E-TON SOLAR TECH. CO., LTD. FINANCIAL STATEMENTS. FOR THE YEARS ENDED DECEMBER 31, 2007 and 2006 WITH REPORT OF INDEPENDENT AUDITORS

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1 E-TON SOLAR TECH. CO., LTD. FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2007 and 2006 WITH REPORT OF INDEPENDENT AUDITORS The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail. 1

2 The Board of Directors and Shareholders E-TON SOLAR TECH. CO., LTD. Report of Independent Auditors English Translation of a Report Originally Issued in Chinese We have audited the accompanying balance sheets of E-TON SOLAR TECH. CO., LTD. as of December 31, 2007 and 2006, and the related statements of income, changes in shareholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audits. As of December 31, 2007, the Company s long-term equity investment in GLORIA SOLAR CO., LTD ZHI YAO INVESTMENT LTD. and AURIA SOLAR CO., LTD. were accounted for under equity method and the balances of such investment as of December 31, 2007 amounted to NT$582,998 thousand dollars (5.40% of total assets) and the related investment loss recognized under equity method amounted to NT$9,733 thousand dollars (-1.08% of income before income tax) for the year ended. Such amounts were based on the financial statement of the investee companies which were audited by other auditors whose report have been furnished to us and our opinion, insofar as it relates to data included for those stated investee companies, is based solely on the other auditors. We conducted our audits in accordance with "Regulations for Auditing and Certification of Financial Statements by Certified Public Accountants" and Auditing Standards generally accepted in the Republic of China on Taiwan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based upon our audits and the report of other audit, the financial statements referred to above present fairly, in all material respects, the financial position of E-TON SOLAR TECH. CO., LTD. as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended, in conformity with Business Accounting Law, Regulation on Business Entity Accounting Handling with respect to financial accounting standards, Guidelines Governing the Preparation of Financial Report by Securities Issuers and accounting principles generally accepted in the Republic of China on Taiwan. As described in Note.4, E-TON SOLAR TECH. CO., LTD. has prepared the accompanying consolidated financial statements for the years ended December 31, 2007 and 2006 accompany with modified unqualified report and unqualified report respectively issued by our auditors furnished upon request. Ernst & Young Tainan, Taiwan, R.O.C. March 7, 2008 Notice to Readers The accompanying financial statements are intended only to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China on Taiwan and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China on Taiwan. 2

3 English Translation of Financial Statements Originally Issued in Chinese E-TON SOLAR TECH. CO., LTD. BALANCE SHEETS December 31, 2007 and 2006 (Expressed in New Taiwan Thousand Dollars) ASSETS Notes LIABILITIES AND SHAREHOLDERS' EQUITY Notes CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents /.1 $1,189,522 $2,680,175 Short-term borrowings.12 $990,000 - Notes receivable-net /.2/V 30 - Short-term notes and bills payable ,815 - Accounts receivable-net /.3 996, ,630 Notes payable 23,422 13,886 Accounts receivable-related parties-net V - 18,102 Other notes payable 54,957 52,772 Other financial assets- Current 49,880 40,168 Accounts payable 172, ,171 Inventories-Net /.4 1,149, ,844 Income tax payable /.24 36,319 55,828 Prepayments to suppliers 726, ,720 Accrued expenses 86,614 30,403 Deferred income tax assets-current-net /.17-5,293 Financial liabilities measured at fair value through profit or loss - Current /.14 9, ,235 Other current assets 173,259 45,257 Bonds payable-current portion /.16 2,637,684 - Financial assets measured at fair value through profit or loss -Current /.5 2,935 - Deferred income tax liabilities-current-net /.24 7,616 -.Available for sale financial assets - Current /.6 15,484 - Other current liabilities 38,169 11,027 Deferred credits - gains on intercompany transactions / Total Current Assets 4,303,761 3,886,189 Total Current Liabilities 4,207, ,089 FUNDS AND LONG-TERM INVESTMENTS /.7 Equity investments under equity method 582,998 47,966 LONG-TERM LIABILITIES-EXCLUDING CURRENT PORTION Financial assets carried at cost -Noncurrent 50,000 - Long-term borrowings /.16-2,516,431 Bonds payable /.17 2,994,388 - Fund and Long-term Investments-Net 632,998 47,966 Total Long-term Liabilities 2,994,388 2,516,431 PROPERTY,PLANT AND EQUIPMENT /.8/ Buildings and structures 202, ,264 OTHER LIABILITIES Machinery and equipment 971, ,050 Accrued pension liabilities / Office equipment Miscellaneous equipment 15,539 10,444 Total cost 1,190, ,820 TOTAL LIABILITIES 7,201,975 3,165,046 Less: Accumulated depreciation (209,267) (112,639) Add: Construction in progress 883, ,849 Prepayments for business facilities 614, ,148 Property, Plant and Equipment-Net 2,478, ,178 SHAREHOLDERS' EQUITY Common stock , ,600 INTANGIBLE ASSETS Advance subscription receipts for common stock Computer software cost /.9 3,819 - Capital surplus.19 Deferred pension cost / Additional paid-in capital - common stock 1,318,920 1,318,920 Long-term equity investments under equity method 168,766 - Total Intangible Assets-Net 4, Stock option-convertible bond , ,142 Legal reserve ,423 32,273 OTHER ASSETS Retained earnings , ,815 Guarantee deposits paid 12,344 12,344 Cumulative translation adjustments (232) - Deferred charges 17,103 2,166 Unrealized gains on financial instruments.7/.6 12,426 - Deferred income tax assets-noncurrent-net /.24 35, Other assets-other.10 3,323,314 1,132,526 Total Shareholders' Equity 3,606,760 2,912,750 Total Other Assets 3,388,457 1,147,585 TOTAL ASSETS $10,808,735 $6,077,796 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,808,735 $6,077,796 (The accompanying notes are an integral part of the financial statements) 3

