a variety of carriers for product transportation through various world ports. A work stoppage, strike or shutdown of one or more major ports or airports could result in shipping delays materially and adversely affecting our customers, which in turn could have a material adverse effect on our business and operating results. Similarly, an increase in freight surcharges from rising fuel costs or general price increases could materially and adversely affect our business and operating results.

Our products are sold internationally and the effect of business, legal and political risks associated with international operations could significantly harm us.

     As of December 31, 2007, approximately 99.8% of the net book value of our total property, plant and equipment was located in China. We sell our products to customers in Hong Kong, North America, Europe, Japan, China and Southeast Asia. Our international operations are subject to significant political and economic risks and legal uncertainties, including:

	•		changes in economic and political conditions and in governmental policies;
	•		changes in international and domestic customs regulations;
	•		wars, civil unrest, acts of terrorism and other conflicts;
	•		changes in tariffs, trade restrictions, trade agreements and taxation;
	•		limitations on the repatriation of funds because of foreign exchange controls;
	•		exposure to political and financial instability;
	•		currency exchange losses, collection difficulties or other country-specific losses;
	•		exposure to fluctuations in the value of local currencies;
	•		changes in value-added tax, or VAT, reimbursement;
	•		imposition of currency exchange controls; and
	•		delays from customs brokers or government agencies.

     Any of these risks could significantly harm our business, financial condition and operating results.

Our operating results could be negatively impacted by seasonality.

     Historically, our sales and operating results have been affected by seasonality. Sales of products and components related to mobile phones have generally been lower in the first quarter after peaking fourth quarter. Sales of educational products and home entertainment devices are often higher during the second and third quarters in anticipation of the start of the school year and the Christmas buying season. Similarly, orders for consumer electronics

products have historically been lower in the first quarter from both the closing of our factories in China for the Lunar New Year holidays and the general reduction in sales following the holiday season. These sales patterns may not be indicative of future sales performance in future.

Our results could be adversely affected with intensifying environmental regulations.

     Our operations create environmentally sensitive waste, which involves the use and disposal of chemicals, solid and hazardous waste and other toxic and hazardous materials used in the manufacturing process. The disposal of hazardous waste has received increasing attention from Chinese national and local governments and foreign governments and agencies and has been subject to increasing regulation. Currently, relevant Chinese environmental protection laws and regulations impose fines on discharge of waste materials and empower certain environmental authorities to close any facility that causes serious environmental problems. The costs of remedying violations or resolving enforcement actions that might be initiated by governmental authorities could be substantial. Any remediation of environmental contamination would involve substantial expense that could harm our operating results. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our operations may be subject or the manner in which existing or future laws will be administered or interpreted. Future regulations may be applied to materials, products or activities that have not been subject to regulation previously. The costs of complying with new or more stringent regulations could be significant. We are not aware of any claims related to environmental contamination, and have not accrued any amounts to cover such claims.

     Global environmental legislation continues to emerge. These laws place increased responsibility and requirements on the “producers” of electronic equipment ( i.e , the OEMs) and, in turn, their EMS providers and suppliers. On July 1, 2006, the European Union’s Restriction of Hazardous Substances (RoHS) came into effect. As a result, the use of lead and certain other specified substances in electronic products is restricted in the European Union. Where appropriate, we have transitioned our manufacturing processes and interfaced with suppliers and customers to review and secure RoHS compliance. In the event we are not in compliance with the RoHS requirements, we could incur substantial costs, including fines and penalties, as well as liability to our customers. In addition, customers who were deemed exempt for certain substances, or beyond the scope of the legislation, are beginning to be impacted by the changing supply chain. In this respect, we may incur costs related to inventories containing restricted substances. There are also European Union requirements with respect to the collection, recycling and management of waste electronic products and components. Under the European Union’s Waste Electrical and Electronic Equipment (WEEE) directive, compliance responsibility rests primarily with OEMs rather than with EMS companies. However, OEMs may turn to EMS companies such as Nam Tai for assistance in meeting their WEEE obligations. Failure by our customers to meet the RoHS or WEEE requirements or obligations could have a negative impact on their businesses and revenue which would adversely impact our financial results. Similar restrictions are being proposed or enacted in other jurisdictions, including China. We cannot currently assess the impact of these legislations on our operations.

The recent reorganization of our group structure may not result in the expected synergies or benefits or justify the expenses incurred to effect it.

     On December 31, 2007, we completed the reorganization of the Nam Tai Group structure involving our Hong Kong Stock Exchange-listed subsidiaries, Nam Tai Electronic & Electrical Products Limited (“NTEEP”) and J.I.C. Technology Company Limited (“JIC”). Our goal in proposing and effecting this reorganization was to centralize our electronic manufacturing services into one group of our subsidiaries, namely NTEEP and its subsidiaries, and our software services into another group of our subsidiaries, viz., JIC and its subsidiaries, thereby eliminating the overlap and duplication in infrastructure and functions of these businesses that existed prior to the reorganization. We expended and incurred approximately $1.9 million in professional fees and related expenses to propose and implement the reorganization. Our expectations from the reorganization once our businesses have been fully integrated into, and our personnel acclimated to, the new structure are that our operations will benefit from a simpler organizational structure, which we believe can foster a more efficient and effective exchange of know-how and technology among our respective group companies; reduce overhead costs; and allow for stronger management controls. However, even when fully implemented, we may not realize the anticipated synergies from the reorganization and our operations and overhead costs may not meaningfully benefit from it or justify the expenses we incurred to effect the reorganization.

Our insurance coverage may not be sufficient to cover the risks related to our operations and losses.

     We have not experienced any major accidents in the course of our operations, which have caused significant property damage or personal injuries. However, there is no assurance that we will not experience major accidents in the future. Although we have insurance against various risks, including a business interruption, fidelity and losses or

damages to our buildings, machinery, equipment and inventories, the occurrence of certain incidents such as earthquake, war, pandemics, and flood, and the consequences resulting from them, may not be covered adequately, or at all, by the insurance we maintain. We also face exposure to product liability claims in the event that any of our products is alleged to have resulted in property damage, bodily injury or other adverse effects. We have only limited product liability insurance covering some of our products. Losses incurred or payments we may be required to make in excess of applicable insurance coverage or for uninsured events or any material claim for which insurance coverage is denied, limited or is not available could have a material adverse effect on our business, operating results or financial condition.

We have suffered material losses from litigation involving claims against Tele-Art Inc.(“Tele-Art”) and related proceedings.

     For a number of years, we have been involved in litigation against Tele-Art, its initial liquidator and the Bank of China (Hong Kong) Limited, or the Bank of China, formerly known as Bank of China Hong Kong Branch, concerning, among things, the priority of claims against Tele-Art’s insolvent estate and Nam Tai’s rights to have redeemed in 1999 and 2002 an aggregate of 1,017,149 (giving effect to our three-for-one stock split and one-for-ten stock dividend that we made in 2003) of the common shares of Nam Tai beneficially held by Tele-Art Inc. in order to satisfy a portion of Nam Tai’s claims against Tele-Art. After several decisions by the courts of the British Virgin Islands and appeals in these proceedings, judgment was rendered on November 20, 2006 by the Lords of the Judicial Committee of the Privy Council of the United Kingdom, which required us to reinstate the 1,017,149 Nam Tai shares that we had previously redeemed from Tele-Art and deliver them to Bank of China on account of its secured claim against Tele-Art. For the year ended December 31, 2006, we accounted for the reinstatement of the shares at their fair value, i.e. the market closing price on November 20, 2006, the date of the Judgment.

     We have been advised that Bank of China sold 539,830 of the reinstated shares in early September 2007 and applied the proceeds to the secured debt that Bank of China claimed was due to it from Tele-Art. The proceeds from the sale retained by Bank of China included the amount it asserted to satisfy the obligation it claimed from Tele-Art through the date of sale, plus a reserve of approximately $900,000 for legal costs and expenses that Bank of China has claimed for related litigation. We have been advised by our legal advisers that such retention is wrongful. We intend to issue legal proceedings against the Bank of China for such wrongful retention and for an account of the sale proceeds retained by it in purported satisfaction of the ebts due to it. Bank of China delivered to Tele-Art’s liquidator the 477,319 shares remaining from the reinstated shares it sold. Investigations on behalf of the liquidator seeking to locate and recover additional Tele-Art assets for its estate in liquidation are ongoing. The liquidator has authorized us to utilize the cash dividends attributable to the reinstated shares for the benefit of the estate of Tele-Art (in Liquidation). We have deposited such cash dividends and will deposit proceeds realized from the sale of the remaining reinstated shares and any other assets of Tele-Art’s estate that are discovered into a segregated bank account, from which all future legal costs and other expenses relating to the liquidation of Tele-Art will be paid until its liquidation proceedings are concluded. As legal proceedings are exprected to continuous for quite some time, we run the view that substantial legal costs and other expenses may be incurred in the future.

We could become involved in intellectual property disputes.

     We do not have any patents, licenses, or trademarks material to our business. Instead, we rely on trade secrets, industry expertise and our customers sharing of intellectual property with us. However, there can be no assurance that such intellectual property is not in violation of that belonging to other parties. We may be notified that we are infringing patents, copyrights or other intellectual property rights owned by other parties. In the event of an infringement claim, we may be required to spend a significant amount of money to develop a non-infringing alternative or to obtain licenses. We may not be successful in developing such an alternative or obtaining a license on reasonable terms, if at all. Any litigation, even without merit, could result in substantial costs and diversion of resources and could materially and adversely affect our business and operating results.

We depend on our executive officers and skilled personnel.

     Our success depends largely upon the continued services of our executive officers as well as upon our ability to attract and retain qualified technical, manufacturing and marketing personnel. Generally, our executive officers are bound by employment or non-competition agreements. However, we cannot assure you that we will be able retain our executive officers and we could be seriously harmed by the loss of any of our executive officers. The loss of service of any of these officers or key management personnel could have a material adverse effect on our business growth and operating results. We maintain no key person insurance on our executive officers. As our operations grow, we also

need to recruit and retain additional skilled management personnel and if we are not able to do so, our business and our ability to grow could be harmed.

Changes in the economic and political environment in China and policies adopted by the PRC government to regulate its economy may adversely affect our business, operating results and financial condition.

     All of our manufacturing facilities and most of our operations are in China. China’s economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development in respect of various areas such as structure, governmental involvement, level of development, growth rate, capital reinvestment, allocation of resources, rate of inflation and balance of payments position. Prior to 1978, China’s economy was a planned economy. Subsequently, increasing emphasis has been placed on the utilization of market forces in the development of China’s economy, including the encouragement of private economic activities and decentralization of economic regulation with a move towards a market economy. However, the PRC government retains a large role in industrial output (which is majority state-owned), the allocation of resources, production, pricing and management, and there can be no assurance that the PRC government will continue to pursue a policy of economic reform and they may significantly alter them to our detriment from time to time without notice. Furthermore, in all cases we may not be able to capitalize on the economic reform measures adopted by the PRC government. Our operations and financial results could be adversely affected by changes in political, economic and social conditions or the relevant policies of the PRC government, such as changes in laws and regulations (or the interpretations thereof), measures which might be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion and the imposition of additional import restrictions. The nationalization or other expropriation of private enterprises by the PRC government could result in the total loss of our investment in China. Furthermore, significant portions of economic activities in China are export-driven at present and, therefore, are affected by developments in the economies of China’s principal trading partners and other export-driven economies.

The PRC legal system has inherent uncertainties that could materially and adversely impact our ability to enforce the agreements governing our factories and to do business.

     We occupy our manufacturing facilities under China land use agreements with agencies of the PRC government and we occupy other facilities under lease agreements with the relevant landlord. The performance of these agreements and the operations of our factories are dependent on our relationship with the local governments in regions, which our facilities are located. Our operations and prospects would be materially and adversely affected by the failure of the local government to honor these agreements or an adverse change in the law governing them. In the event of a dispute, enforcement of these agreements could be difficult in China. Unlike the United States, China has a civil law system based on written statutes in which judicial decisions have limited precedential value. The government of China has enacted laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, its experience in implementing, interpreting and enforcing these laws and regulations is limited, and our ability to enforce commercial claims or to resolve commercial disputes in China is unpredictable. These matters may be subject to the exercise of considerable discretion by agencies of the PRC government, and forces and factors unrelated to the legal merits of a particular matter or dispute may influence their determination.

Political or trade controversies between China and the United States could harm our operating results or depress our stock price.

     Differences between the United States and PRC governments on some political issues continue occasionally to color the relationship. These occasional controversies could materially and adversely effect our business and operations. Political or trade friction between the two countries could also materially and adversely effect the market price of our shares, whether or not they adversely effect our business.

A deterioration of relations between China and Japan may harm our business.

     While our production facilities are located in China, we derive a substantial amount of our sales from Japanese customers. With respect to our major customers accounting for 10% or more of our net sales, customers in Japan represented approximately 57.7%, 57.6% and 36.1% of our net sales for each of the years ended December31, 2005, 2006 and 2007, respectively. Our business is therefore vulnerable to any deterioration of relations or disruption of trade between China and Japan.

     Beginning in the spring of 2005, relations between China and Japan grew increasingly strained. This culminated in a week of anti-Japan protests throughout China, which included attacks on Japanese citizens and

property and a boycott on Japanese imports. While relations between Japan and China appeared to improve since 2006, if relations again become strained, our Japanese customers and other companies based in Japan may become reluctant to outsource manufacturing to us and other EMS providers based in China. There is also the possibility that our operations in China could be targeted by anti-Japan protestors or for boycotts because of the presence of a number of our managers and employees who are Japanese or because of our relationships with Japanese customers. A reduction in business from Japanese customers or harm cause to our facilities or personnel from anti-Japanese sentiment could materially and adversely affect our business and operating results.

The economy of China has been experiencing significant growth, leading to some inflation. If the government tries to control inflation by traditional means of monetary policy or returns to planned economic techniques, our business will suffer a reduction in sales growth and expansion opportunities.

     The rapid growth of the PRC economy has historically resulted in high levels of inflation. If the government tries to control inflation, it may have an adverse effect on the business climate and growth of private enterprise in the PRC. An economic slowdown may increase our costs. If inflation is allowed to proceed unchecked, our costs would likely increase, and there can be no assurance that we would be able to increase our prices to an extent that would offset the increase in our expenses.

Changes to PRC tax laws and heightened efforts by the China’s tax authorities to increase revenues are expected to subject us to greater taxes.

     Under prior PRC law, we have been afforded a number of tax concessions by, and tax refunds from, China’s tax authorities on a substantial portion of our operations in China by reinvesting all or part of the profits attributable to our PRC manufacturing operations. However, on March 16, 2007, the Chinese government enacted a new unified enterprise income tax law which became effective on January 1, 2008. Prior to this new income tax law, as a foreign invested enterprise located in Shenzhen, PRC, our PRC subsidiaries enjoyed a national income tax rate of 15% and were exempted from the 3% local income tax. However, under the new income tax law, apart from those qualified as high-tech enterprises, most domestic enterprises and foreign invested enterprises would be subject to a single PRC enterprise income tax rate and gradually transfer to the new tax rate of 25% within five years. For information on the new enterprise income tax, (“EIT”) rates as announced recently by the PRC’s State Council, please see the table in Item 5. Operating and Financial Review and Prospects The preferential tax treatment to our subsidiaries in the PRC of qualifying for tax refunds as a result of reinvesting their profits earned in previous years in the PRC also expired on January 1, 2008. Therefore, the impact of this increase on our overall tax rate will depend on, among other things, our income from of PRC subsidiaries, the actual implementation of the terms of transition under the EIT by the PRC government and our ability to qualify our existing operations as high-tech enterprises under the new law.

     We base our tax position upon the anticipated nature and conduct of our business and upon our understanding of the tax laws of the various countries in which we have asset or conduct activities. However, our tax position is subject to review and possible challenge by taxing authorities and to possible changes in law, which may have retroactive effect. We cannot determine in advance the extent to which some jurisdictions may require us to pay taxes or make payments in lieu of taxes.

Payment of dividends by our subsidiaries in the PRC to us is subject to restrictions under PRC law. The new PRC tax law could force us to reduce the amount of dividends we have historically paid to our shareholders or possibly eliminate them or we may decide not pay dividends in the future.

     Under PRC law, dividends may be paid only out of distributable profits. Distributable profits with respect to our subsidiaries in the PRC refers to after-tax profits as determined in accordance with accounting principles and financial regulations applicable to PRC enterprises (“China GAAP“) less any recovery of accumulated losses and allocations to statutory funds that it is required to make. Any distributable profits that are not distributed in a given year are retained and available for distribution in subsequent years. The calculation of distributable profits under China GAAP differs in many respects from the calculation under U.S. GAAP. As a result, our subsidiaries in PRC may not be able to pay any dividend in a given year as determined under U.S. GAAP. The China’s tax authorities may require changes in determining income of the Company that would limit its ability to pay dividends and make other distributions. PRC law requires companies, including our PRC subsidiaries, to reserve about 11% of their profits for future development and staff welfare, which amounts are not distributable as dividends. These rules and possible changes to them could restrict our PRC subsidiaries from repatriating funds ultimately to us and our stockholders as dividends.

     Prior to the new EIT law, PRC-organized companies were exempt from withholding taxes with respect to earnings distributions, or dividends, paid to shareholders of PRC companies outside the PRC, such as was the case when our PRC subsidiaries distributed portions of their earnings to our offshore subsidiaries. However, under the new EIT Law, dividends payable to foreign investors which are derived from sources within the PRC will be subject to income tax at the rate of 10% by way of withholding unless the foreign investors are companies incorporated in countries which have tax treaty agreement with PRC and rate agreed by both parties will be applied. For example, under the terms of a tax treaty between Hong Kong and the PRC that became effective in December 2006, distributions from our PRC subsidiaries to our Hong Kong subsidiary, will be subject to a withholding tax at a rate ranging from 5% to 10%, depending on the extent of ownership of equity interests held by our Hong Kong subsidiary in our PRC enterprises. As a result of this new PRC withholding tax, amounts available to us in earnings distributions from our PRC enterprises will be reduced. Since we derive most of our profits from our subsidiaries in PRC, the reduction in amounts available for distribution from our PRC enterprises could, depending on the income generated by our PRC subsidiaries, force us to reduce, or possibly eliminate, the dividends we have paid to our shareholders historically. For this reason, or other factors, we may decide not to declare dividends in the future. If we do pay dividends, we will determine the amounts when they are declared and even if we do declare dividends in the future, we may not continue them in any future period.

We may have been a passive foreign investment company for 2007 or may become a passive foreign investment company for the current taxable year of 2008, which could result in adverse U.S. federal income tax consequences to U.S. investors.

     We may be classified as a passive foreign investment company, or PFIC, by the United States Internal Revenue Service, or IRS, for U.S. federal income tax purposes. Such characterization could result in adverse U.S. federal income tax consequences if you are a U.S. investor. For example, if we were to be classified as a PFIC in any taxable year, U.S. investors who owned our common shares generally would be subject to increased U.S. tax liabilities and reporting requirements, and pledges of our common shares would be considered sales for U.S. federal income tax purposes.

     The determination of whether we are a PFIC in any taxable year is made on an annual basis and depends on the composition of our income and assets. Specifically, we will be classified as a PFIC if, after applying relevant look-through rules with respect to the income and assets of subsidiaries, either (i) 75% or more of our gross income for such taxable year is passive income, or (ii) 50% or more of the average percentage of our assets during such taxable year either produce passive income or are held for the production of passive income.

     We have not determined whether we were a PFIC for the 2007 taxable year, but we may have been so. In addition, we may become a PFIC for the current taxable year of 2008. Accordingly, there can be no assurance that we have not or will not be classified as a PFIC. Given the complexity of the issues regarding our classification as a PFIC, U.S. investors are urged to consult their own tax advisors for guidance as to our PFIC status. For further discussion of the adverse U.S. federal income tax consequences of our classification as a PFIC see “Taxation — United States Federal Income Tax Consequences — U.S. Holders — PFIC Considerations,” below.

Changes in foreign exchange regulations of China could adversely affect our operating results.

