Portable players based on flash or HDD memory comprises a new category of consumer electronics products that has grown dramatically in popularity since 2003. These products, frequently referred to as “MP3 players” due to the popularity of the MP3 codec, store, organize and play back compressed digital audio files, and offer users mobile, convenient, high-quality audio entertainment.

According to International Data Corporation, or IDC, worldwide shipments of portable players increased by 70.9% from 32.8 million total units in 2003 to 56.1 million total units in 2004, while revenues from the sale of portable players increased by 77.8% from $4.6 billion in 2003 to $8.2 billion in 2004. IDC projects annual shipments of portable players to increase at a CAGR of 20.0% from 56.1 million units in 2004 to 116.1 million units in 2008 and revenues from the sale of portable players to increase at a CAGR of 9.8% from $8.2 billion in 2004 to $11.9 billion by 2008.

The three main categories of portable players are: flash-based players, HDD-based players and MP3 CD and or MD players. Advances in digital audio technology have enabled audio content to be digitized, compressed, transmitted, stored and catalogued more conveniently than before while retaining sound quality. As a result, compressed digital audio content has become widely available through multiple sources, including CDs, paid music service providers, or MSPs, and free online music services.

The Company began to designs and manufacture 1-inch HDD-based players in October 2004. The Company currently offers two models of HDD-based players with memory capacities of 2.5GB to 5GB. The Company’s HDD-based player has customizable displays and run on rechargeable batteries that average between eight to ten hours of playback time. The Company’s HDD-based players are compatible with Windows and Macintosh operating systems and use chipsets with built-in support for the MP3 and WMA codec’s and Microsoft’s DRM platform.

The Company continues to designs and manufactures a small volume of MP3 CD players. The Company’s MP3 CD players tends to be larger and bulkier in size compared to its flash-based and HDD-based players as they are constrained to the size of CDs. The Company has also recently developed PMPs and has commenced the design of DAB players, as well as electronic photo frames. The Company offers complete end-to-end solutions to customers, including designs, manufacturing and logistics services, with a goal of delivering complete, packaged products to customers.

The Company provides logistics services to its customers in Europe, the United States and Asia. The Company has established long-term, trusting relationships with major logistics companies serving and these relationships are instrumental to the timely and cost-effective delivery of its products to customers. The Company offers its customers flexible delivery arrangements that allow it to coordinate product shipments with the Company’s customers’ inventory requirements. Increasingly, the Company ships products directly into its customers’ distribution channels or to their large retail chain customers. Combining the Company’s logistics services with its designs and manufacturing operations and supply chain management, the Company is able to reduce costs and create integrated processes.

Cost of sales increased by 319.2% from $26.7 million for the six months ended June 30, 2004 to $112.1 million for the six months ended June 30, 2005.

General and administrative expenses increased by 191.3% from $1.2 million for the six months ended June 30, 2004 to $3.6 million for the six months ended June 30, 2005.

Income tax expenses increased from $0.2 million for the six months ended June 30, 2004 to $1.8 million for the six months ended June 30, 2005.

Net income increased substantially from $0.6 million for the six months ended June 30, 2004 to $7.3 million for the six months ended June 30, 2005.