4 English Translation of Financial Statements Originally Issued in Chinese E-TON SOLAR TECH. CO., LTD. STATEMENTS OF INCOME For the Years Ended December 31, 2007 and 2006 (Expressed in New Taiwan Thousand Dollars Except for Earnings Per Share) Items Notes SALES 6,120,354 3,425,263 SALES RETURNS AND ALLOWANCES (146,501) (36,177) NET SALES /.22/ 5,973,853 3,389,086 COST OF SALES /.23/ (5,180,275) (2,565,388) GROSS PROFIT 793, ,698 Unrealized gains on intercompany transactions.15 (690) (767) Realized gains on intercompany transctions , ,931 OPERATING EXPENSES Selling expenses (16,121) (8,212) General and administrative expenses (47,985) (18,204) Research and development expenses (121,233) (33,232) Total operating expenses /.23/ (185,339) (59,648) OPERATING INCOME 608, ,283 NON-OPERATING INCOME Interest income 94,147 21,921 Income from long-term equity investments under the equity method /.7-2,760 Gains on disposal of investments 4,121 - Gains on physical inventory-net 7 33 Foreign exchange gains - Net 75,822 33,864 Income from sale of scrap and waste 15,914 14,456 Revaluation gain on financial assets 15,083 2,086 Revaluation gain on financial liabilities 291,380 - Others Total 496,994 76,071 NON-OPERATING EXPENSES Interest expenses (184,242) (16,905) Losses from long-term investments under the equity method /.7 (9,733) - Losses on inventory valuation and obsolescence (9,900) (4,300) Financial expenses (1,489) - Revaluation loss on financial liabilities - (9,836) Others (351) (1,054) Total (205,715) (32,095) INCOME BEFORE INCOME TAX 899, ,259 INCOME TAX EXPENSE /.24 (7,088) (75,752) NET INCOME $892,507 $731,507 EARNINGS PER SHARE (in NT Dollar) /.25 $14.71 $12.25 (The accompanying notes are an integral part of the financial statements) 4

5 English Translation of Financial Statements Originally Issued in Chinese E-TON SOLAR TECH. CO., LTD. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 2007 and 2006 (Expressed in New Taiwan Thousand Dollars) Description Common Stock Advance subscription receipts for common stock Capital Surplus Legal Reserve Retained earnings Cumulative translation adjustments Unrealized gains on financial instruments Total Balance, January 1, 2006 $221,580 $241,420 $180,000 $4,806 $274, $922,491 Capital increase by cash 61,150 (241,420) 1,138, ,650 Appropriations and distributions of 2005 earnings: Legal reserve 27,467 (27,467) - Stock dividends 118,747 (118,747) - Employees' stock bonus 1,123 (1,123) - Employees' cash bonus (6,293) (6,293) Cash dividends (118,747) (118,747) Capital surplus - equity components of convertible bonds-stock option 425, ,142 Net income for , ,507 Balance at December 31, 2006 $402,600 - $1,744,062 $32,273 $733, $2,912,750 Appropriations and distributions of 2006 earnings: Legal reserve 73,150 (73,150) - Stock dividends 201,300 (201,300) - Employees' stock bonus 2,650 (2,650) - Employees' cash bonus (17,117) (17,117) Cash dividends (362,340) (362,340) Capital surplus arising from long-term equity investment under equity method 168, ,766 Cumulative translation adjustments $(232) (232) Unrealized gains on financial instruments $12,426 12,426 Net income for , ,507 Balance at December 31, 2007 $606,550 - $1,912,828 $105,423 $969,765 $(232) $12,426 $3,606,760 (The accompanying notes are an integral part of the financial statements) 5

