Document:

GMAC
                              COMMERCIAL CREDIT LLC
                1290 AVENUE OF THE AMERICAS o NEW YORK, NY 10104
                                  212-408-7000

                                                  May 5, 2000

SIGNAL APPAREL COMPANY, INC.
500 7th Avenue, 7th Floor
New York, New York 10018

Gentlemen:

     Reference  is  made  to  the  Revolving  Credit,  Term  Loan  and  Security
Agreement,  dated  March 12,  1999 (as  amended  from time to time,  the "Credit
Agreement")  by and among SIGNAL APPAREL  COMPANY,  INC.  ("Borrower")  and GMAC
COMMERCIAL  CREDIT LLC,  as Agent (in such  capacity,  "Agent")  for the Lenders
("Lenders")  parties from time to time to the Credit Agreement.  All capitalized
terms used and not otherwise  defined herein shall have the respective  meanings
ascribed to them in the Credit Agreement.

     1. The Borrower  has advised  Lenders  that for the fiscal  quarter  ending
March 31, 2000, its Tangible Net Worth was less than ($71,500,000),  the minimum
Tangible Net Worth  permitted as of March 31, 2000 under  Section 6.5  (Tangible
Net  Worth)  of the  Credit  Agreement;  (ii) the  Current  Ratio  was less than
0.70:1.00,  the  minimum  Current  Ratio  permitted  as of March 31,  2000 under
Section 6.6 (Current Ratio) of the Credit  Agreement;  (iii) Working Capital was
less than  ($5,500,000),  the minimum Working Capital  permitted as of March 31,
2000 under Section 6.7 (Working Capital) of the Credit  Agreement;  and (iv) net
loss, excluding any extraordinary or non-recurring items was greater than the $0
permitted as of March 31, 2000 under Section 6.13(a) of the Credit Agreement. As
a result of such  noncompliance,  Events of Default have occurred  under Section
10.2 of Article X (Events of Default) of the Credit  Agreement  ("Subject Events
of Default").  Borrowers  have  requested  Lender to waive the Subject Events of
Default, and Lenders hereby waives the Subject Events of Default.

     2.  Borrower  hereby  acknowledges,  confirms  and agrees  that all amounts
charged or credited to the  Borrower's  account as of April 15, 2000 are correct
and binding upon the Borrower and that all amounts reflected to be due and owing
in the  Borrower's  account  as of  April  15,  2000 are due and  owing  without
defense,  setoff,  offset,  recoupment,  claim  or  counterclaim.   Furthermore,
Borrower  hereby also  irrevocably  releases  and forever  discharges  Agent and
Lenders and each of Agent's and Lenders' respective affiliated concerns, as well
as all of  Agent's  and  Lenders'  respective  directors,  officers,  employees,
shareholders  and agents  from any and all  liabilities,  demands,  obligations,
causes of action and other claims, of every kind, nature and description,  known
and unknown,  which  Borrower now has or may  hereafter  have,  by reason of any
matter,  cause or thing occurred,  done, omitted or suffered to be done prior to
the date hereof.

<PAGE>

     3.  Except  as  specifically   set  forth  herein,   no  other  changes  or
modification  to the Credit  Agreement are intended or implied and, in all other
respects the Credit  Agreement shall continue to remain in full force and effect
in accordance with its terms as of the date hereof.  Except as specifically  set
forth herein,  nothing  contained herein shall evidence a waiver or an amendment
by Agents or Lenders of any other  provision of the Credit  Agreement nor of the
specific provisions referred to above for any other time period.

     4. In  consideration  of the  waiver  given by Agent  and  Lenders  herein,
Borrower agrees to pay a non-refundable  waiver fee to Agent, for the benefit of
Lenders in the amount of  $40,000,  which fee shall be in  addition to any fees,
charges or interest  otherwise  payable by borrower under the Credit  Agreement,
and which fee shall be fully  earned as of the date  hereof and payment of which
may be effectuated by charging Borrower's loan account.

     5. The terms and provisions of this  Agreement  shall be for the benefit of
the parties hereto and their respective successors and assigns; no other person,
entity or  corporation  shall have any right,  benefit  or  interest  under this
agreement.

     6. This Agreement may be signed in counterparts,  each of which shall be an
original and all of which taken together  constitute  one  agreement.  In making
proof of this  Agreement,  it shall not be  necessary  to produce or account for
more than one counterpart signed by the party to be charged.

     7. This Agreement sets forth the entire agreement and  understanding of the
parties with respect to the matters set forth herein.  This agreement  cannot be
changed,  modified,  amended or terminated  except in a writing  executed by the
party to be changed.

                                        Very truly yours,

                                        GMAC COMMERCIAL CREDIT LLC, as Agent

                                        By: /s/ Wayne Miller VP
                                            -------------------

Acknowledge and Agreed:

Signal Apparel Company, Inc.

By: /s/ Kenneth L. Larsen
    ---------------------

Title: Controller
       ----------<PAGE>   1
                                                                   EXHIBIT 10.22

                    INTEGRATED CIRCUIT SOLUTION INCORPORATION

                              FINANCIAL STATEMENTS
                                      WITH
                          INDEPENDENT AUDITORS' REPORT

                               DECEMBER 31, 1999,
                              DECEMBER 31, 1998 AND
                               SEPTEMBER 30, 1998

<PAGE>   2

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors, Supervisors, and Shareholders
of Integrated Circuit Solution Incorporation

     We have audited the accompanying balance sheets of Integrated Circuit
Solution Incorporation as of December 31, 1999 and 1998, and September 30, 1998
and the related statements of operations, changes in shareholders' equity, and
cash flows for the years ended December 31, 1999 and September 30, 1998 and the
three-month period ended December 31, 1998. 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 generally accepted auditing
standards. 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 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 Integrated Circuit Solution
Incorporation as of December 31, 1999 and 1998, and September 30, 1998 and the
results of its operations and its cash flows for the years ended December 31,
1999 and September 30, 1998 and the three-month period ended December 31, 1998,
in conformity with generally accepted accounting principles.

/s/ Diwan Ernst & Young

Taipei, Taiwan, R.O.C.
January 26, 2000

<PAGE>   3

                    INTEGRATED CIRCUIT SOLUTION INCORPORATION
                                 BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998
                             AND SEPTEMBER 30, 1998
                    (Amounts in thousand New Taiwan dollars)