     Some of our earnings are denominated in yuan, the base unit of the RMB. The People’s Bank of China and the State Administration of Foreign Exchange (“SAFE”) regulate the conversion of RMB into foreign currencies. Under the current unified floating exchange rate system, the People’s Bank of China publishes a daily exchange rate for RMB based on the previous day’s dealings in the inter-bank foreign exchange market. Financial institutions may enter into foreign exchange transactions at exchange rates within an authorized range above or below the exchange rate published by the People’s Bank of China according to the market conditions. Since 1996, the PRC government has issued a number of rules, regulations and notices regarding foreign exchange control designed to provide for greater convertibility of RMB. Under such regulations, any foreign investment enterprise (“FIE”) must establish a “current account” and a “capital account” with a bank authorized to deal in foreign exchange. Currently, FIEs are able to exchange RMB into foreign exchange currencies at designated foreign exchange banks for settlement of current account transactions, which include payment of dividends based on the board resolutions authorizing the distribution of profits or dividends of the company concerned, without the approval of SAFE. Conversion of RMB into foreign currencies for capital account transactions, which include the receipt and payment of foreign exchange for loans, capital contributions and the purchase of fixed assets, continues to be subject to limitations and requires the approval of SAFE. Our subsidiaries in China are all FIEs and subject to the laws of China to which such regulations apply. However, there can be no assurance that we will be able to obtain sufficient foreign exchange to make relevant payments or satisfy other foreign exchange requirements in the future.

Our financial results have been affected by changes in currency exchange rates. Changes in currency rates involving the Japanese yen or renminbi could increase our expenses.

     Our financial results have been affected by currency fluctuations, resulting in total foreign exchange gains during each of our last three fiscal years as indicated in the following chart:

     We sell most of our products in U.S. dollars and pay our expenses in U.S. dollars, Japanese yen, Hong Kong dollars and RMB. While we face a variety of risks associated with changes among the relative value of these currencies, we believe the most significant exchange risk presently results from material purchases we make in Japanese yen and expenses we pay in RMB.

     Approximately 3%, 11% and 8% of our material costs have been in Japanese yen during the years ended December 31, 2005, 2006 and 2007 respectively, but sales made in Japanese yen accounted for only 2%, 9% and 7%, respectively, of our sales for each of the last three years. During the year ended December 31, 2006, the exchange rate of the Japanese yen to the U.S. dollar fluctuated above and below the rate at December 31, 2005, but at December 31, 2006, the exchange rate of Japanese yen to the U.S. dollar had increased approximately 1% from the level at the end of December 31, 2005. This fluctuation resulted in a slight increase in our material costs during 2006 but it did not have a material impact on our 2006 financial results as compared to those in 2005. A future appreciation of the Japanese yen against U.S. dollars would increase our costs when translated into U.S. dollars and could adversely affect our margins unless we made sufficient sales in Japanese yen to offset against material purchases we made in Japanese yen.

     Approximately 9% and 13% of our total costs and expenses and 2% and 4% of our material costs were in RMB during the years ended December 31, 2006 and 2007, respectively. Between 1994 and July 2005, the market and official RMB rates were unified and the value of the RMB was essentially pegged to the U.S. dollar and was relatively stable. On July 21, 2005, the People’s Bank of China adjusted the exchange rate of RMB to the U.S. dollar by linking the RMB to a basket of currencies and simultaneously setting the exchange rate of RMB to U.S. dollars, from 1:8.27, to a narrow band of around 1:8.11, resulting in an approximate 2.4% appreciation in the value of the RMB against the U.S. dollars at the end of 2005, from the July 21, 2005 RMB adjustment, a 3.3% appreciation at the end of 2006 as compared to the end of 2005 and a further 6.5% appreciation at the end of 2007 as compared to the end of 2006. This RMB appreciation to the U.S. dollars resulted in an increase in our total costs and expenses of approximately 0.9% based on the difference between our sales made in RMB versus our total costs and expenses incurred in RMB.

     If the trend of RMB appreciation to the U.S. dollar continues or the PRC government allows a further and significant RMB appreciation, our operating costs would further increase and our financial results would be adversely effected unless our RMB denominated sales increased commensurately. If we determined to pass onto our customers through price increases the effect of increases in the RMB relative to the U.S. dollars, it would make our products more expensive in global markets, such as the United States and the European Union. This could result in the loss of customers, who may seek, and be able to obtain, products and services comparable to those we offer in lower-cost

regions of the world. If we did not increase our prices to pass on the effect of increases in the RMB relative to the U.S. dollars, our margins and profitability would suffer.

Power shortages in China could harm our operations.

     We consume substantial amounts of electricity in our manufacturing processes at our production facilities in China. Certain parts of China have been subject to power shortages in recent years. We have experienced a number of power shortages at our production facilities in China to date. We are sometimes given advance notice of power shortages and in relation to this we currently have a backup power system. However, there can be no assurance that in the future our backup power system will be completely effective in the event of a power shortage, particularly if that power shortage is over a sustained period of time and/or we are not given advance notice thereof. Any power shortage, brownout or blackout for a significant period of time may disrupt our manufacturing, and as a result, may have an adverse impact on our business.

A recurrence of SARS or the threat of an avian flu outbreak in China, or similar widespread public health developments may materially and adversely affect our business and operating results.

     Any recurrence of Severe Acute Respiratory Syndrome (“SARS”) and Avian Influenza in China could negatively impact our manufacturing operations and cause significant delays in production. In addition, if the outbreak of Avian Influenza in Asian countries, including Vietnam, South Korea and Japan were to spread to China, where manufacturing facilities are located or are being constructed, there could be similar or other disruptions to our business.

Actual or perceived health risks associated with the use of mobile phone handsets or other communications equipment could negatively affect our business.

     There have been public concerns about health risks arising from electromagnetic fields generated by mobile phone handsets. Any perceived risks or new findings, regardless of their scientific foundation, concerning the potential adverse health effects of mobile communications equipment could negatively affect our reputation and brand value, or that of our direct or indirect customers, and could result in a reduction in sales. We cannot assure you that we will not become the subject of product liability claims or be held liable for such claims or be required to comply with future regulatory changes that may have an adverse effect on our business.

The market price of our shares will likely be subject to substantial price and volume fluctuations.

     The markets for equity securities have been volatile and the price of our common shares has been and could continue to be subject to wide fluctuations in response to variations in operating results, news announcements, trading volume, sales of common shares by our officers, directors and our principal shareholders, customers, suppliers or other publicly traded companies, general market trends both domestically and internationally, currency movements and interest rate fluctuations. Other events, such as the issuance of common shares upon the exercise of our outstanding stock options could also materially and adversely affect the prevailing market price of our common shares.

     Further, the stock markets have often experienced extreme price and volume fluctuations that have affected the market prices of equity securities of many companies and that have been unrelated or disproportionate to the operating performance of such companies. These fluctuations may materially and adversely affect the market price of our common shares.

     The concentration of share ownership in our senior management allows them to control or substantially influence the outcome of matters requiring shareholder approval. On February 29, 2008, members of our senior management and Board of Directors as a group beneficially owned approximately 27.0% of our common shares. As a result, acting together, they may be able to control and substantially influence the outcome of all matters requiring approval by our shareholders, including the election of directors and approval of significant corporate transactions. This ability may have the effect of delaying or preventing a change in control of Nam Tai, or causing a change in control of Nam Tai that may not be favored by our other shareholders.

Regulatory initiatives in the United States , such as the Sarbanes-Oxley Act and other rules and regulations may increase the time and costs of certain activities.

     In the United States, there have been regulatory changes especially in corporate governance practices of public bodies, including the Sarbanes-Oxley Act of 2002 and changes in the continued listing rules of the New York Stock Exchange, and new accounting pronouncements and there may be new regulatory legislation and rule and

accounting changes, which may have an adverse impact on our future financial position and operating results. These regulatory changes and other legislative initiatives have made some activities more time-consuming and increased financial compliance and administrative costs of the companies that are subject to them, including foreign private issuers like Nam Tai having securities traded in the United States and thereby subject to legislative and regulatory changes in the U.S. capital markets. We continue to evaluate and monitor developments with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

It may be difficult to serve us with legal process or enforce judgments against our management or us.

     We are a British Virgin Islands holding corporation with subsidiaries in the British Virgin Islands, Hong Kong, Macao and China. Substantially, all of our assets are located in the PRC. In addition, most of our directors and executive officers reside within the PRC or Hong Kong, and substantially all of the assets of these persons are located within the PRC or Hong Kong. It may not be possible to effect service of process within the United States or elsewhere outside the PRC or Hong Kong upon our directors, or executive officers, including effecting service of process with respect to matters arising under United States federal securities laws or applicable state securities laws. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the United States and many other countries. As a result, recognition and enforcement in the PRC of judgments of a court in the United States or many other jurisdictions in relation to any matter, including securities laws, may be difficult or impossible. Furthermore, an original action may be brought in the PRC against our assets and our subsidiaries, our directors and executive officers only if the actions are not required to be arbitrated by PRC law and only if the facts alleged in the complaint give rise to a cause of action under PRC law. In connection with any such original action, a PRC court may award civil liability, including monetary damages.

     No treaty exists between Hong Kong, the British Virgin Islands or Macao and the United States providing for the reciprocal enforcement of foreign judgments. However, the courts of Hong Kong and the British Virgin Islands are generally prepared to accept a foreign judgment as evidence of a debt due. An action may then be commenced in Hong Kong or the British Virgin Islands for recovery of this debt. A Hong Kong or British Virgin Islands court will only accept a foreign judgment as evidence of a debt due if:

	•		the judgment is for a liquidated amount in a civil matter;
	•		the judgment is final and conclusive and has not been stayed or satisfied in full;
	•		the judgment is not, directly or indirectly, for the payment of foreign taxes, penalties, fines or charges of a like nature (in this regard, a Hong Kong or British Virgin Islands court is unlikely to accept a judgment for an amount obtained by doubling, trebling or otherwise multiplying a sum assessed as compensation for the loss or damage sustained by the person in whose favor the judgment was given);
	•		the judgment was not obtained by actual or constructive fraud or duress;
	•		the foreign court has taken jurisdiction on grounds that are recognized by the common law rules as to conflict of laws in Hong Kong or the British Virgin Islands;
	•		the proceedings in which the judgment was obtained were not contrary to natural justice (i.e., the concept of fair adjudication);
	•		the proceedings in which the judgment was obtained, the judgment itself and the enforcement of the judgment are not contrary to the public policy of Hong Kong or the British Virgin Islands;
	•		the person against whom the judgment is given is subject to the jurisdiction of the Hong Kong or the British Virgin Islands court; and
	•		the judgment is not on a claim for contribution in respect of damages awarded by a judgment, which does not satisfy the criteria stated previously.

     Similarly, the courts of Macao are generally prepared to accept a foreign judgment as evidence of a debt due.An action may then be commenced in Macao for recovery of this debt. A Macao court will only accept a foreign judgment as evidence of a debt due if:

	•		there is no doubt to the authenticity of the judgment documents and the understanding of the judgment;
	•		pursuant to the law of the place of judgment, the judgment is final and conclusive;
	•		the judgment was not obtained by fraud or the matter in relation to the judgment is not within the exclusive jurisdiction of Macao courts;
	•		the judgment will not be challenged on the ground that the relevant matter has been adjudicated by the Macao court, except matters which have first been adjudicated by courts outside Macao;
	•		pursuant to the law of the place of the judgment, the defendant has been summoned and the proceedings in which the judgment was obtained were not contrary to natural justice; and
	•		the enforcement of the judgment will not cause any orders that may result in apparent public disorder.

     Enforcement of a foreign judgment in Hong Kong, the British Virgin Islands or Macao may also be limited or affected by applicable bankruptcy, insolvency, liquidation, arrangement and moratorium, or similar laws relating to or affecting creditors’ rights generally, and will be subject to a statutory limitation of time within which proceedings may be brought.

Future issuances of preference shares could materially and adversely affect the holders of our common shares or delay or prevent a change of control.

     Our Board of Directors may amend our Memorandum and Articles of Association without shareholder approval to create from time to time, and issue, one or more classes of preference shares (which are analogous to preferred stock of corporations organized in the United States). While we have never issued any preference shares and we have none outstanding, we could issue preference shares in the future. Future issuance of preference shares could materially and adversely affect the rights of the holders of our common shares, or delay or prevent a change of control.

Our status as a foreign private issuer in the United States exempts us from certain of the reporting requirements under the Securities Exchange Act of 1934 and corporate governance standards of the New York Stock Exchange, or NYSE limiting the protections and information afforded to investors.

     We are a foreign private issuer within the meaning of rules promulgated under the Securities Exchange Act of 1934. As such, we are exempt from certain provisions applicable to United States public companies including:

	•		the rules under the Securities Exchange Act of 1934 requiring the filing with the SEC of quarterly reports on Form 10-Q, current reports on Form 8-K or annual reports on Form 10-K;
	•		the sections of the Securities Exchange Act of 1934 regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Securities Exchange Act of 1934;
	•		the provisions of Regulation FD aimed at preventing issuers from making selective disclosures of material information; and
	•		the sections of the Securities Exchange Act of 1934 requiring insiders to file public reports of their stock ownership and trading activities and establishing insider liability for profits realized from any “short-swing” trading transaction (i.e., a purchase and sale, or sale and purchase, of the issuer’s equity securities within less than six months).

     In addition, because the Company is a foreign private issuer, certain corporate governance standards of the NYSE that are applied to domestic companies listed on that exchange may not be applicable to us. For information regarding whether our corporate governance standards differ from those applied to US domestic issuers, see the discussion under “NYSE listed Company Manual Disclosure” in Item 6. Directors and Senior Management of this Report.

     Because of these exemptions, investors are not afforded the same protections or information generally available to investors holding shares in public companies organized in the United States or traded on the NYSE.

ITEM 4. INFORMATION ON THE COMPANY

Corporate Information

     Nam Tai Electronics, Inc. was founded in 1975 and moved its manufacturing facilities to China in 1980 to take advantage of lower overhead costs, lower material costs and competitive labor rates available and subsequently relocated to Shenzhen, China in order to capitalize on opportunities offered in southern China. We were reincorporated as a limited liability International Business Company under the laws of the British Virgin Islands in August 1987 (which was amended in 2004 as The British Virgin Islands Business Companies Act, 2004). Our principal manufacturing and design operations are currently based in Shenzhen, China, approximately 30 miles from Hong Kong, and we plan to construct new manufacturing facility in Guangming Shenzhen and two more facilities in Wuxi, Jiangsu Province, near the East Coast of China, approximately 80 miles Northwest of Shanghai. Our PRC headquarters is located in Macao, which, like Hong Kong, is a Special Administrative Region of the PRC. Certain of our subsidiaries’ offices are located in Macao and Hong Kong, which provide us access to Macao’s and Hong Kong’s infrastructure of communication and banking facilities. Our corporate administrative matters are conducted in the British Virgin Islands through our registered agent, McNamara Corporate Services Limited, McNamara Chambers, P.O. Box 3342, Road Town, Tortola, British Virgin Islands. In 1978, Mr. Koo, the founder of the Company, began recruiting operating executives from the Japanese electronics industry. These executives brought years of experience in Japanese manufacturing methods, which emphasize quality, precision, and efficiency in manufacturing. Senior management currently includes Japanese professionals who provide technical expertise and work closely with both our Japanese component suppliers and customers.

Major Events During 2007 to Date

Disposition of TCL Interest

     At December 31, 2006, we held an equity interest in of approximately 3.1% or 80.6 million shares of TCL Corporation (formerly known as TCL Holdings Corporation Ltd.), which had a market value of approximately $24.36 million. TCL Corporation and its group companies are a Chinese electronics manufacturer headquartered in Huizhou of Guangdong Province, southern China. TCL Corporation’s products include mobile phones, personal computers, home appliances, electric lighting, and digital media sold to domestic and overseas markets. TCL Corporation is listed on the Shenzhen Stock Exchange. In April 2007, we sold our shares of TCL Corporation on the Shenzhen Stock Exchange for an aggregate of approximately $54 million, which resulted in a net gain to us after minority interest of approximately $28 million.

Transactions in Securities of our Hong Kong Listed-Subsidiaries

     At December 31, 2006, we held approximately 74.94% of our Hong Stock Exchange-listed subsidiary, J.I.C. Technology Company Limited., or JIC. At that time and throughout 2007, JIC and its subsidiaries were principally engaged in the manufacture and sale of LCD products. In May 2007, we purchased approximately 11.1 million additional shares of JIC on the Hong Kong Stock Exchange. In June 2007 we sold 10,728,000 JIC shares on the Hong Kong Stock Exchange for a net gain of $65,000 and at December 31, 2007, we held 572,594,978 ordinary shares of JIC, which was equivalent to 74.99% of JIC’s issued and outstanding share capital.

     At December 31, 2006, we held approximately 70.31% of our other Hong Kong Stock Exchange-listed subsidiary, Nam Tai Electronic & Electrical Products Limited, or NTEEP. At that time and throughout 2007, NTEEP and its subsidiaries were principally engaged in the manufacture and sale of consumer electronics and communications products. During 2007, we made several separate purchases and sales of NTEEP shares on the Hong Kong Stock Exchange, increasing our net holdings by 25,315,000 shares, for aggregate net gains of approximately $325,000. At December 31, 2007, we held 645,229,470 shares of NTEEP, representing 73.18% of the total issued and outstanding share capital of NTEEP.

Developments in Planned Expansion

     In the second quarter of 2007, we began limited scale production of FPC boards at one of our existing Shenzhen plants in furtherance of the implementation of the strategy that we formulated in 2006 to accelerate the vertical integration of our business of manufacturing key-component subassemblies for telecommunication products. In June 2007, we entered into an official land use transfer agreement and a supplemental agreement with Shenzhen

Municipal Bureau of State Land and Resources, giving effect to the official project investment agreement we had signed with the Guangming Hi-Tech Industrial Park in 2006 to acquire approximately 1.3 million square feet of land in the Baoan District of Shenzhen. The land acquired is approximately 30 minutes driving distance from our existing Shenzhen manufacturing facilities and is more than two times of the land upon which our principal facilities in Shenzhen are located. We plan to begin project construction of a new factory complex in early 2009 and, when completed, currently intend to use the new facility as our PRC headquarters and to increase manufacturing capacity.

     In early 2008 , we began construction of the first of two planned factories in Wuxi, PRC, and we hope to complete construction and begin mass production of FPC boards and FPC subassemblies at this factory in early to mid-2009. We are currently considering the best use of the second parcel of land in Wuxi approximately 3.7 miles from the FPC factory under construction given the amalgamated manufacturing operations post our re-organization.

The 2007 Reorganization

     In October 2007, we proposed, and by December 31, 2007 we had completed, the re-organization of the Nam Tai Group structure involving our group subsidiaries, including our Hong Kong Stock Exchange-listed subsidiaries, NTEEP and JIC. We refer to this re-organization as the “2007 Reorganization.” Immediately prior to the completion of the 2007 Reorganization, we operated through three groups of operating subsidiaries: (1) the NTEEP Group; (2) the JIC Group; and (3) the Zastron Group. The following table shows our effective ownership interest in each of our group subsidiaries before and after the 2007 Reorganization:

		Nam Tai’s effective percentage
		shareholdings
		Before 2007				After 2007
		Reorganization				Reorganization
NTEEP Group			73.18				73.18
JIC Group			74.99				74.99
Zastron Group			100.00				73.18

     Our goal in proposing and effecting the 2007 Reorganization was to centralize our electronic manufacturing services into one group of our subsidiaries, namely NTEEP and its subsidiaries, and our software services into another group of our subsidiaries, viz., JIC and its subsidiaries, thereby eliminating the overlap and duplication in infrastructure and functions of these businesses that existed prior to the re-organization. We expended and incurred approximately $1.9 million in professional fees and related expenses to propose and implement the re-organization. Our expectations from the re-organization once our businesses have been fully integrated into, and our personnel acclimated to, the new structure are that our operations will benefit from a simpler organizational structure, which we believe can foster a more efficient and effective exchange of know-how and technology among our respective group companies; reduce overhead costs; and allow for stronger management controls. For the purpose of achieving a more simplified group structure, centralizing its resources allocation, reducing overhead costs, and strengthening management control.

     The 2007 Reorganization required the implementation of a series of transactions, involving capital shares transfers among Nam Tai, NTEEP, JIC and Zastron. To the extent involving NTEEP and JIC, these transactions were approved by the minority shareholders of NTEEP and JIC in accordance with the applicable Rules of the Hong Kong Stock Exchange.

