Exhibit 99.1  ADVANCED CHIP ENGINEERING TECHNOLOGY INC.  FINANCIAL STATEMENTS AND 
REPORTS OF INDEPENDENT 
REGISTERED PUBLIC ACCOUNTING FIRMS  DECEMBER 31, 2007, 2006 AND 2005


Report of Independent Registered Public Accounting Firm  To the
Board of Directors and Stockholders of
Advanced Chip Engineering Technology Inc.  We have audited the accompanying balance sheet of
Advanced Chip Engineering Technology Inc. (the Company) as of December 31,
2007, and the related statements of income, changes in stockholders equity,
and cash flows for the year 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 audit. The balance sheet of
Advanced Chip Engineering Technology Inc. as of December 31, 2006, and the
related statements of income, changes in stockholders equity and cash flows
for the year then ended were audited by other auditors whose report, dated January 4,
2008, expressed an unqualified opinion on those statements.  We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). 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 audit provide a reasonable basis for our opinion.  In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of
Advanced Chip Engineering Technology Inc., as of December 31, 2007,
and the results of its operations and its cash flows for the year then ended,
in conformity with the Business Entity Accounting Law, Regulation on
Business Entity Accounting Handling and accounting principles generally
accepted in the Republic of China.  The Business Entity Accounting Law, Regulation
on Business Entity Accounting Handling and accounting principles generally accepted
in the Republic of China vary in certain significant respects from accounting
principles generally accepted in the United States. A narrative discussion of
the significant differences is presented in Note 11 to the financial
statements.  The financial statements of the Company for the
year ended December 31, 2005 were not audited by us or other auditors. The
inclusion of those statements is solely for the comparative purpose.  1


/s/
Pricewaterhouse Coopers  Hsinchu, Taiwan Republic of China March 14, 2008  2


[ERNST & YOUNG LETTERHEAD]   REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM  To the Board of Directors and Stockholders Advanced Chip Engineering Technology Inc.  We have audited the accompanying balance sheet of Advanced Chip
Engineering Technology Inc. (the Company) as of December 31, 2006, and
the related statements of income, changes in stockholders equity, and cash
flows for the year 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 audit.  We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. We were not engaged to
perform an audit of the Companys internal control over financial reporting.
Our audit included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Companys internal control over financial reporting.
Accordingly, we express no such opinion. 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 audit provides a
reasonable basis for our opinion.  In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Advanced Chip
Engineering Technology Inc., as of December 31, 2006, and the results of
its operations and its cash flows for the year then ended, in conformity with
the Business Entity Accounting Law and accounting principles generally
accepted in the Republic of China.  The Business Entity Accounting Law and accounting principles
generally accepted in the Republic of China vary in certain significant
respects from accounting principles generally accepted in the United States. A
narrative discussion of the significant differences is presented in Note 11 to
the financial statements.  /s/ Ernst & Young Ernst & Young CERTIFIED PUBLIC ACCOUNTANTS Taipei, Taiwan Republic of China January 4,
2008  3


Advanced Chip Engineering Technology Inc.  Balance Sheets (Expressed in New Taiwan Dollars)  December 31,Notes
  
  2007
  
  2006Current AssetsCash and cash equivalents
  
  4.(1)
  
  $
  877,955,535
  
  $
  537,221,671Notes receivable, net
  
  
  
  
  
  152,250Accounts receivable, net
  
  4.(2), 5
  
  28,256,817
  
  3,661,296Other financial assets
  
  4.(3), 5
  
  5,732,269
  
  7,515,259Inventories, net
  
  4.(4)
  
  32,964,533
  
  15,225,905Restricted assets  current
  
  6
  
  100,000
  
  3,669,688Prepayments and other current
  assets
  
  
  
  22,560,704
  
  18,658,661967,569,858
  
  586,104,730Property, Plant and Equipment
  
  4.(5), 6Land
  
  
  
  118,096,466
  
  116,668,319Buildings and facilities
  
  
  
  366,042,772
  
  358,808,026Machinery and equipment
  
  
  
  892,502,814
  
  628,929,591Transportation equipment
  
  
  
  960,567
  
  960,567Office equipment
  
  
  
  24,627,473
  
  16,058,807Other equipment
  
  
  
  4,519,228
  
  2,826,7991,406,749,320
  
  1,124,252,109Less : Accumulated
  depreciation
  
  
  
  (519,735,500
  )
  (410,572,762
  )Accumulated impairment
  
  
  
  (25,391,734
  )
  (24,946,734
  )Construction in progress and
  prepayment for equipment
  
  
  
  665,148,770
  
  24,145,8531,526,770,856
  
  712,878,466Intangible AssetsTrademarks
  
  
  
  
  
  70,035Patents
  
  
  
  
  
  2,386,869Computer software
  
  
  
  8,634,782
  
  4,035,639Technology know-how
  
  
  
  
  
  2,167,0198,634,782
  
  8,659,562Other AssetsLeased assets
  
  4.(6), 6
  
  62,521,181
  
  72,065,369Refundable deposits
  
  
  
  480,000
  
  198,000Deferred assets
  
  
  
  
  
  1,066,85263,001,181
  
  73,330,221Total Assets
  
  
  
  $
  2,565,976,677
  
  $
  1,380,972,979  4


December 31,Notes
  
  2007
  
  2006Current LiabilitiesShort-term loans
  
  4.(7)
  
  $
  335,543,430
  
  $
  Accounts payable
  
  
  
  19,615,539
  
  8,919,218Payables on equipment
  
  
  
  202,222,710
  
  33,577,801Current portion of long-term
  loans
  
  4.(8)
  
  88,607,221
  
  81,771,745Accrued expenses and other
  current liabilities
  
  5
  
  77,536,427
  
  70,132,455723,525,327
  
  194,401,219Long-term LiabilitiesLong-term loans
  
  4.(8)
  
  185,558,030
  
  278,219,988Other LiabilitiesDeposits received
  
  
  
  2,022,381
  
  2,022,381Total Liabilities
  
  
  
  911,105,738
  
  474,643,588Stockholders EquityCommon stock
  
  4.(10)
  
  2,244,137,130
  
  1,244,137,130Capital reserve
  
  4.(11)Additional Paid-in capital
  
  
  
  200,000,000
  
  Accumulated deficits
  
  4.(12)
  
  (782,471,138
  )
  (331,012,686
  )Treasury stock
  
  4.(13)
  
  (6,795,053
  )
  (6,795,053
  )Total Stockholders Equity
  
  
  
  1,654,870,939
  
  906,329,391Commitments and Contingencies
  
  7Total Liabilities and
  Stockholders Equity
  
  
  
  $
  2,565,976,677
  
  $
  1,380,972,979  The
accompanying notes are an integral part of these financial statements.
See report of independent registered public accounting firm dated March 14,
2008.  5


Advanced Chip Engineering Technology Inc.  Statements of Income  (Expressed in New Taiwan Dollars)  For the years ended December 31,Notes
  
  2007
  
  2006
  
  2005(Unaudited)Operating Revenues
  
  5
  
  $
  60,999,316
  
  $
  17,545,967
  
  $
  6,700,130Cost of Goods Sold
  
  4.(16)
  
  (339,840,710
  )
  (249,820,129
  )
  (260,675,159
  )Gross Loss
  
  
  
  (278,841,394
  )
  (232,274,162
  )
  (253,975,029
  )Operating Expenses
  
  4.(16)Selling expense
  
  
  
  (15,084,914
  )
  (2,475,027
  )
  (2,871,304
  )General and administrative
  expenses
  