<TABLE>
<CAPTION>
                                                           December 31, 1999       December 31, 1998        September 30, 1998
                                                       ------------------------ ------------------------ ------------------------
                   ASSETS                    Notes       Amount            %       Amount         %         Amount           %
                                            ------     -----------      ------  -----------     ------   -----------       ------
<S>                                         <C>        <C>              <C>     <C>             <C>      <C>                 <C>
CURRENT ASSETS
  Cash and cash equivalents                 2,4(1)     $   146,517       4.27   $   246,860       6.31   $   161,363         3.72
  Restricted investments                    6               31,500       0.92        11,500       0.29        11,500         0.27
  Short-term investments                    2,4(2)              --        --        166,000       4.25            --          --
  Notes and accounts receivable (net)       4(3)           385,704      11.23       186,387       4.77       282,226         6.51
  Receivables from related parties          5              387,564      11.28        62,744       1.60        70,361         1.62
  Inventories (net)                         2,4(4)       1,018,884      29.66     1,380,092      35.30     2,038,752        47.04
  Prepaid expenses & other current assets                   30,367       0.88        37,910       0.97        60,913         1.41
  Deferred income taxes- current            2,4(15)          8,188       0.24         8,360       0.21         9,195         0.21
                                                       -----------     ------   -----------     ------   -----------       ------
      Total current assets                               2,008,724      58.48     2,099,853      53.71     2,634,310        60.78
                                                       -----------     ------   -----------     ------   -----------       ------
LONG-TERM EQUITY INVESTMENTS                4(5),6          32,544       0.95       360,597       9.22       314,089         7.25
                                                       -----------     ------   -----------     ------   -----------       ------
PROPERTY, PLANT AND EQUIPMENT               2,4(6),6
  Land                                                      19,758       0.57            --         --            --          --
  Buildings & facility                                     381,834      11.12       408,302      10.44       575,595        13.28
  Machinery                                              1,081,958      31.50     1,073,084      27.45       934,055        21.55
  Vehicles                                                   6,583       0.19         6,721       0.17         6,721         0.16
  Furniture & fixtures                                      45,074       1.31        41,825       1.07        38,477         0.89
  Miscellaneous equipment                                   98,606       2.87        88,726       2.27        61,695         1.42
  R & D equipment                                           53,504       1.56        36,723       0.94        18,934         0.44
                                                       -----------     ------   -----------     ------   -----------       ------
    Total property, plant and equipment                  1,687,317      49.12     1,655,381      42.34     1,635,477        37.74
  Plus: Prepayments for equipment                           54,338       1.59            --         --        71,382         1.65
  Less: Accumulated depreciation                          (652,114)    (18.99)     (487,990)    (12.48)     (461,090)      (10.64)
                                                       -----------     ------   -----------     ------   -----------       ------
      Net property, plant and equipment                  1,089,541      31.72     1,167,391      29.86     1,245,769        28.74
                                                       -----------     ------   -----------     ------   -----------       ------
OTHER ASSETS
  Assets for lease                                         229,322       6.68       200,505       5.13        55,971         1.29
  Refundable deposits                                          683       0.02           644       0.02         5,132         0.12
  Deferred charge                                           13,105       0.38        12,933       0.33        13,103         0.30
  Deferred income taxes- non-current        2,4(15)         60,943       1.77        67,772       1.73        65,732         1.52
                                                       -----------     ------   -----------     ------   -----------       ------
      Total other assets                                   304,053       8.85       281,854       7.21       139,938         3.23
                                                       -----------     ------   -----------     ------   -----------       ------
TOTAL ASSETS                                           $ 3,434,862     100.00   $ 3,909,695     100.00   $ 4,334,106       100.00
                                                       ===========     ======   ===========     ======   ===========       ======
</TABLE>

                           DECEMBER 31, 1999 AND 1998
                             AND SEPTEMBER 30, 1998
                    (Amounts in thousand New Taiwan dollars)

<TABLE>
<CAPTION>
                                                              December 31, 1999        December 31, 1998      September 30, 1998
                                                         -------------------------  ----------------------- -----------------------
   LIABILITIES & SHAREHOLDERS' EQUITY        Notes         Amount           %         Amount         %        Amount           %
                                             -----       -----------      ------    ----------     ------   ----------       ------
<S>                                           <C>        <C>              <C>       <C>            <C>      <C>                <C>
CURRENT LIABILITIES
  Short-term debt                             4(7)       $   176,000        5.12    $  251,172       6.42   $  395,770         9.13
  Short-term notes                            4(8)           166,785        4.86       286,843       7.34      232,255         5.36
  Current portion of long-term debt           4(9)            96,056        2.80       137,165       3.51      115,065         2.65
  Notes and accounts payable                                 472,177       13.75       619,881      15.85    1,044,294        24.09
  Payable to equipment supplier                               19,944        0.58       211,494       5.41      240,651         5.55
  Payable to related parties                  5               25,547        0.74       285,289       7.30      257,014         5.93
  Income taxes payable                        2,4(15)             --          --            --         --        1,144         0.03
  Accrued expenses and other
   current liabilities                                       245,939        7.16       105,250       2.69      109,567         2.53
                                                         -----------      ------    ----------     ------   ----------       ------
Total current liabilities                                  1,202,448       35.01     1,897,094      48.52    2,395,760        55.28
                                                         -----------      ------    ----------     ------   ----------       ------
LONG-TERM LIABILITIES
  Accrued pension cost                        2,4(14)          8,818        0.26         5,547       0.14        4,874         0.11
  Long-term debt, less current portion        4(9)           475,196       13.83       521,230      13.33      417,900         9.64
  Refundable deposits-in                                      11,975        0.35            --         --           --           --
                                                         -----------      ------    ----------     ------   ----------       ------
Total long-term liabilities                                  495,989       14.44       526,777      13.47      422,774         9.75
                                                         -----------      ------    ----------     ------   ----------       ------
      TOTAL LIABILITIES                                    1,698,437       49.45     2,423,871      62.00    2,818,534        65.03
                                                         -----------      ------    ----------     ------   ----------       ------
SHAREHOLDERS' EQUITY
  Common shares                               4(10)        1,200,000       34.94     1,200,000      30.69    1,200,000        27.69
  Capital reserves                            2               17,991        0.52        13,229       0.34        7,263         0.17
  Legal reserve                               4(11)          132,195        3.85       132,195       3.38      132,195         3.05
  Retained earnings                           4(12)          389,239       11.33       140,400       3.59      176,114         4.06
  Cumulative translation adjustments          2,4(15)         (3,000)      (0.09)           --         --           --           --
                                                         -----------      ------    ----------     ------   ----------       ------
      TOTAL SHAREHOLDERS' EQUITY                           1,736,425       50.55     1,485,824      38.00    1,515,572        34.97
                                                         -----------      ------    ----------     ------   ----------       ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY               $ 3,434,862      100.00    $3,909,695     100.00   $4,334,106       100.00
                                                         ===========      ======    ==========     ======   ==========       ======
</TABLE>

                (See accompanying notes to financial statements)

                                      -2-
<PAGE>   4

                    INTEGRATED CIRCUIT SOLUTION INCORPORATION
                            STATEMENTS OF OPERATIONS
          FOR THE YEARS ENDED DECEMBER 31, 1999 AND SEPTEMBER 30, 1998
               AND THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1998
            (Amounts in thousand New Taiwan dollars except per share)

<TABLE>
<CAPTION>
                                                      January 1, 1999 to       October 1, 1998 to       October 1, 1997 to
                                                       December 31, 1999        December 31, 1998       September 30, 1998
                                                   ------------------------ ------------------------ ------------------------
           Description                   Notes       Amounts        %         Amounts         %        Amounts           %
                                         -----     -----------    ------    -----------     ------   -----------       ------
<S>                                      <C>       <C>            <C>       <C>             <C>      <C>               <C>
SALES                                    2,5,9     $ 3,561,473    100.79    $ 1,151,820     101.42   $ 3,837,526       102.11
Less: Sales returns and discounts                      (28,019)    (0.79)       (16,122)     (1.42)      (79,170)       (2.11)
Net sales                                            3,533,454    100.00      1,135,698     100.00     3,758,356       100.00
COST OF GOODS SOLD                                  (2,958,924)   (83.74)    (1,108,714)    (97.62)                    (85.51)
                                                   -----------    ------    -----------     ------   -----------       ------
GROSS PROFIT                                           574,530     16.26         26,984       2.38       544,576        14.49
                                                   -----------    ------    -----------     ------   -----------       ------
OPERATING EXPENSES
  Research and development expenses                   (125,358)    (3.55)       (31,556)     (2.78)     (241,433)       (6.42)
  Selling expenses                                     (84,142)    (2.38)       (14,423)     (1.27)      (62,691)       (1.67)
  Administration expenses                             (113,326)    (3.21)       (23,442)     (2.06)      (75,157)       (2.00)
                                                   -----------    ------    -----------     ------   -----------       ------
    Total operating expenses                          (322,826)    (9.14)       (69,421)     (6.11)     (379,281)      (10.09)
                                                   -----------    ------    -----------     ------   -----------       ------
OPERATING INCOME (LOSS)                                251,704      7.12        (42,437)     (3.74)      165,295         4.40
                                                   -----------    ------    -----------     ------   -----------       ------
OTHER INCOME
  Interest income                                       10,123      0.29          3,640       0.32        11,979         0.32
  Rental income                                         42,989      1.22             --         --            --           --
  Gain on disposal of property,
    plant and equipment                  2               5,951      0.17          7,458       0.66         9,006         0.24
  Gain on disposal of short-term
    investments                                          1,408      0.04             54       0.00           356         0.01
  Reversal of inventory loss provision   2              56,500      1.60             --         --            --           --
  Gain on disposal of long-term
    investments                                         36,409      1.03             --         --        68,366         1.82
  Foreign currency exchange- gain                           --        --         22,030       1.94            --           --
  Others                                                 8,310      0.24         16,602       1.46         2,612         0.07
                                                   -----------    ------    -----------     ------   -----------       ------
                Total other income                     161,690      4.59         49,784       4.38        92,319         2.46
                                                   -----------    ------    -----------     ------   -----------       ------
OTHER EXPENSES
  Interest expense                                     (61,670)    (1.74)       (29,876)     (2.63)      (76,132)       (2.03)
  Expenses related to assets for lease                 (10,890)    (0.31)            --         --            --           --
  Foreign currency exchange- loss        2              (1,375)    (0.04)            --         --       (86,160)       (2.29)
  Investment loss                                      (11,527)    (0.33)            --         --            --           --
  Inventory loss provision               2                  --        --           (857)     (0.08)      (84,000)       (2.24)
  Physical inventory loss                               (5,171)    (0.15)        (1,117)     (0.10)       (4,852)       (0.13)
  Others                                               (62,160)    (1.76)        (5,184)     (0.46)       (6,381)       (0.17)
                                                   -----------    ------    -----------     ------   -----------       ------
                Total other expenses                  (152,793)    (4.33)       (37,034)     (3.26)     (257,525)       (6.85)
                                                   -----------    ------    -----------     ------   -----------       ------
INCOME (LOSS) BEFORE TAXES                             260,601      7.38        (29,687)     (2.61)           89         0.00
INCOME TAX BENEFIT (EXPENSE)             2,4(15)        (7,000)    (0.20)           (61)     (0.01)        5,096         0.14
                                                   -----------    ------    -----------     ------   -----------       ------
NET INCOME (LOSS)                                  $   253,601      7.18    $   (29,748)     (2.62)  $     5,185         0.14
                                                   ===========    ======    ===========     ======   ===========       ======
NET INCOME (LOSS) PER SHARE               4(13)    $      2.11              $     (0.25)             $      0.04
                                                   ===========              ===========              ===========
</TABLE>

