DESWELL INDUSTRIES, INC.          
           
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)          
( U.S. dollars in thousands, except per share data )          
           
  Quarter ended   Nine months ended
  December 31,   December 31,
  1998 1997   1998 1997
  (Unaudited)   (Unaudited)
Net sales $12,612 $18,993   $43,854 $51,660
Cost of sales 7,802 8,744   25,932 27,641
Gross profit 4,810 10,249   17,922 24,019
Selling, general and administrative expenses 2,522 4,931   8,052 11,536
Operating income 2,288 5,318   9,870 12,483
Interest expense -102 -1   -306 -2
Other income, net 554 308   1,319 700
Income before income taxes 2,740 5,625   10,883 13,181
Income taxes 433 84   635 322
Income before minority interests 2,307 5,541   10,248 12,859
Minority interests 159 1,344   1,608 2,756
Net income $2,148 $4,197   $8,640 $10,103
  ======== ========   ======== ========
           
Basic earnings per share (note 3) $0.39 $0.84   $1.58 $2.05
  ======== ========   ======== ========
Weighted average number of shares 5,478 4,994   5,478 4,928
outstanding (in thousands) ======== ========   ======== ========
           
Diluted earnings per share (note 3) $0.39 $0.78   $1.56 $1.88
  ======== ========   ======== ========
Diluted weighted average number of shares 5,487 5,357   5,525 5,362
outstanding (in thousands) ======== ========   ======== ========
DESWELL INDUSTRIES, INC.      
       
CONSOLIDATED BALANCE SHEET      
( U.S. dollars in thousands)      
  December, 31   March 31,
  1998   1998
ASSETS (Unaudited)    
       
Current assets :      
Cash and cash equivalents $28,174   $21,902
Restricted cash 2,098   2,927
Accounts receivable, net 6,731   10,079
Inventories 5,485   6,415
Prepaid expenses and other current assets 4,159   1,640
Income taxes receivable 228   218
Total current assets 46,875   43,181
Long term investment 451   -
Property, plant and equipment – net 16,160   15,582
Goodwill 363   381
Total assets $63,849   $59,144
       
LIABILITIES AND SHAREHOLDERS' EQUITY      
       
Current liabilities      
Accounts payable $2,809   $3,763
Customer deposits and accrued expenses 4,293   3,175
Income taxes payable 504   275
Total current liabilities 7,606   7,213
Minority interests 8,312   6,705
Deferred income tax 15   15
       
Shareholders' equity      
Common stock      
- authorized 20,000,000 shares; issued and outstanding      
5,476,131 shares at December 31, 1998 and      
5,479,131 shares at March 31, 1998 55   55
Additional paid-in capital 22,384   22,402
Retained earnings 25,477   22,754
Total shareholders' equity 47,916   45,211
Total liabilities and shareholders' equity $63,849   $59,144
DESWELL INDUSTRIES, INC.      
       
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)      
( U.S. dollars in thousands )      
  Nine months ended
  December 31,
  1998   1997
Cash flows from operating activities :      
Net income $8,640   $5,906
Adjustments to reconcile net income to net cash      
provided by operating activities :      
Depreciation and amortization 3,107   1,542
Loss on disposal of property, plant and equipment 14   1
Minority interests 1,607   1,032
Changes in current assets and liabilities :      
Decrease in accounts receivable 3,348   1,634
Decrease/(increase) in inventories 930   -17
(Increase)/decrease in prepaid expenses -2,519   139
and other current assets      
Increase in income taxes receivable -10   -93
Increase/(decrease) in accounts payable -954   305
Increase/(decrease) in customer deposits 1,118   -525
and accrued expenses      
Increase/(decrease) in income taxes payable 229   -35
Net cash provided by operating activities 15,510   9,889
       
Cash flows from investing activities      
(Increase)/decrease in restricted cash 829   -10
Proceeds from disposal of property, plant and equipment 18   16
Purchase of property, plant and equipment -3,699   -2,895
Increase in long term investment -451   -
Net cash used in investing activities -3,303   -2,889
       
Cash flows from financing activities      
Issue of/(Buy back) common stock -18   1,998
Dividends paid -5,917   -1,950
Net cash (used in)/provided by financing activities -5,935   48
       
Net (decrease)/increase in cash and cash equivalents 6,272   7,048
Cash and cash equivalents, at beginning of period 21,902   12,003
Cash and cash equivalents, at end of period 28,174   19,051
       
Supplementary disclosures of cashflow information :      
Cash paid during the period for :      
Interest 306   1
Income taxes 415   362

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