MICROELECTRONICS TECHNOLOGY, INC

Contents

Report To Shareholders 2

MTI Product Overview 4

Financial Review 7

Selected Financial Data 7

Consolidated Results of Operations 8

Consolidated Financial Statements 11

Notes to Consolidated Financial Statements 15

Independent Accountant’s Report 55

Corporate Directory 56

2

Business Report Dear Shareholders, 2004 has been a challenging year for the communications industry. Nevertheless, Microelectronic Technology Inc. was able to experience growth in revenue and profit for the year amid intense competition. It is an indication that our efforts in beefing up the organizational ability and operational strategies have begun to pay off. Below is a recap of our business operations in 2004. We recorded NT$4,430 million of revenue in 2004, representing 24% growth from 2003. Gross profit for the year totaled NT$810 million, and operating profit amounted to NT$220 million, up 7% from the year before. For the group as a whole, the consolidated revenue in 2004 totaled NT$5,340 million, registering substantial growth of 45% as compared to the year before; the consolidated gross profit was NT$1,050 million, representing a gross profit margin of 20%; the consolidated operating profit amounted to NT$315 million, and after-tax income was NT$345 million, translating into per share profit of NT$0.8 and meeting 98% of the forecast. In the development of VSAT technology targeting the broadband satellite market in North America, we have successfully developed the Ka-band transceiver and began mass production in the fourth quarter of 2004. Aside from maintaining our position as a technology leader, we have received orders for the Ka-band transceiver from several major clients, which will continue to boost our share in the broadband satellite market. In the low noise block converter (LNB) market, multi-output LNB is gradually gaining the status of market mainstream. After becoming the high-end LNB supplier for major DTH system providers in North America in 2003, we received certification for the new-generation LNB early 2004 and began mass production in the middle of the year. In the mobile communication base station equipment market, we delivered excellent performance in the sales of PHS, CDMA2000, and WCDMA power amplifiers, and at the same time, successfully developed the TD-CDMA tower top low noise amplifier (TTLNA) and filter. In the aspect of microwave communication products, we have developed together with our strategic partners in North America new-generation broadband microwave transceivers of various bands and begun mass production. We are also working with international companies in the development of European microwave communication market and have attained preliminary success. Overseas Marketing A solid foothold in the Asian market is critical to the efforts of Microelectronic Group to gain world-class status. Microelectronics Technology has set up a plant in Wuxi, China. Besides aggressively deploying sales channels to meet the demands of the China market, we also spend considerable resources on fostering a R&D seed unit. Our China team has so far successfully designed and manufactured power amplifier for PHS base station, LNB converter, and Wi-Fi. As we made headway into the China market in 2004, we began to see profit and the new market provides an apparent and direct boost to our new product R&D, technological level and income. Supply Chain Management The ultimate objective of supply chain management (SCM) is to attain optimal balance of supply and demand. In 2004, we focused our efforts on specific areas of internal supply chain, including low-cost manufacturing and timely delivery to enhance customer satisfaction. Supply chain management has produced impressive material results since its implementation. In the area of cost reduction, our savings in materials in 2004 were significant; on-schedule delivery improved from 60% to 93% in one year; the inventory turnover was shortened from 128 days in the previous year to 85 days. The major targets of SCM this year are on-schedule marketing of newly developed products, shortening production cycle and establishing collaboration relationship with suppliers. Target implementation in the actual execution of tasks will help us stay competitive in the market and provide the momentum for growth. Corporate Governance Microelectronic Technology has been consistently mindful of corporate governance and its social responsibility as a corporate citizen, and endeavors in maintaining high-standard professional ethics and integrity management. Independent directors and supervisors have been elected to the board in our 2004 shareholders’ meeting to reinforce the management and monitoring functions of the board. The new board subsequently set up an audit committee, a compensation committee, and a nomination committee. We believe the operation of a well-functioning board will strengthen our corporate governance practice and boost our risk management ability and competitiveness.

Future Outlook Observing from the trends in the electronic industry, the weight of market growth begins to shift slowly from IT to consumer electronics. New integrated consumer electronic market will be our growth engine in the next few years. On the basis of our success in the RF field, we will continue to develop new clientele and partners in our core business. In addition, drawing on our experiences accumulated in the past many years, we intend to move into some new business arena to diversify our reach in the wireless communications market and tap new revenue sources. We have set higher growth targets for 2005 and believe all of our colleagues will work diligently towards attaining those targets. Here we like to thank again our directors, supervisors, shareholders, customers, suppliers and colleagues for their continued support and contributions. Looking into a new year, we will forge ahead steadily on the course of sustained operation to meet the expectation of our shareholders. Finally, wish you all health and success. Patick H.Y.Wang Chi-Chia Hsieh Andrew Chu Chairman of the Board Vice Chairman of the Board President

MTI Product Overview Terrestrial Digital Microwave Radios

The microwave, Millimeter-wave transceivers and ODUs are used in commercial point-to-point systems and point-to-multipoint systems to enable mobile networks transmission or fixed-access wireless communications. All of these products are tailor-made to fit customers' specifications and incorporate our RF design and integration expertise to ensure high performance. With over 20 years of accumulated design and manufacturing expertise in terms of telecommunication and satellite RF modules and sub-systems, MTI can adapt to different types of manufacturing ("High Mix / High Volume /

Production") with multi-technology, multi-level manufacturing expertise. For Point-to-Point (PTP) microwave radio, MTI has full range of product line featuring microwave transceivers and outdoor units (ODUs) that range in frequency from 6GHz to 40GHz. Through a close partnership with the leading fixed wireless equipment providers in the industry, MTI engineers high-performance, point-to-point integrated access solutions transporting voice, data and Internet traffic for network operators and end-users throughout the world.