6 English Translation of Financial Statements Originally Issued in Chinese E-TON SOLAR TECH. CO., LTD. STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2007 and 2006 (Expressed in New Taiwan Thousand Dollars) ITEMS ITEMS CASH FLOW FROM OPERATING ACTIVITIES: CASH FLOW FROM FINANCING ACTIVITIES: Net income $892,507 $731,507 Increase in short-term borrowings 990,000 - Adjustments to reconcile net income to net cash provided Increase (Decrease) in short-term notes and bills payable 149,815 (19,985) by operating activities: Issuance of convertible bonds - 3,225,659 Depreciation expenses 96,628 48,455 Capital increase by cash - 958,650 Amortization expenses 16, Increase in long-term borrowings 2,994,388 - loss (Income) from long-term equity investments under the equity method 9,733 (2,760) Payment of employees' bonus (17,117) (6,293) (Gain) loss on valuation of liability components of convertible bonds-put option (291,338) 9,795 Cash dividends (362,340) (118,747).Exchange rate effect (19,728) (7,465).Amortization of discount on bonds payable 139,059 16,777 Net cash provided by financing activities 3,754,746 4,039,284 Changes in operating assets and liabilities: Accounts receivable-net (596,100) (388,343) Accounts receivable - related parties-net 18,102 (18,102) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,490,653) 2,291,708 Other financial assets-net (9,712) (24,360) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF YEAR 2,680, ,467 Inventories-Net (609,598) (266,128) Prepayments to suppliers-net (2,760,577) (1,268,361) CASH AND CASH EQUIVALENTS AT THE END OF YEAR $1,189,522 $2,680,175 Deferred income tax assets-net (22,238) 17,812 Financial assets measured at fair value through profit or loss-current (2,977) - Other current assets (128,002) (38,402) SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Notes payable 9,536 6,107 Cash paid during the year for: Accounts payable (7,803) 92,131 (1) Interest expenses paid 71, Income tax payable (19,509) 44,454 Less: capitalized interest (30,879) - Accrued expenses 56,211 20,257 Interest (excluding capitalized interest) $40,222 $128 Financial liabilities measured at fair value through profit or loss-current - 42 Other current liabilities (8,267) (28) (2) Income tax $48,835 $13,486 Accrued pension liabilities (471) (786) Deferred credits - gains on intercompany transactions (77) 767 (3) Additions to property, plant and equipment 1,580, ,046 Add: Balance other notes payable at the beginning of year 52,772 11,025 Net cash used in operating activities (3,238,052) (1,025,939) Balance payable - machinery and equipment listing in other payables at the beginning of years 147 5,828 Less: Balance other notes payable at the end of years (54,957) (52,772) CASH FLOW FROM INVESTING ACTIVITIES: Balance payable - machinery and equipment listing in other payables at the end of years (35,556) (147) Additions to property, plant and equipment (1,542,733) (674,980) Additions to property, plant and equipment $1,542,733 $674,980 Increase in intangible assets-computer software cost (4,277) - Increase in deferred charges (31,048) (1,451) SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND Additions to available-for-sale financial assets-current (4,129) - FINANCING ACTIVITIES: Additions to long-term equity investments (425,160) (45,206) (4) Current portion of Bonds payable $2,637,684 - (5)Capital surplus arising from long-term equity investment under equity method $168,766 - (6)Decrease in cumulative translation adjustments $(232) - Net cash used in investing activities (2,007,347) (721,637) (7)Unrealized gains on financial instruments $12,426 - (The accompanying notes are an integral part of the financial statements) 6

7 E-TON SOLAR TECH. CO., LTD. NOTES TO FINANCIAL STATEMENTS December 31, 2007 and 2006 (Expressed in thousand dollars unless otherwise stated). ORGANIZATION AND OPERATIONS 1. E-TON SOLAR TECH. CO., LTD. (the Company) was incorporated in December 26, 2001 as a company limited by shares under the Company Law Republic of China on Taiwan, and its registered and operating address is 3 F., No. 498, Sec.2, Bentian Rd., Tainan City, Taiwan, R.O.C. The Company s major business activity is to manufacture and sell solar cells. 2. On October 9, 2002, the Company acquired the assets and liabilities of photoelectric department of JI EE Industry Co., Ltd. (JI EE) by issuing the new shares to JI EE, which was approved by the resolution of the board of directors of the Company made on August 30, After spin-off, the Company s shares were 100% owned by JI EE. However, JI EE has transferred 51.56% of the Company s shares to the shareholders of JI EE. Therefore, JI EE s interest in the Company was reduced below 50%. 3. The Company became a listed company in Gre Tai Securities Market (Over-the- Counter Market) on March 8, The number of employees of the Company as of December 31, 2007 and 2006 were 582 and 273, respectively.. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements of E-TON SOLAR TECH. CO., LTD. on December 31, 2007 and 2006 were prepared in conformity with Business Accounting Law, Regulation on Business Entity Accounting Handling with respect to financial accounting standard, Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China on Taiwan. 1. Cash and cash equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash. Cash and short-term deposits on the balance sheet comprise cash at bank and cash in hand and short-term deposits with an original maturity of three months or less. 2. Allowances for doubtful debts Account receivables are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. Provisions are made based on objective evidence that the Company will not be able to collect the debts and the past experience of occurrences of bad debts. Bad debts are written off when identified. 7

