OPTO TECH CORPORATION FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS MARCH 31, 2009 AND 2008

Transcription

1 OPTO TECH CORPORATION FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS MARCH 31, 2009 AND 2008 For the convenience of readers and for information purpose only, the auditors report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors report and financial statements shall prevail. ~ 1 ~

2 Report of Independent Accountants Translated from Chinese (09)PWCR To the Board of Directors and Stockholders of Opto Tech Corporation We have reviewed the accompanying balance sheets of Opto Tech Corporation (the ) as of March 31, 2009 and 2008, and the related statements of operations and of cash flows for the three-month periods then ended. These financial statements are the responsibility of the s management. Our responsibility is to issue our report on these financial statements based on our reviews. Except as discussed in the following paragraph, we conducted our reviews in accordance with Statement on Auditing Standards No. 36, Review of Financial Statements in the Republic of China. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. The s long-term investments accounted for under the equity method and the amounts and information disclosed in Note 11 as of March 31, 2009 and 2008 were based on their respective financial statements which were not reviewed by independent accountants. As of March 31, 2009 and 2008, these long-term investments amounted to $1,184,836 thousand and $1,016,840 thousand, respectively, representing 12.17% and 10.38% of total assets, respectively. The related investment loss was $503 thousand and $46,294 thousand for the three-month periods ended March 31, 2009 and 2008, respectively. Based on our reviews, except for the effect on the financial statements of such adjustments, if any, as might have been determined to be necessary had the financial statements of these investee companies been reviewed by independent accountants as explained in the preceding paragraph, we are not aware of any material modifications that should be made to the financial statements referred to in the first paragraph to be in conformity with the Rules Governing the Preparation of Financial Statements by Securities Issuers, Business Entity Accounting Law, Regulation on Business Entity Accounting Handling and generally accepted accounting principles in the Republic of China. ~ 2 ~

3 As discussed in Note 3 to the financial statements, effective January 1, 2008, the adopted the newly-issued EITF , Accounting for Employees Bonus and Directors and Supervisors Remuneration, as prescribed by the R.O.C. Accounting Research and Development Foundation. The expected costs of employees bonus and directors and supervisors remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and the amounts can be estimated reasonably. We have also reviewed the consolidated financial statements of Opto Tech Corporation and its subsidiaries (not presented herein) as of and for the three-month period ended March 31, In our report dated May 9, 2008, we issued a qualified conclusion on the consolidated financial statements since the financial statements of the investee companies were not reviewed by independent accountants. The consolidated financial statements of Opto Tech Corporation and its subsidiaries (not presented herein) as of and for the three-month period ended March 31, 2009 have not yet been reviewed by independent accountants. /s/ PricewaterhouseCoopers April 28, 2009 The accompanying financial statements are not intended to present the financial position and results of operations and cash flows of the in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of the independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation. ~ 3 ~

4 OPTO TECH CORPORATION BALANCE SHEETS MARCH 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) (UNAUDITED) ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Current Assets Current Liabilities Cash and cash equivalents (Note 4(1)) $ 1,355,774 $ 647,986 Short-term loans (Note 4(11)) $ 813,058 $ 891,379 Financial assets at fair value through profit or loss - current (Note 4(2)) 587 1,096 Accounts payable 315, ,438 Notes receivable 26, ,245 Accounts payable - related parties (Note 5) 148, ,698 Notes receivable - related parties (Note 5) Income tax payable (Note 4(19)) - 2,681 Accounts receivable - net (Note 4(3)) 1,188,738 1,559,900 Accrued expenses 199, ,410 Accounts receivable - related parties - net (Note 5) 34, ,814 Other payables 39,390 39,644 Other receivables (Note 5) 4,790 26,157 Unearned revenue collected in advance 16,217 24,976 Other financial assets - current (Note 6) 24,728 57,314 Long-term liabilities - current portion (Note 4(12)) 282, ,000 Inventories - net (Note 4(4)) 1,172,311 1,589,214 Other current liabilities 29,141 37,737 Prepaid expenses 5,107 15,217 Total current liabilities 1,844,561 2,842,963 Prepayments 1,209 10,308 Non-current assets - held-for-sale (Notes 4(5) and 6) 195, ,044 Long-term Liability Deferred income tax assets - current (Note 4(19)) 110, ,722 Long-term loans (Note 4(12)) 1,816, ,000 Other current assets 420 1,686 Total current assets 4,120,323 4,637,123 Other Liabilities Funds and Investments Accrued pension liabilities (Note 4(13)) 93,839 51,060 Available-for-sale financial assets - non-current (Note 4(6)) 42,078 96,851 Guarantee deposits Financial assets carried at cost - non-current (Note 4(7)) 580, ,233 Other liabilities - other 1,508 4,562 Long-term investments - accounted for under the equity method (Note 4(8)) 1,184,836 1,017,345 Total other liabilities 95,437 55,706 Total funds and investments 1,807,241 1,338,429 TOTAL LIABILITIES 3,756,541 3,478,669 Property, Plant and Equipment (Notes 4(9), 5 and 6) Stockholders' Equity Cost Capital Land 12,493 12,493 Common stock (Notes 4(14)(18)) 5,237,448 5,203,119 Buildings 1,722,605 1,718,380 Capital Reserves (Note 4(15)) Machinery 3,119,918 2,806,661 Paid-in capital in excess of par 89,417 89,417 Utility facilities 935, ,397 Additional paid-in capital - treasury stock transactions (Note 4(17)) 60,625 60,625 Pollution prevention equipment 606, ,303 Capital reserve from long-term investments 60, Transportation equipment 6,704 6,692 Capital reserve from employee's stock options (Note 4(18)) 21,585 16,030 Office equipment 76,565 78,883 Retained Earnings Leased assets Legal reserve 92,095 - Leasehold improvements - 2,670 Special reserve 7,012 - Other equipment 1,391,794 1,344,207 Unappropriated earnings (Note 4(16)) 465,062 1,024,931 Cost and revaluation increments 7,872,149 7,477,294 Other Adjustments to Stockholders' Equity Less: Accumulated depreciation ( 4,889,736) ( 4,420,384) Unrealized gain or loss on available-for-sale financial assets (Note 4(6)) ( 92,871) ( 38,099) Accumulated impairment ( 8,799) ( 6,322) Cumulative translation adjustments 114,328 ( 2,210) Construction in progress and prepayments for equipment 253, ,447 Unrecognized pension cost (Note 4(13)) ( 46,850) ( 6,635) Total property, plant and equipment 3,226,628 3,291,035 Treasury stock (Note 4(17)) ( 26,699) ( 26,699) TOTAL STOCKHOLDERS' EQUITY 5,981,467 6,320,698 Intangible Asset Commitments and Contingent Liabilities (Note 7) Deferred pension costs (Note 4(13)) 2,618 2,836 Other Assets Idle assets (Note 4(10)) 78,673 3,020 Deposits out 1,036 1,112 Deferred expenses 33,862 34,045 Deferred income tax assets - non-current (Note 4(19)) 467, ,767 Total other assets 581, ,944 TOTAL ASSETS $ 9,738,008 $ 9,799,367 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 9,738,008 $ 9,799,367 The accompanying notes are an integral part of these financial statements. See review report of independent accountants dated April 28, ~4~