                (See accompanying notes to financial statements)

                                      -3-
<PAGE>   5

                    INTEGRATED CIRCUIT SOLUTION INCORPORATION
                       STATEMENTS OF SHAREHOLDERS' EQUITY
          FOR THE YEARS ENDED DECEMBER 31, 1999 AND SEPTEMBER 30, 1998
               AND THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1998

                    (Amounts in thousand New Taiwan dollars)

<TABLE>
<CAPTION>
                                                                                                   Cumulative
                                                 Common      Capital        Legal      Retained    translation
            Description                          shares      reserves     reserves     earnings    adjustments        Total
            -----------                        ----------    --------     --------     ---------   -----------     -----------
<S>                                            <C>            <C>         <C>          <C>         <C>             <C>
Balance as of October 1, 1997                  $  900,000     $    58     $118,226     $ 493,360      $    --      $ 1,511,644

Appropriation and distribution of 1996
  retained earnings:

  Legal reserve                                        --          --       13,969       (13,969)          --               --

  Employee bonuses                                     --          --           --        (1,257)          --           (1,257)

  Stock dividend                                  300,000          --           --      (300,000)          --               --
Gain on disposal of property, plant and
  equipment transferred to capital reserve             --       7,205           --        (7,205)          --               --

Net income, 1997                                       --          --           --         5,185           --            5,185
                                                                          --------     ---------      -------      -----------
Balance as of September 30, 1998                1,200,000       7,263      132,195       176,114           --        1,515,572

Gain on disposal of property, plant and
  equipment transferred to capital reserve             --       5,966           --        (5,966)          --               --

Net losses, 1998                                       --          --           --       (29,748)          --          (29,748)
                                               ----------     -------     --------     ---------      -------      -----------
Balance as of December 31, 1998                 1,200,000      13,229      132,195       140,400           --        1,485,824

Gain on disposal of property, plant and
  equipment transferred to capital reserve             --       4,762           --        (4,762)          --               --

Net income, 1999                                       --          --           --       253,601           --          253,601

Cumulative translation adjustment                      --          --           --            --       (3,000)          (3,000)
                                               ----------     -------     --------     ---------      -------      -----------
Balance as of December 31, 1999                $1,200,000     $17,991     $132,195     $ 389,239      $(3,000)     $ 1,736,425
                                               ==========     =======     ========     =========      =======      ===========
</TABLE>

                (See accompanying notes to financial statements)

                                      -4-
<PAGE>   6

                    INTEGRATED CIRCUIT SOLUTION INCORPORATION
                            STATEMENTS OF CASH FLOWS
           FOR THE YEARS ENDED DECEMBER 31, 1999 AND SEPTEMBER 30, 1998
               AND THE THREE-MONTH PERIOD ENDED DECEMBER 31, 1998

                    (Amounts in thousand New Taiwan dollars)

<TABLE>
<CAPTION>
                                                                             JANUARY 1,          OCTOBER 1,          OCTOBER 1,
                                                                                1999                1998                1997
                                                                                 TO                  TO                  TO
                                                                             DECEMBER 31,       DECEMBER 31,        SEPTEMBER 30,
                   DESCRIPTION                                                  1999                1998                1998
                   -----------                                              -------------       ------------        -------------
<S>                                                                         <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss)                                                           $ 253,601          $ (29,748)         $     5,185
  Adjustments to reconcile net income (loss) to net cash
      provided by operating activities
    Deferred income tax                                                           7,001             (1,205)              (5,098)
    Inventory loss provision (Reversal)                                         (56,500)               857               84,000
    Depreciation                                                                206,432             44,557              120,987
    Amortization                                                                  3,038                170                   --
    Net gain on disposal of property, plant and equipment                        (5,915)            (7,458)              (8,983)
    Loss on long-term equity investment                                          11,527                 --              (68,366)
    Decrease (increase) in short-term investment                                166,000           (166,000)                  --
    Decrease (increase) in notes and accounts receivable                       (199,317)            95,839              (70,646)
    Decrease (increase) in receivable from related parties                     (324,820)             7,617              530,452
    Decrease (increase) in inventories                                          417,708            657,803           (1,194,879)
    Decrease in prepaid expenses and other current assets                         7,543             23,003               14,990
    Increase (decrease) in notes and accounts payable                          (147,704)          (424,413)             507,528
    Increase (decrease) in payable to related parties                          (259,742)            28,275               (6,413)
    Decrease in income taxes payable                                                 --             (1,144)                (757)
    Increase (decrease) in accrued expenses & other current liabilities         140,689             (4,318)             (73,985)
                                                                              ---------          ---------          -----------
      Net cash provided by (used in) operating activities                       219,541            223,835             (165,985)
                                                                              ---------          ---------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Increase in restricted investments                                            (20,000)                --                   --
  Decrease (increase) in refundable deposits                                        (39)             4,488               (2,867)
  Purchase of property, plant and equipment                                    (353,530)          (143,532)            (535,457)
  Decrease (increase) in long-term investments                                  313,526            (46,507)             298,027
  Additions to intangible assets                                                 (3,210)                --               (9,878)
  Proceeds from disposal of property, plant and equipment                        10,496             11,119               29,001
                                                                              ---------          ---------          -----------
     Net cash used in investing activities:                                     (52,757)          (174,432)            (221,174)
                                                                              ---------          ---------          -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Net increase (decrease) in short-term debts                                   (75,172)          (144,598)             219,835
  Net increase (decrease) in short-term notes                                  (120,058)            54,588              232,255
  Net decrease in payable to related parties                                         --                 --             (371,799)
  Net increase (decrease) in long-term debts                                    (87,143)           125,430              134,015
  Net increase in refundable deposits-in                                         11,975                 --                   --
  Net increase in accrued pension cost                                            3,271                674                2,293
  Employee bonuses                                                                   --                 --               (1,257)
                                                                              ---------          ---------          -----------
      Net cash provided by (used in) financing activities                      (267,127)            36,094              215,342
                                                                              ---------          ---------          -----------
Net increase (decrease) in cash and cash equivalents                           (100,343)            85,497             (171,817)
Cash and cash equivalents at the beginning of period                            246,860            161,363              333,182
                                                                              ---------          ---------          -----------
Cash and cash equivalents at the end of period                                $ 146,517          $ 246,860          $   161,365
                                                                              =========          =========          ===========
Supplemental disclosures of cash flow information:
  Interest paid during the period (excluding capitalized interest)            $  68,928          $  35,444          $    63,507
                                                                              =========          =========          ===========
  Income tax paid during the period                                           $   1,082          $     277          $     2,865
                                                                              =========          =========          ===========
  Purchase of property, plant and equipment                                   $ 161,980          $ 114,375          $   728,491
  Plus: Payables to equipment supplier, beginning                               211,494            240,651               47,617
  Minus: Payables to equipment supplier, ending                                 (19,944)          (211,494)            (240,651)
                                                                              ---------          ---------          -----------
  Cash used in purchase of property, plant & equipment                        $ 353,530          $ 143,532          $   535,457
                                                                              =========          =========          ===========
Non-cash activities
  Current portion of long term debt                                           $  96,056          $ 137,165          $   115,065
                                                                              =========          =========          ===========
  Stock dividend declared                                                     $      --          $      --          $   300,000
                                                                              =========          =========          ===========
</TABLE>