8 3. Inventories Inventories are initially recognized at cost and valued at the lower of cost or market at the balance sheet date. Costs of the products sold are calculated via the weighted average method. Market value of inventories will be determined by net realizable value, except for raw materials and supplies which are determined by replacement cost. Provision is made for the obsolescence of the inventories. 4. Financial assets and financial liabilities Financial assets in the scope of SFAS No.34 Accounting for Financial Instruments and Regulation Governing the Preparation of Financial Reports by Securities Issuers are classified as either financial assets measured at fair value through profit and loss, held-to-maturity financial assets, hedging derivative assets, debt investments without active market or available-for-sale financial assets. When financial assets are recognized initially, they are measured at fair value with changes in fair value going through the profit and loss statement, including any directly attributable transaction costs. In the case of investments not recognized at fair value, the cost is recognized including any directly attributable transaction costs. Likewise, financial liabilities are classified as either financial liabilities measured at fair value through profit and loss, hedging derivative liabilities or financial liabilities carried at cost. All regular way purchases and sales of financial assets are recognized on the trade date, (i.e. the date that the Company commits to purchase or sell the assets.) Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. (1) Financial assets / liabilities measured at fair value through profit or loss Financial assets / liabilities classified as held for trading are included in the category Financial assets / liabilities measured at fair value through profit or loss. Financial assets / liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated and effective hedging instruments. Gains or losses on investments held for trading are recognized in income. Fair value of investments in equity shares or depository receipts in the open stock market is the closing price at the reporting date. Fair value of investments in opening mutual funds is the net asset per unit at the reporting date. (2) Financial Assets carried at cost Financial assets classified in the category Financial Assets carried at cost are stated at cost at date of acquisition, if an unquoted equity instrument that is fair value cannot be reliably measured. 8

9 (3) Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are neither classified as financial assets and liabilities held for trading, nor held-to-maturity investments, loans, and receivables. Subsequent measurement is measured at fair value. The gain or loss arising from the change in fair value, excluding impairment loss and exchange gain or loss, is recognized as a separate component of shareholders equity until such investment is reclassified or disposed of, upon which the cumulative gain or loss previously charged to shareholders equity will be recorded in the income statement. (4) Hedging derivative assets Derivative financial instruments which were designated according to hedging accounting and whose hedge were effective were defined as hedging derivative financial instruments and were measured at fair value. Stocks of listed companies or depositary receipts are measured at closing prices at balance sheet date. Open-end funds are measured at the unit price of the net assets at the balance sheet date. Financial liabilities were subsequently measured at amortized cost and financial assets and hedging derivative financial assets were measured at fair value. (5) Derecognition of financial assets and liabilities Financial assets A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized where: the rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the assets, but has assumed an obligation to pay them in full without material delay to a third party under a pass-through arrangement; or the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. Where the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. 9

10 Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged, cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognizing of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss. (6) Impairment of financial assets Assets carried at cost If there is objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. And such loss cannot be reversed in the subsequent period. Available-for-sale financial assets - non current If there is objective evidence that an impairment loss on an available-for-sale financial asset has been incurred, accumulated impairment loss recognized as shareholders equity adjustment item would be deducted and recognized as current loss. Such a loss is measured as the difference between the assets acquired cost, after deducting recoverable principal and adjusting amortizing amount, and the present fair value or recoverable amount and then deducted those accounted impairment loss. If the amount of impairment loss reduced at subsequent period, such a amount cannot be recognized as current income and shall be recognized as shareholders equity adjustment. If there is objective evidence that impairment loss reduced deriving from the event resulted in assets impairment, such a loss shall be revised and recognized as current income. 5. Long term investments accounted for under equity method (1) Long-term investments are classified as Long-term equity investments under the equity method when an investor company holds 20% or more of an investee company s stock with voting rights, such long-term investments should be valued in equity method, when an investee company has net income or loss for the year, an investor company shall recognize investment gains or losses in proportion to its equivalent stock ownership. If an investee company issues new shares and original shareholders do not purchase new shares proportionately, then the investment percentage, and therefore the equity in net assets for the investment, will be changed. Such difference shall be used to adjust the Additional paid-in capital and the Long-term investments accounts. If the adjustment stated above is to debit the Additional paid-in capital account and the book balance of additional paid-in capital from long-term investments is not enough to be offset, then the difference shall be debited to the Retained earnings account. 10