5 OPTO TECH CORPORATION STATEMENTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS) (UNAUDITED) Operating Revenues Sales revenue $ 983,914 $ 1,658,973 Sales returns ( 3,556) ( 10,067) Sales discounts ( 19,707) ( 28,526) Net sales revenue (Note 5) 960,651 1,620,380 Other operating revenues 17,072 40,108 Total operating revenues 977,723 1,660,488 Operating Costs Cost of goods sold (Notes 4(21) and 5) ( 849,015) ( 1,154,084) Other operating costs ( 9,806) ( 23,406) Total operating costs ( 858,821) ( 1,177,490) Gross profit 118, ,998 Unrealized gain from intercompany transactions ( 1,508) ( 4,057) Realized gain from intercompany transactions 2,410 6,645 Gross profit, net 119, ,586 Operating Expenses (Note 4(21)) Selling expenses ( 29,741) ( 46,612) General and administrative expenses ( 104,280) ( 149,513) Research and development expenses ( 31,634) ( 43,940) Total operating expenses ( 165,655) ( 240,065) Operating (loss) income ( 45,851) 245,521 Non-operating income and gains Interest income (Note 5) Adjustment income of financial assets held for trading (Note 4(2)) 587 1,096 Foreign exchange gain 14,964 - Income from sales of scrap inventories 8 4,087 Miscellaneous income (Note 5) 1,081 1,767 Total non-operating income and gains 17,516 7,422 Non-operating expenses and losses Interest expense ( 15,105) ( 17,063) Investment loss accounted for under the equity method (Note 4(8)) ( 503) ( 46,294) Foreign exchange loss - ( 70,162) Financing charges ( 1,320) ( 1,955) Miscellaneous losses ( 2,312) ( 180) Total non-operating expenses and losses ( 19,240) ( 135,654) (Loss) income from continuing operations before income tax ( 47,575) 117,289 Income tax expense (Note 4(19)) ( 12,590) ( 35,583) (Loss) income from continuing operations ( 60,165) 81,706 Income from discontinued operations (Note 4(22)) Gain on disposal of discontinued operations, net of applicable income tax benefit of $14,005 and $31,052, respectively 6,313 22,277 Net (loss) income ($ 53,852) $ 103,983 Before Tax After Tax Before Tax After Tax Basic earnings per share (Note 4(20)) Net (loss) income from continuing operations ($ 0.09) ($ 0.11) $ 0.23 $ 0.16 Net (loss) income from discontinued operations ( 0.02) 0.04 Net (loss) income ($ 0.11) ($ 0.10) $ 0.21 $ 0.20 Diluted earnings per share (Note 4(20)) Net (loss) income from continuing operations ($ 0.09) ($ 0.11) $ 0.22 $ 0.16 Net (loss) income from discontinued operations ( 0.02) 0.01 ( 0.01) 0.04 Net (loss) income ($ 0.11) ($ 0.10) $ 0.21 $ 0.20 Pro forma information based on the assumption that the s shares held by its subsidiary are not treated as treasury stocks: Net (loss) income ($ 47,793) ($ 46,378) $ 104,417 $ 99,886 Basic earnings per share Net (loss) income ($ 0.09) ($ 0.09) $ 0.20 $ 0.19 Diluted earnings per share Net (loss) income ($ 0.09) ($ 0.09) $ 0.20 $ 0.19 The accompanying notes are an integral part of these financial statements. See review report of independent accountants dated April 28, ~5~

