Dear Shareholder,

We are pleased to report solid performance for our fiscal 2000 year. In addition to achieving top and bottom line growth, we have made significant progress on the execution of our long-term growth strategy.

Our net sales for the year ended March 31, 2000 were $61.0 million, an increase of 14% compared to sales of $53.4 million for the year ended March 31, 1999. Operating income slightly decreased 1.6% to $10.7 million, compared to $10.9 million in the previous year, and net income increased 8.5% to $10.3 million, compared to $9.5 million in the previous year. Basic earnings per share and diluted earnings per share increased to $1.90 and $1.89 respectively (based on 5,412,000 and 5,449,000 weighted average shares outstanding, respectively), compared to $1.73 and $1.72 respectively (based on 5,478,000 and 5,524,000 weighted average shares outstanding, respectively), for the year ended March 31, 1999.

Although the market conditions were rather weak the first two quarters, we are pleased that we ended the year favorably with a strong recovery in the second half of the year. The increase in revenue was due to expanded business from our existing strong customer base, as well as increased business from our new customers.

As market conditions continue to improve, I am pleased to report an overall profit margin of 17.6% for the year. In addition to reporting strong profitability and investing for future growth, we continue to have no short-term or long-term debt. As of March 31, 2000, the Company reported $27.1 million in cash and cash equivalents, compared to $27.6 million on March 31, 1999. Working capital was $43.4 million as of March 31, 2000, versus $41.1 million as of March 31, 1999.

Due to our long-standing and healthy balance sheet, the board of directors has declared dividends for four consecutive years. For fiscal 2000, regular cash dividends totaled $0.88 per share.

In the midst of the Asian market downturn in 1999, we asked ourselves how could we better sustain our future growth. While we can not control the macro economic conditions, we can do everything possible to solidify and build customer relationships. Throughout the course of this year, we continued investment in our manufacturing infrastructure and made significant strategic improvements to effectively meet the needs of an expanding customer base. As a result, I feel that our achievements consistently support our commitment to outstanding future performance, as well as enhancing value for our shareholders.

Jetcrown Industrial, Ltd., our core business, achieved stable growth this year. As it continues to strengthen its leadership position in the injection molding industry, we continue to make further investments to expand our capacity in this area. In August 1999, we purchased 21 sets of "Toshiba", "Neissei" and "Jetmaster" double, vertical and traditional molding machines and leased 20,000 square feet adjacent to our existing factory space.

We have invested roughly $8 million to establish a new plastic injection subsidiary, Jetcrown Industrial (Dongguan) Ltd., which operates in Dongguan, China. Due to its strategic location, this subsidiary provides critical expansion capabilities in plastic manufacturing at a relatively low cost. Since commencing production in July 2000, we have employed 400 people, leased two 70,000 square foot facilities and purchased 55 sets of injection molding machines and high precision tooling machines. With the advanced technology and 24 hour automation, we anticipate substantial growth as we continue to expand our mold making division.

In addition, our electronic assembly subsidiary, Kwanasia Electronics Co., Ltd., acquired the remaining 35.1% minority interest in Kwanta Precision Metal Products Co., Ltd. We are confident that with more management control over this division we can run the businesses more efficiently. I want to take this opportunity to thank our customers and shareholders for their support and re-emphasize our commitment to reward that support by always striving to achieve the best financial performance possible. We hope to continually leverage our expertise across our subsidiaries to attract new customers to drive unit growth and expand our product lines.

Finally, I want to thank the management and staff of Deswell for their continued dedication to the company; it is because of them that Deswell has performed so well over the past years, and it is because of them we will continue to prosper for years to come.