11 (2) The Elimination of intercompany unrealized gains or losses are as followed: Unrealized intercompany profits and losses arising from downstream transactions between the Company and investee company shall be eliminated in proportion to the Company s ownership percentage; while those from transactions with majority-owned (above 50%) subsidiaries shall be eliminated entirely. Such eliminations shall be credited to the account of deferred charges-intercompany transaction and debited to the account of unrealized profits or lossesintercompany transaction. Unrealized intercompany profits or losses arising from upstream transactions between the investee company and the Company shall be eliminated in proportion to the Company s ownership percentage, regardless the capability of control over the investee Company. Unrealized intercompany profits or losses arising from transactions among investee companies shall be eliminated in proportion to the Company s equivalent ownership percentages. Such eliminations shall be adjusted to the account of long-term investment and the investment profit or loss as well. If the transaction profits or losses come from depreciated, depleted, or amortized fixed assets, the recognition of such profits and losses shall be spread over the useful lives of such assets; otherwise, the recognition shall be made in the year when profits or losses are realized. (3) The consolidated financial statement of the Company and its subsidiaries are prepared in confirmative with Statements of Financial Accounting Standard No.7 The Consolidated Financial Statement. For those investee companies which the Company directly or indirectly holds their interest more than 50%, or less than 50% but having the capability of control over them, their financial statements are consolidated into the Company s financial statements. 6. Property, Plant and Equipment (1) Property, plant and equipment and rental assets are stated at cost less accumulated depreciation. Major additions, renewals and betterment are capitalized, while minor renewals, repairs and maintenance are expensed currently. When assets are retired or disposed of, their cost and related accumulated depreciation are removed from the fixed assets account. Gains or losses on asset disposal are deemed as non-operating activity and are contributed to current income. (2) Borrowing costs, which incurred during the period of purchasing and constructing of property, plant and equipment are capitalized and added to the cost of such assets. (3) Depreciation of property, plant and equipment is calculated on a straight-line basis over the estimated useful lives of the assets as follows: Buildings and structures Machinery and equipment Office equipment Miscellaneous equipment 8~15 years 3~8 years 5 years 3~10 years Property, plant and equipment, which are still in use after their estimated useful lives are depreciated over their remaining estimated service lives on their book values. (i.e. salvage value) 11

12 7. Assets impairment Pursuant to SFAS No. 35, the Company assesses indicators for impairment for all its assets within the scope of SFAS No. 35 at each balance sheet date. If impairment indicators exist, the Company shall then compare the carrying amount with the recoverable amount of the assets or the cash-generating unit ( CGU ) and write down the carrying amount to the recoverable amount where applicable. Recoverable amount is defined as the higher of fair values less costs to sell and the values in use. For previously recognized losses, the Company shall assess, at each balance sheet date, whether there is any indication that the impairment loss may no longer exist or may have decreased. If there is any such indication, the Company has to recalculate the recoverable amount of the asset. If the recoverable amount increases as a result of the increase in the estimated service potential of the assets, the Company shall reverse the impairment loss to the extent that the carrying amount after the reversal would not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the assets in prior years. Impairment loss (reversal) is classified as non-operating losses/ (income). 8. Intangible assets Commencing January 1, 2007, the Company had adopted the R.O.C. SFAS No. 37 Accounting for the Recognition of Intangible Assets to account for the intangible assets. Intangible assets acquired separately are initially recognized at cost, but intangible assets acquired from government are initially recognized at fair value. Following initial recognition, intangible assets are carried at cost, plus regulatory revaluation, less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are assessed to be finite. (Computer software costs are amortized via the straight-line method over 3~5 years.) Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at the end of each fiscal year. Changes in the expected useful life or are treated as changes in accounting estimates. 9. Deferred charges Deferred charges, principally consisting of cost for the electric power infrastructure and energy-saving computer imitating expense, are stated at cost and amortized via the straight-line method over 3~5 years. 10. Employee retirement benefit (1) The Company has established a deferred benefit pension fund for its employees. Pursuant to the Labor Standard Law in Taiwan, the Company makes contributions to the pension fund monthly at 2% of the total monthly salaries and wages paid. The pension fund is administrated by the Employees Retirement Fund Committee and is deposited with the Central Trust of China, a government entity, in the name of the Committee. Payments of retirement benefits are made from the fund directly, so that, it is not reflected in the accompanying financial statements. 12

13 (2) The Company adopted, on a prospective basis, R.O.C. Statement of Financial Accounting Standards No.18 "Accounting for Pensions". The Statement requires that the pension plan assets and the benefit obligation be determined on an actuarial basis. Net transition asset or obligation prior service cost, and gains or losses from the plan assets are amortized on the straight-line basis over the employees average remaining service period. (3) The Labor Pension Act of R.O.C. ( the Act ), which adopts a defined contribution scheme, takes effect from July 1, In accordance with the Act, employees of the Company may elect to be subject to either the Act and maintain their seniority before the enforcement of the Act, or the pension mechanism of the Labor Standard Law. For employees subject to the Act, the Company shall make monthly contributions to the employees individual pension accounts on a basis no less than 6% of the employees monthly wages. 11. Convertible bonds For convertible bonds issued after January 1, 2006, the components compounded of financial instruments with an embedded derivatives which comprise a conversion option and redemption right, and their characteristics, in terms of economic and risk, are not closely related to the host contract, are separately recognized by the Company initially. The fair value of derivative financial instruments are measured in the beginning, and after that is liability components. The proceeds of the bond issued, net of the fair value of the derivative financial instruments and liability are accounted for as the equity component (conversion option with a fixed exchange rate feature). The fair value of the liability component is determined using the market rate for an equivalent non-convertible bond and this amount is carried as a long-term liability on the amortized cost basis until extinguished on conversion or redemption. Changes in fair value of the equity component are not recognized; while changes in fair value of derivative financial instruments and amortized costs of liability are charged to the profit or loss. When the conversion option is exercised before maturity, the adjusted carrying value of the liability components (bonds and embedded derivatives are included) is credited to a capital stock accounts. Bond issuance costs (transaction costs) are apportioned between the equity, derivative financial instruments and liability components. 12. Revenues recognition The Company adopted R.O.C. Statement of Financial Accounting Standards No.32, Accounting for the Recognition of Revenue. Sales are recognized when products are shipped and all significant risks of ownership have been transferred. 13. Income tax (1) Deferred income tax is provided on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is more likely than not that sufficient taxable profit will not be available to allow all or part of the deferred income tax assets to be utilized. 13