6 OPTO TECH CORPORATION STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income ($ 53,852) $ 103,983 Adjustments to reconcile net (loss) income to net cash provided by operating activities Bad debts expense 9,038 11,023 Depreciation 128, ,838 Amortization 6,653 8,484 Investment loss accounted for under equity method ,294 Net loss (gain) on financial assets and liabilities 1,551 ( 1,096) Provision for inventory obsolescence and market price declines (Gain on price recovery of inventories) 3,937 ( 3,525) Reclassification to financial charges from deferred expenses Gain on reversal of impairment losses - ( 1,879) Gain on sale of investments ( 4) - Loss on disposal of property, plant and equipment 174 2,507 Changes in assets and liabilities (Increase) decrease in: Notes receivable 7,545 46,177 Notes receivable related parties Accounts receivable 96,806 32,610 Accounts receivable related parties 186,881 ( 44,020) Other receivables 6,233 ( 14,434) Other receivables related parties 48 ( 181) Inventories 230,391 ( 82,647) Prepaid expenses ( 243) 4,232 Prepayments 18,569 ( 5,588) Other current assets 138 ( 342) Deferred income tax assets ( 1,415) 4,531 Increase (decrease) in: Accounts payable ( 212,288) ( 124,341) Accounts payable related parties ( 223,494) 106,971 Accrued expenses ( 55,178) 41,784 Other payables ,640 Unearned revenue collected in advance 15,789 ( 48,248) Other current liabilities ( 2,849) 53 Accrued pension liabilities 232 ( 1,861) Deferred credit - gain from intercompany transactions ( 902) ( 2,588) Net cash provided by operating activities 163, ,509 (Continued) ~6~

7 OPTO TECH CORPORATION STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE THREE-MONTH PERIODS ENDED MARCH 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) (UNAUDITED) CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in restricted cash and cash equivalents $ 35,486 ($ 39,477) Acquisition of property, plant and equipment ( 42,797) ( 117,762) Proceeds from disposal of property, plant and equipment - 26,000 Decrease in deposits out Increase in deferred expenses ( 3,322) ( 13,127) Net cash used in investing activities ( 10,566) ( 144,217) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in short-term loans ( 260,527) ( 191,205) Increase (decrease) in long-term loans (including long-term loans maturing within one year) 416,500 ( 28,108) Exercise of employees stock options - 35,142 Net cash provided by (used in) financing activities 155,973 ( 184,171) Net increase (decrease) in cash and cash equivalents 308,810 ( 86,879) Cash and cash equivalents at beginning of period 1,046, ,865 Cash and cash equivalents at end of period $ 1,355,774 $ 647,986 Supplemental disclosures of cash flow information Interest paid $ 20,268 $ 18,467 Less: Interest capitalized ( 1,660) ( 1,795) Interest paid (net of interest capitalized) $ 18,608 $ 16,672 Income tax paid $ - $ - Investing and financing activities not affecting cash flows Long-term liabilities maturing within one year $ 282,857 $ 440,000 Reclassification to deferred expenses from property, plant and equipment $ 2,715 $ 1,578 The accompanying notes are an integral part of these financial statements. See review report of independent accountants dated April 28, ~7~

8 OPTO TECH CORPORATION NOTES TO FINANCIAL STATEMENTS MARCH 31, 2009 AND 2008 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED) (UNAUDITED) 1. HISTORY AND ORGANIZATION Opto Tech Corporation (the ) was incorporated as a company limited by shares under the provisions of the Law of the Republic of China (R.O.C.) on December 21, The shares of the have been traded on the Taiwan Stock Exchange since May 2, The is primarily engaged in the manufacture and sales of semiconductor components as well as research and development, design, manufacture and sales of systems products. To improve the s business operating performance, the Board of Directors resolved to discontinue the s Organic Light-Emitting Diodes division (OLED division) operations on November 4, As of March 31, 2009, the had approximately 1,200 employees. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements of the are prepared in accordance with the Rules Governing the Preparation of Financial Statements by Securities Issuers, Business Entity Accounting Law, Regulation on Business Entity Accounting Handling and generally accepted accounting principles in the Republic of China. The s significant accounting policies are summarized below: 1) Translation of financial statements of foreign subsidiaries Assets and liabilities of foreign subsidiaries are translated into New Taiwan dollars using the exchange rates prevailing at the balance sheet date. Equity accounts are translated at historical rates except for beginning retained earnings, which is carried forward from prior year s balance. Dividends are translated at the rates prevailing at the date of declaration. Profit and loss accounts are translated at weighted-average rates during the year. The resulting translation differences are included in cumulative translation adjustments under stockholders equity. 2) Foreign currency transactions A. The maintains its accounts in New Taiwan dollars. Transactions denominated in foreign currencies are translated into New Taiwan dollars at the spot exchange rates prevailing at the transaction dates. Exchange gains or losses due to the difference between the exchange rate on the transaction date and the exchange rate on the date of actual receipt and payment are recognized in current year s profit or loss. ~8~