  
  
  (48,854,547
  )
  (43,993,027
  )
  (48,762,549
  )Research and development
  expenses
  
  
  
  (128,631,792
  )
  (86,224,683
  )
  (43,751,177
  )Total operating expenses
  
  
  
  (192,571,253
  )
  (132,692,737
  )
  (95,385,030
  )Operating Loss
  
  
  
  (471,412,647
  )
  (364,966,899
  )
  (349,360,059
  )Non-operating Income and
  RevenueInterest revenue
  
  
  
  11,380,343
  
  4,132,881
  
  4,665,355Gain on disposal of
  investments
  
  
  
  
  
  5,201
  
  1,139,743Foreign exchange gain
  
  
  
  2,778,876
  
  505,833
  
  374,796Rental revenue
  
  
  
  26,712,038
  
  31,705,360
  
  25,672,235Gain on recovery of market
  value of inventories
  
  
  
  
  
  
  
  462,428Other
  
  
  
  
  
  31,445,823
  
  3,023,889Total non-operating income and
  revenue
  
  
  
  40,871,257
  
  67,795,098
  
  35,338,446Non-operating Expenses and
  LossesInterest expense
  
  
  
  (11,443,448
  )
  (12,167,954
  )
  (13,328,591
  )Loss on disposal of property,
  plant and equipment
  
  
  
  
  
  (20,775
  )
  (12,809,400
  )Loss on obsolescence and
  decline in market value of inventories
  
  
  
  (1,184,718
  )
  (59,233
  )
  Impairment loss
  
  
  
  (445,000
  )
  (1,827,734
  )
  (23,119,000
  )Other losses
  
  
  
  (7,843,896
  )
  (22,747,948
  )
  (15,039,347
  )Total non-operating expenses
  and losses
  
  
  
  (20,917,062
  )
  (36,823,644
  )
  (64,296,338
  )Loss Before Income Taxes
  
  
  
  (451,458,452
  )
  (333,995,445
  )
  (378,317,951
  )Income tax expense
  
  4.(15)
  
  
  
  
  
  Net Loss
  
  
  
  $
  (451,458,452
  )
  $
  (333,995,445
  )
  $
  (378,317,951
  )  The
accompanying notes are an integral part of these financial statements.
See report of independent registered public accounting firm dated March 14,
2008.  6


Advanced Chip Engineering Technology Inc.  Statements of Changes in Stockholders Equity  (Expressed in New Taiwan Dollars)   Common Stock
  
  Additional Paid-
  in Capital
  
  Accumulated
  Deficits
  
  Treasury Stock
  
  TotalBalance at January 1,
  2005 (Unaudited)
  
  $
  1,169,922,760
  
  $
  166,666,666
  
  $
  (305,605,035
  )
  $
  (12,341,604
  )
  $
  1,018,642,787Net loss for 2005
  
  
  
  
  
  (378,317,951
  )
  
  
  (378,317,951
  )Balance at December 31,
  2005 (Unaudited)
  
  1,169,922,760
  
  166,666,666
  
  (683,922,986
  )
  (12,341,604
  )
  640,324,836Capital reserve transferred to
  offset accumulated deficits
  
  
  
  (166,666,666
  )
  166,666,666
  
  
  
  Capital reduction to offset accumulated
  deficits
  
  (525,785,630
  )
  
  
  520,239,079
  
  5,546,551
  
  Issuance of common stock for
  cash
  
  600,000,000
  
  
  
  
  
  
  
  600,000,000Net loss for 2006
  
  
  
  
  
  (333,995,445
  )
  
  
  (333,995,445
  )Balance at December 31, 2006
  
  1,244,137,130
  
  
  
  (331,012,686
  )
  (6,795,053
  )
  906,329,391Issuance of common stock for
  cash
  
  1,000,000,000
  
  200,000,000
  
  
  
  
  
  1,200,000,000Net loss for 2007
  
  
  
  
  
  (451,458,452
  )
  
  
  (451,458,452
  )Balance at December 31,
  2007
  
  $
  2,244,137,130
  
  $
  200,000,000
  
  $
  (782,471,138
  )
  $
  (6,795,053
  )
  $
  1,654,870,939  The
accompanying notes are an integral part of these financial statements.
See report of independent registered public accounting firm dated March 14,
2008.  7


Advanced Chip Engineering Technology Inc.  Statements of Cash Flows  (Expressed in New Taiwan Dollars)  For the years ended December 31,2007
  
  2006
  
  2005(Unaudited)Cash
  flows from operating activities:Net loss
  
  $
  (451,458,452
  )
  $
  (333,995,445
  )
  $
  (378,317,951
  )Adjustments to reconcile net
  loss to net cash used in operating activitiesDepreciation
  
  115,069,689
  
  118,446,344
  
  113,185,550Amortization
  
  7,731,567
  
  10,408,402
  
  19,439,964Bad debt expenses
  
  
  
  
  
  798,449Provision for (recovery of)
  obsolescence and market value decline of inventories
  
  1,184,718
  
  59,233
  
  (462,428
  )Increase in allowance for sale
  discounts
  
  
  
  3,387,226
  
  Loss on disposal of property,
  plant and equipment
  
  
  
  20,775
  
  12,809,400Impairment loss
  
  445,000
  
  1,827,734
  
  23,119,000(Increase) decrease in:Notes receivable
  
  152,250
  
  (47,250
  )
  (105,000
  )Accounts receivable
  
  (24,595,521
  )
  (5,132,499
  )
  1,589,003Other financial assets
  
  1,782,990
  
  (1,034,097
  )
  (5,872,139
  )Inventories
  
  (18,923,346
  )
  (12,049,365
  )
  1,978,138Prepayments and other current
  assets
  
  (3,902,043
  )
  (7,737,679
  )
  (4,231,455
  )Increase (decrease) in:Accounts payable
  
  10,696,321
  
  4,533,661
  
  768,583Payables to related parties
  
  
  
  
  
  (218,862
  )Accrued expenses and other
  current liabilities
  
  7,403,972
  
  374,308
  
  8,727,919Net cash used in operating
  activities
  
  (354,412,855
  )
  (220,938,652
  )
  (206,791,829
  )Cash
  flows from investing activities:Decrease (increase) in
  restricted deposits
  
  3,569,688
  
  33,002,312
  
  (1,671,308
  )Decrease (increase) in other
  receivables  financing
  
  
  
  50,000,000
  
  (50,000,000
  )Acquisition of property, plant
  and equipment
  
  (751,217,982
  )
  (87,529,574
  )
  (118,197,363
  )Proceeds from disposal of
  property, plant and equipment
  
  
  
  
  
  133,340(Increase) decrease in
  refundable deposits
  
  (282,000
  )
  
  
  39,403Increase in intangible assets
  and deferred assets
  
  (6,639,935
  )
  (992,000
  )
  (1,251,698
  )Net cash used in investing
  activities
  
  $
  (754,570,229
  )
  $
  (5,519,262
  )
  $
  (170,947,626
  )  8


For the years ended December 31,2007
  
  2006
  
  2005(Unaudited)Cash
  flows from financing activities:Increase (decrease) in
  short-term loans
  
  $
  335,543,430
  
  $
  (7,646,480
  )
  $
  (7,650,392
  )Repayment of long-term loans
  
  (85,826,482
  )
  (5,770,146,
  )
  (102,222,659
  )Decrease in deposits received
  
  
  