                (See accompanying notes to financial statements)

                                      -5-
<PAGE>   7

                    INTEGRATED CIRCUIT SOLUTION INCORPORATION

                          NOTES TO FINANCIAL STATEMENTS

               December 31, 1999 and 1998, and September 30, 1998
            (Amounts in thousand NT dollars unless otherwise stated)

1.    ORGANIZATION AND BUSINESS

      Integrated Circuit Solution Incorporation (the "Company") was incorporated
      in the Hsinchu Science-Based Industrial Park ("HSIP"), Taiwan on September
      10, 1990. The Company operates principally as a designer, manufacturer and
      supplier of integrated circuits.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Accounting Period
      The Company first adopted an accounting year that ended on September 30.
      On September 11, 1998, the Company's shareholders' resolved to change to
      the calendar accounting year. The 3-month period from October 1 through
      December 31, 1998 was referred as the period "1998" in the financial
      statements.

      Cash Equivalents
      Cash equivalents are short-term, highly liquid investments that are
      readily convertible to known amounts of cash, and so near their maturity
      that they present insignificant risk of changes in interest rates.
      Commercial papers, negotiable certificates of deposit, and bank
      acceptances with remaining maturity of three months or less at investment
      date are considered cash equivalents.

      Short- Term Investments
      Short-term investments are carried at lower of cost or market value at the
      balance sheet date using weighted average cost method.

      Inventories
      Inventories are carried at lower of cost or market value using the
      weighted average cost method. Replacement cost is used to determine the
      market value of raw materials. Net realizable value is used to determine
      the market value of work in process and finished goods.

      Property, Plant and Equipment
      Property, plant and equipment are stated at cost less accumulated
      depreciation. Depreciation is provided on the straight-line basis over the
      following useful lives:

<TABLE>
            <S>                        <C>
            Building & facility                                  3 to 50 years
                                       (building 50 years, facility 3-10 years)
            Machinery                                            3 to 5 years
            Furniture & fixtures                                 3 to 8 years
            Vehicles                                             5 years
            Miscellaneous equipment                              3 to 10 years
            R & D equipment                                      3 to 5 years
</TABLE>

                                      -6-
<PAGE>   8

      Improvements and replacements are capitalized and depreciated over their
      estimated useful lives while ordinary repairs and maintenance are expensed
      as incurred. Gains or losses resulting from the disposal of property,
      plant and equipment are presented under other income or expenses. In
      addition, gains from disposal of property, plant, and equipment, net of
      income tax, are transferred from retained earnings to capital reserve in
      the current year.

      Foreign Currency Transactions

      The Company maintains its accounting records in New Taiwan dollars ("NT
      Dollars" or "NT$"). Transactions denominated in foreign currencies are
      recorded in New Taiwan dollars using the exchange rates in effect at the
      dates of transactions. Assets and liabilities denominated in foreign
      currencies are translated into NT Dollars using the exchange rates in
      effect at the balance sheet date. Foreign exchange gains or losses are
      included in other incomes or losses. Exchange gains or losses on
      inter-company foreign currency transactions of capital or long-term nature
      are included in cumulative translation adjustments, a separate component
      of stockholders' equity. Payable and receivable resulted from contracted
      forward exchange are net as either assets or liabilities on balance
      sheets.

      Income taxes

      The Company recognizes deferred tax assets and liabilities for the
      expected future tax consequences attributable to differences between the
      financial statement carrying amounts of assets and liabilities and their
      tax bases, and tax credits. On the basis of the expected realizability of
      the deferred tax assets, a valuation allowance is provided.

      Undistributed earnings generated after 1998 would be subject to a 10% tax
      in compliance with R.O.C. income tax law.

      Revenue Recognition

      Revenue is recognized when it is realized or realizable and when it is
      earned. Revenue from the sale of product is recognized when ownership is
      transferred to the customer, which normally occurs when shipment is made.

      Capital Expenditures vs. Revenue Expenditures

      If the expenditure increases the future service potential of the plant
      assets and the lump sum purchase price per transaction exceeds a certain
      criteria, the expenditure is capitalized, while the others are expensed as
      incurred.

      Employee Retirement Benefits

      The Company has a defined benefit pension plan covering substantially all
      of its employees. In accordance with the ROC Labor Standards Law, the
      Company made a monthly contribution equal to 2 % of the wages and salaries
      paid during the period to a pension fund maintained with the Central Trust
      of China. The fund, established during 1991 to meet employees retirement
      benefit entitlements, is administered by the Employees' Retirement Fund
      Committee and is deposited under the committee's name. Therefore, the
      pension fund is not included in the financial statements of the Company.

      The Company adopted ROC Statement of Financial Accounting Standards No.
      18, "Accounting for Pensions".

                                      -7-
<PAGE>   9

      Derivative financial instrument

      Gains and losses on contracts designated as hedges of existing assets and
      liabilities are accrued as exchange rate changes and are recognized in
      current income. Gains and losses on contracts designated as hedges of net
      investments in foreign subsidiaries are accrued as exchange rate changes
      and are recognized as translation adjustment, a separate component of
      shareholders' equity. Gains and losses on contracts designated as hedges
      of identifiable foreign currency firm commitments are deferred and
      included in the measurement of the related foreign currency transaction.

3.    REASONS AND EFFECTS FOR ACCOUNTING PRINCIPLE CHANGE
      None

4.    CONTENT OF SIGNIFICANT ACCOUNTS

      (1) Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                       1999.12.31    1998.12.31     1998.9.30
                                       ----------    ----------     ---------
        <S>                            <C>           <C>            <C>
        Cash on hand                    $     155     $     141     $     140
        Saving and Checking                90,362       104,719        50,223
        Time Deposits                      56,000       142,000       111,000
                                        ---------     ---------     ---------
        Total                           $ 146,517     $ 246,860     $ 161,363
                                        =========     =========     =========
</TABLE>

      (2) Short-Term Investments

<TABLE>
<CAPTION>
                                       1999.12.31    1998.12.31     1998.9.30
                                       ----------    ----------     ---------
        <S>                            <C>           <C>            <C>
        Beneficiary certificates        $      --     $ 166,000     $      --
        Less: Allowance for market             --            --            --
        value decline
                                        ---------     ---------     ---------
        Net                             $      --     $ 166,000     $      --
                                        =========     =========     =========
</TABLE>

         Short-term investments were not pledged.