14 (2) The Company adopted R.O.C. Statement of Financial Accounting Standards No. 12, Accounting for the Deduction of Income Tax. The tax credit obtained from expenditure incurred in purchase of equipment and technology, research and development, staff training, and equity investment is credited to current income. (3) Undistributed earnings generated after 1998 would be subject to a 10% tax in compliance with R.O.C. income tax law. (4) Commencing January 1, 2006, the Company calculated the minimum income tax in pursuant to the Income Basic Tax Act. The Company should be subject to a higher income tax than the minimum income tax. Additionally, in consideration of realization of deferred income tax assets, the minimum income tax in the succeeding years has been taken into account by the Company. 1. Foreign currency transactions The functional and presentation currency of the Company is New Taiwan dollars ( NT Dollars or $ ). Transactions in foreign currencies are initially recorded in functional currency rate ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. Gains or losses are charged to current income. 15. Earnings per common share (1) In accordance with R.O.C. Statement of Financial Accounting Standards No.24, Earnings Per Share, the Company presents basic earnings per share if a simple capital structure is applied; or both basic earnings per share and diluted earning per share if a complex capital structure exists. Basic earnings per share are equal to the net income (loss) attributable to common stock divided by the weighted average number of common shares. When calculating diluted earnings per share, the numerator should include or add back potential common stock dividends, interest and other conversion revenues (expenses). The denominator should include all diluted potential common share. (2) Earnings per share are calculated based on the weighted average common shares outstanding. If there is capital increasing from cash injection, the weighted average share is computed based on the period of share issued. Earnings per share of prior years are retrospectively adjusted when there is capitalization from retained earnings or capital surplus.. Reasons and Effect of Change in Accounting Principles None. 14

15 . Content of significant Accounts 1. Cash and Cash Equivalents December 31, 2007 December 31, 2006 Cash on hand $383 $262 Checking and saving accounts 243, ,134 Cash in banks-time deposits 456,873 2,359,779 Cash equivalents 488,585 Total $1,189,522 $2,680, Notes Receivable-Net December 31, 2007 December 31, 2006 Notes receivable $30 Less: Allowance for doubtful accounts Net $30 3. Accounts Receivable-Net December 31, 2007 December 31, 2006 Accounts receivable $1,000,604 $400,630 Less: Allowance for doubtful accounts (3,904) Net $996,700 $400, Inventories-Net (1) Details were as follows: December 31, 2007 December 31, 2006 Raw materials $184,668 $218,818 Supplies 28,702 15,930 Work in process 688, ,483 Finished goods 264, ,613 Sub-Total 1,166, ,844 Less: Allowance for loss on obsolescence (16,900) (7,000) and decline in market value Net $1,149,442 $539,844 (2) As of December 31, 2007 and 2006, the amount of insurance coverage for the above inventories were NT$1,800,000 and NT$235,032, respectively. 15

16 5. Financial Assets measured as at fair value through profit or loss- Current (1) Details were as follows: December 31, 2007 December 31, 2006 Item Book value Financial assets held for tradingderivative instrument Cross currency swap contract - portion of interest rate swap $2,935 Contract amount (Nominal Principle) Contract amount Book value (Nominal Principle) USD28,000 thousand (2) Gain on revaluation of cross currency swap contract for the year ended December 31, 2007 was NT$15,125; the year of 2006 please refer to Note Available-for-sale Financial Assets Current (1) Details were as follows: Name of Investee December 31, 2007 December 31, 2006 SOLAR POWER,INC. $4,129 Add: valuation adjustment on available- 11,355 for-sale financial assets- Current Net $15,484 The Company invested in Solar Power, Inc. on the half of 2007 amounted to USD$125,000 as of December 31, The Solar Power, Inc. has become a listed company in the United States in 2007, so this investment has been reclassified to available-for-sale financial assets-current and measured by using the fair values. 7. Funds and Long-term Investments (1) Details were as follows: December 31, 2007 December 31, 2006 Long-term investments accounted for $582,998 $47,966 under equity method Financial assets carried at cost 50,000 Total $632,998 $47,966 (2) Long-term equity Investments under equity method: Details were as follows: December 31, 2007 December 31, 2006 Name of Investee Initial Investment Cost Book Value Percentage of ownership Initial Investment Cost Book Value Percentage of ownership GLORIA SOLAR CO., LTD. $44,706 $155, % $44,706 $44, % ZHI YAO INVESTMENT LTD , % 500 3, % AURIA SOLAR CO., LTD. 375, , % Total $582,998 $47,966 16