Microwave radio offers several advantages over leased lines or other cable-based transmission alternatives for mid- and short- distance link such as between telecommunications networks, among commercial buildings or in rural and urban areas. MTI has also been manufacturing Point-to-Multipoint (PMP) Radio RF units for some of the leading global PMP system providers. The company's mass production experience is in the 10/26/28/39 GHz frequency bands.

Direct Broadcast Satellite (DBS) Receiving Equipment

In general, most of the household uses small size dish antenna (18inch-3foot) to receive the TV program directly from the satellite broadcast. The transmission of audio and video signals via satellite is direct to the end user.

Early Satellite systems used what was called a LNA or Low Noise Amplifier and no conversion was done in the LNA. LNB stands for Low Noise Block down converter and is located at the focal point (in the nose cone) of the satellite dish antenna and amplifies the very weak received satellite signal approximately 1000 times, then converts the received microwave satellite signal to a lower frequency so that not as much signal will be lost in the coaxial cable between the dish and the receiver. There are two main types of LNB's, one is LNB and the other is LNBF. The LNBF combines the LNB and feed-horn into a single unit and the polarity is switched when the receiver changes the voltage

(either 13 or 18 volts) going to the LNBF at the dish. Depending on what voltage is sent to the LNBF by the receiver, either the horizontal or vertical antenna probe inside the throat of the LNBF will be selected.

5

MTI, the world’s leading LNB manufacturer, produces complete LNB products to meet various requirements of different countries. As of today, MTI’s LNB products serve more than 78 countries in the world. MTI's high quality products are not only widely accepted by end users but also qualified by worldwide Pay TV operators in 2003. By working closely with its satellite systems customers, MTI becomes fully aware of their needs for enhancing the functions and performance of LNB systems. To further and continuously improve its competitiveness, MTI has expanded its LNB manufacturing site from Taiwan to Wuxi, China in the middle of 2001 to realize cost advantages and capture, in the long run, the emerging China opportunities.

Mobile Base Station Transceivers and Modules

Mobile base stations are an integral element of a mobile telephone network linking mobile telephone users with the public telephone network. A base station must operate at the lowest possible power to avoid interfering with other base stations and mobile telephone users in the network. The transceiver is one of the key components in the mobile base station, which determines to a large extent the performance and reliability of the mobile base station and require high degree of high power RF design know-how and manufacturing experience.

Equipped with advanced wireless communications technology for 2G/2.5G/3G mobile base station subsystems, MTI offers customers highly-integrated RF design and manufacturing solutions. MTI’s products in this area include the Rx Front-End Unit, Transceiver, Tower Mounted Amplifier, and Power Amplifier. Mobile communication is becoming the primary mode of communication in both developed and developing countries. Typically based on 2.5G technologies (enhanced second-generation mobile technologies), most of these countries now have data services available that will lead to significant changes in the way people exchange information for business and personal use. Driven by the increasing number of worldwide mobile subscribers and higher demands for data capacity, the mobile communication industry is expected to continue its growing needs for more mobile stations.

With intensive knowledge in the RF technology, MTI not only has a variety of related product lines covering various standards on the 800MHz, 900MHz, and 1800MHz bands, but develops base station related components, including power amplifier, low noise amplifier, and tower-mounted integrated receivers.

Very Small Aperture Terminal (VSAT)

VSAT is a satellite – based private communications network that can perform services such as electronic banking, instant credit checks and reservation booking. For banks, hotels, mega chain stores, or other large organizations, often with thousand of dispersed branch sites, routine management operations can be a tremendous burden. VSAT systems are an ideal management tool for simplifying corporate tasks through more streamlined inter-company communications. VSAT is also a popular "Leap-frog" method for rapidly expanding the communications infrastructure in developing countries. And, for countries of islands, laying ground lines is prohibitively expensive. VSAT systems provide cost-effective solutions for bringing basic communications to remote locations.

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MTI specializes in designing and manufacturing VSAT satellite RF transceivers. We offer a complete satellite transceiver product line covering almost the entire C-, Ku- and Ka-Band spectrum in use by commercial and consumer satellites nowadays. Take C-Band and Ku-Band for instances, the compact ODU and single IFL cable connection make installation easier and allow flexible system design while user friendly operation eliminates the need for extensive training.

In addition to working with the leading VSAT network system providers to expand significant global market share, MTI has also built up the strategic partnership with leading microwave MMIC key supplier and transceiver design house to further enhance the leadership in satellite communications market.