      (3) Notes and Accounts Receivable

<TABLE>
<CAPTION>
                                       1999.12.31    1998.12.31     1998.9.30
                                       ----------    ----------     ---------
        <S>                            <C>           <C>            <C>
        Notes receivable                $  15,548     $   8,410     $  28,751
        Accounts receivable               384,566       188,387       265,885
                                        ---------     ---------     ---------
            Total                         400,114       196,797       294,636
        Less: Allowance for bad debt      (14,410)      (10,410)      (10,410)
            Allowance for sales discount       --            --        (2,000)
                                        ---------     ---------     ---------
            Net                         $ 385,704     $ 186,387     $ 282,226
                                        =========     =========     =========
</TABLE>

                                      -8-
<PAGE>   10

      (4) Inventories

<TABLE>
<CAPTION>
                                       1999.12.31      1998.12.31       1998.9.30
                                      -----------     -----------     -----------
        <S>                           <C>             <C>             <C>
        Raw materials                 $   277,741     $   253,516     $   449,293
        Work in process                   107,897         740,680         836,850
        Finished goods                    811,246         620,396         987,609
                                        ---------     -----------     -----------
                                        1,196,884       1,614,592       2,273,752
        Less: Allowance for market
              value decline and
              obsolescence               (178,000)       (234,500)       (235,000)
                                        ---------     -----------     -----------
            Net                         1,018,884     $ 1,380,092     $ 2,038,752
                                        =========     ===========     ===========
</TABLE>

         The insurance coverage for inventories amounted to NT$2,129,032,
         NT$2,053,550 and NT$2,053,550 as of December 31, 1999, 1998 and
         September 30, 1998, respectively.

      (5) Long- Term Equity Investments (shares in thousands)

<TABLE>
<CAPTION>
                               1999.12.31               1998.12.31               1998.9.30
                       ------------------------  -----------------------   ------------------------
                                                                                                      Accounting
   Investee            Shares   amount      %    Shares   amount    %      Shares   amount     %        Method
   --------            -----    ------    -----  ------  --------  -----   ------  --------   -----   --------
<S>                    <C>      <C>       <C>     <C>    <C>       <C>     <C>     <C>        <C>     <C>
1. United Integrated      --        --       --  31,643  $316,429  2.11%   31,409  $314,089   2.09%   Cost
     Circuits Corp

2. Nexflash            1,070    28,618    17.59   1,070    31,618 16.97%       --        --      --   Cost
     Technologies Inc

3. Dynachip               --        --       --     143     9,708     --       --        --      --   Cost
     Corporation

4. ICSI-Japan            0.2     1,084     100%      --        --     --       --        --      --   Equity

5. ISSI(Warrant)          --     2,842    --         --     2,842     --       --        --      --   Cost
                                ------                   --------                  --------
                                32,544                   $360,597                  $314,089
                                ======                   ========                  ========
</TABLE>

         Please refer to note 6 for assets pledged as collateral.

      (6) Property, Plant and Equipment

         a.  Total interests capitalized amounted to NT$731, NT$30,684 and
             NT$615 for the years ended December 31, 1999 and September 30, 1998
             and the three-month period ended December 31, 1998, respectively.

         b.  The insurance coverage for property, plant and equipment amounted
             to NT$1,833,065, NT$1,921,975 and NT$1,921,975 as of December 31,
             1999 and 1998, and September 30, 1998, respectively.

         c.  Please refer to note 6 for property, plant and equipment pledged as
             collateral.

      (7) Short- Term Debt

<TABLE>
<CAPTION>
                                      1999.12.31          1998.12.31         1998.9.30
                                      ----------          ----------         ---------
        <S>                           <C>                 <C>                <C>
        Working capital loan:
        Due within 180 day with
           variable interest rates      $176,000            $251,172          $395,770
                                        --------            --------          --------
</TABLE>

                                      -9-
<PAGE>   11

         a.  The Company's unused short-term lines of credits amounted to
             NT$501,673, NT$248,718 and NT$174,370 as of December 31, 1999 and
             1998, and September 30, 1998, respectively.

         b.  The interest rates of short-term debt ranged from 5.58% to 7.75%,
             2.25% to 8.75% and 7.5% to 8.58% as of December 31, 1999 and 1998,
             and September 30, 1998, respectively.

         c.  Please refer to note 6 for assets pledged as collateral for short
             term debt.

      (8) Short-Term Notes

<TABLE>
<CAPTION>
                                      1999.12.31          1998.12.31         1998.9.30
                                      ----------          ----------         ---------
        <S>                           <C>                 <C>                <C>
        Commercial paper                $170,000          $290,000             $235,000
        Less: discount                    (3,215)           (3,157)              (2,745)
                                        --------          --------             --------
              Net                       $166,785          $286,843             $232,255
                                        ========          ========             ========
</TABLE>

         a.  The interest rates of short-term notes ranged from 4.62% to 5.1%,
             5% to 7.5% and 6.88% to 7.23% as of December 31, 1999 and 1998, and
             September 30, 1998, respectively.

         b.  The Company's unused short-term lines of credits for short-term
             notes amounted to NT$169,000, NT$0 and NT$5,000 as of December 31,
             1999 and 1998, and September 30, 1998, respectively.

      (9) Long- Term Debt

<TABLE>
<CAPTION>
                                                          Interest Rate                              Balance
                                             -----------------------------------------   ---------------------------------
                                              1999/1/1-      1998/10/1-     1997/10/1-
                                             1999/12/31      1998/12/31     1999/9/30    1999/12/31   1998/12/31   1998/9/30
                                             ----------      ----------     ---------    ----------   ----------   ---------
         <S>                                 <C>             <C>            <C>          <C>          <C>          <C>
         SECURED                               6.64%          6.67%          6.85%        171,252       187,000      69,600
         International
         Commercial Bank of China
            Repayable in 21 quarterly
            installments from April 1999
            to  April 2004 with variable
            interest rates

         China Trust Bank                      7.75%             --             --        300,000            --          --
            Repayable in 21 quarterly
            installments from January
            2000 to November 2004 with
            variable interest rates

         Chao Tung Bank                           --          6.67%          8.82%             --       471,395     463,365
            Fully repaid in 1999                              8.67%          8.82%

         COMMERCIAL PAPER                      4.93%            --              --        100,000            --          --
         China Trust Bank
            Due within 180 days and
            expected to be refinanced
                                                                                           -------      --------    --------
         Total Long-term debt                                                              571,252       658,395     532,965
         Current portion of long-term debt                                                 (96,056)     (137,165)   (115,065)
                                                                                           475,196       521,230     417,900
                                                                                           =======      ========    ========
</TABLE>

         Please refer to Note 6 for assets pledged as collateral.

                                      -10-
<PAGE>   12

      (10) Capital Stock

          As of October 1, 1997, the Company's authorized and issued capital was
          $900,000 divided into 90,000,000 shares, each at par of NT$10.

          On April 29, 1998, the Company's shareholders resolved in the annual
          meeting to declare a 33.33% stock dividend which resulted in the
          issuance of 30,000,000 shares.

          As of December 31, 1999, the Company's authorized and issued common
          shares amounted to NT$1,200,000 divided into 120,000,000 shares each
          at par of NT$10.

      (11) Legal Reserve

          According to the ROC Company Law, 10% of the Company's net income,
          after deducting previous years' losses, if any, is appropriated as
          legal reserve prior to any distribution until such reserve is equal to
          the Company's paid-in capital. When the legal reserve is equal to 50%
          of the paid-in stock, 50% of such reserve may be distributed to the
          Company's shareholders through the issuance of additional common
          share.

      (12) Income Distribution

          The Company's articles of incorporation provide that the net income,
          after deducting the previous years' losses and the appropriation to
          the legal reserve ("Distributable Earnings"), may be appropriated or
          distributed in the following sequence:

          a. Employee bonuses at no less than 8% of the remaining.

          b. The remaining may be appropriated or distributed follow the
             resolution of the Company's shareholders meeting.