  (1,302,000
  )
  (1,650,000
  )Issuance of common stock for
  cash
  
  1,200,000,000
  
  600,000,000
  
  Net cash provided by (used in)
  financing activities
  
  1,449,716,948
  
  585,281,374
  
  (111,523,051
  )Increase (decrease) in cash
  and cash equivalents
  
  340,733,864
  
  358,823,460
  
  (489,262,506
  )Cash and cash equivalents,
  beginning of year
  
  537,221,671
  
  178,398,211
  
  667,660,717Cash and cash equivalents, end
  of year
  
  $
  877,955,535
  
  $
  537,221,671
  
  $
  178,398,211Supplemental
  disclosures of cash flows information:Interest paid during the year
  (excluding capitalized interest)
  
  $
  10,915,765
  
  $
  11,562,660
  
  $
  13,406,452Income tax paid during the
  year
  
  $
  
  
  $
  
  
  $
  Investing
  and financing activities partially affected cash flowsAcquisition of property, plant
  and equipment
  
  $
  919,862,891
  
  $
  98,992,178
  
  $
  111,423,520Add: Beginning balance of
  payables to equipment suppliers
  
  33,577,801
  
  22,115,197
  
  28,889,040Less: Ending balance of
  payables to equipment suppliers
  
  (202,222,710
  )
  (33,577,801
  )
  (22,115,197
  )Cash paid for acquisition of
  property, plant and equipment
  
  $
  751,217,982
  
  $
  87,529,574
  
  $
  118,197,363Investing
  and financing activities not affected cash flowsCurrent portion of long-term
  loans
  
  $
  88,607,221
  
  $
  81,771,745
  
  $
  74,908,394Capital reduction and capital
  surplus transferred to offset accumulated deficits
  
  $
  
  
  $
  686,905,745
  
  $
    The
accompanying notes are an integral part of these financial statements.
See report of independent registered public accounting firm dated March 14,
2008.  9


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  1. History  Advanced
Chip Engineering Technology Inc. (the Company) was incorporated under
the Company Law of the Republic of China in May 2000.  The Companys major business activity is to
engage in the business of testing and assembling service, manufacturing and
selling integrated circuit.  As of
December 31, 2007 and 2006, the Company had 398 and 296 employees, respectively.  2. Summary
of Significant Accounting Policies  The
accompanying financial statements are prepared in accordance with the Business
Entity Accounting Law, Regulation on Business Entity Accounting Handling and
accounting principles generally accepted in the Republic of China.  Significant accounting policies are
summarized below:  oForeign currency
transactions  The
accounts of the Company are maintained in New Taiwan dollars.  Transactions arising in foreign currencies
are translated into New Taiwan dollars at the exchange rates prevailing at the
relevant dates of the transactions.  The
exchange gains or losses arising from the difference between the exchange rates
at the dates of transactions and the related dates of actual receipts and
payments are charged to current years results of operations.  Assets
and liabilities denominated in foreign currencies are translated into New
Taiwan dollars at the exchange rate prevailing at the balance sheet date.  Gains or losses from foreign currency
translations are included in current years results of operations. When a gain
or loss on a nonmonetary item is recognized directly in equity, any exchange
component of that gain or loss shall be recognized directly in equity.  Conversely, when a gain or loss on a
nonmonetary item is recognized in profit or loss, any exchange component of
that gain or loss shall be recognized in profit or loss.  However, nonmonetary items that are measured
on a historical cost basis are translated using the exchange rate at the
transaction date.  oClassification of current and non-current items  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;  10


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  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 noncurrent 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.  oCash Equivalents  Cash
and cash equivalents include cash on hand and in banks and other short-term
highly liquid investments which are readily convertible to known amount of cash
and which are subject to insignificant risk of changes in value resulting from
fluctuations in interest rates.  oAccounts receivable  Accounts
receivable represent claims resulting from the sale of goods and the services
provided.  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.  oAllowance for Doubtful Accounts  Allowance
for doubtful accounts is provided based on the evaluation of the collectibility
of ending balances of notes receivable, accounts receivable and other
receivables.  11


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  oInventories  Inventories
are stated at the lower of aggregate cost or market value.  The cost is determined using the
weighted-average method.  The market
value is based on the replacement cost for raw materials and supplies and net
realizable value for work in process, finished goods and merchandise.  Allowance for slow moving items and decline
in the market value is provided when necessary.  oProperty, 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 economic service lives of property, plant and equipment are as below: Buildings
and facilities of 50 years (including buildings of 50 years and renovation of 5
to 20 years.)  Machinery and equipment
  
  5 to 10 yearsTransportation equipment
  
  2 to 5 yearsOffice equipment
  
  2 to 5 yearsOther equipment
  
  3 to 5 yearsLeased assets
  
  3 to 50 years  C.Major improvements and renewals are capitalized and depreciated
accordingly.  Maintenance and repairs are
expensed as incurred.  D.Assets leased out under operating leases are classified as leased
assets.  Rental income, after subtracting
respective depreciation expenses, is recognized in non-operating income and
revenue.  E.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.  oIntangible Assets  Intangible
assets, mainly trademarks, patents, computer software and technology know-how,
are amortized on a straight-line basis over 3~20 years.  12


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  oImpairment of non-financial
assets  The
Company 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 and 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.  However, impairment loss of goodwill is not
recoverable.  oPension plan  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 amortized on a straight-line
basis over 15 years.  Under the defined
contribution pension plan, net periodic pension costs are recognized as
incurred.  oIncome Tax  The
Company uses inter-period as well as intra-period tax allocation for income
tax.  Over or under provision of prior
years income tax liabilities is included in current years income tax expense.  Investment
tax credits arising from the expenditures incurred on acquisitions of equipment
and research and development are recognized in the year the related
expenditures are incurred.  The
additional 10% income tax on the unappropriated retained earnings is recognized
in the year when the stockholder approved the resolution to retain the
earnings.  oRevenue, cost and expenses  Revenue
is recognized when the earning process is substantially completed and
considered realized or realizable.  Costs
are recognized when the associated revenue is earned.  Expenses, including research and development
expenditures, are recognized as incurred.  13


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  oTreasury Stock  A.Treasury stock is stated at cost.  B.Upon disposal of the treasury stock, if the
disposal price exceeds the cost of the treasury stock disposed of, 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.The cost of treasury stock is accounted for
on a weighted-average basis.  oUse 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.  3. Effects
of changes in accounting principles  Effective
January 1, 2006, the Company adopted the R.O.C. SFAS No. 34,
Accounting for Financial Instruments and SFAS No. 36, Disclosure and
Presentation of Financial Instruments. 
These changes in accounting principles had no significant effect on the
financial statements as of and for the year ended December 31, 2006.  4. Contents
of Significant Accounts  (1) Cash and Cash Equivalents  December 31,2007
  
  2006CashCash
  on hand
  
  $
  43,822
  
  $
  57,140Checking
  and saving accounts
  
  83,902,589
  
  26,164,531Time
  deposits
  
  784,000,000
  
  511,000,000867,946,411
  
  537,221,671Cash equivalentRP
   Bonds
  
  10,009,124
  
  Total
  
  $
  877,955,535
  
  $
  537,221,671  14


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  (2) Accounts Receivable, Net  December 31,2007
  
  2006Accounts
  receivable  third parties
  
  $
  13,946,469
  
  $
  7,846,971Accounts
  receivable  related parties
  
  14,310,348
  
  28,256,817
  
  7,846,971Less:
  Allowance for doubtful accounts
  
  
  
  (798,449
  )Allowance
  for sale returns and discounts
  
  
  