9 B. Receivables, other monetary assets and liabilities denominated in foreign currencies are translated at the spot exchange rates prevailing at the balance sheet date. Exchange gains or losses are recognized in profit or loss. C. At the end of the period, foreign currency non-monetary assets and liabilities at fair value through profit or loss are evaluated at the spot exchange rates prevailing at the balance sheet date. Any exchange gain or loss resulting from the evaluation shall be recognized in current period s profit or loss. Conversely, foreign currency non-monetary assets and liabilities at fair value through shareholders equity are evaluated at the spot exchange rates prevailing at the balance sheet date. Any exchange gain or loss resulting from the evaluation shall be recognized in stockholders equity. However, non-monetary items that are measured not based on the fair value are evaluated using the historical exchange rates at the date of the transaction. 3) Criteria for classifying current or non-current assets and liabilities A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets: a) Assets arising from operating activities that are expected to be realized or consumed, or are intended to be sold within the normal operating cycle; b) Assets held mainly for trading purposes; c) Assets that are expected to be realized within twelve months from the balance sheet date; d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date. B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities: a) Liabilities arising from operating activities that are expected to be paid off within the normal operating cycle; b) Liabilities arising mainly from trading activities; c) Liabilities that are to be paid off within twelve months from the balance sheet date; d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. 4) Cash and cash equivalents Cash equivalents represent highly liquid investments that meet the following requirements: A. Readily convertible to cash; and B. With maturities less than three months and which are subject to insignificant risk of changes in value resulting from fluctuations in interest rates. The s statement of cash flows is prepared on the basis of cash and cash equivalents. 5) Financial assets and financial liabilities at fair value through profit or loss A. Financial assets and financial liabilities at fair value through profit or loss are recognized and derecognized using trade date accounting and are recognized initially at fair value. ~9~

10 B. These financial assets and liabilities are subsequently remeasured and stated at fair value and the gain or loss is recognized in profit or loss. The fair value of open-end mutual funds is based on the net asset value at the balance sheet date. 6) Available-for-sale financial assets A. Available-for-sale financial assets are recognized and derecognized using trade date accounting and are initially stated at fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. B. The financial assets are remeasured and stated at fair value, and the gain or loss is recognized in equity, until the financial asset is derecognized, at which time the cumulative gain or loss previously recognized in equity shall be recognized in profit or loss. The fair values of listed stocks and OTC stocks are based on the closing prices quoted in the Taiwan Stock Exchange and the GreTai Securities Market at the balance sheet date. C. If there is any objective evidence that the financial asset is impaired, the cumulative loss that had been recognized directly in equity shall be transferred from equity to profit or loss. When the fair value of an equity instrument subsequently increases, impairment losses recognized previously in profit or loss shall be reversed and recognized as adjustments in equity. 7) Financial assets carried at cost A. Investment in unquoted equity instruments is recognized or derecognized using trade date accounting and is stated initially at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. B. If there is any objective evidence that the financial asset is impaired, the impairment loss is recognized in profit or loss. Such impairment loss shall not be reversed when the fair value of the asset subsequently increases. 8) Accounts receivable Accounts receivable are claims resulting from the sale of goods or services. The fair value of accounts receivable is calculated based on the imputed interest rate. Accounts receivable which are collectible within one year, and where the difference between the fair value and the value at maturity is insignificant are measured at carrying value. 9) Allowance for doubtful accounts Allowance for doubtful accounts is provided according to the evaluation of the collectibility of notes, accounts and other receivables, taking into account the bad debts incurred in prior years and the aging analysis of the receivables. 10) Inventories The perpetual inventory system is adopted for inventory recognition. Inventories are stated at cost. The cost is determined using the weighted-average method. Fixed manufacturing costs are allocated on the basis of the normal capacity of production equipment. At the end of year, inventories are evaluated at the lower of cost or net realizable value, and the individual item approach is used in the comparison of cost and net realizable value. The calculation of net realizable value should be based on the estimated selling price in the normal course of business, ~10~

11 net of estimated costs of completion and estimated selling expenses. The decided to close the operations of OLED division effective on November 4, As such, all inventories of OLED division are evaluated using their net realizable values. 11) Non-current assets held-for-sale Non-current assets held for sale (disposal group) are measured at the lower of carrying value or fair value. 12) Long-term equity investments accounted for under the equity method A. Long-term equity investments in which the holds more than 20% of the investee company s voting shares or has the ability to exercise significant influence on the investee s operational decisions are accounted for under the equity method. However, if the has no significant control ability over the investees, the equity method is exempted from being applied in the preparation of the first and third quarter financial statements. The excess of the initial investment cost over the acquired net asset value of the investee attributable to goodwill is no longer amortized, effective January 1, Retrospective adjustment of the amount of goodwill amortized in previous year(s) is not required. B. Long-term equity investments in which the holds more than 50% of the voting shares of the investees or has significant control ability on the investees operations are accounted for under the equity method and included in the quarterly consolidated financial statements. C. Effective January 1, 2005, if the has the control ability over the investees, the recognizes all the losses incurred by such entities that will not be covered by other stockholders. When the operations of such investees become profitable, the recognizes the profits until the amount of losses previously recognized by the is fully recovered. D. The unrealized gains (losses) on the downstream transactions between the and the investees accounted for under the equity method are eliminated at period-end according to the s percentage of shareholding in these investees. Where the has controlling power over the investees, the unrealized gains (losses) are eliminated in full amount and are recognized only when they are realized. Additionally, the unrealized gains (losses) on the upstream transactions and sidestream transactions between the and the investees accounted for under the equity method are eliminated based on the s equivalent percentage of shareholding in these investees. E. Exchange differences arising from translation of the financial statements of overseas investee companies accounted for under the equity method are recorded as cumulative translation adjustments under stockholders equity. F. The accounting policy on impairment of long-term investments accounted for under the equity method is described in Note 2(15). ~11~

