Year  2004  Compared to Year  2003 Net sales for 2004 increased $48.8 million to $185.7 mil- lion from $136.9 million for 2003. The 35.6% increase  was due primarily to an approximately 40.0% increase  in units sold as a result of increased demand for the  Company’s products, as well as a more favorable pricing  environment compared to 2003. In 2004, average selling  prices (“ASPs”) for discrete products increased approxi- mately 1% while ASPs for wafers fell approximately 9%;  consequently, overall ASPs decreased approximately 3%  from 2003. Cost of goods sold increased $24.6 million, or 24.5%,  for 2004 compared to 2003. As a percent of sales, cost  of goods sold decreased from 73.3% for 2003 to 67.3%  for 2004. The Company’s average unit cost (“AUP”)  for discrete devices decreased approximately 7% from  2003, and AUPs for wafer products decreased approxi- mately 12%. These cost decreases were due primarily to  improved manufacturing efficiencies. Gross profit for 2004 increased 66.3% to $60.7 mil- lion from $36.5 million for 2003. Of the $24.2 million  increase, $13.0 million was due to the 600 basis point  increase in gross profit margin from 26.7% in 2003 to  32.7% in 2004, while $11.2 million was due to the 35.6%  increase in net sales. Gross profit increases in Asia were  the primary contributor to the gross profit increase in  2004. Gross profit margin in the both the third and  fourth quarter of 2004 increased to 33.9% due to en- hanced capacity utilization, continuing manufacturing  efficiencies, relatively stable pricing, and a product mix  that continues to shift towards higher-value perfor- mance discretes and arrays. For 2004, selling, general and administrative expenses  (“SG&A”) increased $3.9 million to $23.5 million from  $19.6 million for 2003. The 20.0% increase in SG&A was  due primarily to higher sales commissions, incentives,  marketing and royalty expenses associated with the  35.6% increase in sales, and higher labor and benefit  expenses. Also contributing to the increased SG&A were  higher corporate and administrative expenses, includ- ing legal and accounting fees associated with Sarbanes- Oxley compliance. However, as a percentage of sales,  SG&A decreased to 12.7% for 2004 from 14.3% last year. Research and development expenses (“R&D”) in- creased to $3.4 million, or 1.8% of sales, in 2004 from  $2.0 million, or 1.5% of sales, in 2003. R&D expenses are  primarily related to new product development at the  silicon wafer level, and, to a lesser extent, at the packag- ing level. We continue to seek to hire qualified engineers  who fit our focus on next-generation discrete processes  and packaging technologies. Our goal is to expand R&D  to 3% of revenue as we bring proprietary technology  and advanced devices to the market. Net interest expense for 2004 decreased $223,000  to $637,000 from $860,000 in 2003, due primarily to a  decrease in the use of the Company’s credit facilities, as  well as lower interest rates. In 2004, the Company paid  down $3.6 million on its credit facilities, reducing the  balance from $21.1 million to $17.5 million. Other expense for 2004 increased $413,000 compared  to last year, primarily due to approximately $400,000 in  currency exchange losses related to the weakened U.S.  dollar, primarily versus the Taiwan dollar recorded in  the fourth quarter of 2004. The effective tax rate in 2004 was 19.9% compared to  18.9% in 2003. The Company recorded a provision for  income taxes in the amount of $6.5 million for the year  2004, compared to $2.5 million for 2003. Included in the  tax provision in 2004 is $1.3 million in deferred taxes re- corded in the fourth quarter for a minimum $8 million  planned foreign dividend distribution in 2005 under  the American Jobs Creation Act of 2004, offset by a $1.2  million foreign investment tax refund (net of U.S. taxes),  and a $0.5 million research and development tax credit. The minority interest in joint venture represents  the minority investor’s share of the Diodes-China and  Diodes-Shanghai joint venture’s income for the period.  The increase in the joint venture earnings for 2004 is  primarily the result of increased sales of higher margin  products. The joint venture investment is eliminated in  consolidation of the Company’s financial statements, and  the activities of Diodes-China and Diodes-Shanghai are  included therein. As of December 31, 2004, the Compa- ny had a 95% controlling interest in the joint ventures.  21