3. Public Offering of Common Shares and Warrants

In July 1995, the company completed its initial public offering in the United States (the "IPO") of 1,000,000 Common Shares at $8.625 per share and 1,000,000 Warrants at $0.01 per Warrant (each two warrants exercisable at $9.056 ($4.528 per Warrant) to purchase one Common Share) and the issuance in August 1995 of an additional 150,000 Common Shares and 150,000 Warrants upon the exercise of the over-allotment option by the underwriters in the IPO. The net proceeds from this offering aggregated approximately $7,903 and were fully utilized for the purposes as stipulated in the prospectus at March 31, 1997.

4. Earnings Per Share

The primary earnings per share ("EPS") is computed on the net income divided by the weighted average number of Common Shares in issue and the assumed exercise of common stock equivalents that will dilute EPS by 3% or more throughout the relevant periods.

The fully diluted earnings per share is computed on the net income divided by the weighted average number of Common Shares in issue, the assumed exercise of common stock equivalents and the assumed exercise of all other potentially dilutive (3% or more) securities that will dilute earnings per share by 3% or more throughout the relevant periods.

The weighted average number of Common Shares in 1997 takes account of the IPO 1,000,000 Common Shares issued in July 1995, the Over-allotment 150,000 Common Shares issued in August 1995 and the additional Common Shares issued upon the exercise of Stock Options, Advisor and Representatives' Warrants and Public Warrants during the year ended March 31, 1997. The weighted average number of Common Shares in 1996 takes account of both the IPO 1,000,000 Common Shares issued in July 1995, the Over-allotment 150,000 Common Shares issued in August 1995.

The Stock Options and Warrants outstanding at March 31, 1997 diluted the primary earnings per share and fully diluted earnings per share by 3% or more for the quarter ended March 31, 1997 and the fully diluted earnings per share by 3% or more for the year ended March 31, 1997 but did not dilute the primary earnings per share by 3% or more for the year ended March 31, 1997.

5. Acquisition of Subsidiary

In October 1996, the Company acquired a controlling (33.1%) interest in Kwanta Precision Metal Products Co. Ltd. ("Kwanta") from its three former shareholders for $177 in cash, since which time it has controlled the strategic, financial and operational policies and decisions of Kwanta. This acquisition has been accounted for as a purchase and the results of Kwanta have been included in the consolidated financial statements from the date of acquisition. The cost of acquisition exceeded the fair value of the net assets acquired by $177 and this is recorded as goodwill.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Operations

General

The Company's revenues are derived from the manufacture and sale of (i) injection-molded plastic parts and components, (ii) electrical products and subassemblies and (iii) metallic parts and components. The Company carries out all of its manufacturing operations in southern China, where it is able to take advantage of the lower overhead costs and inexpensive labor rates as compared to Hong Kong.

Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996

The Company's net sales for the three months ended March 31, 1997 were $12,676,000, an increase of $5,189,000 or 69.3% as compared to corresponding period in 1996. The increase in sales was mainly related to additional sales of injection-molded plastic, electronic products and metallic products of $2,113,000, $2,671,000 and $405,000 respectively, or increases of 49.2%, 83.7% and 100% as compared with the net sales in the corresponding period in the prior year. The metallic product operation is generated from a newly acquired subsidiary. Moreover, the Company has kept on generating higher volume demands from its customers in this year as a result of the continuous efforts of striving for high quality standards of products.

The gross profit for the quarter ended March 31, 1997 was $5,329,000, representing a gross profit margin of 42.0%. This compares with the overall gross profit and gross profit margin of $3,131,000 or 41.8% for the quarter ended March 31, 1996.