     The transactions to effect the 2007 Reorganization, each of which occurred simultaneously with the other, were as follows:

	•		We acquired 100% of Jetup Electronic (Shenzhen) Co. Ltd. (“Jetup”) from JIC in exchange for the cash payment by the Company to JIC of approximately $48.9 million;
	•		JIC acquired 100% of Shenzhen Namtek Co., Ltd (“Shenzhen Namtek”) and Namtek Japan Company Limited (“Namtek Japan”) from NTEEP in exchange for the cash payment by JIC to NTEEP of approximately $10.3 million;
	•		NTEEP acquired 100% of both Jetup and the Zastron Group from us in exchange for the delivery to us (i) cash in the amount of approximately $41.7 million and (ii) an unsecured shareholder’s loan in

the principal amount of approximately $311.4 million payable by NTEEP to us over a 12-period in equal annual installments of principal plus interest at the rate of 3.9% per annum.

     Each of the simultaneous transactions involved in the 2007 Reorganization are considered intercompany transactions within our consolidated group of companies and accordingly the presentation of our financial condition and results of operations on a consolidated bases eliminates the effect of these individual transactions (except for the reduction in the effective percentage of ownership of our Zastron group of subsidiaries is eliminated in our consolidated financial statement).

Our 2008 Sale of JIC

     In February 2008 we began negotiations with HKC (Holdings) Limited (“HKC”), regarding the sale of our entire equity interest in our Hong Kong-listed subsidiary, JIC. At that time, we owned 572,594,978 shares of JIC, representing approximately 74.99% of its outstanding share capital. These negotiations concluded on February 26, 2008, when HKC and we entered into a Share Purchase Agreement, under which HKC agreed to purchase, and we agreed to sell our interest in JIC for cash in the aggregate amount of approximately $51.1 million.

     Under the Share Purchase Agreement, HKC paid us earnest money in the amount of $128,500 at signing and paid us the balance of the purchase price at the closing, which occurred shortly thereafter on March 4, 2008.

Capital Expenditures

     Our principal capital expenditures and divestitures over the last three years include the following:

		Year ended December 31
		2005				2006				2007
Property, plant and equipment (net)		$	32,166,000			$	23,793,000			$	13,785,000

     Our major capital expenditures in 2007 included:

	•		$4.8 million for machinery used mainly for bonding and testing;
	•		$4.0 million for machinery used mainly for LCD products;
	•		$2.4 million for project of FPC board manufacturing in existing site; and
	•		$2.6 million for other capital equipment.

     Our major capital expenditures in 2006 included:

	•		$1.4 million for machinery used mainly for COG products;
	•		$7.2 million for machinery used mainly for production of LCD modules;
	•		$11.7 million for project of FPC board manufacturing in existing site; and
	•		$3.5 million for other capital equipment.

     Our major capital expenditures in 2005 included:

	•		$10.8 million for new factory expansion;
	•		$5.4 million for expansion of a LCD factory;
	•		$3.3 million for machinery used mainly for COG products;
	•		$4.9 million for machinery used mainly for FPC subassemblies; and
	•		$7.8 million for other capital equipment.

     Capital expenditures we have planned for 2008 include:

	•		$5.8 million for the expansion in LCD factory;
	•		$15.5 million for machinery used mainly for LCD modules production;
	•		$53.6 million for new factory construction in Wuxi;

	•		$6.0 million for an office building in Japan;
	•		$9.4 million for machinery used for surface mount technology; and
	•		$1.8 million for other capital equipment.

     Our plans for capital expenditures are subject to change from time to time and could result from, among other things, our consummation of any significant amount of additional acquisition or strategic investment opportunities, which we regularly explore.

Business Overview

     We are an electronics manufacturing and design services provider to a select group of the world’s leading OEMs of telecommunications and consumer electronic products. Through our electronics manufacturing services operations, we manufacture electronic components and subassemblies, including LCD panels, LCD modules, RF modules, DAB modules, FPC board and FPC subassemblies, image sensors modules and PCBAs for headsets containing Bluetooth wireless technology. The modules and subassemblies are used in numerous electronic products, including mobile phones, laptop computers, digital cameras, electronic toys, and handheld video game devices. We also manufacture finished products, including mobile phone accessories, home entertainment products and educational products. We assist our OEM customers in the design and development of their products and furnish full turnkey manufacturing services that utilize advanced manufacturing processes and production technologies. Our services include software development, firmware, and mechanical design, parts and components purchasing, product industrialization, and assembly into finished products or electronic subassemblies with full quality testing and assurance. These services are value-added and assist us in obtaining new business but do not represent a material component of our revenue. We also provide ODM services, in which we design and develop proprietary products that are sold by our OEM customers using their brand name.

Our Customers

     Historically, we have had substantial recurring sales from existing customers. Approximately 96.3% of our 2007 net sales came from customers that also used our services in 2006. While we seek to diversify our customer base, a small number of customers currently generate a significant portion of our sales. Sales to our 10 largest customers accounted for 86.6%, 89.4% and 84.4% of our net sales during the years ended December 31, 2005, 2006 and 2007 respectively. Sales to customers accounting for 10% or more of our net sales in the years ended December 31, 2005, 2006 or 2007 were as follows:

		Year ended December 31,
		2005				2006				2007
Wuxi Sharp Electronic Components Co., Ltd.			10.1	%			22.5	%			*
Sharp Corporation			32.3	%			18.8	%			20.2	%
Epson Imaging Device Corporation (1)			15.3	%			16.3	%			15.9	%
GN Netcom			*				*				10.8	%

     Our 10 largest OEM customers based on net sales during 2007 include the following (listed alphabetically).

Customer		Products
GN Netcom		Headset accessory containing Bluetooth wireless technology
Hikari Alphax Co., Ltd.		LCD modules
LeapFrog Enterprise, Inc.		FLY Fusion TM Pentop Computers
Ryoyo Electro Hong Kong Limited		LCD panels
Epson Imaging Device Corporation (1)		LCD modules for cellular phones and FPC subassemblies
Sharp Corporation		FPC subassemblies, calculators, PDAs and dictionaries
Sony Computer Entertainment Europe Ltd.		Home entertainment products
Sony Ericsson Mobile Communications AB		Mobile phone digital camera accessories, headset accessory containing Bluetooth wireless technology and flashlight for mobile phone
Texas Instruments Incorporated		Calculators
Uniden HK Ltd.		LCD panels

     At any given time, different customers account for a significant portion of our business. Percentages of net sales to customers vary from quarter to quarter and year to year and fluctuate depending on the timing of production cycles for particular products.

     Sales to our OEM customers are based primarily on purchase orders we receive from time to time rather than firm, long-term purchase commitments from our customers. Although it is our general practice to purchase raw materials only upon receiving a purchase order, for certain customers we will occasionally purchase raw materials based on such customers’ rolling forecasts. Uncertain economic conditions and our general lack of long-term purchase commitments with our customers make it difficult for us to predict revenue accurately over the longer term. Even in those cases where customers are contractually obligated to purchase products from us or repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

Our Products

     Our operations are organized into three reportable segments, consisting of consumer electronics and communication products (“CECP”), telecommunication components assembly (“TCA”), and LCD products (“LCDP”). The dollar amounts (in thousands) and percentages of our net sales by reportable segment and product category for the years ended December 31, 2005, 2006 and 2007 were as follows:

		Year ended December 31,
		2005								2006								2007
		Dollars (US$)				Percent				Dollars (US$)				Percent				Dollars (US$)				Percent
CECP			169,056				21	%			178,320				21	%			283,757				36	%
TCA			570,069				72				627,199				72				413,199				53
LCDP			58,112				7				64,655				7				83,866				11
Total			797,237				100	%			870,174				100	%			780,822				100	%

     Please refer to Note 16 “Segment Information” of our consolidated financial statements and Item 8 Financial Information Export Sales which sets forth the information of net sales to customers by geographical area.

Consumer Electronic and Communication Products, or CECP

     The consumer electronic and communication products we manufacture are focusing on high growth and mass volume products segments of consumer electronics and communications sectors, and include:

	•		Mobile phone accessories such as headsets containing Bluetooth wireless technology, snap-on portable music speaker, phone cradle, snap-on FM radio adaptors, and snap-on GPS adaptors;
	•		Entertainment devices such as USB web cam for interactive games, USB microphone and converter box Karaoke, and a buzzer gaming device for music quiz games;
	•		Educational products such as digital pens, calculators and electronic dictionaries;
	•		Optical devices such as CMOS sensor modules, camera modules for notebook computers and mobile phones and recording cameras for the automotive industry; and
	•		Software development services principally for electronic dictionary products for major Japanese customers. In addition, car navigation products were also developed for potential customers.

Telecommunication Component Assembly, or TCA

     We manufacture the following subassemblies and components:

	•		Color and monochrome LCD modules to display information as part of telecommunication products such as mobile phones and telephone systems. Our LCD modules could be manufactured for use in most other hand-held consumer electronic devices, such as electronic games and digital cameras.
	•		RF modules for integration into mobile phones. RF modules are partially finished circuits that can be incorporated into larger products or components. They include receivers, transmitters, and transceivers. These modules could be manufactured for use in most other hand-held consumer electronic products, such as PDAs, laptop computers and other products with wireless connectivity.
	•		DAB modules, which we began manufacturing in 2005, are digital audio broadcasting components that are used in digital radio products such as home tuners, kitchen radios, in-car receivers, CD players, clock radios, boom boxes, midi-systems and handheld portable devices.
	•		FPC subassemblies for integration into various LCD modules
	•		FPC board manufacturing for vertical integration to FPC subassembly business, this could be used for mobile phone, PDAs, office automation, laptop computers and other products which require interface connectivity.
	•		Front light panels for handheld video game devices.
	•		Back light panels for handheld video game devices, which we began manufacturing in October 2004.
	•		1.9 high-frequency cordless telephones and home feature phones.

LCD Products, or LCDP

     LCD panels are found in numerous applications in electronics products, such as watches, clocks, calculators, pocket games, PDAs and mobile and cordless telephones, and car audio systems. We are a customized LCD panel manufacturer, and we develop each product from design concept all the way to a high quality mass producible product. Since 2003, we have also begun manufacturing customized LCD modules that include components such as backlights, FPC and Chip on Class, or COG. In 2005, Jetup began developing LCD modules for cordless and Voice-Over-Internet Protocol, or VoIP, phones. In 2007, Jetup has further extended the product application of customized LCD products to medical devices, industrial instruments, office automations and automotives.

Our Manufacturing and Assembly Capabilities

     We utilize the following production techniques:

Chip On Film, Or COF		is an assembly method for bonding integrated circuit chips and other components onto a flexible printed circuit. This process allows for greater compression of the size of a product when assembled enabling the production and miniaturization of small form factor devices like cellular phones, PDAs, digital cameras and notebook PCs. As of December 31, 2007, we had 16 COF machines. These machines connect the bump of large scale integrated, or LSI, driver onto FPC pattern with anisotropic conductive film, or ACF. These COF machines have the ability to pitch fine to 38 micrometers and a total production capacity of up to 4,400,000 chips per month.
Chip On Glass, Or COG		is a process that connects integrated circuits directly to LCD panels without the need for wire bonding. We apply this technology to produce advanced LCD modules for high-end electronic products, such as cellular phones and PDAs. As of December 31, 2007, we had 23 COG lines in our principal manufacturing facilities. These machines provide an LCD of dimension of up to 200 millimeters (length)x 150 (width)x 2.2 (height), a process time of five seconds per chip, a pin pitch fine to 38 micrometers and a total production capacity of up to 4,200,000 chips per month. During 2005, our subsidiary, Jetup also started manufacturing COG LCD modules. As of December 31, 2007, Jetup had 18 COG lines and is capable of bonding 5 million units of COG LCD modules a month. They are able to bond LCD panels up to sizes of 200 millimeters x 200 millimeters x 2.2 millimeters thick, with an accuracy of five microns’ tolerance, in a cycle time of 12-15 seconds per piece.

Chip On Board, Or COB		is a technology that utilizes wire bonding to connect large-scale integrated circuits directly to printed circuit boards. As of December 31, 2007, we had 53COB aluminum bonding machines which provide a high speed chip bonding time of 0.25 second per 2 millimeters wire, a bond pad fine to 75 micrometers and a total production capacity of up to 3,829,000 (150 wires/board) per month. We use COB aluminum bonding in the assembly of consumer products such as digital pen, calculators, electronic dictionaries, , audio products. We also had 3COB gold ball bonding machines which provide a high speed chip bonding time of 0.072 second per 2 millimeters wire, a bond pad fine to 50 micrometers and a total production capacity of up to 500,000 (150 wires/board) per month. We use COB gold ball bonding in the CMOS camera module, which use in USB camera, notebook computer, mobile phone and digital pen.
Outer Lead Bonding, Or OLB		is an advanced technology used to connect PCBs and large-scale integrated circuits with a large number of connectors. We use this technology to manufacture complex miniaturized products, such as high-memory PDAs. As of December 31, 2007, we had three OLB machines. The machines include multi-pinned tape carrier packaged large scale integrated circuit, or TCP LSIC, bonding which is up to 280 pins, which also provide ultra thin assembly with module thickness to around one millimeter and high accuracy bonding with pin pitch to 100 micrometers. The total production capacity is 12,000 units per month.
Tape Automated Bonding With Anisotropic Conductive Film, Or TAB With ACF		is an advanced heat sealing technology that connects a liquid crystal display component with an integrated circuit in very small LCD modules, such as those used in cellular phones and pagers. As of December 31, 2007, we had 24 systems of TAB with ACF machines. The machines provide process time of 10 to 25 seconds per component, a pin pitch fine up to 150 micrometers and a total production capacity of up to 4,936,000 components per month. During 2005, Jetup also started manufacturing TAB LCD modules. As of December 31, 2007, Jetup had four TAB lines and is capable of bonding 2,000,000 pieces of TAB LCD modules a month. They are able to bond LCD panels up to sizes of 120 millimeters x 120 millimeters x 2.2 millimeters thick, with an accuracy of 10 microns’ tolerance in a cycle time of 20-25 seconds per piece.
Fine Pitch Heat Seal Technology, Or FPHS Technology		allows us to connect LCD displays to PCBs produced by COB and outer lead bonding that enables very thin connections. This method is highly specialized and is used in the production of finished products such as PDAs. As of December 31, 2007, we had eight machines utilizing FPHS technology. The machines provide a pin pitch fine to 260 micrometers and a total production capacity of up to 268,000 units per month.
Surface Mount Technology, Or SMT		is a process by which electronic components are mounted directly on both sides of a printed circuit board, increasing board capacity, facilitating product miniaturization and enabling advanced automation of production. We use SMT for products such as mobile display module and electronic linguistic devices. As of December 31, 2007, we had 37 SMT productions lines. The production time per chip ranges from 0.055 second per chip to 0.8 second per chip and high precision ranging from +/-0.05 millimeter to +/-0.1 millimeter. The components size ranges from 0.4 millimeter (length)x 0.2 millimeter (width) to 55 millimeters (length)x 55 millimeters (width). Ball grid array, or BGA, ball pitch is 0.4 millimeter and ball diameter is 0.2 millimeter. Flip Chip, our smallest lead/bump pitch, is 250/240UM and our smallest components spacing is 0.15 micrometers. The total production capacity is over 1 billion resistor capacitor chips per month.
Super-Twisted Nematic, Or STN, Displays		is a type of monochrome passive matrix LCD capable of providing higher information content to display systems and are typically found in applications such as cordless phones, mobile phones, MP3 players, pocket games and PDAs. Our JIC. group began producing STN LCDs in 2002. During 2005, our JIC group upgraded its two existing twisted nematic, or TN type, LCD lines to STN LCD lines. TN displays rotate the director of the liquid crystal by 90°, but STN LCD displays employ up to a 270°rotation. This extra rotation gives the crystal a much steeper voltage-brightness response curve and also widens the angle at which the display can be viewed before losing much contrast.As of December 31, 2007, our JIC group was using three automated STN lines capable of producing both TN and STN type LCDs with capacity of 150,000 pairs of glass (each sheet of glass of 360 millimeters x 400 millimeters in size) panels per month.
Lcd Back-End		is a main manufacturing process for LCD panels, and is regarded as part of the process for its finished product LCD modules. It includes the precise pure water cleaning process, scribing of LCD glass, liquid crystal insertion, sealing process and breaking process, then turns the LCD mother glass into LCD panels. Our machines can cope with 0.2millimeters + 0.2millimeters LCD mother glass up to dimension 550 millimeters x 670 millimeters, with cutting tolerance +/-0.1 millimeters. Nam Tai started mass production from September 2006, with monthly maximum production capacity of 1,800,000 units.

     As of December 31, 2007, we had eight clean rooms at our principal manufacturing facilities, which housed COB, COF, COG and Chip Scale Package capabilities for CMOS sensor modules, electronic calculators, digital camera accessories, LCD modules manufacturing. At the same date, we also have four clean rooms at another of our factories, which we use to manufacture LCD panels and modules.

     A cleanroom is an environment, typically used in manufacturing or scientific research, which has a low level of environmental pollutants such as dust, airborne microbes, aerosol particles and chemical vapors. In other words, a cleanroom has a controlled level of contamination that is specified by the number of particles per cubic meter at a specified particle size. Of our 12 clean rooms at December 31, 2007, four were class ten thousand, six were class thousand and two were class one hundred with one of them use for cleaning the clothes to be used in clean room.

FPC boards and FPC Subassemblies

     Flexible Printed Circuit Subassemblies. We began manufacturing FPC subassemblies in March 2003 for integration into various LCD modules. FPC subassemblies are FPC board enhanced by attaching electronic components, such as connectors, switches, resistors, capacitors, light emitting devices, integrated circuits, cameras and optical sensors, to the circuit. The reliability of FPC component assemblies is dependent upon proper assembly design and the use of appropriate fixtures to protect the flex-to-connector interface. Connector selection is also important in determining the signal integrity of the overall assembly and is very important to devices that rely upon high system speed to function properly.

     Flexible Printed Circuits. Flexible printed circuits, which consist of copper conductive patterns that have been etched or printed while affixed to flexible substrate materials such as polyimide or polyester, are used to provide connections between electronic components and as a substrate to support these electronic devices. The circuits are manufactured by subjecting the base materials to multiple processes, such as drilling, screening, photo imaging, etching, plating and finishing. Single-sided flexible printed circuits, which have an etched conductive pattern on one side of the substrate, are normally less costly and more flexible than double-sided flexible printed circuits because their construction consists of a single patterned conductor layer. Double-sided flexible printed circuits, which have conductive patterns or materials on both sides of the substrate that are interconnected by a drilled or copper-plated hole, can provide either more functionality than a single-sided flexible printed circuit by containing conductive patterns on both sides, or greater shielding of components against electromagnetic interference than a single-sided flexible printed circuit by covering one side of the circuit with a shielding material rather than a circuit pattern.

     Currently we buy a portion of FPC boards from suppliers and attach electronic components to them in accordance with our customer’s specifications and produce FPC subassemblies. Since 2007, we also began manufacturing of these devices in our existing facility in Shenzhen. to vertically integrate this process by producing FPC boards internally

Quality Control

     We maintain strict quality control programs for our products, including the use of total quality management, systems and advanced testing and calibration equipment. Our quality control personnel test the quality of incoming raw materials and components. During the production stage, our quality control personnel also test the quality of work-in-progress at several points in the production process. Finally, after the assembly stage, we conduct testing of finished products. In addition, we provide office space at our principal manufacturing facilities for representatives of our major customers to permit them to monitor production of their products and we provide them with direct access to our manufacturing personnel.