  (3,387,226
  )$
  28,256,817
  
  $
  3,661,296  (3) Other Financial Assets  December 31,2007
  
  2006Tax refundable
  
  $
  1,437,017
  
  $
  753,518Interest receivable
  
  523,518
  
  309,949Other receivables  other
  
  3,771,734
  
  6,451,792$
  5,732,269
  
  $
  7,515,259  (4) Inventories  December 31,2007
  
  2006Raw materials and supplies
  
  $
  24,520,541
  
  $
  13,973,681Work in process
  
  5,223,228
  
  943,247Finished goods
  
  6,526,513
  
  2,723,81436,270,282
  
  17,640,742Less: Allowance for
  obsolescence and market value decline in inventories
  
  (3,305,749
  )
  (2,414,837
  )$
  32,964,533
  
  $
  15,225,905  15


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  (5) Property, Plant and Equipment  December 31,
  2007Asset
  
  Cost
  
  Accumulated
  
  depreciation
  
  Accumulated
  impairment
  
  Book
  valueLand
  
  $
  118,096,466
  
  $
  
  
  $
  
  
  $
  118,096,466Building
  and facilities
  
  366,042,772
  
  (66,157,710
  )
  
  
  299,885,062Machinery
  and equipment
  
  892,502,814
  
  (438,422,659
  )
  (25,391,734
  )
  428,688,421Transportation
  equipment
  
  960,567
  
  (960,567
  )
  
  
  Office
  equipment
  
  24,627,473
  
  (12,307,357
  )
  
  
  12,320,116Other
  equipment
  
  4,519,228
  
  (1,887,207
  )
  
  
  2,632,021Construction
  in progress
  
  61,196,496
  
  
  
  
  
  61,196,496Prepayment
  for equipment
  
  603,952,274
  
  
  
  
  
  603,952,274$
  2,071,898,090
  
  $
  (519,735,500
  )
  $
  (25,391,734
  )
  $
  1,526,770,856December 31,
  2006Asset
  
  Cost
  
  Accumulated
  depreciation
  
  Accumulated
  impairment
  
  Book valueLand
  
  $
  116,668,319
  
  $
  
  
  $
  
  
  $
  116,668,319Building
  and facilities
  
  358,808,026
  
  (54,389,893
  )
  
  
  304,418,133Machinery
  and equipment
  
  628,929,591
  
  (345,338,141
  )
  (24,946,734
  )
  258,644,716Transportation
  equipment
  
  960,567
  
  (909,904
  )
  
  
  50,663Office
  equipment
  
  16,058,807
  
  (8,026,326
  )
  
  
  8,032,481Other
  equipment
  
  2,826,799
  
  (1,908,498
  )
  
  
  918,301Prepayment
  for equipment
  
  24,145,853
  
  
  
  
  
  24,145,853$
  1,148,397,962
  
  $
  (410,572,762
  )
  $
  (24,946,734
  )
  $
  712,878,466  For
the year ended December 31, 2007, interest expenses prior to
capitalization amounted to $13,993,516 and interest capitalized to property,
plant and equipment amounted to $2,550,068 with interest rate ranging from
2.41% to 3.68%.  There was no interest
capitalized for the year ended December 31, 2006.  Effective
January 1, 2005, the Company adopted R.O.C. SFAS No. 35, Accounting
for Asset Impairment to assess the impairment of its long-lived assets and
recognized asset impairment as follows:  For the
  years ended December 31,2007
  
  2006
  
  2005(Unaudited)Increase in loss of asset
  impairment
  
  $
  445,000
  
  $
  1,827,734
  
  $
  23,119,000  December 31,2007
  
  2006Accumulated
  impairment of property, plant and equipment
  
  $
  (25,391,734
  )
  $
  (24,946,734
  )  16


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  (6) Leased Assets  December 31,2007
  
  2006Land
  
  $
  18,086,934
  
  $
  19,515,081Buildings
  and facilities
  
  42,086,465
  
  44,347,211Machinery
  and equipment
  
  133,658,940
  
  133,658,940Office
  equipment
  
  3,900
  
  3,900193,836,239
  
  197,525,132Less:
  Accumulated depreciation
  
  (131,315,058
  )
  (125,459,763
  )$
  62,521,181
  
  $
  72,065,369  The
depreciation of leased assets, recorded as non-operating expenses, amounted to
$6,085,677, $20,887,053 and $12,327,264, respectively, for the years ended
December 31, 2007, 2006 and 2005.  Please
refer to Note 6 for leased assets pledged as collateral.  (7) Short-term Loan  December 31,2007
  
  2006Unsecured bank loans
  
  $
  335,543,430
  
  $
  Interest rates
  
  1.8%-4.101%
  
    (8) Long-term Loans  December 31,Interest
  rates
  
  Balance2007
  
  2006
  
  2007
  
  2006%
  
  %Long-term
  loan, payable in 90 monthly installments from January 2004 through
  July 2011, with interest due monthly
  
  3.660
  
  3.270
  
  $
  177,048,284
  
  $
  230,574,510Long-term
  loan, payable in 18 quarterly installments from July 2004 through October 2008,
  with interest due monthly
  
  3.513
  
  3.325
  
  14,144,000
  
  28,288,000Long-term
  loan, payable in 20 quarterly installments from July 2007 through
  April 2012, with interest due monthly
  
  1.000
  
  1.000
  
  58,500,000
  
  65,000,000Long-term
  loan, payable in 60 monthly installments from January 2005 through
  December 2009, with interest due monthly
  
  3.257
  
  3.151
  
  24,472,967
  
  36,129,223Total
  long-term loans
  
  
  
  
  
  274,165,251
  
  359,991,733Less:
  Current portion
  
  
  
  
  
  (88,607,221
  )
  (81,771,745
  )$
  185,558,030
  
  $
  278,219,988  There
is no unused facility as of December 31, 2007 and 2006.  Please
refer to Note 6 for assets pledged for long-term loans.  17


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  (9) Pensions  The
Company has a defined benefit pension plan in accordance with the Labor
Standards Law, covering all regular employees for services provided prior to July 1,
2005, and employees who choose to remain under the defined benefit plan
subsequent to the enforcement of the Labor Pension Act (the Act) on
July 1, 2005.  Under the defined
benefit plan, two units are accrued for each year of service for the first 15
years and one unit is accrued for each additional year thereafter subject to a
maximum of 45 units.  Pensions paid upon
retirement are based on the number of units accrued and the average monthly
salaries and wages of the last six months prior to retirement.  The Company contributes monthly an amount
equal to 2% of the employees monthly salaries and wages to the retirement fund
deposited with Bank of Taiwan, the trustee. 
For the years ended December 31, 2007, 2006 and 2005, net pension
costs recognized under the defined benefit plan was $75,160, $1,411,096 and
$3,027,722, respectively.  The balance of
the retirement fund deposited with Bank of Taiwan was $9,704,503 and $8,341,390
as of December 31, 2007 and 2006, respectively.  Effective
July 1, 2005, under the Act, the Company has established a defined
contribution pension plan.  Under the
Act, current employees have the option to be covered under the defined
contribution plan.  The Company
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.  Benefits accrued are portable
upon a change of employment.  Pensions are
paid by monthly installments or in lump sum based on the accumulated balances
of the employees individual pension accounts. 
The net pension costs recognized under the defined contribution plan for
the years ended December 31, 2007, 2006 and 2005 was $9,280,653,
$6,823,629 and $2,016,678, respectively.  (10) Common Stock  As
of December 31, 2007, the Companys authorized and issued common stock
amounted to $3,000,000,000 and $2,244,137,130, divided into 300,000,000 shares
(including 6,400,000 shares for technology know-how and 30,000,000 shares
reserved for the exercise of employee stock options in the future) and
224,413,713 shares (including 1,806,093 shares for technology know-how),
respectively, at par of $10. On March 8, 2006, the stockholders resolved
to increase the Companys authorized capital to $2,000,000,000, divided into
200,000,000 shares, and to offset its accumulated deficits through capital
reduction of $525,785,630 and transferring of capital reserves of
$166,666,666.  The decrease of capital
had been approved by the authority-in-change.  18


