The global mobile handset market has expanded rapidly in recent years. According to International Data Corporation, or IDC, worldwide mobile handset shipments increased from 400 million units in 2000 to 514 million units in 2003 at a Compounded annual growth rate (CAGR) of 8.7%. Mobile handset shipments increased by 28.5% to 660 million units in 2004, driven mostly by increased demand for handsets with color displays and camera functions. IDC projects the annual shipment of mobile handsets to increase to 890 million units by 2008, or a CAGR of 8.2% from 2004, driven by the growth in both new subscription and replacement markets.

The number of new subscribers in developing markets continues to grow. IDC estimates the number of subscribers in the U.S. and Western Europe will grow to 260 million and 308 million in 2008, or at CAGRs of 5.5% and 1.9% from 2004, respectively. Japan and South Korea are also expected to experience limited growth of new subscribers because of their high mobile phone penetration rates.

In mature markets where the growth of the number of new subscribers is slower, demand for mobile handsets is primarily driven by existing subscribers upgrading and replacing their current handsets. According to IDC, mobile handset users are expected to replace their current handsets every 18 to 30 months in 2005 and beyond. The upgrade and replacement trend partly results from the introduction of handsets with advanced features, such as video communication, data services, mega-pixel cameras, high quality color display, music players, games and other consumer-oriented multimedia features, as hardware and software technologies continually evolve.

China is the world’s largest mobile handset market. According to IDC, annual mobile handset shipments in China increased at a CAGR of 181.9% from four million units in 2000 to 99 million units in 2003 and are expected to increase to 103 million units by 2008. This growth is attributable to the rapid increase of subscribers of wireless services. From 2000 to 2003, the number of subscribers grew at a CAGR of 44.7%. According to the International Telecommunications Union, the number of mobile handset users in China reached 269 million in 2003, surpassing the number of fixed-line subscribers of 263 million. However, in 2003, China’s mobile handset penetration rate is still relatively low at 21%, compared to 54% in the U.S., 68% in Japan and 69% in South Korea. Therefore, there is a greater potential for growth in China than in the mature markets. Based on IDC’s forecast, the annual net addition of the number of mobile handset subscribers in China will range from 37 million to 56 million during the period from 2005 to 2008, driving the total subscribers in China to 506 million in 2008.

The Company has focused its resources primarily on providing mobile handset design services to meet its customers’ demand. The Company has strong design capabilities to design mobile handsets to support a broad range of wireless communications standards, baseband platforms and components. The Company also provides production support to facilitate its customers’ manufacturing and supply chain management processes. The Company has also begun to work with its customers in providing customized handset solutions to mobile service operators.

The Company provides three types of mobile handset design services to its customers. All three types of design services cover all major aspects of the design process.

The Company’s other products include wireless modules, PCBs and other electronic components. The Company has begun to develop wireless solutions leveraging its knowledge and experience in designing mobile handsets. The Company’s wireless product lines include wireless modules and PCMCIA cards for wireless connections. Wireless modules are devices that enable data communication through a cellular network to be used in various applications, such as global positioning systems, logistics management, wireless point-of-sale systems, traffic navigation systems and wireless security systems. The Company began to sell wireless modules in June 2004. The Company’s wireless modules consist of baseband and RF.

The Company has historically sold to its Chinese customers PCBs that others produced for the Company at its request as a means to track the royalty payments to which the Company is entitled. The sale of PCBs is not the Company’s core business; it is not intended to generate significant profit.

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Cost of revenues increased substantially to US$19.9 million for the year ended December 31, 2004 from US$2.6 million for the year ended December 31, 2003.

Gross profit was US$26.7 million for the year ended December 31, 2004, compared to US$7.0 million for the year ended December 31, 2003 representing gross margins of 57.3% and 72.8%, respectively.

Operating expenses increased to US$8.0 million for the year ended December 31, 2004 from US$2.1 million for the year ended December 31, 2003.

The Company incurred total other net income of US$0.5 million for the year ended December 31, 2004 as compared to total other net loss of US$9,000 for the year ended December 31, 2003. Net income increased to US$18.2 million for the year ended December 31, 2004 from US$5.0 million for the year ended December 31, 2003.