     All of our manufacturing facilities are certified under ISO 9001 quality standards, the International Organization for Standardization, or ISO’s, highest standards. The ISO is a Geneva-based organization dedicated to the development of worldwide standards for quality management guidelines and quality assurance. ISO 9000, which was the first quality system standard to gain worldwide recognition, requires a company to gather, analyze, document, monitor and make improvements where needed. Our certifications under an ISO 9001 quality standard demonstrate that our manufacturing operations meet the most demanding of the established world standards. All of our manufacturing facilities are also certified under an ISO 14001 environmental management standard, which was published in 2004 to provide a structured basis for environmental management control. In January 2007, Namtai Electronic (Shenzhen) Co. Ltd. or Namtai Shenzhen, were certified under the standard of Occupational Health and Safety Assessment Series, or OHASA, 18001:1999. OHASA 18001 is an international occupational health and safety management system specification. This demonstrated that Namtai Shenzhen had a recognized international standard

in management system on occupational health and safety. As at the end of January 2007, Jetup was also certified with the compliance of the Technical Specification 16949, or TS16949. TS16949 is an automotive sector-specific quality management system requirement that uses ISO 9001: 2000 (verbatim) as its base and is required for supplying products to OEMs of automotive industry. In addition, , Namtai Shenzhen certified under International Council of Toy Industries’, or ICTI, program in May 2007 which demonstrated that Namtai Shenzhen runs in compliance with the code of business practices standard in the toy industries with fair labor treatment and care of employees’ health and safety. In November 2007, Namtai Shenzhen also completed an audit for the International Electrotechnical Commission, or IEC, Quality Assessment System for Electronic Components (IECQ) - Electrical and Electronic Components and Products — Hazardous Substance Process Management System Requirements and received IECQ 080000 certification in January 2008. This demonstrated that the control on electrical and electronic components products hazardous substance process management meets the demanding of world standard of the IEC.

     We started the implementation of the Six Sigma approach. In 2004, our principal manufacturing facilities were recognized by the China Association for Quality of the Chinese Government as a “National Advanced Enterprise for the Promotion of Six Sigma”. Six Sigma is an internationally recognized approach that uses facts and data to develop better solutions, thereby reducing defects and production times, and improving customer satisfaction. This approach allows the Company to lower its costs by minimizing manufacturing defects. This results in improved profit margins and higher competitiveness.

Our Suppliers

     We purchase thousands of different component parts from numerous suppliers, which we have approved based on their quality, cost and services. For some components, we have chosen, for strategic considerations, to rely on a single supplier. We purchase components from suppliers located in Japan, China and other countries. Our general practice is to purchase components upon receipt of purchase orders from customers and pursuant to the customer’s authorization with agreed liability for purposes of minimizing our inventory risk by ordering components and parts only to the extent necessary to support the order. However, we may occasionally purchase raw materials or request suppliers to maintain buffer stock of certain supplies for particular customers based on such customer’s rolling forecasts in order to shorten the lead-time for key materials.

     The major component parts we purchase include the following:

	•		Integrated circuits or “chips”, most of which we purchase presently from Cambridge Silico Radio Plc Ltd., Ricoh Company Ltd, ATI Technologies Ltd, Rohm Electronics (HK) Co., Ltd., Samsung Electronics., Ltd., Sharp Electronics (M) SDN.BHD and certain of their affiliates;
	•		LCD panels, which are available from many manufacturers. In 2007, we purchased LCD panels from Suzhou Epson Co. Ltd., Safaring Technology Co. Ltd., Toshiba Matsushita Display Co. Ltd., Shantou Goworld Display (Plant II) Co. Ltd., and VBest Electronics Ltd.;
	•		FPC boards, which consist of copper conductive patterns that have been etched or printed while affixed to flexible substrate materials such as polyimide or polyester, are mainly used to provide connections for electronic components and as a substrate to support these electronic devices. In 2007, we purchased FPC boards mainly from Sony Chemical Co., Ltd., Nitto Denko (HK) Co. Ltd. and NOK Mektec Corp. Ltd.;
	•		Light-emitting diodes, or LEDs, are semiconductor devices that emit incoherent narrow-spectrum light when electrically biased in the forward direction. This effect is a form of electroluminescence. LEDs are small extended sources with extra optics added to the chip, which emit a complex intensity spatial distribution. We purchase LEDs primarily from Nichia Corporation; and
	•		CMOS imaging sensors, which we purchase mainly from Omnivision Technologies Inc., Micron Technology Inc. and Magnachip Semiconductor Ltd. Solar cells and batteries, which are standard “off-the-shelf” items that we generally purchase in Hong Kong from agents of Japanese manufacturers or directly from companies in China; various mechanical components such as plastic parts, cables, rubber keypads, PCBs, indium tin oxide, or ITO, glass used in the production of LCD panels, and packaging materials from various local suppliers in China; and various acoustic components, which we mainly sourced from Minami Acoustics Limited, Vansonic Enterprise co. Ltd., BSE Group, Ole Wolff Elektronik A/S and Lexin (Japan) Ltd. where the manufacturing base is principally in China.

     Whenever practical, we will consider using domestic China suppliers who are often able to provide their products at lower cost than overseas suppliers and with shorter lead times.

     From time to time, there may be certain components subjected to limited allocation by certain of our suppliers due to industry-wide shortage as a result of fast growing global demand.

     In some cases, supply shortages and delays in deliveries of particular components could result in curtailed production, or delays in production. These supply shortages have contributed to an increase in our inventory levels and reduction in our margins. We expect that occasional component shortages and delays in deliveries of some components will continue to occur. If we are unable to procure sufficient quantity components in a timely fashion, we may experience production delays, which could harm our relationships with current or prospective customers and reduce our sales.

     The principal raw materials used by the Company are large scale integrated (“LSI”), circuits, semiconductors, FPC boards, LCD panels, LEDs and batteries. At times, the pricing and availability of these raw materials can be volatile, attributable to numerous factors beyond the Company’s control, including general economic conditions, currency exchange rates, industry cycles, production levels or a supplier’s tight supply. In the past, we have asked our customers to share in the increased costs of raw materials where such increased costs would adversely affect the Company’s business, results of operations and financial condition. Our customers have generally agreed when so requested in the past. We cannot assure you, however, that our customers will agree to share costs in the future and that our business, results of operations and financial condition would not be adversely affected by increased volatility of raw materials.

Production Scheduling

     The typical cycle for a product to be designed, manufactured and sold to an OEM customer is one to two years, which includes the production period, the development period and the period for market research and data collection (which is undertaken primarily by our OEM customers). Initially an OEM customer gathers data from its sales personnel on products for which there is market interest, including features and unit costs. The OEM customer then contacts us, and possibly other prospective manufacturers, with forecasted total production quantities and design specifications or renderings. From that information, we in turn contact our suppliers and determine estimated component and material costs. We later advise our OEM customer of the development costs, charges (including molds, tooling and software design, if applicable) and unit cost based on the forecasted production quantities desired during the expected production cycle.

     Once the OEM customer and we agree to the quotation for the development costs and the unit cost, we begin the product development if we are engaged to do so. This development period typically lasts less than six months, but may be longer if software design is included. During this time, we complete all molds, tooling and software required to manufacture the product with the development costs generally borne by our customer. Upon completion of the molds, tooling and software, we produce samples of the product for the customer’s quality testing, and, once approved, commence mass production of the product. We recover the development costs in relation to molds, tooling and software from our customers.

     The production period usually lasts approximately six to twelve months. In some cases, our OEM customer handles all product design and development and engages us only at the point of initial production. Typically, more advanced products have shorter production runs. If total production quantities change, the OEM customer often provides only limited notice before discontinuing orders for a product. At any point in time we may be in different stages of the development and production periods for the various models under development or in production for our OEM customers.

     Generally, our production is based on purchase orders received from OEM customers. Purchase orders are often supported by letters of credit or written confirmation from the OEM customer and generally may not be cancelled once confirmed without the mutual consent of the parties. Even in those cases where customers are contractually obligated to purchase products from us or repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

     We did not suffer a material loss resulting from the cancellation of OEM customer orders for the years ended December 31, 2005, 2006 or 2007.

Sales and Marketing

     We focus on developing close relationships with our customers at the development and design phases and continuing throughout all stages of production. We identify, develop and market new products and technologies that benefit our customers and position us as a strong EMS provider with the ability to design and develop products.

     Sales and marketing operations are integrated processes involving direct salespersons, project managers and senior executives. We direct our sales resources and activities at several management and staff levels within our customers and prospective customers. We receive unsolicited inquiries resulting from word of mouth, from public relations activities, and through referrals from current customers. We evaluate these opportunities against our customer selection criteria and assign direct salespersons.

Seasonality

     Historically, our sales and operating results have often been affected by seasonality. Sales of products and components related to mobile phones have generally been lower in the first quarter after peaking in the fourth quarter. Sales of educational products and home entertainment devices are often higher during the second and third quarters in anticipation of the start of the school year and the Christmas buying season. Similarly, consumer electronics products have historically been lower in the first quarter resulting from both the closing of our factories in China for the Lunar New Year holidays and the general reduction in sales following the holiday season. As we have diversified our services for complex components, we expect that seasonality may be less of a factor affecting our business in the future.

Transportation

     Transportation of components and finished products to and from Shenzhen is by truck. Component parts purchased from Japan, Korea, Singapore and elsewhere of the world are generally shipped by air and delivered to our designated forwarders’ warehouse located in Hong Kong. To date, we have not been materially impacted by any transportation problems. However, transportation difficulties affecting air cargo or shipping, such as an extended closure of ports that materially disrupt the flow of our customers’ products into the United States, could materially and adversely influence our sales and margins if, as a result, our customers delay or cancel orders or seek concessions to offset expediting charges they incur pending resolution of the problems causing the port closures. The recent hike in crude oil price may have an upward pressure on transportation cost and this remains to be a major concern in the near future. As a higher transportation cost could adversely influence our overall margins.

Competition

     The electronic manufacturing services we provide are available from many independent sources as well as from our current and potential customers with internal manufacturing capabilities. The following table identifies those companies who we believe are our principal competitors by category of products or services we provide:

Product/Service		Competitor
EMS		Ø Celestica, Inc.
		Ø Flextronics International Ltd.
		Ø Hon Hai Precision Industry Co., Ltd.
		Ø Jabil Circuit, Inc
		Ø Sanmina-SCI Corporation
Image capturing devices and their modules		Ø Altus Technology Inc (controlled by Foxconn)
		Ø Lite-On Technology Corporation
		Ø Logitech International S.A.
		Ø The Primax Group

Product/Service		Competitor
Mobile phone accessories		Ø Balda-Thong Fook Solutions Sdn., Bhd.
		Ø Celestica, Inc.
		Ø Elcoteq Network Corp.
		Ø Flextronics International Ltd.
		Ø Foster Corporation
		Ø Foxlink Group
		Ø Merry Electronics Co. Ltd.
		Ø WKK International (Holdings) Ltd.
RF modules		Ø Wavecom SA
		Ø WKK International (Holdings) Ltd.
Liquid crystal display, or LCD, panels		Ø Elec & Eltek International Holdings Limited
		Ø Truly International Holdings Ltd.
		Ø Varitronix International Ltd.
Telecommunication subassemblies and components		Ø Flextronics International Ltd.
		Ø LG. Philips LCD Co., Ltd.
		Ø Samsung Electronics
		Ø Varitronix International Ltd.
Consumer electronic products (calculators, personal organizers and		Ø Computime Limited
linguistic products)		Ø Inventec Co. Ltd.
		Ø Kinpo Electronics, Inc.
		Ø VTech Holdings Limited

     Many of our competitors have greater financial, technical, marketing, manufacturing, regional shipping capabilities and international logistics support and personnel resources than we do. As a result, Nam Tai positions itself as a competitive-priced EMS with niches in key product and technology categories focusing on advanced manufacturing technique and processes as well as design and development capabilities in these niche areas to compete successfully against with these organizations for the future.

     When we begin production of FPC boards and increase production of FPC subassemblies, we expect to face intense competition from large FPC manufacturers located in Taiwan, China, Korea, Singapore, North America and Europe as well as from large, established EMS providers that have developed or acquired, or, like us, are developing, their own FPC boards manufacturing capabilities, and have extensive experience in electronics assembly. Such competition could pressure us to provide discounts or lower prices to gain market share, which could adversely affect our margins and the profitability of our FPC business and could adversely affect our operating results as a whole.

Research and Development

     We invest in research and development for developing products, manufacturing and assembly technology that provide us with the potential to offer better and more technologically advanced services to our OEM customers or assist us in working with our OEM customers and in the design and development of future products. We plan to continue acquiring advanced design equipment and to enhance our technological expertise through continued training of our engineers and further hiring of qualified system engineers. These investments are intended to improve the speed, efficiency, costs and quality of our assembly processes.

     Additionally, we are responsible for the design and development of new products specified by our customers. We sell these products to OEM customers to be marketed to end users under the customers’ brand names. To date, we have successfully developed a number of CMOS sensor camera modules mobile phone accessories and game peripherals.

Patents, Licenses and Trademarks

     We do not have any patents, licenses or trademarks on which our business is substantially dependent. Instead, we rely on our industry expertise, knowledge of niche products and technology and strong long-term relationships with our customers and suppliers.

Organizational Structure

     The chart below shows our organizational structure of our principal operating subsidiaries at December 31, 2007 upon completion of our 2007 Reorganization and giving pro forma effect to the February 2008 sale of our entire equity interest in JIC as of that date.

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Nam Tai Electronic & Electrical Products Limited (NTEEP) was incorporated in June 2003 and is a holding company for the subsidiaries shown in the chart above and discussed below. Shares of NTEEP has been listed on the Hong Kong Stock Exchange since April 28, 2004.

Namtai Electronic (Shenzhen) Co., Ltd. (Namtai Shenzhen) was originally established as Baoan (Nam Tai) Electronic Co. Ltd. in June 1989 as a contractual joint venture company with limited liability pursuant to the laws of China. Originally, the equity of Baoan (Nam Tai) Electronic Co. Ltd. was 70% owned by Nam Tai Electronic & Electrical Products Limited, a Hong Kong subsidiary of Nam Tai, and 30% owned by a PRC company. In 1992, the PRC company transferred all of its equity interest in the contractual joint venture to Nam Tai Electronic & Electrical Products Limited and Baoan (Nam Tai) Electronic Co. Ltd. changed its name to Namtai Electronic (Shenzhen) Co., Ltd. In December 2003, the equity interest in Namtai Shenzhen was transferred from Nam Tai Electronic & Electrical Products Limited (Hong Kong) to NTEEP and it became NTEEP’s wholly owned subsidiary. Its business was unaffected by the 2007 Reorganization and it continues to engage in the manufacture and sale of consumer electronic and telecommunications products. Nam Tai Investments Consultant (Macao Commercial Offshore) Company Limited was established in August 2003 by the Company. In March 2004, the Company transferred the equity interest to NTEEP and this company then became a wholly owned subsidiary of NTEEP. Its principal business is to provide consultancy, administrative and data processing services to other companies in the NTEEP group.		First Rich Holdings Limited (First Rich) incorporated on November 2, 2007 in the British Virgin Islands and prior to the 2007 Reorganization was a wholly owned subsidiary of JIC. It and its subsidiaries became part of the NTEEP Group in the 2007 Reorganization. Top Eastern Investment Limited (Top Eastern) incorporated in November 6, 2007 in Hong Kong. It continues as the wholly owned subsidiary of First Rich and the holding company of Jetup. Jetup Electronic (Shenzhen) Co. Ltd. (Jetup) was incorporated in 1993 in China and handles the manufacturing and processing production of LCD panels and modules through its factories in Baoan County, Shenzhen and was formerly in the JIC Group. Its business remains unaffected by the 2007 Reorganization and it continues to engage in the manufacture and sale of liquid crystal display products, now part of the NTEEP Group as a consequence of the 2007 Reorganization.		Zastron Precision-Tech Limited (ZPT) was incorporated in June 2003 in the Cayman Islands. It is a wholly-owned subsidiary of NTEEP and the holding company of subsidiaries engage in the manufacture and sale of liquid crystal display modules, FPCs and FPC subassemblies. ZPT and its subsidiaries became part of the NTEEP Group in the 2007 Reorganization. Zastron Electronic (Shenzhen) Co. Ltd. (Zastron Shenzhen) was organized as Zastron Plastic & Metal Products (Shenzhen) Ltd. in March 1992 as a company with limited liability company began producing metallic parts and PVC plastic products, much of which is used in the products manufactured in our principal manufacturing facilities. In August 2002, Zastron Plastic & Metal Products (Shenzhen) Ltd. changed its name to Zastron Electronic (Shenzhen) Co. Ltd. and expanded the nature of its business to include manufacturing of telecommunication products, LCD modules, TFT LCD modules and other products. It is one of our principal manufacturing arms, becoming part of the NTEEP Group in the 2007 Reorganization. Zastron (Macao Commercial Offshore) Company Limited (Zastron Macao) was established in March 2004 in Macao, China and is a wholly owned subsidiary of ZPT. Its principal business is the provision of consultancy, administrative and data processing services to other companies in the Zastron group of companies and became part of the NTEEP Group in the 2007 Reorganization. Zastron Precision-Tech (Wuxi) Co. Ltd. was established in November 2006 as a wholly owned foreign investment enterprise with limited liability and pursuant to the relevant laws of China. The Company will be engaged in the manufacturing and trading of LCD modules and other products and became part of the NTEEP Group in the 2007 Reorganization. Zastron Precision-Flex (Wuxi) Co. Ltd. was established in November 2006 as a wholly owned foreign investment enterprise with limited liability and pursuant to the relevant laws of China. The Company will be engaged in the manufacturing and trading of FPC boards and FPC subassemblies and became part of the NTEEP Group in the 2007 Reorganization.

Property, Plant and Equipment

     Our registered office in the British Virgin Islands is located at McNamara Chambers, P.O. Box 3342, Road Town, Tortola. Corporate administrative matters in the BVI are conducted at this office through our registered agent, McNamara Corporate Services Limited. The table below lists the locations, square footage, principal use and lease expiration dates of the facilities used in our principal operations as of December 31, 2007.

										Owned(1) or
				Approximate						lease
				Square						expiration
Location				Footage				Principal Use		date
Hong Kong					3,482			Administration			2008
Macao					2,479			Administration			2009
Shenzhen, China					557,835			Principal manufacturing facilities			2043/2049	(2)
					87,462			Administration			2043/2049	(2)
					350,585			Dormitories			2043/2049	(2)
					41,528			Cafeteria			2043
					33,826			Recreational			2049
Other existing facilities
Shenzhen, China					383,547			Manufacturing LCD panels and modules			2012
					32,005			Administration
					231,262			Dormitories
					22,259			Cafeteria
					14,548			Recreational
Shekou, Shenzhen, China					12,374			Software development			2008
Tokyo, Japan					904			Software development and marketing			2009
Planned new manufacturing facilities
Wuxi, Jiangsu Province, China		(3)						FPC boards and subassemblies			2056
		(3)						LCD modules and other products			2056
Guangming, Shenzhen, China		(3)						LCD modules and other products			2057

     In order to expand our production capacity, we completed the construction of a new factory in December 2004 consisting of approximately 265,000 square feet adjacent to our existing principal manufacturing facilities in

Shenzhen, China. We commenced full operations in the new manufacturing facilities in April 2005. As of December 31, 2005, we had incurred $25.8 million to cover the cost of construction and fixtures and equipment for this new factory. The financing of these improvements to our manufacturing facilities were obtained from internal resources.

     In October 2004, we relocated our production facility for the LCD products segment to new factory premises, which are approximately 670,000 square feet, about twice the size of the former factory premises. This factory provides room for future expansion of production capacity. As of December 31, 2004, we had spent $7.7 million for this relocation and financed this amount with a combination of internal resources and bank financing. During 2005, a further of $5.4 million was spent for fixtures and equipment.

Hong Kong

     In October 2005, to align with the Company’s China-focused operations, Nam Tai restructured its subsidiaries to keep a minimal workforce in Hong Kong in order to support those subsidiaries that are listed on Hong Kong Stock Exchange, and to resolve outstanding legal proceedings and tax matters in Hong Kong. To achieve a more favorable and competitive cost structure, the Company relocated from the approximately 24,200 square feet of office space at Shun Tak Centre, or Shun Tak office, to the approximately 3,400 square feet office space at Suites 1506-1508, One Exchange Square, 8 Connaught Place, in the Central district in Hong Kong. In April 2006, the Company sold the Shun Tak office for approximately $20.2 million and a recognized gain of approximately $9.3 million.

     Until 1996, we owned approximately ten acres of land in Hong Kong carried on our books at a cost of approximately $523,000. Between 1997 and 2007, we sold approximately 8.2 acres of this land for net proceeds of $7.77 million; realizing a gain of $7.51million. We plan to sell the remaining land and, pending the sale, to continue to carry the land at a carrying value of approximately $96,000 on our books.