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  Besides,
in the same meeting held on March 8, 2006, the stockholders resolved to
issue 60,000,000 new shares for cash with issuance price at par value of $10
per share.  The Board of Directors
selected September 14, 2006 as the record date, and the required
registered procedures were completed.  On
May 2, 2007, the stockholders resolved to issue 100,000,000 new shares for
cash with issuance price at $12 per share. 
The Board of Directors selected September 5, 2007 as the record
date, and the required registered procedures were completed.  (11)
Capital Reserve  The
R.O.C. Company Law requires that capital reserve shall be exclusively used to
offset accumulated deficits or to increase capital and shall not be used for
any other purpose.  However, all or part
of 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 Company has no accumulated deficits.  (12)
Retained Earnings (Accumulated Deficits)  The
Companys articles of incorporation provides that the net income, after
deducting previous years losses and the appropriation of 10% legal reserves,
may be appropriated or distributed proportionately as follows:  A.84% as dividend paid to stockholders; B.1% as remuneration for directors and
supervisors; C.15% as employee bonuses.  Distributions
of stockholders dividends and employee bonuses may be in cash or in the form
of common shares or a combination of both, subject to the resolution adopted by
the Board of Directors and the approval of the stockholders. As of
December 31, 2007 and 2006, the Company reported accumulated deficits and
consequently there was no earnings available for distribution.  (13)
Treasury Stock  A.On July 15, 2004, the Companys Board of
Directors authorized the Company to repurchase its own common stock for
transferring to its employees.  The
movement of treasury stock is as follows:  For the
  year ended December 31, 2007Reason for reacquisition
  
  Beginning
  
  Increase
  
  Decrease
  
  EndingTo be reissued to
  employees
  
  617,732
  
  
  
  
  
  617,732  For the year ended December 31, 2006Reason for reacquisition
  
  Beginning
  
  Increase
  
  Decrease
  
  EndingTo be reissued to
  employees
  
  1,121,964
  
  
  
  (504,232
  )
  617,732  19


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  B.According to the Company Law of the Republic
of China, total treasury stock shall not exceed 5% of the Companys issued
stock.  Total repurchased amounts shall
not exceed the sum of retained earnings and the realized capital reserves.  The maximum amount and shares that the
Company is allowed to repurchase, calculated based on the financial statements
as of July 15, 2004, were approximately $35,488,000 and 5,849,614 shares,
respectively.  C.In accordance with the Company Law of the
Republic of China, treasury stock shall not be pledged, nor does it possess
voting rights or receive dividends. 
Treasury stock shall be transferred to employees within three years from
the repurchased date and shares not reissued within three-year period are to be
retired.  D.In the stockholders meeting held on
March 8, 2006, the stockholders resolved to offset its accumulated
deficits through capital reduction of $525,785,630.  Consequently, such decrease in common stock
resulted in the decrease of 504,232 shares of treasury stock as of
December 31, 2006.  (14) Employee Stock Options  There
was no compensation cost recognized under the stock-based employee compensation
plan for the years ended December 31, 2007, 2006 and 2005.  The exercise price is based on the par value
of the Companys common stock at the grant date and is not subject to
change.  The granted employee stock
options will expire in 4 years.  The
employee stock options will be graded vested 1 year after the stock options are
granted.  A.Details of the employee stock options are set
forth below:  For the
  years ended December 31,2007
  
  2006Weighted-average
  
  
  
  Weighted-averageStock options
  
  Number
  of shares
  
  exercise
  price
  
  Number
  of shares
  
  exercise
  priceOptions
  outstanding at beginning of year
  
  
  
  $
  
  
  
  
  $
  Options
  granted
  
  30,000,000
  
  10
  
  
  
  Options
  exercised
  
  
  
  
  
  
  
  Options
  cancelled
  
  
  
  
  
  
  
  Options
  outstanding at end of year
  
  30,000,000Options
  exercisable at end of year
  
  
  
  
  
  Options
  authorized but not granted at end of year
  
  
  
  
  
  30,000,000  20


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  B.Details of the employee stock options
outstanding as of December 31, 2007 are set forth below:  Stock
  options outstanding as of
  
  Stock
  options exercisable as ofDecember 31,
  2007
  
  December 31,
  2007Weighted-averageRange of
  
  
  
  Remaining
  
  Weighted-average
  
  
  
  Weighted-averageexercise price
  
  Number of shares
  
  vesting period
  
  exercise price
  
  Number of shares
  
  exercise price$
  10
  
  30,000,000
  
  3.5
  years
  
  $
  10
  
  
  
    C.The following sets forth the pro forma net
loss and loss per share based on the assumption that the compensation cost is
accounted for using the fair value method for the stock options granted
(amended) on or after January 1, 2004:  For the
  years ended December 31,2007
  
  2006
  
  2005Net loss
  
  Net
  loss stated in the statements of income
  
  $
  (451,458,452
  )
  $
  (333,995,445
  )
  $
  (378,317,951
  )Pro
  forma net loss
  
  $
  (451,458,462
  )
  $
  (333,995,445
  )
  $
  (378,317,951
  )  D.For the stock options granted with the
compensation cost accounted for using the fair value method (pro forma
disclosure), their fair value on the grant date is estimated using the
Black-Scholes option-pricing model.  The
weighted-average parameters used in the estimation of the fair value are as
follows:  For the
  years ended December 31,2007
  
  2006
  
  2005Dividend
  yield rate
  
  0
  %
  N/A
  
  N/AExpected
  price volatility
  
  
  
  N/A
  
  N/ARisk-free
  interest rates
  
  1.86~2.63%
  
  N/A
  
  N/AExpected
  terms
  
  3.2
  years
  
  N/A
  
  N/AOptions
  granted during the period
  
  30,000,000
  shares
  
  N/A
  
  N/AWeighted-average
  fair value
  
  $
  
  
  N/A
  
  N/A  21


Advanced Chip Engineering Technology Inc. Notes to Financial Statements December 31, 2007, 2006 and 2005 (Expressed in New Taiwan Dollars)  (15)
Income Taxes  A.Income tax expense and
income tax refundable  For the
  years ended December 31,2007
  
  2006
  
  2005(Unaudited)Income
  tax calculated at the statutory tax rate
  
  $
  
  
  $
  
  
  $
  Tax
  effect of permanent differences
  
  3,987,415
  
  4,224,764
  
  (4,135,660
  )Tax
  effect of investment tax credits
  
  (39,665,025
  )
  (4,914,139
  )
  30,407,823Tax
  effect of loss carryforwards
  
  (53,963,430
  )
  (49,572,891
  )
  (89,268,719
  )10%
  tax on unappropriated earnings
  
  
  
  
  
  Tax
  effect of valuation allowance
  
  89,641,040
  
  50,262,266
  
  62,996,556Income
  tax expense
  
  
  
  
  
  Less:
  Prepaid and withholding taxes
  
  (683,499
  )
  (753,518
  )
  (355,862
  )Income
  tax refundable
  
  $
  (683,499
  )
  $
  (753,518
  )
  $
  (355,862
  )  B.    Deferred income tax assets and liabilities:  December 31,2007
  