17 1 Investment incomes or (losses) were recognized under equity method based on the same period audited financial statement of the investee companies whose reports have been furnished to us by other auditors. For the years ended December 31, 2007 and 2006, the details were as follows: Name of Investee GLORIA SOLAR CO., LTD. $(1,759) $(314) ZHI YAO INVESTMENT LTD. (7,570) 3,074 AURIA SOLAR CO.,LTD. (404) Total $(9,733) $2,760 2As of July 17, 2007, GLORIA SOLAR CO., LTD. increased its capital by raising the money from its shareholders and other investors. After that, the Company s interest in GLORIA SOLAR CO., LTD. was down to 8.89%; meanwhile the interest held by the Company s subsidiary- ZHI YAO INVESTMENT LTD. was also down to 2.22%; after that the subsidiary- ZHI YAO transferred 440,000 shares and 300,000 shares to others(non-related parties) in October and December 2007, respectively. As of December 31, 2007, it s interest in GLORIA SOLAR CO., LTD. was down to 0.58%. 3Although the Company s and its subsidiary s holding the shares of GLORIA SOLAR CO., LTD. in total is not more than 20% of total issued common shares, the Company still has a significant influence but no control over GLORIA SOLAR CO., LTD. due to the fact that the president of the Company is also the president of GLORIA SOLAR CO., LTD. 4As of December 31, 2007, the Company s interest in the new investee- AURIA SOLAR CO., LTD. was 23.86%, and its chairman is the same person as the Company s. 5Gains on revaluation of available-for-sales financial assets- GLORIA SOLAR CO., LTD. was NT$1,006 as of December 31, 2007 recognized by the Company under the equity method. 6The financial statements of investee companies, ZHI YAO INVESTMENT LTD. and AURIA SOLAR CO., LTD. which the Company may have directly or indirectly owned more than 50%, or less than 50% but having the capability of control over them have been consolidated into 2007 financial statements of the Company. (3) Financial Assets carried at cost Noncurrent: December 31, 2007 December 31, 2006 Initial Percentage Initial Percentage Investment Book Value of Investment Book Value of Name of Investee Cost ownership Cost ownership HUA-CHUANG AUTOMOBILE INFORMATION TECHNICAL CENTER CO., LTD. $50,000 $50, % 17

18 8. Property, Plant and Equipment (1) Total detail of accumulated depreciation on December 31, 2007 and 2006 were as follows: December 31, 2007 December 31, 2006 Buildings and structures $30,071 $16,282 Machinery and equipment 175,338 94,270 Office equipment Miscellaneous equipment 3,818 2,064 Total $209,267 $112,639 (2) The insurance coverage for property, plant and equipment as of December 31, 2007 and 2006 amounted to NT$1,200,000 and NT$558,950, respectively. (3) Total capitalized interest were NT$30,879 and NT$0 for the years ended December 31, 2007 and Total interest expenses incurred before reducing the capitalized amount were NT$215,121 and NT$16,905, respectively. 9. Intangible Assets Computer Software Cost Initial Costs Amount as of January 1, 2006 Acquisition by the Company Amount as of December 31, 2006 Amount as of January 1, 2007 Acquisition by the Company $4,277 Amount as of December 31, 2007 $4,277 Accumulated Amortizations Amount as of January 1, 2006 Amortizations for the year ended December 31, 2006 Amount as of December 31, 2006 Amount as of January 1, 2007 Amortizations for the year ended December 31, 2007 $458 Amount as of December 31, 2007 $458 Book Value As of January 1, 2006 As of December 31, 2006 As of January 1, 2007 As of December 31, 2007 $3,819 18

19 10. Other Assets (1) Details were as follows: Nature December 31, 2007 December 31, 2006 Long-term prepayments to suppliers $3,323,314 $1,132,526 (2) Based on the term of payment in the purchase contract, the Company should make an advanced payment to suppliers. Due to the fact that the nature of such advanced payment is considered as a promising purchase, and such prepayment will be used to deduct part of payment for each time delivery, such prepayments will be existing until the purchase contract is fulfilled, accordingly, they were considered as a long-term prepayment. 11. Pension Benefits The Company has adopted the Statement of Financial Accounting Standards No.18, Accounting for Pension. The pension costs for the years ended December 2007 and 2006 were recognized based on an actuarial report. (1) The reconciliations of the funded status of the plan and accrued pension liabilities as of December 31, 2007 and 2006 were as follows: Benefit obligations: Vested benefit obligation. Non-vested benefits obligation $(4,251) $(3,267) Accumulated benefit obligation (4,251) (3,267) Effect of projected future salary (1,942) (1,831) Projected benefit obligation (6,193) (5,098) Fair value of plan assets /6,030 /2,741 Status of pension plan /(163) (2,357) Unrecognized net transition obligation 987 /1,022 Unrecognized prior service cost Unrecognized net pension cost 2,038 /1,687 Underestimated accrued expenses- deferred (878) pension costs Accrued Pension Liabilities /2,862 /(526) Estimated Current Portion of Accrued (824) Pension Liabilities Accrued (Prepaid) Pension Liabilities- Noncurrent $2,038 /$(526) 19