There was a slight increase in the overall gross profit margin of 0.2%. The margin on the sale of plastic parts and components decreased to 40.8% as compared to 46.2% in the previous year, with a total gross profit margin contribution of $2,611,000 in 1997, an increase of $628,000 from the previous year. The decrease in gross margin was mainly attributed to the relatively high margin in the last quarter in 1996 and the increase in direct overhead expenses during the quarter ended March 31, 1997. The gross margin on sales of electronic orders and subassemblies increased to 49.4% as compared to 36.0% in the corresponding period in prior year, with a total gross profit contribution of $2,897,000, compared to $1,148,000 in the previous year. The increase in gross margin was mainly attributed to the Company's concentrating its efforts on securing orders with higher margins and the decrease in purchase unit cost of some raw materials starting the quarter ended March 31, 1997.

Selling, general and administrative expenses for the quarter ended March 31, 1997 were $2,224,000, amounting to 17.5% of total net sales, as compared to $1,366,000 or 18.2% of total net sales for the quarter ended March 31, 1996. The increase in selling, general and administrative expenses of $858,000 over the corresponding period was largely due to the growth in the Company's operations.

As a result of the increase in net sales, operating income was $3,105,000 for the quarter ended March 31, 1997, an increase of $1,340,000 or 75.9% as compared with the corresponding quarter in the prior year.

Minority interests represent the 49% and 66.9% minority interest in the electronics and metallic subsidiaries respectively. The increase in minority interest to $538,000 for the quarter ended March 31, 1997 from $296,000 for the quarter ended March 31, 1996 reflects the fact that the electronic business generated significant profits in the current period as compared to the corresponding period in 1996. As the operation of metallic subsidiary is in preliminary stage, the operating results and the minority interest effects were not material in the quarter ended March 31, 1997.

Income taxes for the quarter ended March 31, 1997 increased to $366,000 from $107,000 for the quarter ended March 31, 1996. The increase was mainly due to income tax accrual in the last quarter for the part of net income generated in the China operations as a result of the management's decision to reinvest only partly the net earnings in the China operations. The net earnings in the China operations was fully reinvested in prior year and no income tax was provided thereon.

As a result of the above factors, net income was $2,232,000 for the quarter ended March 31, 1997, an increase of $758,000 or 51.4%, as compared to the quarter ended March 31, 1996 and net income as a percentage of net sales decreased slightly to 17.6% from 19.7%.

Year Ended March 31, 1997 Compared to Year Ended March 31, 1996

The Company's net sales for the year ended March 31, 1997 were $44,540,000, an increase of $13,960,000 or 45.7%, as compared to the year ended March 31, 1996. The sales to the Company's six largest customers represented approximately 85.5% of net sales for the year.

Sales of plastic parts and components for the year ended March 31, 1997 amounted to $24,764,000, an increase of $6,089,000 or 32.6%, as compared to the year ended March 31, 1996 and represented 55.6% of the Company's total sales. This increase was primarily due to increases in sales to existing and new customers as a result of increasing volume of orders receiving from their ultimate customers, with sales to three largest customers increased by $5,720,000, offset by reduced sales to two largest customers by $713,000. The increase in orders from these major customers was mainly attributed to the high quality and high efficiency of productions that the Company has been striving for in these years. The Company is generally not able to increase prices to its customers of plastic products and increases in sales are generally volume-related.

Sales of electronic products and subassemblies for the year ended March 31, 1997 amounted to $18,581,000, an increase of $6,676,000, or 56.1% as compared to the year ended March 31, 1996, and represented 41.7% of the Company's total sales. The increase in sales of such products was primarily due to increased sales to two largest customers by $7,112,000, offset by reduced sales to some customers. The significant increase in sales in the year ended March 31, 1997 was attributed to increase in sales orders for new OEM products.

Sales of metallic products for the year ended March 31, 1997 since its acquisition by the Company amounted to $1,195,000 and represented 2.7% of the Company' s total sales.

Net sales to customers by geographic area are determined by reference to shipping destinations as directed by the Company's customers. During the year ended March 31, 1997, sales to China, Hong Kong, the U.S.A. and Europe increased by $1,456,000, $4,723,000, $5,119,000 and 2,662,000, respectively, over 1996 levels.