Macao

     In August 2003, we established our PRC headquarters in Macao, China and set up Nam Tai Macao in Macao, China. Macao, like Hong Kong, is a Special Administrative Region of China and has introduced an incentive program to attract investments to Macao. In March and November 2004, we further established Zastron Macao and JIC Macao in Macao, China, respectively. In 2006, we relocated our principal executive offices to Macao. We currently lease three offices and all of them under two-year leases expiring in July 2009. The monthly rental costs are approximately $942, $1,167 and $824 respectively.

Shenzhen, China

Principal Manufacturing Facilities

     Our principal manufacturing facilities are located in Baoan County, Shenzhen, China. In December 1993, we acquired a 50-year lease for the first piece of land for approximately $2.45 million. The first phase facility consisted of 160,000 square feet of manufacturing space, 39,000 square feet of offices, 212,000 square feet of new dormitories, 26,000 square feet of full service cafeteria, recreation facilities and a swimming pool. The total cost of this addition to our complex, excluding land, was approximately $21.8 million. In November 2000, we began construction of another addition to our factory complex. We completed construction in October 2002, adding a new five-story factory with 138,000 square feet of production facilities, including one floor for assembling, one floor of office space, one floor for warehouse use and two floors of class thousand clean room facilities. Prior to this addition, we had only one floor of class ten thousand clean room facilities at our factory complex. As of December 31, 2002, we had spent $9.1 million to complete the construction of the new facility. With this new addition, we had approximately 626,000 square feet of manufacturing space at our manufacturing facilities as of December 31, 2002, with only minimal additions in 2003.

     In July1999, we purchased another vacant lot of approximately 280,000 square feet (approximately 6.5 acres) bordering our manufacturing complex located in Shenzhen, China at the relevant time at a cost of approximately $1.2 million. We have built another factory consisting of approximately 265,000 square feet of space. Construction started in September 2003 and completed in December 2004. We commenced full operations in April 2005. During 2005, we built two additional blocks of dormitories. With this new addition, our principal manufacturing facilities then consisted of approximately 557,835 square feet of manufacturing space, 87,462 square feet of offices, 266,168 square feet of dormitories and 75,354 square feet of cafeteria space and a full services recreational building. As of December 31, 2005, we had incurred $25.8 million to cover the cost of construction and fixtures and equipment for the new factory. The financing for these improvements to our manufacturing facilities was obtained from internal resources.

LCD Factory

     In October 2003, Jetup Electronic (Shenzhen) Co., Ltd. entered into a tenancy agreement for new factory premises, which is also located in Baoan County, Shenzhen, China, and relocated to the new factory premises in

October 2004. The new factory premises are about twice the size of the former factory premises and consist of 383,547 square feet of manufacturing space, 32,005 square feet of offices, 221,666 square feet of dormitories, and 36,807 square feet of cafeteria and recreational spaces. This new factory provides room for the future expansion of production capacity. As of December 31, 2004, we had spent $7.7 million for this relocation and financed this amount with a combination of internal resources and bank financing. During fiscal year 2005, a further $5.4 million was spent for fixtures and equipment.

Software Development

     We leased two offices in which we conducted software development. Our Shekou, Shenzhen, China office was approximately 12,374 square feet and the lease would expire in July 2008. The monthly rental was approximately $9,300. In July 2003, we opened an office in Tokyo, Japan to expand our sales and marketing coverage in Japan for our software development business. The Tokyo office had approximately 904 square feet, which we leased under a two-year lease expiring in June 2009. The monthly rental for the Tokyo office was approximately $1,800. On March 4, 2008, we disposed all our 572,594,978 ordinary shares of JIC, holding company of the software business, to independent third party for cash in the aggregate amount of approximately $51.1 million.

Future Expansion

     In September 2005, we signed a letter of intent with The People’s Government of Baoan District, Shenzhen, PRC, to purchase approximately 1.3 million square feet of land for future expansion. This new piece of land is approximately 30 minutes driving distance from the existing facilities of the Company and is more than double the space of the land of the existing facilities. In March 2006, the Company entered into an official project investment agreement with the Guangming Hi-Tech Industrial Park, Shenzhen, PRC, to purchase the land and an initial payment of approximately $1.5 million was paid in 2006. In June 2007, we entered into an official land use transfer agreement and a supplemental agreement with Shenzhen Municipal Bureau of State Land and Resources. We paid the balance of the land price of approximately $6.8 million in the fourth quarter of 2007. We are obligated to pay a relocation allowance to the local residents of approximately $645,500, which we will make in the first half of 2008. The financing for this amount was obtained from internal resources. We plan to commence the construction of a new factory in early 2009. The Company intends to use the new facility as its PRC headquarters and also to increase manufacturing capacity. We expect the additional space to meet our capacity needs in Shenzhen to 2015.

     In addition to the expansion project to build a new factory in Shenzhen, PRC, the Company continues to implement its plans to establish an industrial presence in Wuxi, Jiangsu Province, located on the East Coast of the PRC, approximately 80 miles Northwest of Shanghai. In October 2006, we entered into the agreements with the Wuxi government for the project and in December 2006 completed the land transfer for two parcels of real property, approximately three miles apart and with approximately 470,000 square feet and 515,000 square feet respectively. The total land price for these lands was approximately $1.3 million, which we paid in the fourth quarter of 2006. We started the construction of our new Wuxi facility in January 2008 with respect to one of the parcels and we hope to begin mass production of FPC boards and FPC subassemblies there in early to mid-2009.

     We are currently considering the best ues of the second parcel of land in Wuxi and Guangming Hi-Tech Industrial Park, given the amalgamated manufacturing operations post our re-organization.

ITEM 4A. UNRESOLVED STAFF COMMENTS

We do not have any unresolved Staff comments.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     Except for statements of historical facts, this section contains forward-looking statements involving risks and uncertainties. You can identify these statements by forward-looking words including “expect”, “anticipate”, “believe”, “seek”, “estimate”, “intends”, “should”, or “may”. Forward-looking statements are not guarantees of our future performance or results and our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the section of this Report entitled

     Item 3. Key Information – Risk Factors. This section should be read in conjunction with our consolidated financial statements included as Item18 of this Report.

Operating Results

Overview

     We are an electronics manufacturing and design services provider to a select group of the world’s leading OEMs of telecommunications and consumer electronic products. Through our electronics manufacturing services operations, we manufacture electronic components and subassemblies, including LCD panels, LCD display modules, RF modules, DAB modules, FPC board, FPC subassemblies, image sensors modules and PCBAs for headsets containing Bluetooth wireless technology. These components are used in numerous electronic products, including mobile phones, laptop computers, digital cameras, electronic toys, and handheld video game devices. We also manufacture finished products, including entertainment devices, mobile phone accessories and educational products.

     We assist our OEM customers in the design and development of their products and furnish full turnkey services that with our state-of-art manufacturing technologies. Our services include software development services, firmwave, and mechanical design, parts and components purchasing, product industrialization, and assembly into finished products, or electronic subassemblies with full quality testing and assurance. These services are value-added and assist us in obtaining new business. We are also capable to provide ODM services, in which we design and develop proprietary products specified by our customers that are sold by our OEM customers using their brand name.

Net Sales and Cost of Sales

     We derive our net sales principally from manufacturing services that we provide to OEMs of telecommunications and consumer electronic products. The market for the products we manufacture is generally characterized by declining unit prices and short product life cycles. Sales to our OEM customers are primarily based on purchase orders we receive from time to time rather than firm, long-term purchase commitments from our customers. We recognize sales, net of product returns and warranty costs, typically at the time of product shipment or, in some cases, as services are rendered.

     Our production is typically based on purchase orders received from OEM customers. However, for certain customers, we will occasionally purchase raw materials based on such customers’ rolling forecasts. Purchase orders are often supported by letters of credit or written confirmation from our OEM customers. We generally do not obtain firm, long-term commitments from our customers. Uncertain economic conditions and our general lack of long-term purchase commitments with our customers make it difficult for us to predict our revenue accurately over the longer term. Even in those cases where customers are contractually obligated to purchase products from us or to repurchase unused inventory from us, we may elect not to immediately enforce our contractual rights because of the long-term nature of our customer relationships and for other business reasons, and instead may negotiate accommodations with customers regarding particular situations.

Gross Margins

     Complex products generally have relatively high material costs as a percentage of total unit costs and accordingly our strategic shift to produce more of such products has historically been a factor that has adversely affected our gross margins. This is the primary reason for the decline in our gross margins between 2003 and 2007. During this period, we diversified our product mix from predominantly low complexity electronic products, including calculators and electronic dictionaries, to include more complex components and subassemblies, like LCD modules, RF modules and FPC subassemblies. Despite the lower gross margin on more complex products, we believe the opportunity for growth in the demand for these complex products justifies the shift in our strategic focus. Furthermore, we believe the experience in manufacturing processes and know-how that we have developed from producing more complex products are a competitive advantage for us relative to some of our competitors.

     The increased costs associated with developing advanced manufacturing techniques to produce complex products on a mass scale and at a low cost have also negatively impacted our gross margins. For example, in our initial production runs of LCD modules, RF modules, and color and TFT LCD modules, we experienced low production yields and other inefficiencies that caused our gross margin to decrease. Although we believe we have improved the efficiency and quality of our manufacturing processes relating to LCD modules, RF modules, and

color and TFT LCD modules, we may not be able to improve or maintain our gross margin for these products. Furthermore, in 2007, we began to develop and produce FPC boards in our existing manufacturing facilities. The FPC boards are manufactured by subjecting the base materials to multiple processes, such as drilling, screening, photo imaging, etching, plating and finishing.

     The increased costs associated with developing and manufacturing the existing and other new complex products could have a negative impact on our future gross margins. The complex manufacturing processes involved in the production of complex products is also capital intensive, thereby increasing our fixed overhead costs. It has been our strategy to shift our focus more to the business of key components subassembly. The key components subassembly business generally accounts for relatively lower gross profit margin business. During 2007, the significant drop in the unit price of key component subassemblies for mobile phone further affected adversely our gross profit margins.

Income Taxes

     Under current BVI law, our income is not subject to taxation. Subsidiaries operating in Hong Kong and China are subject to income taxes as described below, and our subsidiary operating in Macao is exempted from income taxes. This would be valid unless the Macao government changes its policy towards offshore companies.

     Under current Cayman Islands law, NTEEP, ZPT and JIC are not subject to profit tax in the Cayman Islands as they have no business operations in the Cayman Islands. However, they may be subject to Hong Kong income taxes as described below since they are registered in Hong Kong.

     The provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the current rate of taxation of 17.5% for 2005, 2006 and 2007 to the estimated taxable income earned in or derived from Hong Kong during the applicable period.

     For 2007, the basic corporate tax rate for FIEs in China, such as our PRC subsidiaries, was 33% (30% state tax and 3% local tax). However, because all of our PRC subsidiaries are located in Shenzhen and are involved in production operations, they qualify for a special reduced state tax rate of 15%. In addition, the local tax authorities in the regions in which our subsidiaries operate in Shenzhen are not currently assessing any local tax, but that could change at any time. Moreover, several of our subsidiaries in China are entitled to certain tax benefits and certain of our subsidiaries in China have qualified for tax refunds as a result of reinvesting their profits earned in previous years in China.

     However, in March 2007, the PRC National People’s Congress promulated the new Enterprise Income Tax Law. This replaces the foreign enterprise income tax law and takes effect from January 1, 2008. The current foreign enterprise income tax law will be superseded on January 1, 2008. Under the new law, all enterprises (both domestic companies and FIEs) will have one uniform tax rate of 25%. However, PRC government allows for a five years transition period and FIEs are expected to increase their 15% tax rate gradually to 25% in year 2012. Besides, the new Enterprise Income Tax Law does not have provision for tax refund by way of capital injection its share of profits from FIEs. Thus, the Company does not expect any further benefit will be obtained after withdrawal of this tax concession from year 2008. In addition, there will be no reduction in the tax rate for FIEs which export 70% or more of the production value of their products from year 2008. Thus, the Company does not expect any further benefit for year 2008 after the implementation of the new law.

     Efforts by the Chinese government to increase tax revenues could result in decisions or interpretations of the tax laws by the China’s tax authorities that are unfavorable to us and which increase our future tax liabilities, or deny us expected refunds. Changes in PRC tax laws or their interpretation or application may subject us to additional PRC taxation in the future. For example, following the implementation of the Enterprise Income Tax Law effective January 1, 2008, the State Council recently announced the transition rules for preferential tax policies (Guofa [2007] No.39) of January 2, 2008, for eligible enterprises previously subject to a 15% tax rate or 24% tax rate. As so announced, the new enterprise income tax rates are:

		Rate under EIT for enterprises				Rate under EIT for enterprises
Tax Year		previously subject to 15% tax rate				previously subject to 24% tax rate
2008			18	%			25	%
2009			20	%			25	%
2010			22	%			25	%
2011			24	%			25	%
2012			25	%			25	%

     Our effective tax rates were 1%, 1% and 4% for each of the three years ended December 31, 2005, 2006 and 2007 respectively. The significant factors that caused our effective tax rates to differ from the applicable statutory rates of 15% were as follows:

		Year Ended December 31,
		2005				2006				2007
Applicable statutory tax rates			15	%			15	%			15	%
Effect of loss/income for which no income tax benefit/expense is receivable/payable			(8	%)			(5	%)			(4	%)
Tax holidays and incentives			(4	%)			(3	%)			(4	%)
Effect of China tax concessions, giving rise to no China tax liability			(4	%)			(4	%)			—
Defer tax credit			—				—				(3	%)
Other items which are not deductible (assessable) for tax purposes			2	%			(2	%)			—
Effective tax rates			1	%			1	%			4	%

Strategic Investments

     An element of our strategy has been to make investments in companies that provide the potential to complement our existing products and services, become new customers, augment our market coverage and sales ability, enhance our technological capabilities and expand our service offerings. We account for investments of less than 20% at fair value and we account for investments between 20% and 50% under the equity method. Our material investments over the last five years include:

     Alpha Star/JCT. In January 2003, we invested $10.0 million for a 25% equity interest in Alpha Star, the ultimate holding company of JCT. JCT is engaged in the design, development and marketing of wireless communication terminals and wireless application software and is using us to manufacture wireless communication terminals and their related modules. In September 2004, we made an impairment to write down our $10.0 million investment in Alpha Star to a fair value of approximately $3.0 million based on the analysis of the estimated fair value of Alpha Star prepared by management. As of December 31, 2004, another analysis of estimated fair value had been conducted by management and no further impairment to the carrying value of the investment was made. From January to August 2005, this affiliated company continued to be loss making. We disposed of our entire stake in Alpha Star in August 2005 to the majority shareholders of Alpha Star with sales proceeds of $6.5 million resulting in a gain of $3.6 million in 2005.

     TCL group. Over the period from September 2000 through November 2002, we made three investments in the TCL group of companies and disposed of a portion of the investment in 2002 and 2003. The TCL group of companies is a leading OEM for numerous consumer electronics and telecommunications products in the domestic PRC market.

     In September 2000, we made a strategic investment of $2.0 million to acquire a 5% indirect equity interest (through a 25% direct equity interest in Mate Fair) in both TCL Mobile Communication (HK) Co., Ltd. and Huizhou TCL Mobile Communication Co., Ltd., together known as TCL Mobile. TCL Mobile is engaged in manufacturing, distributing and trading of digital mobile phones and accessories in China and overseas markets.

     In January 2002, we acquired a 6% equity interest in TCL Corporation (formerly known as TCL Holdings Corporation Ltd.), the parent of the TCL group of companies, for approximately $12.0 million. In January 2004, TCL Corporation listed its A-shares on the Shenzhen Stock Exchange at $0.52, or RMB4.26, per A-share. The Company’s interest in TCL Corporation has then been diluted to 3.69%, represented by 95.52 million promoter’s shares of TCL Corporation after its initial public offering. As at December 31, 2005, the Company recognized an unrealized gain of $0.95 million, based on the Company’s cost of $11.97 million. The Company’s interest in TCL Corporation was recorded at fair value of $13.33 million based on a comparable companies analysis and taking into account of a liquidity discount. However, in April 2006, pursuant to the split share structure reform (“SSR”), the Company gave away 15.62% of its total shares to floating shareholders as consideration and thereafter all its restricted shares will become floating shares subject to the regulations of China Securities Regulation Commission and can become tradable 12 months from April 20, 2006, which was the first trading day after the SSR was formally implemented. The Company’s interest in TCL Corporation has been further reduced from 3.69% to 3.12%, representing 80.60 million shares. As a result of the reduction in the numbers of shares in TCL Corporation, the Company recorded a loss of $1.3 million ($1.9 million before sharing with minority interests) in the second quarter of 2006. As at December 31, 2006, the Company’s interest in TCL Corporation was recorded at fair value of $24.36 million and with an unrealized gain of $9.93 million. In April 2007, we sold all of our 80.6 million shares of TCL Corporation through the Shenzhen Stock Exchange for an aggregate of approximately $54 million, resulting in a one-off gain of approximately $28 million, net of the portion attributable to minority interests.

     In April 2004, we increased our shareholding in TCL Mobile from approximately 3% to 9% through acquiring Jasper Ace, which directly holds 9% equity interest in TCL Mobile, at a consideration of approximately

$102.2 million. The consideration was satisfied, by the exchange of our 72.2% equity interest in Mate Fair, plus cash of $25 million and the issuance of 1,416,764 new Nam Tai shares and resulted in a net investment cost of $79.5 million. In July, Nam Tai transferred all its shares in TCL Mobile to TCL Communication in exchange for 90 shares of TCL Communication. In August 2004, Nam Tai further subscribed for 254,474,910 shares in TCL Communication at a consideration of approximately $16 million. The consideration was satisfied by the dividend receivable from TCL Communication. Together with the 90 shares it received in July 2004, Nam Tai in total holds 254,475,000 shares in TCL Communication, representing 9% of the shareholding of TCL Communication. In September 2004, shares of TCL Communication were listed on the Hong Kong Stock Exchange by way of introduction. There were no new shares issued or sold in connection with the listing, and therefore no dilution to Nam Tai’s original stake in TCL Communication. As of December 31, 2004, the Company’s investment in TCL Communication was stated at fair value based on the traded market price of TCL Communication’s shares. We recognized an impairment loss of $58.3 million as at December 31, 2004. In the second quarter of 2005, a further $6.5 million impairment loss was recognized. Because of a share swap between TCL Communication and Alcatel on July 18, 2005, our shareholding in TCL Communication decreased from 9% to 8.57%. During the period from August to December 2005, we disposed of our entire stake in TCL Communication realizing proceeds of $11.0 million, which resulted in a net realized and accumulated losses of $68.5 million.

     The following details the impact of our strategic investments on our consolidated statements of income for each of the years ended December 31, 2005, 2006 and 2007:

		Year ended December 31,
		2005				2006				2007
Income (loss) from Investments Stated at Fair Value
Dividend income received from TCL Corporation:
(Loss) Gain on disposal of marketable securities			(3,686	)			—				43,815
Impairment loss on marketable securities			(6,525	)			—				—
Loss on marketable securities arising from split share structure reform			—				(1,869	)			—
Gain on disposal of an affiliated company			3,631				—				—
Equity in loss of an affiliated company			(186	)			—				—

Critical Accounting Policies and Estimates

     The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect our reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and assumptions based upon historical experience and various other factors and circumstances. Management believes that our estimates and assumptions are reasonable under the circumstances; however, actual results may vary from these estimates and assumptions under different future circumstances. We have identified the following critical accounting policies that affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

     For further discussion of our significant accounting policies, refer to Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements.

Marketable Securities

     Marketable securities held by Nam Tai are principally equity securities and are classified as available-for-sale securities. Securities classified as available-for-sale are stated at fair value with unrealized gains and losses recorded as a separate component of accumulated other comprehensive income (loss). Fair value is determined by reference to market price or analysis conducted by independent appraiser. In the event where the fair value of the securities has been below the carrying value for a period of time, we will assess whether this decline in value is other-than-temporary.

     Our assessment includes the consideration of the duration and severity of the decline in values and our ability and intent to hold the investments for a reasonable period of time sufficient for a forecasted recovery of the fair value up to or beyond the cost of the investment, and an assessment of the evidence indicating that the cost of the investment is recoverable within a reasonable period of time which outweighs the evidence to the contrary. If it is determined that the decline is other-than-temporary, an impairment charge to the income statement will be made.