      (13) Earnings Per Common Share

          The Company's basic earnings (losses) per share for the years ended
          December 31, 1999 and September 30, 1998 and the 3-month period ended
          December 31, 1998, were NT$2.11, NT$0.04 and NT$(0.25), respectively.
          The basic earnings (losses) per common share were computed by dividing
          the net earnings (losses) of NT$253,601, NT$5,185 and NT$(29,748) for
          the underlying periods, by the weighted average number of common
          shares outstanding of 120,000,000, respectively. The weighted average
          number of common shares outstanding were computed as follows: (in
          shares)

<TABLE>
<CAPTION>
                    Items               1999.1.1-1999.12.31 1998.10.1-1998.12.3 1997.10.1-1998.9.30
                                        ------------------- ------------------- -------------------
        <S>                             <C>                 <C>                 <C>
        Common shares outstanding,
            beginning                      120,000,000         120,000,000           90,000,000
        Stock dividend 33.33%                       -                    -           30,000,000
                                           -----------         -----------           ----------
        Weighted average number of
           shares outstanding              120,000,000         120,000,000         120,000,000
                                           ===========         ===========         ===========
</TABLE>

                                      -11-
<PAGE>   13

    (14) Retirement Plan

<TABLE>
          <S>                                                               <C>
          The actuarial assumptions for 1999 are as follows:
          Discount rate                                                     6.5%
          Expected long-term rate of return on plan assets                  6.5%
          Rate of increase in future compensation levels                    5.0%
</TABLE>

          (1) The status of the defined benefit plans covering employees in ROC
              was as follows:

<TABLE>
<CAPTION>
                                                1999.12.31   1998.12.31    1998.9.30
                                                ----------   ----------    ---------
            <S>                                 <C>          <C>           <C>
            Benefit Obligations
              Vested benefit obligation           $     --     $     --     $     --
              Non-vested benefit obligation        (10,253)      (5,779)      (3,949)
                                                  --------     --------     --------
              Accumulated benefit obligation       (10,253)      (5,779)      (3,949)
              Effect of projected future
                salary increase                    (19,796)     (18,443)     (18,443)
                                                  --------     --------     --------
            Projected benefit obligation           (30,049)     (24,222)     (22,392)
            Fair value of plan assets               18,874       13,123       11,965
                                                  --------     --------     --------
            Pension plan status                    (11,175)     (11,099)     (10,427)
            Unrecognized transition obligation          --           --           --
            Unrecognized prior service cost             --           --           --
            Unrecognized gains and losses            2,327        5,552        5,581
            Under-accrual / over-accrual                30           --          (28)
                                                  --------     --------     --------
            Accrued pension cost                    (8,818)    $ (5,547)    $ (4,874)
                                                  ========     ========     ========
</TABLE>

         (2) Components of net periodic pension cost for 1999

<TABLE>
            <S>                                                        <C>
            Service cost                                               $7,233
            Interest cost                                               1,585
            Expected return on plan assets                               (853)
            Amortization                                                  218
                                                                       ------
            Net periodic pension cost                                  $8,183
                                                                       ======
</TABLE>

                                      -12-
<PAGE>   14

      (15) Income Taxes

          A.  The preferential income tax rate of 20%, instead of 25% applicable
              to other business entities, is applicable to the Company,
              qualified as a Science-Based Industry provided by article 3 of the
              Statute for the Establishment and Administration of a
              Science-Based Industrial Park.

          B.  The Company is entitled to income tax exemption periods of five
              consecutive years starting October 1, 1992; four consecutive years
              starting May 16, 1995; and four consecutive years starting
              December 19, 1995, on income generated from qualifying
              manufacturing high technology activities. Permission was obtained
              from the administrative office of the Hsinchu Science-Based
              Industrial Park.

          C.  Income tax assessments for the years up to 1995 have been
              finalized by the tax authorities.

          D.  As of December 31, 1999 unused tax credits available to reduce
              future income tax amounted to NT$170,132 and expire as follows:

<TABLE>
<CAPTION>
                                                                          NT$
                                                                        ------
                       <S>                                              <C>
                       2000                                             89,788
                       2001                                             43,255
                       2002                                              5,642
                       2003                                             31,477
                                                                       -------
                       Total                                           170,132
                                                                       =======
</TABLE>

          E.  Information related to imputation of shareholders' income tax

<TABLE>
<CAPTION>
                                                                      1999/12/31    1998/12/31
                                                                      ----------    ----------
          <S>                                                         <C>           <C>
          Available shareholders' tax credit                             $61            $61
          Expected rate of shareholders' tax credit                     0.03%          N.A.
</TABLE>

          F.  Information related to undistributed retained earnings

<TABLE>
<CAPTION>
                                                                      1999/12/31    1998/12/31
                                                                      ----------    ----------
          <S>                                                         <C>           <C>
          Prior to 1997                                                $176,114       $176,114
          After 1997 (inclusive)                                        213,125       (35,714)
                                                                       --------       --------
            Total                                                      $389,239       $140,400
                                                                       ========       ========
</TABLE>

          G.  (1) Deferred tax assets and liabilities as of December 31, 1999
              are as follows:

<TABLE>
<CAPTION>

                                                                           NT$
                 <S>                                                     <C>
                 (a) Total deferred tax liabilities                        3,073
                                                                         =======
                 (b) Total deferred tax assets                           190,185
                                                                         =======
                 (c) Valuation allowance for deferred tax assets         117,981
                                                                         =======
</TABLE>

                                      -13-
<PAGE>   15

          (d) Temporary differences that generated deferred tax assets or
              liabilities:

<TABLE>
<CAPTION>
                                                                                  Amount   Tax effect
                                                                                  -------  ----------
                                                                                    NT$        NT$
                     <S>                                                          <C>        <C>
                     Taxable temporary difference
                       Recognition of unrealized foreign exchange gain             30,730     3,073
                                                                                  =======   =======
                     Deductible temporary difference
                       Recognition of unrealized inventory provision              178,000    17,800
                                                                                  =======   =======
                     Deductible temporary difference
                       Recognition of unrealized foreign exchange loss              6,298       630
                                                                                  =======   =======
                     Deductible temporary difference
                       Recognition of unrealized allowance for bad debts            6,533       653
                                                                                  =======   =======
                     Deductible temporary difference
                       Recognition of unrealized loss on long term investments      9,708       970
                                                                                  =======   =======
                     Income tax credit                                                      170,132
                                                                                            =======
</TABLE>

<TABLE>
<CAPTION>
                     <S>                                                                    <C>
                     (2) Deferred tax assets - current                                      108,870

                         Valuation allowance for deferred tax assets - current              (97,609)
                                                                                           --------
                         Net deferred tax assets - current                                   11,261
                         Net deferred tax liabilities - current                              (3,073)
                                                                                           --------
                         Net deferred tax assets and liabilities - current                    8,188
                                                                                           ========
                     (3) Deferred tax assets - noncurrent                                    81,315
                         Valuation allowance for deferred tax assets - noncurrent           (20,372)
                                                                                           --------
                         Net deferred tax assets - noncurrent                                60,943
                                                                                           ========
                     (4) Income tax payable- current                                             --
                         Net deferred income tax effect                                       7,000
                                                                                           --------
                       Income tax expense                                                     7,000
                                                                                           ========
</TABLE>

          H.  (1) Deferred tax assets and liabilities as of

                December 31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                                                             NT$
                                                                                           --------
                    <S>                                                                    <C>
                     (a) Total deferred tax liabilities                                         486
                     (b) Total deferred tax assets                                          248,402
                                                                                            =======
                     (c) Valuation allowance for deferred tax assets                        171,784
                                                                                            =======
                     (d) Temporary differences that generated deferred tax assets or
                         liabilities:

</TABLE>

<TABLE>
<CAPTION>
                                                                              Amount       Tax effect
                                                                              -------      ----------
                                                                                NT$           NT$
                     <S>                                                      <C>          <C>
                     Taxable temporary difference
                       Recognition of unrealized foreign exchange gain          2,432           486
                                                                              =======       =======
                     Deductible temporary difference
                      Recognition of unrealized inventory provision           234,500        46,900
                                                                              =======       =======
                     Deductible temporary difference
                       Recognition of unrealized foreign exchange loss         11,072         2,215
                                                                              =======       =======
                     Deductible temporary difference
                       Recognition of unrealized allowance for bad debt         8,298         1,660
                                                                              =======       =======
                     Deductible temporary difference
                       Recognition of unrealized gross profit                  43,386         8,677
                                                                              =======       =======
                     Income tax credits                                                     188,950
                                                                                            =======
</TABLE>

                                      -14-
<PAGE>   16

<TABLE>
<CAPTION>
                                                                                         NT$
                     <S>                                                             <C>
                     (2) Deferred tax assets - current                                 67,789
                         Valuation allowance for deferred tax assets - current        (58,943)
                                                                                     --------
                         Net deferred tax assets - current                              8,846
                         Net deferred tax liabilities - current                          (486)
                                                                                     --------
                         Net deferred tax assets and liabilities - current              8,360
                                                                                     ========