  2006Deferred income tax assets
   current
  
  $
  119,314,122
  
  $
  70,704,220Deferred income tax assets
   noncurrent
  
  458,779,975
  
  417,748,837Valuation allowance
  
  (578,094,097
  )
  (488,453,057
  )$
  
  
  $
    C.    Details of temporary
differences, loss carryforawards and investment tax credits resulting in
deferred income tax assets and liabilities are as follows:  December 31,2007
  
  2006Amount
  
  Tax
  effect
  
  Amount
  
  Tax
  effectCurrent items:Temporary
  differences
  
  $
  10,273,676
  
  $
  2,568,419
  
  $
  22,070,252
  
  $
  5,517,563Loss
  carryforwards
  
  425,581,419
  
  106,395,355
  
  249,765,016
  
  62,441,254Investment
  tax credits
  
  
  
  10,350,348
  
  
  
  2,745,403Valuation
  allowance
  
  
  
  (119,314,122
  )
  
  
  (70,704,220
  )$
  
  
  
  
  $
  Noncurrent items:Temporary
  differences
  
  $
  25,391,734
  
  $
  6,347,934
  
  $
  29,544,814
  
  $
  7,386,204Loss
  carryforwards
  
  1,457,472,328
  
  364,368,082
  
  1,417,435,014
  
  354,358,754Investment
  tax credits
  
  
  
  88,063,959
  
  
  
  56,003,879Valuation
  allowance
  
  
  
  (458,779,975
  )
  
  
  (417,748,837
  )$
  
  
  
  
  $
    22


Advanced
Chip Engineering Technology Inc. Notes to
Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  D.The Company is eligible for investment tax
credits under the Statute for Upgrading Industry.  Details as of December 31, 2007 are as
follows:  Year
  generated
  
  Qualifying items
  
  Total tax credits
  
  Unused tax credits
  
  Expiration years2004
  
  Machinery
  and equipment
  
  $
  1,391,436
  
  $
  1,391,436
  
  2008Research and
  development
  
  8,958,912
  
  8,958,912
  
  20082005
  
  Machinery
  and equipment
  
  8,712,660
  
  8,712,660
  
  2009Research and
  development
  
  11,313,463
  
  11,313,463
  
  20092006
  
  Machinery
  and equipment
  
  2,912,088
  
  2,912,088
  
  2010Research and
  development
  
  22,715,320
  
  22,715,320
  
  20102007
  
  Machinery
  and equipment
  
  42,410,428
  
  42,410,428
  
  2011$
  98,414,307
  
  $
  98,414,307  E.As of December 31, 2007, losses
available to be carried forward were as follows:  Year in which
  losses incurred
  
  Amount filed/
  approved
  
  Losses available to be
  carried forward (tax effect)
  
  Unused loss
  carryforwards
  
  Expiration years2003
  
  Approved
  
  $
  106,395,355
  
  $
  106,395,355
  
  20082004
  
  Approved
  
  70,676,694
  
  70,676,694
  
  20092005
  
  Approved
  
  89,077,634
  
  89,077,634
  
  20102006
  
  Filed
  
  88,209,071
  
  88,209,071
  
  20112007
  
  Expected
  filing amount
  
  116,404,683
  
  116,404,683
  
  2012$
  470,763,437
  
  $
  470,763,437  F.The Companys income tax returns through the
fiscal year 2005 have been assessed by the Tax Authority.  G.Information relating to undistributed
retained earnings (accumulated deficits):  December 31,2007
  
  2006Prior to 1998
  
  $
  
  
  $
  After 1998 (inclusive)
  
  (782,471,138
  )
  (331,012,686
  )Total
  
  $
  (782,471,138
  )
  $
  (331,012,686
  )  H.Information relating to imputation credit
account:  As
of December 31, 2007 and 2006, the balance of the imputation tax credit
account was both $0.  23


Advanced
Chip Engineering Technology Inc. Notes to
Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  (16)
Personnel, Depreciation and Amortization
Expenses  For the year ended December 31, 2007Included in cost of
  goods sold
  
  Included in operating
  expenses
  
  TotalPersonnel Expenses:Salaries and wages
  
  $
  111,639,632
  
  $
  83,311,631
  
  $
  194,951,263Labor and health insurance
  
  8,376,315
  
  5,519,314
  
  13,895,629Pension expense
  
  4,776,515
  
  4,579,298
  
  9,355,813Other
  
  6,390,970
  
  3,563,860
  
  9,954,830Depreciation
  
  90,151,876
  
  24,917,813
  
  115,069,689Amortization
  
  543,011
  
  7,188,556
  
  7,731,567  For the year ended December 31, 2006Included in cost of
  goods sold
  
  Included in operating
  expenses
  
  TotalPersonnel Expenses:Salaries and wages
  
  $
  79,987,803
  
  $
  66,834,967
  
  $
  146,822,770Labor and health insurance
  
  6,095,869
  
  4,156,747
  
  10,252,616Pension expense
  
  4,613,896
  
  3,620,829
  
  8,234,725Other
  
  3,546,315
  
  2,011,835
  
  5,558,150Depreciation
  
  92,072,855
  
  5,486,436
  
  97,559,291Amortization
  
  365,418
  
  10,042,984
  
  10,408,402  For the year ended December 31, 2005 (unaudited)Included in cost of
  goods sold
  
  Included in operating
  expenses
  
  TotalPersonnel Expenses:Salaries and wages
  
  $
  70,868,285
  
  $
  47,281,714
  
  $
  118,149,999Labor and health insurance
  
  6,110,669
  
  3,064,667
  
  9,175,336Pension expense
  
  3,100,120
  
  1,944,280
  
  5,044,400Other
  
  3,823,226
  
  1,435,950
  
  5,259,176Depreciation
  
  94,861,463
  
  5,996,823
  
  100,858,286Amortization
  
  18,324,546
  
  1,115,418
  
  19,439,964  5. Related
Party Transactions  (1) Name and Relationship of
Related Parties:  Name of related party
  
  Relationship with the CompanyKing Yuan Electronics
  Co., Ltd.
  (KYEC)
  
  The chairman of the
  Company is KYECs
      vice-chairmanSilicon Storage
  Technology, Inc. (SST)
  
  An equity investor of the
  CompanySST International Limited
  
  A subsidiary of SSTSilicon Storage Technology
  Taiwan Ltd.
  (SST Taiwan)
  
  A subsidiary of SST
  International Limited  24


Advanced
Chip Engineering Technology Inc. Notes
to Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  (2)Significant
Related Party Transactions  A.Operating Revenues  For the years ended December 31,2007
  
  2006
  
  2005(Unaudited)Amount
  
  %
  
  Amount
  
  %
  
  Amount
  
  %KYEC
  
  $
  13,577,438
  
  23
  
  $
  13,000
  
  
  
  $
  
  
  SST
  
  473,118
  
  
  
  
  
  
  
  
  
  $
  14,050,556
  
  23
  
  $
  13,000
  
  
  
  $
  
  
    The Company operates a testing and packaging
business, and the processing charge depends on the unique traits of each type
of product.  Therefore, the charges for
testing products of related parties are not comparable to those charged to
non-related parties.  Payment terms
offered to related parties are 60 days after the monthly closing, while
payment terms offered to other customers are 30~90 days after monthly
closing of transactions.  B.Accounts receivable:  December 31,2007
  