Valuation of long-lived assets, including purchased intangible assets and valuation of goodwill

     The Company reviews the carrying value of its long-lived assets, including purchased intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

     The Company assesses the recoverability of the carrying value of long-lived assets, including purchased intangible assets by first grouping its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows largely independent of the cash flows of other assets and liabilities (the asset group) and, secondly, estimating the undiscounted future cash flows that are directly associated with and expected to arise from the use of and eventual disposition of such asset group. The Company estimates the undiscounted cash flows over the remaining useful life of the primary asset within the asset group. If the carrying value of the asset group exceeds the estimated undiscounted cash flows, the Company records an impairment charge to the extent the carrying value of the long-lived asset exceeds its fair value. The Company determines fair value through quoted market prices in active markets or, if quotations of market prices are unavailable, through the performance of internal analysis of discounted cash flows or obtains external appraisals from independent valuation firms. The undiscounted and discounted cash flow analyses are based on a number of estimates and assumptions, including the expected period over which the asset will be utilized, projected future operating results of the asset group, discount rate and long-term growth rate.

     To assess goodwill for impairment, the Company performs an assessment of the carrying value of its reporting units at least on an annual basis or when events and changes in circumstances occur that would more likely than not reduce the fair value of the Company’s reporting units below their carrying value. If the carrying value of a reporting unit exceeds its fair value, the Company would perform the second step in its assessment process and would record an impairment charge to earnings to the extent the carrying amount of the reporting unit goodwill exceeds its implied fair value. The Company estimates the fair value of its reporting units through internal analysis and external independent valuations, which utilize income and market valuation approaches through the application of capitalized earnings, discounted cash flow and market comparable methods. These valuation techniques are based on a number of estimates and assumptions, including the projected future operating results of the reporting unit, discount rate, long-term growth rate and appropriate market comparables.

     The Company’s assessments of impairment of long-lived assets and goodwill, and its periodic review of the remaining useful lives of its long-lived assets are an integral part of the Company’s ongoing strategic review of its business and operations. Therefore, future changes in the Company’s strategy and other changes in the operations of the Company could impact the projected future operating results that are inherent in the Company’s estimates of fair value, resulting in impairments in the future. Additionally, other changes in the estimates and assumptions, including the discount rate and expected long-term growth rate, which drive the valuation techniques employed to estimate the fair value of long-lived assets and goodwill could change and, therefore, impact the assessments of impairment in the future.

     In performing the annual assessment of goodwill for impairment for the years ended December 31, 2006 and 2007, the Company determined that none of the reporting units’ carrying values were close to exceeding their respective fair values.

Accruals and provisions for loss contingencies

     We make provisions for all loss contingencies when information available to us prior to the issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.

     For provisions or accruals related to litigation, we make provisions based on information from legal counsels and the best estimation of management. As discussed in Note (15b) to our consolidated financial statements, we are involved in various legal proceedings and contingencies. We assess our potential liability for the Tele-Art Inc. matter in accordance with Statement of Financial Accounting Standards No.5, “Accounting for Contingencies”, or SFAS 5. SFAS 5 requires a liability to be recorded based on our estimate of the probable cost of the resolution of a contingency. The actual resolution of this contingency may differ from our estimates. If the contingency were settled for an amount greater than our estimate, a future charge to income would result. Likewise, if the contingency were settled for an amount that is less than our estimate, a future credit to income would result.

Summary of Results

     The increase in sales was primarily because of strong growth in demand for LCD modules and FPC subassemblies. The increase in our net sales base year-over-year represents stronger demand from existing customers, as well as growth from new and existing customers.

     The following table sets forth key operating results (in thousands, except per share data) for the years ended December 31, 2005, 2006 and 2007:

		Year Ended December 31,												% increase/(decrease)
		2005				2006				2007				2006 vs 2005				2007 vs 2006
Net sales		$	797,237			$	870,174			$	780,822				9.1	%			(10.3	%)
Gross profit			92,923				86,221				87,018				(7.2	%)			0.9	%
Operating income			52,656				42,480				40,670				(19.3	%)			(4.3	%)
Net income			51,306				40,756				69,503				(20.6	%)			70.5	%
Basic earnings per share			1.19				0.93				1.56				(21.8	%)			67.7	%
Diluted earnings per share			1.19				0.93				1.55				(21.8	%)			66.7	%

Key Performance Indicators

     The following table sets forth, for the quarterly periods indicated, certain of management’s key financial performance indicators that management utilizes to assess the Company’s operating results:

		Three Months Ended
		December 31,		September 30,		June 30,		March 31,
		2006		2006		2006		2006
Sales cycle (1)		4 days		5 days		11 days		10 days
Inventory turnover (2)		14 days		15 days		14 days		13 days
Days in accounts receivable (3)		49 days		55 days		49 days		51 days
Days in accounts payable (4)		59 days		65 days		52 days		54 days

		2007		2007		2007		2007
Sales cycle (1)		6 days		11 days		9 days		12 days
Inventory turnover (2)		17 days		17 days		19 days		16 days
Days in accounts receivable (3)		45 days		53 days		48 days		52 days
Days in accounts payable (4)		56 days		59 days		58 days		56 days

Results of Operations

     The following table presents selected consolidated financial information stated as a percentage of net sales for the years ended December 31, 2005, 2006 and 2007 (amounts may not foot because of rounding).

		Year Ended December 31,
		2005				2006				2007
Net Sales			100.0	%			100.0	%			100.0	%
Cost of sales			88.3				90.1				88.9
Gross profit			11.7				9.9				11.1
Gain on disposal of asset held for sale			—				1.1				—
Selling, general and administrative expenses			(4.2	)			(3.5	)			(4.7	)
Research and development expenses			(0.9	)			(0.9	)			(1.2	)
Losses arising from judgment to reinstate redeemed shares			—				(1.7	)			—
Income from operations			6.6				4.9				5.2
Other (expense) income, net			0.0				(0.2	)			0.3
Dividend income from marketable securities and investments			0.1				—				—
Gain on sale of subsidiaries’ shares			1.3				—				0.1
Gain on disposal of an affiliated company			0.4				—				—
Impairment loss on marketable securities			(0.8	)			—				—
Loss on marketable securities arising from split share structure reform			—				(0.2	)			—
(Loss) gain on disposal of marketable securities			(0.5)				—				5.6
Interest income			0.5				1.0				1.2
Interest expense			(0.1	)			(0.1	)			(0.1	)
Income before income taxes, minority interests and equity in loss of an affiliated company			7.5				5.4				12.3
Income taxes			(0.1	)			0.0				(0.5	)
Income before minority interests and equity in loss of an affiliated company			7.4				5.4				11.8
Minority interests			(1.0	)			(0.7	)			(2.9	)
Equity in loss of an affiliated company			0.0				—				—
Net income			6.4	%			4.7	%			8.9	%

Year Ended December 31, 2007 Compared to Year Ended December 31, 2006

     Net Sales. Our net sales decreased 10.3% to $780.8 million for 2007, down from $870.2 million in 2006 primarily as a consequence of a decline in business from the Telecommunication Components Assembly (“TCA”) segment. The TCA segment is dependent on demand in the mobile phone market and one of our indirect customers suffered a substantial drop in sales volume in its mobile devices business in Asia and Europe. Thus, we and other participants in the mobile phone supply chain were inevitably affected in the year 2007. Despite the business environment was extremely competitive and challenging, from our efforts focusing on sales in other segments, we were able to increase sales in both our Consumer Electronics and Communication Products (“CECP”) and LCD Products (“LCDP”) segment by 59.1% and 29.7% respectively. The increased sales levels were because of the addition of new customers and increases in sales to existing customers in these business segments.

     The distribution of revenue across our reportable segments has fluctuated, and we expect it to continue to fluctuate, as a result of numerous factors, including but not limited to increased business from new and existing customers, fluctuations in customer demand and seasonality. The dollar amounts (in thousands) and percentages of our net sales by reportable segment and product category for the years ended December 31, 2006 and 2007 were as follows:

		Year ended December 31,
		2006								2007								2007 vs 2006
		Dollars				Percent				Dollars				Percent				Percent
CECP		$	178,320				21	%		$	283,757				36	%			59.1	%
TCA			627,199				72	%			413,199				53	%			(34.1	%)
LCDP			64,655				7	%			83,866				11	%			29.7	%
Total			870,174				100	%			780,822				100	%			(10.3	%)

     In the CECP segment, net sales increased by about 59.1% in 2007, mainly because sales of mobile phone accessories, such as speaker stands and headsets containing Bluetooth wireless technology, increased by 48.6% or $50.3 million. Home entertainment products, such as gaming accessories and USB microphone, increased by 88.1% or $32.1 million. Sales of educational devices, mainly represented by FLY Fusion^TM Pentop Computers*, also increased by 53.5% or $13.7 million. Lastly, sales of optical products, mainly represented by CMOS sensor, increased by 102% or $10.1 million.

     In the TCA segment, overall sales significantly decreased by about 34.1%. This was driven primarily by the reduction in sales of LCD modules of 20.7%, or $46.4 million. Besides, sales of FPC subassemblies sharply dropped by 42% or $163.4 million.

     In the LCDP segment, overall sales increased by 29.7%, principally attributable COG products.

     Gross Profit. In terms of dollar value, gross profit for 2007, however, still increased by $0.8 million from 2006, mainly because the shift of sales mix to higher margin products in CECP segment which accounted for 36.4% of sales, compared to only 21% of net sales in 2006. As a result, gross margins increased to 11.1% of net sales in 2007 from 9.9% in 2006.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $36.6 million, or 4.7% of net sales in 2007 from $30.7 million, or 3.5% of net sales in 2006. The $5.9 million increase was mainly attributable to $1.9 million professional and related expenses incurred for professional fees and other expenses to propose and implement the 2007 Reorganization, $1.3 million in audit, legal and professional fees, $0.7 million in salaries and benefits and $2.1 million in selling expenses.

     Research and Development Expenses. Research and development expenses in 2007 increased to $9.8 million from $7.9 million in 2006 accounting for 1.2% and 0.9% of net sales for 2007 and 2006, respectively. The absolute dollar increase was primarily attributable to increases in salary and wages to employ additional engineers recruited to support our R&D activities, including our design of production processes, the development of new products and products associated with customer design-related programs.

     Provision of losses arising from the judgment to reinstate the redeemed shares. Please see the discussion of our 2006 results, below. We did not suffer comparable losses in 2007.

     Other Income (Expenses) Net. During 2007, other income was $2.2 million which mainly represented by exchange gain but was partially offset by other non-operating charges.

     Gain on Sale of Subsidiaries’ Shares. The Company has disposed 29,199,000 shares of NTEEP and 10,728,000 shares of J.I.C. in June 2007 for an aggregated gain of $0.4 million. There was no disposal of subsidiaries’ share in 2006

     Loss on marketable securities arising from split share structure reform. In April 2006, pursuant to the Split Share Structure Reform (“SSR”) of TCL Corporation, the Company’s interest in TCL Corporation has been changed from 95,516,112 promoter shares to 80,600,173 A-shares. As a result of the reduction in the numbers of shares in TCL Corporation, the Company recorded a loss of $1.3 million ($1.9 million before sharing with minority interests). The A-shares became tradable on the Shenzhen Stock Exchange after the expiration of 12 months from April20, 2006, which was the first trading day after the SSR was formally implemented. As at December 31, 2006, investment in TCL corporation was valued at the market share price with an estimated fair value of $24.36 million.

     Gain on disposal of marketable securities. In April 2007, we disposed of all 80,600,173 A shares of TCL Corporation on April 20 and April 23, 2007, through market sales on the Shenzhen Stock Exchange for an aggregate of approximately $54.0 million, resulting in a one-off gain of approximately $43.8 million.

     Interest Income. Interest income was $9.2 million, which increased $0.7 million from $8.5 million in 2006. The increase was primarily the result of higher bank and cash balances, especially after realizing the gain on the disposal of marketable securities.

     Interest Expense. Interest expense decreased to $452,000 in 2007 from $602,000 in 2006. This decrease was primarily a result of repayment of a short-term bank loan at the end of year 2006.

     Income Taxes. The Company continued to record a low effective tax rate of about 4.2% on income before income taxes and minority interests. This was entirely attributable to the income tax provision of $7.3 million, partially offset by the deferred tax credit of $3.3 million recognized during the year as a result of the enactment of the new Enterprise Income Tax Law.

     Minority Interests. Minority interest increased to $22.3 million in 2007 from $6.2 million in 2006. The increase was primarily the result of the increase in minority shareholders’ share of NTEEP’s profit to approximately $21.8 million during 2007. In addition, the minority shareholders’ share of profits of the JIC group for 2007 decreased to $459,000 from $903,000 in 2006.

     Net Income. Net income, increase to $69.5 million in 2007 from $40.8 million in 2006. The following table sets forth, for the years indicated, net income/(loss) by reportable segment expressed as a dollar amount (in millions) and as a percentage of net income.

		Year ended December 31,
			2005								2006								2007
CECP		$	16.8				33	%		$	12.3				30	%		$	54.5				78	%
TCA			35.2				69	%			31.4				77	%			16.0				23	%
LCDP			3.2				6	%			2.6				6	%			1.3				2	%
Corporate			(3.9	)			(8	%)			(5.5	)			(13	%)			(2.3	)			(3	%)
Total		$	51.3				100	%		$	40.8				100	%		$	69.5				100	%

     Net income in CECP segment increased to $54.5 million from $12.3 million. The major reason was the substantial increase in sales and resulting profit contributed in various products such as mobile phone accessories, home entertainment products and also the educational devices in 2007. Although selling, general and administrative expenses and research and development expenses were $6.1 million higher than in 2006, interest income also increased by $2.0 million and the net gain on disposal of marketable securities was $28.0 million in 2007.

     In TCA segment, net income decreased to $16.0 million from $31.4 million. The major reason was competitive pricing pressures requiring us to lower unit prices and downturn of sales of a major customer in 2007. As TCA segment experienced a less than 10% drop in business volume from existing customers for its FPC subassemblies and LCD modules and averaged gross margin dropped from 7.2% to 7.0%, gross profit dropped by $16.4 million. Even though operating expenses decreased by $0.2 million and interest income increased by $0.2 million, the resulting net income decreased by $15.4 million.

     In LCDP segment, net income decreased to $1.3 million from $2.6 million. Owing to the market competition and increase in cost of sales, gross profit dropped by about $1.5 million. Selling, general and administrative expenses also increased by $1.4 million but partially offset by a deferred tax credit of $1.5 million, thus, net income still decreased by $1.3 million.

     Year 2006 net loss in corporate segment represented by the losses arising from the judgment to reinstate redeemed shares of $14.5 million, partially offset by the $9.3 million gain on disposal of asset held for sale. In year 2007, net loss of $2.3 million was primarily due to operating expenses, partially offset by the interest income.

     Year Ended December31, 2006 Compared to Year Ended December 31, 2005

     Net Sales. Our net sales increased 9.1% to $870.2 million for 2006, up from $797.2 million in 2005. Sales of CECP, TCA and LCDP increased 5.5%, 10.0% and 11.3% respectively. The increased sales levels were because of the addition of new customers and increases in sales to existing customers in these business segments.

		Year Ended December 31,
			2005								2006							2006 vs 2005
		Dollars				Percent				Dollars				Percent				Percent
CECP		$	169,056				21	%		$	178,320				21	%			5.5	%
TCA			570,069				72	%			627,199				72	%			10	%
LCDP			58,112				7	%			64,655				7	%			11.3	%
Total		$	797,237				100	%		$	870,174				100	%			26.8	%

     In the CECP segment, net sales increased by about 5.5% mainly because sales of mobile phone accessories increased by 135% or $59.5 million, compared with year 2005. However, this increase was offset by the decreases of $32.5 million, or 77%, in sales of optical products and $16.5 million, or 31%, of home entertainment products.

     Sales of education devices remained relatively unchanged and software development services still accounts for less than 1% of total net sales of the group.

     In the TCA segment, overall sales increased by about 10%. This was driven primarily by the increase in sales of LCD modules of 60%, or $83.8 million, but was partially offset by the decreased sales of semi-knock down, or SKD, handsets, front light panel assemblies for games and PCB subassembly of $6.2 million, $8.6 million and $9.9 million, respectively. Sales of FPC subassemblies in 2006 remained at about the same level as in 2005.

     In the LCDP segment, overall sales increased by 11.3%, principally attributable to STN and COG products.

     Gross Profit. In terms of dollar value, gross profit for 2006 decreased by $6.7 million from 2005, because of increased material costs. Gross margins decreased to 9.9% of net sales in 2006 from 11.7% in 2005. Generally, the decreases were attributable primarily to competitive pressures requiring us to reduce unit selling prices. Although the Company experienced growth in business volume from existing customers, this growth was insufficient to offset the adverse effects of this pressure to reduce unit prices, resulting in lower gross profit.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $2.4 million, or 3.5% of net sales in 2006 from $33.0 million, or 4.1% of net sales in 2005. The $2.4 million decrease was primarily attributable to the gain on disposal of fixed assets, reduction in office expenses, bad debts, advertising and promotion, bank charges and restructuring cost in relation to Hong Kong office in year 2005. The decrease as a percentage of net sales was also primarily attributable to the increased revenue base in 2006.

     Research and Development Expenses. Research and development expenses in 2006 increased to $7.9 million from $7.2 million in 2005 accounting for 0.9% of net sales for 2005 and 2006. The absolute dollar increase was primarily attributable to the recruitment of more engineers to support our R&D activities, including design of production process, development of new products and products associated with customer design-related programs.

     Other Expenses Net. During 2006, other expenses were $1.3 million which mainly represented by other non-operating charges. The Company did not have any dividend income received from marketable securities in 2006 but $0.6 million dividend income was received from our investment in TCL Corporation during the year of 2005.

     Gain on Sale of Subsidiaries’ Shares. There was no disposal of subsidiaries’ share in 2006. In May 2005, NTEEP acquired 100% interest in Namtek Software from the Company and Asano Company Limited, and as a result of this series of linked transactions, the Company effectively disposed of 7.94% interest in Namtek Software, resulting in a gain of $1.9 million. During 2005, the Company disposed 52,574,000 million shares of NTEEP resulting in a gain of $8.2 million.

     Loss on marketable securities arising from split share structure reform. In April 2006, pursuant to the Split Share Structure Reform (“SSR”) of TCL Corporation, the Company’s interest in TCL Corporation has been changed from 95,516,112 promoter shares to 80,600,173 A-shares. As a result of the reduction in the numbers of shares in TCL Corporation, the Company recorded a loss of $1.3 million ($1.9 million before sharing with minority interests). The A-shares became tradable on the Shenzhen Stock Exchange after the expiration of 12 months from April 20, 2006, which was the first trading day after the SSR was formally implemented. As at December 31, 2006, investment in TCL corporation was valued at the market share price with an estimated fair value of $24.36 million.

     Provision of losses arising from the judgment to reinstate the redeemed shares. In the fourth quarter of 2006, we recorded $14.5 million of losses arising from a judgment rendered against us to reinstate 1,017,149 (giving effect to our three-for-one stock split and one-for-ten stock dividend that we made in 2003) shares we had redeemed in 1999 and 2002. We determined the amount of this loss after taking into account the total issue price of the 1,017,149 redeemed shares at the market price of Nam Tai shares on November20, 2006 (the date of the Judgment); the estimated costs and expenses of the Bank of China and Tele-Art Inc.’s initial liquidator that Nam Tai expects will be claimed in connection with the Privy Council litigation proceedings; and a reversal of amounts Nam Tai previously reserved in its financial statements for potential losses to be incurred as result of the share redemptions in 1999 and 2002 respectively.

     Interest Income. Interest income was $8.5 million, which increased $4.6 million from $3.9 million in 2005. The increase was primarily the result of higher average bank balances and increase in interest rate.

     Interest Expense. Interest expense increased to $602,000 in 2006 from $438,000 in 2005. This increase was primarily a result of increase in interest rates.

     Income Taxes. The Company enjoyed a low effective tax rate of about 1% on income before income taxes and minority interests as certain of our subsidiaries in PRC have continuously qualified for tax refunds as a result of reinvesting their profits earned in previous years in PRC.

     Minority Interests. Minority interest decreased to $6.2 million in 2006 from $8.0 million in 2005. The decrease was primarily the result of the decrease in minority shareholders’ share of NTEEP’s profit to approximately $5.3 million during 2006. In addition, the minority shareholders’ share of profits of the JIC group for 2006 decreased to $903,000 from $1.3 million in 2005.