                     (3) Deferred tax assets - noncurrent                             180,613
                         Valuation allowance for deferred tax assets - noncurrent    (112,841)
                                                                                     --------
                         Net deferred tax assets - noncurrent                          67,772
                                                                                     ========
                     (4) Income tax payable - current                                      --
                         Net deferred income tax effect                                    61
                                                                                     --------
                         Income tax expense                                                61
                                                                                     ========
</TABLE>

          I.  (1) Deferred tax assets and liabilities as of September 30, 1998
              are as follows:

<TABLE>
<CAPTION>
                                                               NT$
          <S>                                                <C>
          (a) Total deferred tax liabilities                     332
                                                             =======
          (b) Total deferred tax assets                      236,053
                                                             =======
          (c) Valuation allowance for deferred tax assets    160,794
                                                             =======
</TABLE>

          (d) Temporary differences that generated deferred tax assets or
              liabilities:

<TABLE>
<CAPTION>
                                                                             Amount    Tax effect
                                                                             -------   ----------
                                                                               NT$        NT$
                      <S>                                                    <C>       <C>
                      Taxable temporary difference
                        Recognition of unrealized foreign exchange gain        1,658         332
                                                                             =======    ========
                        Deductible temporary difference
                         Recognition of unrealized inventory provision       235,000      47,000
                                                                             =======    ========
                        Deductible temporary difference
                          Recognition of unrealized foreign exchange loss     23,055       4,611

                                                                             =======    ========
                      Deductible temporary difference- others                  1,080         216
                                                                             =======    ========
                      Income tax credits                                                 184,226
                                                                                        ========

              (2) Deferred tax assets - current                                           69,693
                  Valuation allowance for deferred tax assets - current                  (60,166)
                                                                                        --------
                  Net deferred tax assets - current                                        9,527
                  Net deferred tax liabilities - current                                    (332)
                                                                                        --------
                  Net deferred tax assets and liabilities - current                        9,195
                                                                                        ========

              (3) Deferred tax assets - noncurrent                                       166,360
                  Valuation allowance for deferred tax assets - noncurrent              (100,628)
                                                                                        --------
                  Net deferred tax assets - noncurrent                                    65,732
                                                                                        ========
              (4) Income tax payable - current                                             1,144
                  Net deferred income tax effect                                          (6,240)
                                                                                        --------
                  Income tax benefit                                                      (5,096)
                                                                                        ========
</TABLE>

                                      -15-
<PAGE>   17

5. RELATED PARTY TRANSACTIONS

     (1) Related Parties and Relationships

<TABLE>
<CAPTION>
        Related parties                                       Relationships
        -------------------------------------------------     -------------------
        <S>                                                   <C>
        Integrated Silicon Solution (USA) Inc. (ISSI-USA)     The Company's major shareholder
        ISSI-USA, Taiwan Branch (ISSI Branch)                 Branch office of ISSI-USA
        Integrated Silicon Solution (H.K.) Inc. (ISSI-HK)     Equity investee of ISSI-USA

        Integrated Circuit Solution (H.K.) Inc. (ICSI-HK)     Same General Manager
        Integrated Circuit Solution (Japan) Inc.(ICSI-Japan)  The Company's equity investee
        Nexflash Technologies Inc. (Nexflash)                 Equity investee of ISSI-USA
</TABLE>

     (2) Major Transactions with Related Parties

        a. Purchase

<TABLE>
<CAPTION>
                             1999 (12 months)         1998 (3 months)          1997 (12 months)
                           -------------------      -------------------      --------------------
                                     % of total               % of total                % of total
                           Amount     purchase      Amount     purchase      Amount      purchase
                           -------    --------      -------    --------      -------     --------
             <S>           <C>        <C>           <C>        <C>           <C>         <C>
             ISSI-USA      $50,262      4.44%       $36,825      16.72%      $63,159       2.11%
                           -------      -----       -------      ------      -------       -----
             Others            514      0.05%             -           -            -           -
                           -------      -----       -------      ------      -------       -----
             Total         $50,776      4.49%       $36,825      16.72%      $63,519       2.11%
                           =======      =====       =======      ======      =======       =====
</TABLE>

         There was no similar transaction for comparison of purchase price from
         ISSI-USA. Payment term to ISSI-USA is similar to those of third-party
         customers.

        b. Sales and services rendered:

<TABLE>
<CAPTION>
                             1999 (12 months)         1998 (3 months)          1997 (12 months)
                           -------------------      -------------------      --------------------
                                     % of total                % of total                % of total
                           Amount     purchase       Amount     purchase       Amount     purchase
                         ----------  ----------     --------   ----------    ----------  ---------
             <S>         <C>         <C>            <C>        <C>           <C>         <C>
             ISSI-USA    $1,221,473     34.57%      $588,979      51.86%     $2,180,428    58.02%
             ISSI-H.K       117,954      3.34%        23,193      2.04%          92,822     2.47%
             ISSI-Branch    180,013      5.09%       205,252      18.07%              -        -
             Nexflash        38,121      1.08%             -          -               -        -
             Others             632      0.02%             -          -               -        -
                         ----------     ------      --------      ------     ----------    ------
                Total    $1,558,193     44.10%      $817,424      71.97%     $2,273,250    60.49%
                         ==========     ======      ========      ======     ==========    ======
</TABLE>

         For 1999, sales price to ISSI-USA is 102% of cost. Price for service
         rendered to ISSI-USA is similar to those of third-party customers. For
         1998 and 1997, sales price is about 90% to 115% of cost, NET 60. In
         1999, sale price to ISSI-USA, Taiwan Branch was 102% of cost.

                                      -16-
<PAGE>   18

        c. Property transactions

        (1) The Company sold equipment to ISSI-USA in 1999 for NT$4,366 with a
            gain of NT$4,035.

        (2) The Company sold equipment to ISSI-HK in 1999 for NT$302 with gain
            of NT$49.

        d. Financing

            Loan from ISSI-USA (None for 1998 and 1999)

<TABLE>
<CAPTION>
                                   Highest      Balance    Interest  Total interest paid
                                   balance     1998/9/30    rate       during the year
                                 ------------ ------------ --------  ---------------------
            <S>                  <C>          <C>          <C>       <C>
            1997 (12 months)       $452,660       $-        5.75%          $18,045
                                 ============ ============ ========  =====================
</TABLE>

        e. The Company entered into a royalty agreement with ISSI-USA for
        obtaining the manufacturing technology of and authorization to sell
        SRAM, EEPROM, FLASH and DRAM products. Royalty expenses for 1999 and
        1997 were NT$7,707 and NT$96,563, respectively. Such expenses were
        included in R&D expenses.

        f. The Company charged ISSI-USA NT$6,466 and NT$6,347 for 1999 and 1998,
        respectively, for wafer processing expenses.

        g. In 1997, the Company sold 25,000,000 shares of stock of UICC to
        ISSI-USA for NT$313,671. Gain from the sale was NT$63,671.

        h. The Company purchased wafer on behalf of ISSI-USA. The amounts were
        NT$814,287 and NT$21,766 for 1999 and 1998, respectively.

        i. In 1999, the Company lent NT$2,607 to ICSI-Japan for start-up
        expenses.

        (3) Receivable and payable resulting from the above transactions as of
            December 31, 1999 and 1998, and September 30, 1998 were as follows.