12 13) Property, plant and equipment A. Property, plant and equipment are stated at cost. Interests incurred on the loans used to bring the assets to the condition and location necessary for their intended uses are capitalized. B. Depreciation is provided under the straight-line method based on the assets estimated economic service lives. Salvage value of the fully depreciated assets that are still in use is depreciated based on the re-estimated economic service lives. The estimated useful lives are 30~50 years for buildings and 3~10 years for the other property, plant and equipment. C. Major improvements and renewals are capitalized and depreciated accordingly. Maintenance and repairs are expensed as incurred. D. Property, plant and equipment that are idle or have no value in use are reclassified to other assets at the lower of the fair value less costs to sell or book value. The resulting difference is included in current operations. Depreciation provided on these assets is charged to non-operating expense. E. The accounting policy on impairment of property, plant and equipment is described in Note 2(15). 14) Deferred assets Deferred assets, which mainly consist of telephone line installation, computer software expenses and expenses related to commercial papers, are amortized on a straight-line basis over their estimated useful lives of 2~21 years. 15) Impairment of non-financial assets The recognizes impairment loss when there is indication that the recoverable amount of an asset is less than its carrying amount. The recoverable amount is the higher of the fair value less costs to sell or value in use. The fair value less costs to sell is the amount obtainable from the sale of the asset in an arm s length transaction after deducting any direct incremental disposal costs. The value in use is the present value of estimated future cash flows to be derived from continuing use of the asset and from its disposal at the end of its useful life. When the impairment no longer exists, the impairment loss recognized in prior years shall be recovered. The recoverable amount of goodwill shall be evaluated periodically. Impairment loss will be recognized whenever there is indication that the recoverable amount of these assets is less than their respective carrying amount. Impairment loss on goodwill is not recoverable in the following years. 16) Warranty Warranty is estimated based on historical experience. Service warranty expense is included in the current year s operating expense. 17) Pension plan A. Under the defined benefit pension plan, net periodic pension costs are recognized in accordance with the actuarial calculations. Net periodic pension costs include service cost, interest cost, expected return on plan assets, and amortization of unrecognized net transition obligation and gains or losses on plan assets. Unrecognized net transition obligation is ~12~

13 amortized on a straight-line basis over 25 years. Under the defined contribution pension plan, net periodic pension costs are recognized as incurred. B. Minimum pension liabilities in the interim financial statements were adjusted in accordance with the net periodic pension cost and funds contributed. 18) Income tax A. Inter-period and intra-period income taxes are allocated in accordance with the R.O.C. SFAS No. 22, Accounting for Income Taxes. Over or under provision of prior years income tax liabilities is included in current period s income tax. B. Investment tax credits arising from expenditures incurred on acquisitions of equipment or technology, research and development, employees training, and equity investments are recognized in the year the related expenditures are incurred. C. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings. 19) Treasury stock A. When the acquires its issued stocks, the cost is debited as treasury stock and recognized as a reduction to stockholders equity. Treasury stocks acquired are stated at cost using the weighted-average method. B. Upon disposal of the treasury stock, if the disposal price exceeds the cost of the treasury stock, the difference is credited to capital reserve treasury stock. If the disposal price is less than the cost, the difference is debited to the capital reserve arising from the treasury stock of the same class. Where the capital reserve is insufficient to cover the difference, the remaining amount is charged against retained earnings. C. Upon registration of cancellation, except for the book value sum of common stock and capital reserve-additional paid-in, which is in proportion to shareholding, the related gain is credited to capital reserve-treasury stock transaction and any loss is offset against this capital reserve account. However, when the balance of this capital reserve account is insufficient to offset the loss, then the remaining amount is charged against retained earnings. D. The s shares held by its subsidiaries are accounted for as treasury stock. 20) Share-based payment - employee compensation plan The employee stock options granted from January 1, 2004 through December 31, 2007 are accounted for in accordance with EITF , EITF and EITF Accounting for Employee Stock Options as prescribed by the Accounting Research and Development Foundation, R.O.C., dated March 17, Under the share-based employee compensation plan, compensation cost is recognized using the intrinsic value method and pro forma disclosures of net income and earnings per share are prepared in accordance with the R.O.C. SFAS No. 39, Accounting for Share-based Payment. 21) Employees bonuses and directors and supervisors remuneration Effective January 1, 2008, pursuant to EITF of the Accounting Research and Development Foundation, R.O.C., dated March 16, 2007, Accounting for Employees Bonuses ~13~