     Equity in Loss of Affiliated Companies. There was no further sharing in equity in loss of affiliated companies after the disposal of investment in Alpha Star in year 2005.

     Net Income. Net income, decrease to $40.8 million in 2006 from $51.3 million in 2005. The following table sets forth, for the years indicated, net income/(loss) by reportable segment expressed as a dollar amount (in millions) and as a percentage of net income.

     Net income in CECP segment decreased to $12.3 million from $16.8 million. The major reason was the drop in gross profit margin as mobile phone accessories with relatively lower margin accounted for a larger percentage of sales in 2006. Although selling, general and administrative expenses and research and development expenses were maintained at a lower level than in 2005 and interest income increased by $1.1 million which offset the decrease in dividend income of $0.6 million, overall net income still dropped by $4.5 million.

     In TCA segment, net income decreased to $31.4 million from $35.2 million. The major reason was competitive pricing pressures requiring us to lower unit prices. Although TCA segment experienced growth in business volume from existing customers for its FPC subassemblies and LCD modules, averaged gross margin still dropped from 8.2% to 7.2%. In line with the increase in business volume, operating expenses increased by about 16.4% in comparing with year 2005. As a result, net income decreased by $3.8 million.

     In LCDP segment, net income decreased to $2.6 million from $3.2 million. Owing to the market competition and increase in cost of sales, gross profit dropped by about $1.0 million. Even though selling, general and administrative expenses were controlled at a lower level than year 2005, net income still decreased by $0.6 million.

     Net loss in corporate segment represented by the losses arising from the judgment to reinstate redeemed shares of $14.5 million, partially offset by the $9.3 million gain on disposal of asset held for sale. Besides, interest income also increased by $3.4 million because of the rising interest rate environment from 2005 to 2006 and so the resulting net loss increased by $1.6 million.

Liquidity and Capital Resources

Liquidity

     We have financed our growth and cash needs to date primarily from internally generated funds, proceeds from the sale of our strategic investments, proceeds from the sale of land we owned in Hong Kong, sales of our common stock and bank borrowings. In 2006, as part of our reduction of business activities in Hong Kong, we sold our former administrative offices in Hong Kong for $20.2 million.

     We do not use off-balance sheet financing arrangements, such as securitization of receivables or obtaining access to assets through special purpose entities, as sources of liquidity. Our primary uses of cash have been to fund expansions and upgrades of our manufacturing facilities, to make strategic investments in potential customers and suppliers and to fund increases in inventory and accounts receivable resulting from increased sales.

     We had net working capital of $266.3 million at December 31, 2007 compared to net working capital of $238.1 million at December 31, 2006. We expect our working capital requirements and capital expenditures to increase in order to support future expansions of our operations through acquisition of lands, construction of new factories on these lands to be acquired and machinery purchases. It is possible that future expansions may be significant and may require the payment of cash. Future liquidity needs will also depend on fluctuations in levels of inventory and shipments, changes in customer order volumes and timing of expenditures for new equipment.

     We currently believe that during the next twelve months, our capital expenditures will be in the range of $80 million to $100 million, principally for an office building, machinery and equipment and new factory expansion in China. We believe that our level of resources, which include cash and cash equivalents, accounts receivable and available borrowings under our credit facilities, will be adequate to fund these capital expenditures and our working capital requirements for at least the next twelve months. Should we desire to consummate significant additional acquisition opportunities or undertake additional significant expansion activities, our capital needs would increase and could possibly result in our need to increase available borrowings under our revolving credit facilities or access public or private debt and equity markets. There can be no assurance, however, that we would be successful in raising additional debt or equity on terms that we would consider acceptable or at all.

     The following table sets forth, for the years ended December 31, 2005, 2006 and 2007, selected consolidated cash flow information (in thousands):

		Year Ended December 31,
		2005				2006				2007
Net cash provided by operating activities		$	70,825			$	79,811			$	71,050
Net cash provided by (used in) investing activities			18,740				(8,430	)			26,610
Net cash used in financing activities			(36,165	)			(65,071	)			(47,098	)
Net increase in cash and cash equivalents			53,400				6,310				50,562

     Net cash provided by operating activities for 2007 was $71.1 million. This consisted primarily of $69.5 million of net income, adjusted for $21.5 million of depreciation and amortization, $22.3 million in minority interests and $43.8 million gain on disposal of marketable securities. Our working capital related to operating activities increased, mainly driven by a decreases in accounts receivable of $21.7 million and increase in other payables of $8.0 million, partially offset by a decrease of $18.6 million in accounts payable, an increase of $1.2 million in income taxes recoverable, an increase of $1.5 million in inventories and an increase of $3.3 million in prepaid expenses and other receivables.

     Net cash used in investing activities of $26.6 million for 2007 consisted primarily of proceeds from disposal of marketable securities of $53.9 million, proceeds from sales of subsidiaries’ shares of $7.3 million and proceeds from disposal of property, plant and equipment of $0.5 million, partially offset by capital expenditures of $13.8 million mainly consisting of purchases of machinery and equipment, which were used to expand our manufacturing capacity and to upgrade our equipment to produce increasingly complex products and our prepayment for the purchase price for land -use rights of $7.5 million. In addition, the Company utilized $13.8 million to acquire additional capital shares of NTEEP and JIC in 2007.

     Net cash used in financing activities of $47.1 million for 2007 resulted primarily from $47.8 million paid to shareholders as dividends, $2.0 million in repayment of bank loans, offset by proceeds of bank loans of $2.7 million.

     Net cash provided by operating activities for 2006 was $79.8 million. This consisted primarily of $40.8 million of net income, adjusted for $19.0 million of depreciation and amortization, $14.5 million provision of losses arising from the judgment to reinstate the redeemed shares, $9.3 million gain on disposal of asset held for sale, and $6.2 million in minority interests. Our working capital related to operating activities increased, driven by an increase of $4.3 million in accounts payable and a decrease in accounts receivable of $8.1 million and $0.9 million in inventories, partially offset by a decrease $3.1 million in accrued expenses and others payables, an increase of $1.6 million in income taxes recoverable, a decrease of $0.3 million in notes payable and an increase of $1.0 million in prepaid expenses and other receivables.

     Net cash used in investing activities of $8.4 million for 2006 consisted primarily of proceeds from disposal of assets held for sale of $20.2 million and proceeds from disposal of property, plant and equipment of $420,000 partially offset by capital expenditures of $23.8 million. Besides, the Company also utilized $3.1 million to acquire additional shares in NTEEP and JIC. Capital expenditure in 2006 mainly consisted of purchases of machinery and equipment, which were used to expand our manufacturing capacity and to upgrade our equipment to produce increasingly complex products.

     Net cash used in financing activities of $65.1 million for 2006 resulted primarily from $65.9 million paid to shareholders as dividends, $8.1 million in repayment of bank loans, partially offset by proceeds of bank loans of $3.5 million and proceeds from shares issued on exercise of options of $5.4 million.

     For the years ended December 31, 2006 and 2007, the Company has guaranteed loans and credit facilities of various of its subsidiaries in amounts aggregating up to $15.0 million and nil, respectively. The terms of the guarantees correspond with the terms of the underlying loan and credit facility agreements.

     We had no material transactions, arrangements or relationships with unconsolidated affiliated entities that are reasonably likely to affect our liquidity.

Privy Council Judgment/Bank of China Litigation

     For a number of years, we have been involved in litigation against Tele-Art, its initial liquidator and the Bank of China concerning, among things, the priority of claims against Tele-Art’s insolvent estate and Nam Tai’s rights to have redeemed in 1999 and 2002 an aggregate of 1,017,149 (giving effect to our three-for-one stock split and one-for-ten stock dividend that we effected in 2003) of the common shares of Nam Tai beneficially held by Tele-Art Inc. in order to satisfy a portion of Nam Tai’s claims against Tele-Art. After several decisions by the courts of the British Virgin Islands and appeals in these proceedings, judgment was rendered on November 20, 2006 by the Lords of the Judicial Committee of the Privy Council of the United Kingdom, which required us to reinstate the 1,017,149 Nam Tai shares that we had previously redeemed from Tele-Art and deliver them to Bank of China on account of its secured claim against Tele-Art. For the year ended December 31, 2006, we accounted for the reinstatement of the shares at their fair value, i.e. the market closing price on November 20, 2006, the date of the Judgment.

     We have been advised that Bank of China sold 539,830 of the reinstated shares in early September 2007 and applied the proceeds to the secured debt that Bank of China claimed was due to it from Tele-Art. The proceeds from the sale retained by Bank of China included the amount it asserted to satisfy the obligation it claimed from

Tele-Art through the date of sale, plus a reserve of approximately $900,000 for legal costs and expenses that Bank of China has claimed for related litigation. We have been advised by our legal advisers that such retention is wrongful. We intend to issue legal proceedings against the Bank of China for such wrongful retntion and for an account of the sale proceeds retained by it is purported satisfactionj of the debts due to it. Bank of China delivered to Tele-Art’s liquidator the 477,319 shares remaining from the reinstated shares it sold. Investigations on behalf of the liquidator seeking to locate and recover additional Tele-Art assets for its estate in liquidation are ongoing. The liquidator has authorized us to utilize the cash dividends attributable to the reinstated shares for the benefit of the estate of Tele-Art (in Liquidation). We have deposited such cash dividends and will deposit proceeds realized from the sale of the remaining reinstated shares and any other assets of Tele-Art’s estate that are discovered into a segregated bank account, from which all future legal costs and other expenses relating to the liquidation of Tele-Art will be paid until its liquidation proceedings are concluded.

Capital Resources

     As of December 31, 2007, we had $272.5 million in cash and cash equivalents, consisting of cash and short-term deposits, compared to $221.1 million as of December 31, 2006. The Company has no short-term bank loans as of December 31, 2007 and December 31, 2006. Our long-term bank borrowing was $3.5 million and $2.9 million as of December 31, 2007 and December 31, 2006 respectively.

     As of December 31, 2007, we had in place general banking facilities with three financial institutions aggregating $35.2 million. The maturity of these facilities is generally up to 120 days. These banking facilities are guaranteed by one of our subsidiaries listed in Hong Kong Stock Exchange and there is an undertaking not to pledge any assets to any other banks without the prior consent of our bankers. However, these covenants do not have any impact on our ability to undertake additional debt or equity financing. Interest rates are generally based on the banks’ reference lending rates. Our facilities permit us to obtain letters of credit, import facilities, trust receipt financing and shipping guarantees. No significant commitment fees are required to be paid for the banking facilities. These facilities are subject to annual review and approval. As of December 31, 2007, we had utilized approximately $4.6 million under such general credit facilities and had available unused credit facilities of $30.6 million.

     During 2007, we had one four-year term loan and another three-year term loan. The total outstanding balance amounted to $3.5 million as of December 31, 2007 and $2.9 million as of December 31, 2006. An analysis of the term loans are as follows:

																				Outstanding				Outstanding
																				balance at				balance at
				Original								Amount per								December				December
		Date of		drawn				No. of				installments						First		31,2006				31, 2007
		draw down		(in million)				installments				(in millions)				Interest rate		repayment		(in millions)				(in millions)
Term Loan 1		Jul-07		$	1.1				12			$	0.1			0.55% over LIBOR		Oct-07		$	—			$	1.0
		Aug-07		$	0.5				12			$	0.1			0.55% over LIBOR		Nov-07		$	—			$	0.5
		Sep-07		$	1.1				12			$	0.1			0.55% over LIBOR		Dec-07		$	—			$	1.0
Term Loan 2		Apr-04		$	1.6				16			$	0.1			0.75% over LIBOR		Jul-04		$	0.6				$0.2
		Jun-04		$	3.6				16			$	0.2			0.75% over LIBOR		Sep-04		$	1.4				$0.4
		Dec-04		$	1.8				16			$	0.1			0.75% over LIBOR		Mar-05		$	0.9				$0.4
Total																				$	2.9			$	3.5

     Our contractual obligations, including long-term debt arrangements, capital expenditure, purchase obligations and future minimum lease payments under non-cancelable operating lease arrangements as of December 31, 2007 are summarized below. We do not participate in, or secure financing for, any unconsolidated limited purpose entities. Non-cancelable purchase commitments do not typically extend beyond the normal lead-time of several weeks at most. Purchase orders beyond this time frame are typically cancelable.

		Payments (in thousands) due by period
																										2012 and
Contractual Obligation		Total				2008				2009				2010				2011				2012				thereafter
Long-term bank borrowing		$	3,548			$	1,990			$	890			$	668			$	—			$	—			$	—
Operating leases			6,837				1,789				1,449				1,428				1,532				639				—
Capital expenditures			3,116				3,116				—				—				—				—				—
Purchase obligations			97,085				97,085				—				—				—				—				—
Total		$	110,586			$	103,890			$	2,339			$	2,096			$	1,532			$	639			$	—

There are no material restrictions (including foreign exchange controls) on the ability of our non-China subsidiaries to transfer funds to us in the form of cash dividends, loans, advances or product or material purchases. With respect to our PRC subsidiaries, with the exception of a requirement that about 11% of profits be reserved for future developments and staff welfare, there are no restrictions on the payment of dividends and the removal of dividends from China once all taxes are paid and assessed and losses, if any, from previous years have been made good. For 2007 or before, if dividends were paid by our PRC subsidiaries, such dividends would reduce the amount of reinvested profits and, accordingly, the refund of taxes paid would be reduced to the extent of tax applicable to profits not reinvested. However, In March 2007, PRC National People’s Congress promulgated the new Enterprise Income Tax Law which replaces the current foreign enterprise income tax law and takes effect from January 1, 2008. Profit reinvestment benefit, which we previously enjoyed, was also abolished with efect from January 1, 2008. However, we believe there is no material impact to the capital resource of the Company to provide working capital for growth and captial expenditure for coming future.

Impact of Inflation

     Inflation and deflation in China, Hong Kong and Macao has not had a material effect on our past business. During times of inflation, we have generally been able to increase the price of its products in order to keep pace with inflation.

Exchange Controls

     There are no exchange control restrictions on payments of dividends, interest, or other payments to nonresident holders of our securities or on the conduct of our operations in Hong Kong, Macao and Cayman Islands, where the offices of some of our subsidiaries are located, or in the British Virgin Islands, where we are incorporated. Other jurisdictions in which we conduct operations may have various exchange controls. With respect to our PRC subsidiaries, with the exception of a requirement that about 11% of profits be reserved for future developments and staff welfare, there are no restrictions on the payment of dividends and the removal of dividends from China once all taxes are paid and assessed and losses, if any, from previous years have been made good. We believe such restrictions will not have a material effect on our liquidity or cash flows.

Recent Changes in Accounting Standards

     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, "Fair Value Measurement”. SFAS No. 157 addresses standardizing the measurement of fair value for companies who are required to use a fair value measure for recognition or disclosure purposes. The FASB defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is evaluating the impact, if any, of the adoption of SFAS No. 157. It is not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

     In February 2007, the FASB issued SFAS No. 159, “The Fair Value Options for Financial Assets and Financial Liabilities". SFAS No. 159 permits an entity, on a contract-by-contract basis, to make an irrevocable election to account for certain types of financial instruments and warranty and insurance contracts at fair value, rather than historical cost, with changes in the fair value, whether realized or unrealized, recognized in earnings. SFAS No. 159 is effective for financial year beginning on or after November 15, 2007. The Company is evaluating the impact, if any, of the adoption of SFAS No. 159. It is not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

     In June 2007, the Emerging Issues Task Force (“EITF”) of FASB ratified EITF Issue 06-11 "Accounting for the Income Tax Benefits of Dividends on Share-Based Payment Awards” (“EITF 06-11”). EITF 06-11 provides that tax benefits associated with dividends on share-based payment awards be recorded as a component of additional paid-in capital. EITF 06-11 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007. The Company is currently assessing the impact of EITF 06-11 on its consolidated financial position and results of operations.

     In 2007, the EITF of FASB issued EITF Issue 07-3, “Accounting for Nonrefundable Advance Payments for Goods or Services Received for Use in Future Research and Development Activities” (“EITF 07-3”). EITF reached a consensus that nonrefundable advance payments to acquire goods or pay for services that will be consumed or performed in a future period in conducting research and development activities on behalf of the entity should be recorded as an asset when the advance payments are made. Capitalized amounts should be recognized as expense when the related goods are delivered or services are performed, that is, when the goods without alternative future use are acquired or the service is rendered. EITF 07-3 is effective for fiscal years beginning after December 15, 2007. The Company is evaluating the impact, if any, of the adoption of EITF 07-3. It is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

     In December 2007, FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). The objective of SFAS No. 141R is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS No. 141R is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. The Company is evaluating the impact, if any, of the adoption of SFAS No. 141R. It is not expected to have a material impact on the Company’s financial position, results of operations and cash flows.

     In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements”. SFAS No. 160 amends Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS No. 160 defines “a noncontrolling interest, sometimes called a minority interest, is the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent”. The objective of SFAS No. 160 is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is evaluating the impact, if any, of the adoption of SFAS No. 160.

Research and Development

     Our research and development expenditure mainly comprised of salaries and benefits paid to our research and development personnel and is mainly for the development of advanced manufacturing techniques to produce complex products on a mass scale and at a low cost. We expense our research and development costs as incurred. For the years ended December 31, 2005, 2006 and 2007, we incurred research and development expenses of approximately $7.2 million, $7.9 million and $9.8 million respectively.

Trend Information

     Currently, our operations consist of three reportable segments, Consumer Electronics and Communication Products, or CEP, Telecommunication Components Assembly, or TCA, and LCD Products, or LCDP.

     We plan to continue to leverage on our solid long-term customer relationships, industry and manufacturing expertise to expand our business.

     For Consumer Electronics and Communication Products, we will continue to focus on CMOS sensor optical devices, educational products, cellular phone accessories and entertainment devices. Since June 2003, we have been able to diversify our product range from finished products to component assemblies and began manufacturing the high growth CMOS sensor modules for integration into various image-capturing devices such as cellular phones with built-in camera functions, and notebook computers popularized with Skype and such applications, as well as recently for the automotive industry. In 2007, we continued developing finished products, such as headset accessories containing Bluetooth wireless technology, and also new entertainment and educational products. In addition to our core manufacturing business for consumer electronic and communication products, we are also exploring GPS and Wi-Fi technology to expand our customer base for future growth.

     For Telecommunication Component Assembly, we will continue to focus on high-growth products that require advance technological production know-how. In addition to high-end color LCD modules, we began manufacturing FPC subassemblies in March 2003 for integration into various LCD modules and other products, like infotainment consumer electronic products which played a significant role in increasing our total turnover in the past two years. In 2006, we further increased our product line and broadened our customer base by producing DAB modules for a new European customer and PCBAs for headsets containing Bluetooth wireless technology. In order to enhance our vertical integration by moving upstream to increase profitability and support our fast-growing FPC subassembly business, we began FPC boards manufacturing in 2007. We believe that the combination of FPC boards manufacturing and FPC subassembly capability will allow us to better serve our customers and give us synergy benefits by improving our gross profit margins and broaden our product and service offering.

     From time to time, our customers have experienced significant decreases in demand for their products and services. This volatility has resulted, and may result in the future, in our customers delaying purchases of the products we manufacture for them and our customers placing purchase orders for lower volumes of products than previously anticipated. For example, during 2007 one of our indirect customers, engaged in the manufacture and sale of mobile phones and other mobile devices, suffered a substantial drop in sales volume in its mobile devices business in Asia and Europe which, in turn, adversely affected sales in our telecommunication components assembly products segment, resulting in our 2007 net sales from that segment decreasing by over $214 million, or 34.1%, from comparable 2006 net sales. To date, we have seen no signs that the decreases in demand in the mobile phone market is reversing and we accordingly expect, at least in the near term during 2008, that sales in our TCA segment will continue the trend evidenced in 2007, will decline from levels we experienced in 2006 and may decrease from TCA product sales levels we reported in 2007.

     LCD panels are found in numerous applications in electronics products, such as watches, clocks, calculators, pocket games, PDAs and mobile and cordless telephones and car audio systems. We are a customized LCD panel manufacturer, and we develop each product from design concept all the way to a high quality mass producible product. Since 2003, we have also begun manufacturing customized LCD modules that included components such as backlights, FPC and COG. In 2005, we began developing LCD modules for cordless and VoIP phones. We intend to continue expanding our customized passive LCD module products utilizing LCD panels that we have manufactured, and we expect this strategy to provide us with higher value products, a wider customer base, higher revenues and margins.