20 (2) The funded status of pension plans in 2007 and 2006 were as follows: Pension cost consisted of: Service cost $561 $556 Interest cost Expected return on plan assets /(87) /(41) Unrecognized amortization of net ///////35 35 transitional obligation Amortization of prior service cost Unrecognized amortization of pension cost Curtailment and settlement Net pension cost $679 $688 (3) Commencing July 1, 2005, the Labor Pension Act ( the Act ) was taken effect, and the Company made the contribution of NT$8,909 and NT$4,068 as pension cost for the years ended December 31, 2007 and (4) As of December 31, 2007 and 2006, the amount of vested benefit obligation were NT$0. (5) As of December 31, 2007 and 2006, the accrued pension liabilities were NT$0 and NT$526, respectively. (6) Actuarial assumptions: Discount rate 3.00% 2.50% Increase in future compensation level 3.00% 3.00% Expected long-term rate of return on plan assets 3.00% 2.50% 12. Short-term Borrowings The details of short-term borrowings as of December 31, 2007 and 2006 were as follows: December 31, 2007 December 31, 2006 Description Interest Rate Range Amount Interest Rate Range Amount Unsecured loans 2.400%~2.481% $990, Short-term Notes and Bills Payable (1) Guarantor December 31, 2007 Interest Rate Range Amount Security International Bills Financial Co., Ltd % $30,000 None International Bills Financial Co., Ltd % 20,000 None China Bills Finance Co., Ltd % 100,000 None Sub-total 150,000 Less: Discount on short-term notes (185) Net $149,815 20

21 (2) December 31, 2006: None. 14. Financial Liabilities measured at fair value through profit or loss Current (1) The details of hedging derivative liabilities were as follows: December 31, 2007 December 31, 2006 Contract amount (Nominal Principle) Contract amount (Nominal Principle) Item Book value Book value Derivative Financial Instruments Cross currency swap contract - USD5,000 thousand $42 portion of interest rate swap Put option-convertible bonds USD306 thousand $9,933 USD9,286 thousand 303,193 Total $9,933 $303,235 (2) Loss on revaluation of Cross currency swap contract for the year ended December 31, 2006 was NT$42 and such amount was charged as non-operating loss to the profit and loss. (3) The other liability components of convertible bonds meet the criteria of which the liability can be recognized individually. For details, please refer to Note IV Deferred Credit-gains on intercompany transactions December 31, December 31, Item Unrealized profit from intercompany sales of solar cell $690 $767 Gains or losses arising from the Company s sales to its equity investee companies are deferred in proportion to the Company s ownership in the investee companies, and can not be recognized as a gain or loss until such gains or losses are realized through transactions with third parties. 16. Bonds Payable (1) The details of bonds payable-current were as follows: December 31, 2007 December 31, 2006 Pure carrying amount of Bonds(USD81,302 thousand) $2,637,684 Financial liabilities measured at fair value through profit or loss Current Put option (USD306 thousand) $9,933 Call option (redemption right) Total $9,933 21

22 The details of bonds payable-noncurrent were as follows: December 31, 2007 December 31, 2006 Pure carrying amount of Bonds(USD77,073 thousand) $2,516,431 Financial liabilities measured at fair value through profit or loss Current Put option (USD9,286 thousand) $303,193 Call option (redemption right) Total $303,193 The pure carrying amount of above bonds was determined by discounting the total issued amount with a presumed effective interest rate of %. This amount was carried as long-term liability on the amortized cost basis. The other liability components were measured at fair value which was determined by using the Two Dimension Binomial Tree Model. Considering that the possibility of redemption is remote, the fair value of the above call option was recognized as zero. (2) Issuance of convertible bonds overseas: Place of Trustee listed Issued Period Bank of New Singapore ~ York (SGX-ST) Principal Amount USD100,000 thousand Interest rate Security 0% None (3) Conditions of conversion: Conversion Period Conversion Price Accounting Method for Bonds Conversion Rights ~ NT$ dollars/per common share Book Value Method Pursuant to SFAS NO.36, the equity component was recognized as capital reservestock option in amount of NT$425,142. (4) Redemption at the Option of the Issuer A.The Issuer may redeem the Bonds in whole or in part at any day on or after 18 months of the Issue Date at 100% of the principal amount if the closing price (translated into US dollar at the prevailing exchange rate) of the Issuer s Common Shares on the GTSM for twenty (20) out of the thirty (30) consecutive trading days, the last of which occurs not more than five (5) trading days prior to the date upon which notice of such redemption is given, is 130% or above of the prevailing Conversion Price translated into US dollars at the Fixed Exchange Rate as determined on the Pricing Date or at 100% of the principal amount when more than 90% in principal amount of the Bonds originally outstanding have been redeemed, converted purchased or cancelled. B.The Issuer may redeem all, but not part, of the Bonds at any time at 100% of the principal amount if the Issuer has or will become obliged to pay additional tax due to any change in, or amendment to, the laws or regulations, on or after Issue Date. 22