14 and Directors and Supervisors Remuneration, the costs of employees bonuses and directors and supervisors remuneration are accounted for as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and the amounts can be estimated reasonably. However, if the accrued amounts for employees bonuses and directors and supervisors remuneration are different from the actual distributed amounts resolved by the stockholders at their annual stockholders meeting subsequently, the differences shall be recognized as gain or loss in the following year. In addition, according to EITF of the Accounting Research and Development Foundation, R.O.C., dated March 31, 2008, Criteria for Listed Companies in Calculating the Number of Shares of Employees Stock Bonus, the calculates the number of shares of employees stock bonus based on the closing price of the 's common stock at the previous day of the stockholders meeting held in the year following the financial reporting year, and after taking into account the effects of ex-rights and ex-dividends. 22) Revenues and expenses Revenues are recognized when the earning process is substantially completed and are realized or realizable. Costs and expenses are recognized as incurred. 23) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. Actual results could differ from those assumptions and estimates. 24) Settlement date accounting If an entity recognizes financial assets using settlement date accounting, any change in the fair value of the asset to be received during the period between the trade date and the settlement date is recognized in profit or loss for financial assets or liabilities classified as at fair value through profit or loss. 3. CHANGES IN ACCOUNTING PRINCIPLES 1) Effective January 1, 2009, the adopted the amendments to R.O.C. SFAS No. 10, Accounting for Inventories. As a result of this change in accounting principle, operating costs and non-operating losses related to inventories increased by $1,424 and decreased by $1,424, respectively, for the three-month period ended March 31, Investment losses decreased by $2,276 relative to the subsidiaries adoption of the amendments to the Statement. Net income increased by $875 and earnings per share increased by $0.002 for the three-month period ended March 31, ) Effective January 1, 2008, the adopted EITF of the Accounting Research and Development Foundation, R.O.C., dated March 16, As a result of the adoption of EITF , net income decreased by $29,272 and earnings per share decreased by $0.06 for the ~14~

15 three-month period ended March 31, DETAILS OF SIGNIFICANT ACCOUNTS 1) Cash and cash equivalents March 31, Cash on hand $ 101 $ 112 Checking and demand deposits 604, ,874 Time deposits 265,900 18,000 Cash equivalents-repurchase bond 485,000 30,000 $ 1,355,774 $ 647,986 2) Financial assets at fair value through profit or loss March 31, Current items: Adjustment of financial assets held for trading Forward exchange contracts $ 587 $ 1,096 3) Accounts receivable March 31, Accounts receivable $ 1,302,325 $ 1,679,222 Less: Allowance for doubtful accounts ( 113,587) ( 119,322) $ 1,188,738 $ 1,559,900 4) Inventories March 31, 2009 Continued Operations Division OLED Division Total Raw materials $ 627,905 $ 63,374 $ 691,279 Supplies 88,027 2,651 90,678 Work in process 195, ,270 Semi-finished goods 186,947 34, ,248 Finished goods 392,857 30, ,500 1,491, ,969 1,621,975 Less: Allowance for obsolescence and market value decline ( 318,695) ( 127,540) ( 446,235) $ 1,172,311 $ 3,429 $ 1,175,740 ~15~

16 March 31, 2008 Continued Operations Division OLED Division Total Raw materials $ 774,275 $ 63,374 $ 837,649 Supplies 102,645 2, ,296 Work in process 205,615 33, ,452 Semi-finished goods 220, ,365 Finished goods 534,519 31, ,178 1,837, ,985 1,969,940 Less: Allowance for obsolescence and market value decline ( 248,741) ( 128,869) ( 377,610) $ 1,589,214 $ 3,116 $ 1,592,330 The related expenses and losses of inventories: For the three-month periods ended March 31, Cost of goods sold ($ 731,604) ($ 1,154,473) Provision for inventories market price declines ( 3,937) - Gain on price recovery of inventories - 3,525 Others ( 113,191) ( 9,161) ($ 848,732) ($ 1,160,109) As a consequence of rework of items from project warehouse of Semiconductor Business Division and lower expense rate of Systems & Products Division, the write-down of inventories has reversed for the three-month period ended March 31, ~16~

17 5) Non-current assets held-for-sale March 31, Net amount of inventories to be disposed of $ 3,429 $ 3,116 Fixed assets Machinery 1,588,824 2,266,788 Transportation equipment 7,376 7,676 Office equipment Other equipment 1,767 2,218 Less: Accumulated depreciation ( 368,797) ( 549,494) Accumulated impairment ( 1,036,844) ( 1,455,671) Net amount 192, ,591 Deferred expenses Royalties - 106,045 Mold and software 21 6,258 Less: Accumulated impairment ( 9) ( 100,966) Net amount 12 11,337 $ 195,833 $ 286,044 6) Available-for-sale financial assets March 31, Non-current items: Listed (TSE and OTC) stocks American Xtal Technology, Inc. $ 2,881 $ 2,881 United Radiant Technology Corp. 132, , , ,950 Adjustment of available-for-sale financial assets ( 92,872) ( 38,099) $ 42,078 $ 96,851 ~17~