     It has been our strategy to continue diversifying our customer and product basis to higher value and better margin business. We will also kept on enhancing our vertical integration by moving upstream to develop and manufacture FPC boards to increase profitability and support our FPC subassembly business We believe that the growth of this business will be sufficient to offset the impact of lower gross profit margins and global trend of dropping in unit price which can continue to achieve overall growth in our profits.

Off-balance Sheet Arrangement

     For 2007, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 6. DIRECTORS AND SENIOR MANAGEMENT

Directors and Senior Managers

     Our current directors and senior management, and their ages as of February 29, 2008, are as follows:

Name		Age				Position with Nam Tai or its Subsidiaries
M. K. Koo			63			Chairman of the Board of Nam Tai, NTEEP Group
Masaaki Yasukawa			48			Chief Executive Officer of Nam Tai and NTEEP Group
John Q. Farina			54			President and Chief Financial Officer of Nam Tai and Chief Financial Officer of NTEEP Group
L. P. Wang			51			Chief Operating Officer of Nam Tai and NTEEP Group
Karene Wong			44			Chief Executive Officer of NTEEP Business Unit
Patinda Lei			41			Chief Executive Officer of Zastron Business Unit
Ivan Chui			49			Chief Executive Officer of Jetup Business Unit
Peter R. Kellogg			65			Member of the Board of Directors
Dr. Wing Yan (William) Lo			47			Member of the Board of Directors
Charles Chu			51			Member of the Board of Directors
Mark Waslen			47			Member of the Board of Directors

     M.K. Koo. Mr. Koo has served as Chairman of the Board of Nam Tai and its predecessor companies from inception until September 1998. He then became our Senior Executive Officer, responsible for corporate strategy, finance and administration and served as the Company’s Chief Financial Officer. Mr. Koo resigned from the position of Chief Financial Officer on January 1, 2005 but maintained his role as a non-executive director of the Company. In July 2005, Mr. Koo reassumed the position as Chairman upon the resignation of Mr. Tadao Murakami but maintained his non-executive status. On June 1, 2007 Mr. Koo also assumed the position of acting Chief Executive Officer upon the resignation, effective May 31, 2007, of Warren Lee, who resigned to accept the position of Chief Executive of Yu Ming Investments Limited. Mr. Koo served as Nam Tai’s CEO until Masaaki Yasukawa joined Nam Tai as CEO effective on February 1, 2008. Mr. Koo, who continues to serve Nam Tai as its Chairman of the Board, received his Bachelor’s of Laws degree from National Taiwan University in 1970. With effect from February 2, 2007, Mr. Koo was also appointed as non-executive Chairman of NTEEP Group.

     Masaaki Yasukawa. Mr. Yasukawa joined Nam Tai group in February 2008 as its Chief Executive Officer of Nam Tai and NTEEP Group. Mr. Yasukawa started his career as a Corporate R&D engineer of Seiko

Epson Corporation in Japan in 1983. In 1985 Mr. Yasukawa was appointed to Epson America Inc. (EAI) as an engineering support manager. After he returned to Seiko Epson R&D department, Mr. Yasukawa was appointed as a Manager and later the General Manager of New Business Development department and initiated various programs of cross-divisional, multi-functional new business development. In 2003, he was appointed as the General Manager of the Business Solution Business Unit at Epson Hong Kong, starting solution-based corporate businesses targeting Hong Kong, PRC and other Asian corporate customers. One of his solution products was honored with South East Asia’s IT Award in 2003. Mr. Yasukawa has established business relationships with major corporate customers, including Mass Transit Railway, Hong Kong and Shanghai Banking Corporation, Bank of China, Town Gas in Hong Kong, and Oriental Plaza in the PRC. Mr. Yasukawa graduated from University of Tokyo, in Tokyo Japan in 1983, with a Bachelor Degree in Mechanical Engineering, and later obtained Master Degree with distinction in Business Administration from University of Michigan, Ann Arbor in 1993. Mr. Yasukawa has been selected as the only Japanese member of Hong Kong Computer Society (HKCS), and is an Asian Liaison of International Affairs Committee.

     John Q. Farina. Mr. Farina joined Nam Tai in May 2007 as its Chief Financial Officer and redesignated as President and Chief Financial Officer on February 1, 2008. With effect from February 2, 2007, he was also appointed as Chief Financial Officer of the NTEEP Group. Mr. Farina along with his strong foundation in financial management, brings over 20 years experience in high technology companies. He has over 10 years experience with Celestica Inc., a top tier electronics manufacturing services company. Mr. Farina was part of Celestica Inc’s founding management team and has held General Manager, Corporate Development and Financial Executive positions. Mr. Farina also worked for 13 years with IBM Corporation in Canada and the United States where he gained extensive experience in financial management culminating in the role Divisional Chief Financial Officer. Mr. Farina graduated from the University of Toronto with a bachelor degree in applied science in 1975. He also holds a Master Degree in Business Administration that he received in 1981 from the York University Schulich School of Business in Toronto.

     L.P. Wang. Mr. Wang was appointed to the position of Chief Operating Officer of Nam Tai. in December 2006 and in the position he oversee the production operation of Nam Tai. Mr. Wang has more than 23 years of experience in the electronics industry. He joined Nam Tai in 1997 as production engineering manager and was promoted to vice managing director in 2002. He was later promoted to Managing Director of Zastron Electronics (Shenzhen) Co. Ltd. in August of the same year. Mr. Wang left Nam Tai in February 2004 but re-joined in December 2006 as its Chief Operating Officer. Prior to joining Nam Tai in 1997, Mr. Wang held several management positions in various companies in Taiwan and Malaysia. Mr. Wang graduated from Chinese Military Academy in Taiwan.

     Karene Wong. Ms. Wong joined Nam Tai in June 1989. On January 1, 2001, Ms. Wong was promoted to Managing Director of Nam Tai Trading Company Limited, formerly known as Nam Tai Electronic & Electrical Products Limited. (Hong Kong), a Nam Tai subsidiary, and later held the position of Chairman of NTEEP from June 2003 until September 30, 2006, at which time she became Vice Chairman of NTEEP group. In November 2006, her title was changed to the Chief Executive Officer of NTEEP group. After the 2007 Reorganization , she was redesignated as Chief Executive Officer of NTEEP business unit She is responsible for overseeing the overall business of NTEEP business unit, a position in which she continues to maintain close contact with key customers and cultivates new customer relationships.

     Patinda Lei. Ms. Lei joined Nam Tai group in May 1990. In June 2002, she assumed the position of Managing Director of our subsidiary Nam Tai Telecom (Hong Kong) Company Limited and in March 2004, became the Chairman of the Board of Zastron. In early 2007, she was redesignated as Chief Executive Officer of Zastorn group. After the 2007 Reorganization, her title was changed to Chief Executive Officer of the Zastron business unit, where she continues to maintain close contact with key customers and to cultivate new customer relationships.. Ms. Lei has worked with various of the Nam Tai group companies for seventeen years specializing in promoting, generating and monitoring sales revenues on various high-end electronics products. During the period from January 10, 2006, Ms. Lei served Nam Tai as acting as announced on January 10, 2006, Ms. Patinda Lei agreed to act as Nam Tai’s CEO and CFO, remaining in those positions until November 30, 2006 and April 30, 2007, respectively. Ms. Lei graduated with a Bachelor of Sciences degree in Management Science from the Faculty of Engineering of Tokyo University of Science in Japan and holds a Master Degree in Business Administration from The Chinese University of Hong Kong.

     Ivan Chui. Mr. Chui is the co-founder of Nam Tai’s subsidiary, Jetup. Before the 2007 Reorganization , he served as Chairman of the Board of Nam Tai’s subsidiary, JIC Technology Company Limited, the holding Company of our JIC group. JIC after the 2007 reorganization, he appointed as Chief Executive Officer of Jetup business unit, which as the result of the 2007 Reorganization became part of our NTEEP group. Mr. Chui has directed Jetup’s marketing activities since its founding in 1980. He has over 20 years of experience in the LCD business and has extensive experience in doing business with Japanese companies.

     Peter R. Kellogg. Mr. Kellogg has served on our Board of Directors since June 2000. Mr. Kellogg was a Senior Managing Director of Spear, Leeds & Kellogg, a registered broker-dealer in the United States and a

specialist firm on the NYSE until the firm merged with Goldman Sachs in 2000. Mr. Kellogg serves on our Compensation Committee and Nominating / Corporate Governance Committee. Mr. Kellogg is also a member of the Board of the Ziegler Companies and the U.S. Ski Team.

     Dr. Wing Yan (William) Lo. Dr. Lo was elected to our Board of Directors at our annual meeting of shareholders on July 8, 2003. Dr. Lo is currently the Vice Chairman and Managing Director of I.T Limited, a well established trend setter in fashion apparel retail market in Hong Kong with stores in the PRC, Taiwan and Malaysia, which is listed on the Main Board of the Hong Kong Stock Exchange. From 2002 to 2006, Dr. Lo was the Executive Director and Vice President of China Unicom Ltd., a telecommunications operator in China that is listed on both the Hong Kong and New York Stock Exchanges. From 1998 to 1999, Dr. Lo was the chief executive officer of Citibank’s Global Consumer Banking business for Hong Kong. Prior to joining Citibank, Dr. Lo was the founding Managing Director of Hongkong Telecom IMS Ltd. Dr. Lo holds an M. Phil. degree and a Ph.D. degree from Cambridge University, England. He is also an Adjunct Professor of The School of Business, Hong Kong Baptist University as well as the Faculty of Business, Hong Kong Polytechnic University. In 1998, Dr. Lo was appointed as a Justice of the Peace of Hong Kong. In 2003, he was appointed as Committee Member of Shantou People’s Political Consultative Conference. Dr. Lo currently serves on the Nominating / Corporate Governance Committee acting as the Chairman and also serves on our Audit Committee and Compensation Committee.

     Charles Chu. Mr. Chu has served on our Board of Directors from November 1987 to September 1989 and since November1992. Since July 1988, Mr. Chu has been engaged in the private practice of law in Hong Kong. Mr. Chu serves as Chairman of our Compensation Committee, and on our Audit Committee and Nominating / Corporate Governance Committee. Mr. Chu received his Bachelor’s of Laws degree and Post-Graduate Certificate of Law from the University of Hong Kong in 1980 and 1981, respectively.

     Mark Waslen. Mr. Waslen has served on our Board of Directors since July 2003 and serves as Chairman of our Audit Committee and on our Compensation Committee and Nominating / Corporate Governance Committee. From 1990 to 1995 and from June 1998 to October 1999, Mr. Waslen was employed by Nam Tai in various capacities, including Financial Controller, Secretary and Treasurer. Since 2001, Mr. Waslen has been employed by Berris Mangan Chartered Accountants, an accounting firm located in Vancouver, BC. In addition to Berris Mangan, Mr. Waslen has been employed with various other accounting firms, including Peat Marwick Thorne and Deloitte & Touche. Mr. Waslen is a CFA, CA and a CPA and received a Bachelor’s of Commerce (Accounting Major) from University of Saskatchewan in 1982.

     No family relationship exists among any of our directors or members of our senior management and no arrangement or understanding exists between any of our major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management. Directors are elected each year at our annual meeting of shareholders or serve until their respective successors take office or until their death, resignation or removal. Members of senior management serve at the pleasure of the Board of Directors.

Compensation of Directors and Senior Management

     The aggregate compensation, including benefits in kind (excluding stock options) granted, during the year ended December 31, 2007 that we or any of our subsidiaries paid to all directors and senior management as a group for their services in all capacities to the Company or any subsidiary was approximately $3.3 million.

     During the year ended December 31, 2007, we granted to our directors from our stock option plans options to purchase an aggregate of 75,000 of our common shares at exercise price of $12.42 per share. During the year ended December 31, 2007, we also granted to our senior management from our stock option plans options to purchase an aggregate of 40,000 of our common shares at exercise price of $12.13. The exercise prices of the shares covered by the options granted during 2007 were all equal to their fair market value of our shares on the date of grant and the options granted expire on the anniversary of their grant date in 2010 with respect to options granted to directors and 2011 with respect to options granted to senior management.

     We pay our directors who are not employees of Nam Tai or any of its subsidiaries $3,000 per month for services as a director, $750 per meeting attended in person and $500 per meeting attended by telephone. In addition, we reimburse our directors for all reasonable expenses incurred in connection with their services as a director and member of a board committee.

     Members of our senior management are eligible for annual cash bonuses based on their performance and that of the subsidiaries in which they are assigned for the relevant period. Senior management are entitled to share up to 15% of the operating income from the subsidiary in which they are employed during the year. Our senior management in charge of our subsidiaries recommend the participating staff members from the corresponding subsidiary and the amount, if any, to be allocated from such subsidiary’s profit pool to an eligible employee. In addition to cash incentives, members of our senior management are eligible to receive stock options from our Stock Option Plans.

     According to the applicable laws and regulations in China set by the local government of Shenzhen, China, prior to July 2006, we are required to contribute 8% to 9% of the stipulated salary to our staff located there to retirement benefit schemes to fund retirement benefits for our employees. With effect from July 2006, the applicable percentages were adjusted to 10% to 11%. Our principal obligation with respect to these retirement benefit schemes is to make the required contributions under the scheme. No forfeited contributions may be used by us to reduce the existing level of contributions.

     Since December 2000, we have enrolled all of our eligible employees located in Hong Kong into the Mandatory Provident Fund, or MPF, scheme, a formal system of retirement protection that is mandated by the government of Hong Kong and provides the framework for the establishment of a system of privately managed, employment-related MPF schemes to accrue financial benefits for members of the Hong Kong workforce when they retire. Since first establishing a subsidiary in Macao in 2003, we have enrolled all of our eligible employees in Macao into Macao’s retirement benefit scheme, or RBS. Both the MPF and RBS are available to all employees aged 18 to 64 and with at least 60days of service under the employment of Nam Tai in Hong Kong and Macao. Contributions are made by us at 5% based on the staff’s relevant income. The maximum relevant income for contribution purpose per employee is $3,000 per month. Staff members are entitled to 100% of the Company’s contributions, together with accrued returns, irrespective of their length of service with us, but the benefits are required by law to be preserved until the retirement age of 65 for employees in Hong Kong while the benefit can be withdrawn by the employees in Macao at the end of employment contracts.

     The cost of our contributions to the staff retirement plans in Hong Kong, Macao and China amounted to $1,510,000, $1,534,000 and $1,800,000 for the years ended December 31, 2005, 2006 and 2007, respectively.

Board Practices

     All directors hold office until our next annual meeting of shareholders, which generally is in the summer of each calendar year, or until their respective successors are duly elected and qualified or their positions are earlier vacated by resignation or otherwise. The full board committee appoints members and chairman of board committees, who serve at the pleasure of the Board. Nam Tai has no director service contracts providing for benefits upon termination of service as a director or employee (if employed). Annually, upon election to our Board at each Annual Meeting of Shareholders, we grant to non-employee directors so elected options from one of our stock option plans to purchase 15,000 common shares. These options are exercisable at the fair market value of our shares on the date of grant and are exercisable for three years from the date of grant, subject to sooner termination based on the provisions of the applicable stock option plan.

Corporate Governance Guidelines

     We have adopted a set of corporate governance guidelines which are available on our website at http://www.namtai.com/ corpgov/corpgov.htm. The contents of this website address, other than the corporate governance guidelines, the code of ethics and committee charters, are not a part of this Form 20-F. Stockholders also may request a free copy of our corporate governance guidelines in print form by a making a request therefor to:

John Farina, President and Chief Financial Officer
Eve Leung, Corporate Secretary
Unit C, 17/F, Edificio Comercial Rodrigues
599 da Avenida da Praia Grande
Macao

Telephone: (853) 2835 6333
Facsimile: (853) 2835 6262
e-mail: shareholder@namtai.com

NYSE Listed Company Manual Disclosure

     As a foreign private issuer with shares listed on the NYSE, the Company is required by Section 303A.11 of the Listed Company Manual of the NYSE to disclose any significant ways in which its corporate governance practices differ from those followed by U.S. domestic companies under NYSE listing standards. Management believes that there are no significant ways in which Nam Tai’s corporate governance standards differ from those followed by U.S. domestic companies under NYSE listing standards.

Committee Charters and Independence

     The charters for our Audit Committee, Compensation Committee and Nominating / Corporate Governance Committee are available on our website at . The contents of this website address, other than the corporate governance guidelines, the code of ethics and committee charters, are not a part of this Report. Stockholders may request a copy of each of these charters from the address and phone number set forth above under “Corporate Governance Guideline”.

     Each of the members of our Board of Directors serving on our Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee, and the majority of the members of our Board of Directors as a whole, are “independent” as that term is defined in Corporate Governance Rules of the NYSE.

Board Committees

Audit Committee

     The primary duties of Nam Tai’s Audit Committee are reviewing, acting on and reporting to the Board of Directors with respect to various auditing and accounting matters, including the selection of independent registered public accounting firm, the scope of annual audits, the fees to be paid to the independent registered public accounting firm and the performance of the independent registered public accounting firm and accounting practices.

     Our Audit Committee consists of three independent non-executive directors Messrs. Waslen and Chu and Dr. Lo. Mr. Waslen serves as the Chairman of the Audit Committee.

Compensation Committee

     The primary duties of Nam Tai’s Compensation Committee are to recommend (i) the compensation of the Company’s Board of Directors; (ii) compensation of any directors who are executives of the company and the chief executive officer with reference to achievement of corporate goals and objectives established in the previous year; (iii) compensation of other senior management if required by the Board; and (iv) equity based and incentive compensation programs of the Company.

     Our Compensation Committee consists of four independent non-executive directors, Messrs. Chu, Lo, Waslen and Kellogg. Mr. Chu serves as the Chairman of the Compensation Committee.

Nominating / Corporate Governance Committee

     The primary duties of Nam Tai’s Nominating / Corporate Governance Committee consist of (i) assisting the Board by actively identifying individuals qualified to become Board members consistent with criteria approved by the Board; (ii) recommending to the Board the director nominees for election at the next annual meeting of stockholders, the member nominees for the Audit Committee, Compensation Committee and the Nominating / Corporate Governance Committee on an annual basis; (iii) reviewing and recommending to the Board whether it is appropriate for such director to continue to be a member of the Board in the event that there is a significant change in the circumstance of any director that would be considered detrimental to the Company’s business or his/her ability to serve as a director or his/her independence; (iv) reviewing the composition of the Board on an annual basis; (v) recommending to the Board a succession plan for the chief executive officer and directors, if necessary; (vi) monitoring significant developments in the law and practice of corporate governance and of the duties and responsibilities of directors of public companies; (vii) establishing criteria to be used in connection with the annual self-evaluation of the Nominating / Corporate Governance Committee; and (viii) developing and recommending to the Board and administering the corporate governance guidelines of the Company.

     Our Nominating / Corporate Governance Committee consists of four independent non-executive directors, Messrs. Lo, Chu, Waslen and Kellogg. Dr. Lo serves as the Chairman of the Nominating / Corporate Governance Committee.

Stock Options of Directors and Senior Management

     The following table provides information concerning the options owned by our current Directors and Senior Management as of Feb 29, 2008.

		Number of
		common shares				Exercise
		subject				price				Expiration
Name		to options				per share($)				Date
M.K. Koo			15,000				22.25			June 8, 2009
			15,000				12.42			June 7, 2010
John Quinto Farina			40,000				12.13			May 13, 2011
			50,000				9.856			Feb. 5, 2011
Masaaki Yasukawa			—				—					—
L.P. Wang			—				—					—
Karene Wong			—				—					—
Patinda Lei			—				—					—
Ivan Chui			—				—					—
Peter R. Kellogg			15,000				21.62			June 6, 2008
			15,000				22.25			June 8, 2009

		Number of
		common shares				Exercise
		subject				price				Expiration
Name		to options				per share($)				Date
			15,000				12.42			June 7, 2010
Wing Yan (William) Lo			15,000				21.62			June 6, 2008
			15,000				22.25			June 8, 2009
Charles Chu			15,000				12.42			June 7, 2010
			15,000				21.62			June 6, 2008
			15,000				22.25			June 8, 2009
Mark Waslen			15,000				12.42			June 7, 2010
			15,000				21.62			June 6, 2008
			15,000				22.25			June 8, 2009