<TABLE>
<CAPTION>
                                    1999.12.31              1998.12.31                1998.9.30
                                -------------------     -------------------      --------------------
                                             % of                   % of                      % of
                                          total A/R               total A/R                 total A/R
                                 Amount    or A/P        Amount     or A/P        Amount     or A/P
                                --------  ---------     -------   ---------      -------    ---------
            <S>                <C>        <C>           <C>       <C>            <C>        <C>
            Receivables from
            ISSI-USA            $338,280    43.75%     $     --          --     $     --          --
            ISSI-HK               26,359     3.41%       62,744      25.18%       70,361      19.96%
            Nexflash              18,006     2.33%           --          --           --          --
            Others                 4,919     0.64%           --          --           --          --
                                --------    -----      --------      -----      --------      -----
            Total               $387,564    50.13%     $ 62,744      25.18%     $ 70,361      19.96%
                                ========    =====      ========      =====      ========      =====
            Payable to
            ISSI-USA             $25,320     4.89%     $285,186      25.54%     $256,692      16.65%
            Others                   227     0.04%          103           -          322       0.02%
                                --------    -----      --------      -----      --------      -----
            Total                $25,547     4.93%     $285,289      25.54%     $257,014      16.67%
                                ========    =====      ========      =====      ========      =====
</TABLE>

                                      -17-

<PAGE>   19
6. ASSETS PLEDGED AS COLLATERAL

   The Company's assets pledged as collateral as of December 31, 1999 and 1998,
   and September 30, 1998 were as follows:

<TABLE>
<CAPTION>
      Assets pledged             1999.12.31     1998.12.31       1998.9.30      Content
      --------------             ----------     ----------       ---------      -------
<S>                              <C>            <C>              <C>            <C>
Restricted investment            $  31,500       $  11,500       $  11,500      Guarantee
Machinery                          356,054         480,833         410,791      Secured loan
Buildings                          573,696              --              --      Secured loan
Long-term investment                    --         200,000         200,000      Secured loan
Long-term investment                    --          20,000          20,000      Guarantee
                                 ---------       ---------       ---------
          Total                  $ 961,250       $ 712,333       $ 642,291
                                 =========       =========       =========
</TABLE>

7. COMMITMENTS AND CONTINGENCIES

   The Company's commitments and contingencies, not included in the financial
   statements, as of December 31, 1999 were as follows:

   Operating Leases

   The Company has operating leases of land and buildings for its business
   purposes. Payments resulted from lease obligations expected to be paid in the
   future are as follows:

<TABLE>
<CAPTION>
Year                Lease Payable
----                -------------
<S>                 <C>
2000                  $  3,837
2001                  $  3,837
2002                  $  3,847
2003                  $  2,186
2004 through 2016     $ 25,860
</TABLE>

8. SIGNIFICANT SUBSEQUENT EVENTS

   None

9. SEGMENT INFORMATION
(1)

<TABLE>
<CAPTION>
                            1999 (12 months)                       1998 (3 months)                 1997 (12 months)
                      ----------------------------         ----------------------------       -------------------------
                         Amount               %               Amount               %             Amount            %
                      -----------         --------         -----------         --------       -----------      --------
<S>                   <C>                 <C>              <C>                 <C>            <C>              <C>
Domestic              $ 1,531,852            43.35         $   429,817            46.85       $ 1,046,514         27.84
Export                  2,029,621            57.44             722,003            54.57         2,791,012         74.26
Less: return &
allowance                 (28,019)           (0.79)            (16,122)           (1.42)          (79,170)        (2.10)
                      -----------         --------         -----------         --------       -----------      --------
Net sales             $ 3,533,454           100.00         $ 1,135,698           100.00       $ 3,758,356        100.00
                      ===========         ========         ===========         ========       ===========      ========
</TABLE>

                                      -18-
<PAGE>   20

(2) Major customers

<TABLE>
<CAPTION>
                            1999 (12 months)      1998 (3 months)       1997 (12 months)
                          -------------------    -----------------    -------------------
           Customers        Amount         %     Amount         %       Amount        %
           ---------      ----------   ------    --------   ------    ---------    ------
<S>                       <C>          <C>       <C>        <C>       <C>          <C>
               A          $1,221,473   34.57%    $588,979   51.86%    $2,180,428   58.02%
               B                  --      --      205,252   18.07%            --      --
                          ----------   -----     --------   -----     ----------   -----
                          $1,221,473   34.57%    $794,231   69.93%    $2,180,428   58.02%
                          ==========   =====     ========   =====     ==========   =====
</TABLE>

10. DERIVATIVE FINANCIAL INSTRUMENTS

   (1) Contract Amount or Nominal Amount and Credit Risk as of December 31,
      1999:

<TABLE>
<CAPTION>
              Financial instrument               Contract /nominal amount          Credit risk
              --------------------               ------------------------          ----------
<S>                                              <C>
      Forward currency exchange contract              USD $7,000,000                   --
                                                      ==============
      Option contract (Buy)                           USD $3,000,000                   --
                                                      ==============
      Option contract (Sell)                         USD $10,000,000                   --
                                                     ===============
</TABLE>

      Credit risk amount represents forward exchange contracts with positive
      fair value factoring in the offsetting effect of the master netting
      arrangement as of balance sheet date. If the credit risk amount is
      positive and the transaction party breaches the contract, the Company will
      incur a loss. The possibility for incurring a loss is remote since the
      Company's transaction parties are banks with great reputation.

      (2) Market Value Risk

          Market value risk is insignificant due to the fact that the purpose of
          forward exchange contract is hedging and the gain or loss from
          fluctuation of interest or exchange rates will be offset by the gain
          or loss from the forward exchanges hedged.

      (3) Liquidity Risk

          No significant cash flow risks since the exchange rate of forward
          contract is fixed.

      (4) Types of derivative financial instruments, purpose of holding the
          derivative financial instruments and the strategy for achieving the
          hedging purpose: The Company's derivative financial instruments are
          not held for trading purpose. The purpose of holding forward exchange
          contract is to hedge exchange rate fluctuation risk resulting from
          assets, liabilities or commitments denominated in foreign currency.
          The Company's hedging strategy is to avoid majority of market price
          risk. Derivative financial instruments selected for hedging are highly
          anti-co-related with the fluctuation of the fair value of derivatives
          hedged. Derivatives are evaluated periodically.

     (5)  Presentation of derivative financial instruments

        Forward exchange contract receivable and payable are reported under
        current assets or liability on net amount. As of December 31, 1999,
        details were as follows(in NT$):

<TABLE>
<S>                                                        <C>
        Forward contract receivable                           220,628
        Forward contract payable                            (220,220)
        Discount                                                  552
                                                            --------
        Forward contract receivable-net                           960
                                                            =========
</TABLE>

        Foreign exchange loss incurred in the period ended December 31, 1999 was
        reported under other expenses in the income statements.

                                      -19-
<PAGE>   21

     (6)  Fair value of financial instruments

        The carrying amounts and fair values of the Company's financial
        instruments are as follows:

<TABLE>
<CAPTION>
                                             1999.12.31                         1998.12.31
                                   ----------------------------        -----------------------------
                                     Carrying                           Carrying
                                      value          Fair value           value          Fair value
                                   -----------       ----------        ----------        -----------
<S>                                <C>               <C>               <C>               <C>
Non-derivative
  Assets
    Cash & cash equivalents        $  146,517        $  146,517        $  246,860        $  246,860
    Restricted investment              31,500            31,500            11,500            11,500
    Short-term investment                  --                --           166,000           166,189
    Receivable                        787,678           773,268           249,131           259,540
    Long-term investment               32,544                --           360,597                --
  Liabilities
    Short-term debt                   176,000           176,000           251,172           251,172
    Notes payable                     166,785           166,785           286,843           286,843
    Trade payable                     763,607           763,607         1,369,923         1,369,923
    Long-term debt                    571,252           571,252           521,230           521,230
Derivatives
  Assets
    Forward contracts                     960               408            21,769            22,030
</TABLE>

     The methods and assumptions used to estimate the fair value of derivative
     financial instruments are as follows:

     (1)  The fair value of the Company's short-term financial instruments is
          based on the book value of those instruments at reporting date due to
          the short maturity of those instruments. The method applied to cash
          and cash equivalents, restricted investment, receivable, payable and
          short-term debt.

     (2)  The fair value of the Company's marketable securities is based on
          market prices at reporting date if market prices are available. The
          fair value of the Company's marketable securities is based on
          financial or any other information if market prices are not available.

     (3)  The fair value of the Company's long-term borrowings bearing variable
          interests, which includes current portion of long-term debt, is
          estimated using the book value of the debt at reporting date.

     (4)  The fair value of derivative financial instruments, normally includes
          unrealized gain or loss from outstanding forward exchange contracts,
          is assumed to be the predicted amount that the Company is entitled to
          receive or obligated to pay if the Company terminated contracts.

                                      -20-

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