  2006Amount
  
  %
  
  Amount
  
  %KYEC
  
  $
  14,224,754
  
  50
  %
  $
  
  
  SST
  
  85,594
  
  
  
  
  
  $
  14,310,348
  
  50
  %
  $
  
  
    C.Other receivables (shown as other financial assets  current):  December 31,2007
  
  2006Amount
  
  %
  
  Amount
  
  %KYEC
  
  $
  2,835,000
  
  49
  %
  $
  3,583,650
  
  48
  %SST
  
  47,984
  
  1
  %
  2,736,146
  
  36
  %SST
  Taiwan
  
  
  
  
  
  12,209
  
  $
  2,882,984
  
  50
  %
  $
  6,332,005
  
  84
  %  Other receivables were generated mainly from the rental revenues from
KYEC and payments made on behalf of SST and KYEC.  D.Other payables:  December 31,2007
  
  2006Amount
  
  %
  
  Amount
  
  %KYEC
  
  $
  97,200
  
  
  
  $
  5,115,075
  
  7
  %  Other payables were generated mainly from the technical support and
outsourcing services provided by and rental expenses payable to KYEC.  25


Advanced
Chip Engineering Technology Inc. Notes
to Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  E.Service provided by related party was as
follows:  For the years ended December 31,Transaction
  
  2007
  
  2006
  
  2005(Unaudited)KYEC
  
  Charges for machinery rental, technical
  support and outsourcing services
  
  $
  4,187,393
  
  $
  5,581,510
  
  $
  411,190  F.Rental revenue:  For the years ended December 31,Leased assets
  
  2007
  
  2006
  
  2005(Unaudited)KYEC
  
  Machinery
  
  $
  17,350,000
  
  $
  22,750,000
  
  $
  10,460,000  G.Rental expenses:  For the years ended December 31,Leased assets
  
  2007
  
  2006
  
  2005(Unaudited)KYEC
  
  Machinery
  
  $
  
  
  $
  3,000,000
  
  $
    H.Asset transactions  The Company purchased machinery and equipment from KYEC amounting to
$17,700,445, $0 and $0, respectively, in 2007, 2006 and 2005.  6. Assets Pledged As Collateral  December 31,Account
  
  2007
  
  2006
  
  Subject of collateralsRestricted
  assets  current
  
  $
  100,000
  
  $
  3,699,688
  
  Note ALand
  (including leased assets)
  
  136,183,400
  
  136,183,400
  
  Long-term loansBuildings
  and facilities (including leased assets)
  
  306,990,300
  
  315,720,931
  
  Long-term loansMachinery
  and equipments
  
  19,687,048
  
  44,308,705
  
  Long-term loansTotal
  
  $
  462,960,748
  
  $
  499,882,724  Note A:The Company applied for a subsidy, in term of
low interest rate loan, under a program of the Industrial Development Bureau, the
Ministry of Economic Affairs.  The
subsidy can not be used until the Industrial Development Bureau examines and
approves the related research and development documents.  26


Advanced
Chip Engineering Technology Inc. Notes
to Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  7.  Commitments and Contingencies  As of December 31, 2007, the following commitments and
contingencies were not recorded in the Companys financial statements:  A.As of December 31, 2007, the unused letter of credit in relation to
the purchase of machinery and equipment amounted to approximately USD2,112,900,
EUR218,400 and JPY101,357,500.  In
addition, the unpaid amount in relation to the purchase agreements entered into
by the Company with the vendors to purchase machinery and equipment was
$457,008,379.  B.The Company has entered into a loan agreement with Industrial
Development Bureau, the Ministry of Economic Affairs and Taiwan Business Bank for
its project, Development of Thickness and High Performance Image Sensor
Module, which was granted under the governments Industry Research and
Development Plan.  Under the agreement,
the Company is entitled to a loan up to $65,000,000 from June 1, 2005 to
April 15, 2012.  In the event that
the Company violates the project plan or fails to extinguish the loan,
Industrial Development Bureau, the Ministry of Economic Affairs has the rights
to terminate the agreement and claim the loan from Hsinchu International Bank,
guarantor of the loan.  8. Significant Disaster Losses  None.  9. Significant Subsequent Event  The Company sold a group of machinery and equipment to King Yuan
Electronics Co., Ltd. in February 2008.  The selling price and disposal gains recognized
amounted to $20,000,000 and $12,784,164, respectively.  10. Others  A.Fair value of financial instruments  December 31, 2007Fair valueBook value
  
  Quotation in an
  active market
  
  Estimated
  using a valuationNon-derivative financial instrumentsFinancial assets:Financial assets with fair
  value equal to book value
  
  $
  912,524,621
  
  $
  
  
  $
  912,524,621Financial liabilities:Financial liabilities with
  fair value equal to book value
  
  636,940,487
  
  
  
  636,940,487Long-term loans (including
  current portion)
  
  274,165,251
  
  
  
  274,165,251Derivative financial
  instrumentsNone  27


Advanced
Chip Engineering Technology Inc. Notes
to Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  December 31, 2006Fair valueBook value
  
  Quotation in an
  active market
  
  Estimated
  using a valuationNon-derivative financial
  instrumentsFinancial assets:Financial assets with fair
  value equal to book value
  
  $
  552,418,164
  
  $
  
  
  $
  552,418,164Financial liabilities:Financial liabilities with
  fair value equal to book value
  
  114,651,855
  
  
  
  114,651,855Long-term loans (including
  current portion)
  
  359,991,733
  
  
  
  359,991,733Derivative financial
  instrumentsNone  The methods and assumptions used to measure the
fair value of financial instruments are summarized below:  Financial assets / liabilities with fair value
equal to book value: The carrying amounts of these assets / liabilities
approximate fair values due to their short maturities. This applies to cash and
cash equivalents, notes and accounts receivable, refundable deposits,
short-term loans, notes and accounts payable.  Long-term liabilities: Fair value is estimated
based on the discontinued future cash flows. Discount rate is determined based
on the Companys credit adjusted borrowing rate on long-term loans, which
approximate the floating interest rates. Accordingly, the carrying values of
the long-term loans approximate their fair values.  B.Information on financial assets and liabilities with fair value interest
rate risk  As of December 31, 2007 and 2006, the financial
assets exposed to fair value interest rate risk was $784,000,000 and
$511,000,000, respectively.  The Company
has no financial liabilities that are exposed to fair value interest rate risk
as of December 31, 2007 and 2006.  C.Financial risk management  In order to identify, evaluate and manage market
risk, credit risk, liquidity risk and cash flow risk, the Company has
established a risk management program and carried out procedures to monitor the
fluctuations of exchange rate and interest rate, as well as implement credit
controls over its transaction counterparties.  By considering factors such as changes in economic
environment, competition, market value risks, and liquidity requirement, the
Company adjusts related positions of financial assets and liabilities in order
to optimize its risk exposure, maintain liquidity and centrally manage all
market risks.  28


Advanced
Chip Engineering Technology Inc. Notes
to Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  D.Information on significant financial risks  a.Market risk  The Company entered into financial instrument
agreements with maturities shorter than one year. Therefore, the market risk is
considered to be minimal.  b.Credit risk  The counterparties of the financial instruments are
related parties and reputable companies, with which the Company has established
long-term relationships. Thus, the Company believes that its exposure to
potential default risk is low.  c.Liquidity risk  The Company entered into financial instrument
agreements with maturities shorter than one year, and the Company has
sufficient working capital for cash requirement. Thus, the liquidity risk is
expected to be low.  d.Cash flow interest rate risk  The Company entered into financial instrument
agreements with maturities shorter than one year. Therefore, the Companys
exposure to cash flow interest rate risk is considered low.  Long-term liabilities are primarily issued at
floating interest rates, which are not exposed to significant cash flow
interest rate risk.  29