The overall gross profit for the year ended March 31, 1997 was $19,075,000, representing a gross profit margin of 42.8%. This compares with the overall gross profit and gross profit margin of $12,548,000 or 41.0% for the year ended March 31, 1996.

There was a slight increase in overall gross profit margin of 1.8%. The margin on the sale of plastic parts and components increased slightly to 42.4%, as compared to 41.7% in the previous year. The overall gross profit margin contributed by plastic parts and components was $10,505,000 in the year ended March 31, 1997, an increase of $2,724,000 from the previous year. No material fluctuation in the profit margin as a result of the relatively stable resin prices.

The gross profit margin on sales of electronic orders and subassemblies increased as the Company kept on concentrating its efforts on securing orders with higher margins in these two years, resulted in the overall improvement in the gross profit margin. Moreover, there was a decrease in purchase cost in some raw materials starting the last quarter this year as a result of exploring more supply sources. Gross margins on these products increased to 45.8% compared to 40.0% in the previous year, with a total gross profit contribution of $8,505,000, compared to $4,767,000 in the previous year.

Selling, general and administrative expenses for the year ended March 31, 1997 were $7,943,000, amounting to 17.8% of total net sales, as compared to $5,361,000 or 17.5% of total net sales for the year ended March 31, 1996. The increase in selling, general and administrative expenses of $2,582,000 over the prior year was largely due to the growth in the Company's operations.

As a result of the increase in net sales, operating income was $11,132,000 for the year ended March 31, 1997, an increase of $3,945,000 or 54.9% as compared with the prior year. There was no material fluctuation in the overall operating margin. The operating margin for the year ended March 31, 1997 was 25.0%, as compared to 23.5% in the previous year.

Minority interests represent the 49% and 66.9% minority interest in the electronics and metallic subsidiaries respectively. The increase in minority interest to $2,165,000 for the year ended March 31, 1997 from $1,286,000 in prior year reflects the fact that the electronic business generated significant profits in the current year as compared to the year ended March 31, 1996. As the operation of metallic subsidiary is in preliminary stage, the operating results and the minority interest effects were not material in the year ended March 31, 1997.

As a result of the above factors, net income was $8,745,000 for the year ended March 31, 1997, an increase of $2,834,000 or 47.9%, as compared to the year ended March 31, 1996. The net income as a percentage of net sales increased slightly to 19.6% from 19.3%.

Liquidity and Capital Resources

Traditionally, the Company has relied primarily upon internally generated funds and short-term borrowings (including trade finance facilities) to finance its operations and expansion, although capital expenditure has been partly financed by long-term debt, including capital leases.

At March 31, 1997, the Company had a working capital surplus of $21,375,000. This compares with a working capital surplus of $15,353,000 at March 31, 1996. The substantial increase in working capital was mainly attributed to net proceeds generated from its operating activities and from the exercise of stock options, representatives' warrants and public warrants during the year ended March 31, 1997.

The Company has historically generated sufficient funds from its operating activities to finance its operations and there has been little need for external financing other than short-term borrowings which are used to finance accounts receivable and are generally paid from cash generated from operations and long-term debt used to finance capital expenditure. The Company has no outstanding short-term borrowings nor long-term debt at March 31, 1997. The Company's capital leases are generally repayable over periods of up to two years, with the capital leases at March 31, 1996 being repaid through December 1996. In order to fund equipment purchases for future expansion of its business, the Company completed the IPO in July 1995, as referred to above.

At March 31, 1997, the Company had in place general banking facilities with three financial institutions aggregating approximately $9,109,000. Such facilities, which are subject to annual review, include overdrafts, letters of credit, import facilities, trust receipt financing, inward bills financing as well as fixed loans. At March 31, 1997, the Company had (i) unused credit facilities of $9,109,000 (ii) cash and cash equivalents of $12,003,000 and (iii) restricted cash of $2,911,000, which has been pledged as collateral for those credit facilities.

The Company expects that working capital requirements and capital additions will be funded through a combination of internally generated funds, existing facilities and the proceeds from exercise of warrants and stock options.