18 7) Financial assets carried at cost Non-current items: Unlisted stocks ~18~ March 31, Nichia Corp. $ 379,252 $ - Formosa Industrial Computing, Inc. 7,632 7,632 Shin-Etsu Opto Electronic Co., Ltd. 20,000 20,000 Lanyo Technology Co., Ltd. - 3,342 Giga Epitaxy Technology Corp. 33,000 33,000 Pictologic Inc. 2,794 4,000 Lu Zhu Development Co., Ltd. 127, ,072 Omniad Media Incorporation - 6,993 Oriental System Technology Inc. 10,001 11,194 $ 580,327 $ 224,233 A. The above investments were measured at cost since these have no quoted prices and their fair value cannot be measured reliably. B. For the year ended December 31, 2008, the recognized impairment losses of $3,342, $1,206, $10,424, $6,993 and $5,193 on its investments in Lanyo Technology Co., Ltd., Pictologic Inc., Lu Zhu Development Co., Ltd., Omniad Media Incorporation and Oriental System Technology Inc., respectively, because the had assessed that the recoverable amount is lower than the book value. 8) Long-term investments accounted for under the equity method A. Information of long-term investments as of March 31, 2009 and 2008 are summarized below: March 31, 2009 March 31, 2008 Investee company Carrying amount % of ownership Carrying amount % of ownership OPTO Technology International Group Co., Ltd. $ 872, $ 754, Ho Chung Investment Co., Ltd. 64, , Opto Tech (H.K.) Co., Ltd. 9, , Opto Tech (Macao) Co., Ltd. 3, China Semiconductor Corporation 1, , Viking Tech Corporation 122, , Jyu Shin Investment Co., Ltd. 110, Neostones Microfabrication Corporation (Note) $ 1,184,836 $ 1,017,345 Shown as other liability - other": Opto Tech (Macao) Co., Ltd. $ - - ($ 505) 99.90

19 Note: The company was liquidated in December B. Investment income (loss) accounted for under the equity method for the three-month periods ended March 31, 2009 and 2008 is set forth below: For the three-month periods ended March 31, Investee company OPTO Technology International Group Co., Ltd. $ 455 ($ 43,910) Ho Chung Investment Co., Ltd. ( 1,865) ( 456) Opto Tech (H.K.) Co., Ltd. ( 42) - Opto Tech (Macao) Co., Ltd. 1,174 ( 679) China Semiconductor Corporation ( 214) ( 1,249) Jyu Shin Investment Co., Ltd. ( 11) - Viking Tech Corporation - - ($ 503) ($ 46,294) C. Long-term investments accounted for under the equity method were based on the financial statements as of and for the three-month periods ended March 31, 2009 and 2008 which were not reviewed by independent accountants, except for Viking Tech Corporation, because the ownership was less than 50%, the investment income and loss was not recognized under the equity method. D. Since the had control ability over Opto Tech (Macao) Co., Ltd., the recognized the entire losses incurred by such entity that would not be covered by other stockholders. As of March 31, 2008, the related balance of the long-term investment was ($505), which was shown as other liability - other. E. In April 2008, the invested in Jyu Shin Investment Co., Ltd., a 100% owned subsidiary, by contributing 6,200 thousand shares of Viking Tech Corporation. As a result, the s direct ownership percentage in Viking Tech Corporation was reduced to below 20%. However, as Jyu Shin Investment Co., Ltd. owns the 6,200 thousand shares of Viking Tech Corporation, the total ownership percentage in Viking Tech Corporation exceeded 20%. Accordingly, the s investment in Viking Tech Corporation is accounted for under the equity method. ~19~

20 9) Property, plant and equipment Asset Initial cost March 31, 2009 Accumulated depreciation Accumulated impairment Carrying value Land $ 12,493 $ - $ - $ 12,493 Buildings 1,722,605 ( 480,386) ( 59) 1,242,160 Machinery 3,119,918 ( 2,202,551) ( 8,248) 909,119 Utility facilities 935,336 ( 654,588) - 280,748 Pollution prevention facilities 606,734 ( 522,312) - 84,422 Transportation equipment 6,704 ( 4,683) ( 64) 1,957 Office equipment 76,565 ( 60,428) ( 307) 15,830 Lease assets Leasehold improvements Other equipment 1,391,794 ( 964,788) ( 121) 426,885 Construction in progress and prepayments for equipment 253, ,014 $ 8,125,163 ($4,889,736) ($ 8,799) $ 3,226,628 Asset Initial cost ~20~ March 31, 2008 Accumulated depreciation Accumulated impairment Carrying value Land $ 12,493 $ - $ - $ 12,493 Buildings 1,718,380 ( 426,323) ( 59) 1,291,998 Machinery 2,806,661 ( 2,007,062) ( 5,766) 793,833 Utility facilities 927,397 ( 572,680) - 354,717 Pollution prevention facilities 579,303 ( 487,787) - 91,516 Transportation equipment 6,692 ( 5,216) ( 64) 1,412 Office equipment 78,883 ( 60,509) ( 312) 18,062 Leased assets 608 ( 465) Leasehold improvements 2,670 ( 2,670) - - Other equipment 1,344,207 ( 857,672) ( 121) 486,414 Construction in progress and prepayments for equipment 240, ,447 $ 7,717,741 ($4,420,384) ($ 6,322) $ 3,291,035 A. Since the discontinued the operations of OLED division on November 4, 2006, property, plant and equipment of OLED division which are to be disposed of were reclassified to Non-current assets held-for-sale. Please refer to Note 4(5) for details. B. Interest capitalized to property, plant and equipment amounted to $1,660 and $1,795 for the three-month periods ended March 31, 2009 and 2008, respectively.