Advanced
Chip Engineering Technology Inc. Notes
to Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  11.  Material Differences between US GAAP and ROC
GAAP  The Companys financial statements have been prepared in conformity with
Business Entity Accounting Law and accounting principles generally accepted
in the Republic of China (ROC GAAP), which differ in certain material
respects from generally accepted accounting principles in the United States
(US GAAP).  A narrative discussion on
certain significant differences between ROC GAAP and US GAAP that are
applicable to the Company are summarized below:  (1)Compensated absences  Under ROC GAAP, the Company is not required to accrue for unused
employees vacation leave at the end of each year.  However, under US GAAP, SFAS No. 43,
Accounting for Compensated Absences, requires that an employer to accrue a
liability for employees compensation for future absences if all of the
following conditions are met: i) the employers obligation relating to
employees rights to receive compensation for future absences is attributable
to employees services already rendered, ii) the obligation relates to
rights that vest or accumulate, iii) payment of the compensation is
probable, and iv) the amount can be reasonably estimated.  Accordingly, under US GAAP, unused vacation
that can be carried over to the next year has to be accrued for at each balance
date to properly record the expense in the period in which the employee
provided the services.  (2)Pension  As a non-public company, the Company is permitted to account for its
defined benefit pension plan by recording an expense equal to the required
monthly contribution as determined by the Labor Standards Law of the R.O.C.  Under US GAAP, a defined benefit pension plan is accounted for pursuant
to SFAS No. 87, Employers Accounting for Pension and SFAS No. 158
(effective for the Company in its fiscal year ending after December 15,
2006 with early adoption encouraged), Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans  an amendment of FASB
Statements No. 87, 88, 106, and 132(R), which requires the recognition of
the overfunded or underfunded status of a defined benefit pension plan as an
asset or liability and changes in the funded status to be recognized through
other comprehensive income, net of tax. 
Unrecognized gains and losses, prior service costs, or transition assets
and liabilities as components of net periodic benefit cost of the period in
accordance with SFAS No. 87 are now recognized as a component of
accumulated other comprehensive income.  30


Advanced
Chip Engineering Technology Inc. Notes
to Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  (3)Impairment of long-lived assets  R.O.C. SFAS No. 35, Accounting for Impairment of Assets, requires
an entity to assess for impairment long-lived assets or asset groups whenever
indications of impairment exist.  If
there are any such indications, the asset or asset group must be tested for
impairment.  An impairment loss for an asset
or asset group must be recognized in the income statement when its carrying
amount exceeds its recoverable amount. 
Recoverable amount is measured as the higher of net selling price or
value in use (discounted cash flows). 
Reversal of impairment loss is made when there has been a change in
economic conditions or in the expected use of the asset or asset group such
that the previously recognized impairment loss no longer exits or has
diminished.  Upon the reversal of
impairment loss, the carrying value of the asset or asset group should be
increased to its recoverable amount, adjusted for any depreciation
(amortization) expense that would have been recognized had the asset or asset
group not been impaired.  Asset
impairment loss is presented as a non-operating expense, and impairment
recoveries are presented as non-operating income.  Under US GAAP, a long-lived asset or asset group classified as held and
used is assessed for impairment whenever events or circumstances indicate that
an impairment exits.  If the undiscounted
future cash flows of the asset or asset group is less then its carrying value,
an impairment loss equal to the excess of its carrying value over its fair
value is recognized.  In addition,
impairment loss cannot be reversed for long-lived assets or asset group to be
held and used, as the impairment loss results in a new cost basis for the
assets.  Impairment loss is presented as
an operating expense.  (4)Cash and cash equivalents  Under ROC GAAP, all certificates of deposit are classified as cash and
cash equivalents.  Under US GAAP, cash
equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and have original maturities of three
months or less.  31


Advanced
Chip Engineering Technology Inc. Notes
to Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  (5)Inventory provision  Under ROC GAAP, provisions for normal inventory scrap and obsolescence
are recorded as non-operating expenses. 
However, under US GAAP, provisions for normal inventory scrap and
obsolescence are generally charged to cost of sales.  Under ROC GAAP, the write down of inventory
due to lower-of-cost-or-market can be reversed to the extent that the reversal
does not exceed the original cost.  Under US GAAP, a write-down of inventory to the lower-of-cost-or-market
value creates a new cost basis that subsequently cannot be marked up based on
changes in underlying circumstances.  (6)Prepayment of property, plant and equipment  Under ROC GAAP, prepayment of property, plant and equipment is presented
as part of property, plant and equipment.  Under US GAAP, prepayment of property, plant and equipment should be
presented as other assets.  (7)Technology know-how  In years 2000 and 2002, the founders of the Company contributed their
technology know-how in exchange for the Companys stock.  Under ROC GAAP, the Company recorded the
technology know-how based on a valuation report with corresponding entries to
common stock and additional paid-in capital. 
The technology know-how was amortized over its estimated economic life
using the straight-line method.  Under US GAAP, Staff Accounting Bulletin (SAB) Topic 5-G, Acquisition
of Assets from Promoters and Stockholders in Exchange for Common Stock, states
that transfers of nonmonetary assets to a company by its promoters or
stockholders in exchange for stock prior to or at the time of the companys
initial public offering normally should be recorded at the transferors
historical cost basis determined under generally accepted accounting
principles.  (8)Reclassification within stockholders equity  Under ROC GAAP, the Company can reduce its accumulated deficit by
offsetting it against its capital and capital surplus balances.  Under US GAAP, a deficit reclassification can be recognized only when it
qualifies as a quasi-reorganization which requires the following conditions
to be met: a) earned surplus, as of the date selected, is exhausted;
b) upon consummation of the quasi-reorganization, no deficit exists in any
surplus account; c) the entire procedure is made known to all persons
entitled to vote on matters of general corporate policy and the appropriate
consents to the particular transactions are obtained in advance in accordance
with the applicable laws and charter provisions; and d) the procedure  32


Advanced
Chip Engineering Technology Inc. Notes
to Financial Statements December
31, 2007, 2006 and 2005 (Expressed
in New Taiwan Dollars)  accomplishes, with respect to the accounts, substantially what might be
accomplished in a reorganization by legal proceedings namely, the restatement
of assets in terms of present considerations as well as appropriate
modifications of capital and capital surplus, in order to obviate, so far as
possible, the necessity of future reorganization of like nature.  (9)Employee stock options  In 2006, the Company was authorized to issue employee stock
options.  The total number of options to
be granted under the plan is equivalent to 30,000,000 shares of the Companys
common stock, and all options were granted to employees in 2007.  Under ROC GAAP, the Company applies the
intrinsic value method to recognize the difference between the fair value of
the stock and the exercise price of its employee stock option as compensation
expense over the requisite service period, if any, and pro forma information
regarding net loss is required as if the Company had accounted for the employee
stock options under the fair value method.  Under US GAAP, the fair value of share-based compensation is recognized
over the requisite service period. Under FAS 123(R), companies are required to
develop an assumption regarding the pre-vesting forfeiture rate beginning on
the grant date, which will have a direct effect on the amount of compensation
cost that is recognized over the requisite service period.  Additionally, FAS 123(R) eliminated the
minimum value method (i.e., zero volatility assumption) which was permitted
under FAS 123 for nonpublic companies. 
Nonpublic companies shall use either the fair-value method or the
calculated-value method, both of which require a volatility assumption.  33