21 10) Idle assets March 31, 2009 Cost Accumulated depreciation Accumulated impairment Carrying value Machinery $ 680,139 ($ 186,823) ($ 414,643) $ 78,673 March 31, 2008 Cost Accumulated depreciation Accumulated impairment Carrying value Machinery $ 11,131 ($ 7,974) ($ 137) $ 3,020 11) Short-term loans March 31, Unsecured loans $ 813,058 $ 891,379 Interest rate 1.20%-5.48% 1.54%-6.29% ` 12) Long-term loans Financial Bank Credit line Period Syndicated loans with 8 financial $ 2,000, ~ institutions including Taishin International Bank China Development Industrial Bank 100, ~ Yuanta Commercial Bank 200, ~ Taishin International Bank 200, ~ Ta Chong Bank 300, ~ Amount of loans March 31, March 31, $ 1,959,400 $ 540, , ,000 40, , ,000-60,000 2,099,400 1,020,000 Less: Current portion ( 282,857) ( 440,000) $ 1,816,543 $ 580,000 On February 15, 2008, the signed a mortgage contract with a credit limit of $2 billion with 8 banks, including Taishin International Bank, and paid the loans used for plants and commercial papers to Taiwan Cooperative Bank. At the same time, the transferred the mortgaged assets, which was originally pledged to Taiwan Cooperative Bank, to the 8 banks including Taishin International Bank. Please refer to Note 6 for details of the collateral. ~21~

22 13) Pension plans A. The has a non-contributory and funded defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The contributes monthly an amount equal to 3.39% of the employees monthly salaries and wages to the retirement fund deposited with Bank of Taiwan. The pension costs under the defined benefit pension plan for the three-month periods ended March 31, 2009 and 2008 were $3,745 and $6,614, respectively. The fund balance with Bank of Taiwan were $193,520 and $214,840 as of March 31, 2009 and 2008, respectively. B. Effective July 1, 2005, the established a funded defined contribution pension plan (the New Plan ) under the Labor Pension Act. Employees have the option to be covered under the New Plan. Under the New Plan, the contributes monthly an amount based on 6% of the employees monthly salaries and wages to the employees individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are portable when employment is terminated. The pension costs under the defined contribution pension plan for the three-month periods ended March 31, 2009 and 2008 were $5,877 and $6,017, respectively. 14) Common stock In accordance with the resolution adopted by the Board of Directors on April 26, 2007, the decided to reduce its capital by $2,559,658 at a ratio of % to cover its accumulated deficit, which was set to take effect on August 11, The capital reduction was approved at the stockholders meeting on June 13, 2007 and approved by the Financial Supervisory Commission, Executive Yuan, R.O.C. on August 1, As of March 31, 2009, the s authorized capital was $10,000,000, and paid-in capital was $5,237,448, consisting of 523,745 thousand shares of common stock with a par value of $10 (in dollars) per share. 15) Capital reserve The R.O.C. Securities and Exchange Law requires that capital reserve shall be exclusively used to cover any accumulated deficit or to increase capital and shall not be used for any other purpose. However, capital reserve arising from paid-in capital in excess of par value on issuance of common stock and donations can be capitalized once a year, provided that the has no accumulated deficit and the amount to be capitalized does not exceed 10% of the paid-in capital. 16) Retained earnings A. Under the s Articles of Incorporation, the current year s earnings, if any, shall first be distributed as follows: 1) Offset prior years operating losses. 2) 10% of the remaining amount shall be set aside as legal reserve, unless the accumulated legal reserve equals the total capital of the. ~22~

23 3) Appropriation of the remainder shall be proposed by the Board of Directors and resolved by the stockholders. 4) Bonus distributed to the employees and shareholders, and remuneration paid to the directors and supervisors should account for 15%, 80% and 5%, respectively, of the total distributed amount. B. The operates in the high-tech industry and its business life cycle is in the growth stage. In view of its capital expenditure demand and comprehensive financial plan for continuous development, the issues both stock and cash dividends. The proportion of dividends to be distributed in stocks and cash is determined based on the s rate of growth and capital expenditures. However, the amount of cash dividends shall not be lower than 20% of the dividends distributed. C. Pursuant to the regulation of the Financial Supervisory Commission, Executive Yuan, R.O.C., if there are any negative stockholders equity items recorded by the, such as unrealized losses on the decline in market value of available-for-sale financial assets, cumulative translation adjustments, and unrecognized pension cost (except for treasury stock), the is required to set aside a special reserve from the current after-tax net income and the unappropriated retained earnings accumulated from previous years with an amount equal to the total amount of the negative items. For the negative stockholders equity items which occurred in previous years, the special reserve is set aside from the previous years unappropriated retained earnings. Additionally, if the market value of the s shares held by its subsidiaries is less than their book value, an amount equal to the s proportionate share of the difference should also be set aside as special reserve. If there is a subsequent recovery in the market value, a reversal based on the s equity interest should be made to the special reserve. D. Legal reserve can only be used to cover accumulated losses or to increase capital. Legal reserve can be used to increase capital only if the accumulated amount of legal reserve is more than 50% of paid-in capital, and the amount is limited to 50% of its balance. E. The appropriation of 2007 earnings had been resolved at the stockholders meeting on June 13, Details are summarized below: Appropriation of 2007 earnings Dividends per share Amount (in dollars) Legal reserve $ 92,095 Special reserve 7,012 Cash dividends 520,312 $ 0.99 Directors and supervisors remuneration 32,520 Employees cash bonus 97,558 $ 749,497 ~23~