Wireless LAN

MTI has unique ability to serve this market and bring a new line of business. Utilize over 20 years of RF design, software & hardware engineering, and cost effective manufacturing experience within MTI Group, the customers will enjoy carrier-grade reliability, and costly product. Established in Q3 2002, the carrier-grade WLAN products named as Extender AP5822 and BR5811b, that positioned for outdoor WLAN application in reliable, fully weatherproof design – resistant to water (compliant with IP68), lightning, other ravages of the climate, and long-range coverage for Access Point as well as LAN-to-LAN bridging applications.

The Extender AP5822 & BR5811b create a new benchmark of wireless access point and bridge by providing a high-performance and feature-rich solution for connecting multiple networks. Building a wireless infrastructure with the Extender AP5822 & BR5811b provide easy installation, flexible deployment architecture, and easy to use solution, that meets the security requirements of wide area networking professionals. BR5811b supports 802.11a compliant standards to provide point-to-point and point-to-multipoint bridge application. And AP5822 supports 802.11a+b/g compliant standards to provide all BR5811b application, plus access point application. The Extender AP5822 & BR5811b comply with Wi-Fi advanced specification, such as 802.1x standard for wireless user authentication and WPA (Wi-Fi protected Access) which dynamically encrypts data as it’s being sent via software download to upgrade in near future.

The EXTENDER series developed by MTI based on the telcom-grade manufacturing design standards for the telecom industry and have passed rigorous environmental tests, functioning within the temperature range of -33°C to +55°C. The built-in lightning protector not only protects the outdoor unit itself, but also prevents the electrical surge currents scurrying from damaging any other equipment linked to the unit. AP5822 possesses access point and bridge functionalities at the same time, servicing users within the radius up to 500-meter and communicating with a host bridge up to 28 kilometers away.

Financial Review

The following sections review the consolidated financial results of Microelectronic Technology, Inc. and its subsidiary for the year 2004 and 2003.

Selected Financial Data (consolidated)

2004 2003

(Expressed in thousands of New Taiwan dollars, except per share data)

Income Statement Data:

Net operating revenue 5,340,264 3,677,368

Operating cost (4,292,150) (2,904,274)

Gross profit 1,048,114 773,094

Operating expenses (732,631) (701,322)

Operating income (loss) 315,483 71,772

Non-operating income (expenses) 29,071 (66,626)

Consolidated income (loss) before tax 344,554 5,146

Income Tax benefits (expenses) - 2,3844

Net income (loss) 344,591 46,110

Earnings Per Share Data:

Net earnings per share (NT$) (1) 0.80 0.11

Balance Sheet Data

Total assets 8,347,122 8,303,066

Current liabilities 3,164,805 2,023,165

Long-term liabilities 239,476 1,592,919

Other liabilities 247,847 277,707

Stockholders' equity 4,694,994 4,409,275

Other data:

Capital expenditure 304,677 119,979

Cash flows provided by operating activities (156,999) 300,524

(1) Based on the outstanding number of common shares at the end of each year after retroactively adjusting for

share dividends issued.

CONSOLIDATED RESULTS OF OPERATIONS

8

The following discussion should be read in conjunction with the Company's consolidated financial statements, together with the notes thereto, included elsewhere in this report.

NET OPERATING REVENUE MTI's consolidated net revenue for the year was NT$5,340 million, an increase of 45 percent over 2003. Our satellite communications and telecommunications businesses contributed 38 percent and 62 percent of total sales, respectively. MTI has dedicated to develop new products and explore new markets to boost our sales volumes and market share. For instance, PHS power amplifier, Wireless LAN and 3G power amplifier were new products for Telecommunication sector. As for Satellite communication sector, new markets and clients have been explored in Europe, such as BSkyB, Thomson, and E-tronix, in the U.S., such as ViaSat, US Monolithics Inc. and Echostar Communications, and in Asia, such as Shin Satellite.

MTI exported the majority of outputs overseas. North America, Europe and Mainland China represented 62, 15 and 9 percent of 2004 consolidated revenue, respectively.

GROSS PROFIT The consolidated gross profit in 2004 was NT$1,048 million and represented 20% of the total consolidated operating revenue. Compared to 2003, the consolidated gross profit had grown 35.6 percent. The growth of consolidated gross profit was not only caused by MTI’s new product development and new market exploration but also by MTI’s fruitful supply chain management (“SCM”) and disciplined cost control.

OPERATING EXPENSES AND INCOME

62%

Sales by Sector

Telecommunications

Satellite Communications

38%

651

773

1,048

0

200

400

600

800

1000

1200

2002 2003 2004

Gross Profit

9

Consolidated operating expense as a percentage of consolidated revenue decreased 5 percent points from 2003 to 2004. This is a reflection of our continued work on lowering our cost restructure. In dollar terms, consolidated operating expenses have slightly increased NT$32 million from 2003 to 2004. This increase was in large part due to our R&D expense and marketing endeavor.

Consolidated income from operations in 2004 was NT$315 million, an increase of NT$243 million. The increase was due to an increase of NT$1,663 million in consolidated revenue, as well as the benefit of our cost restructuring plans. As we increased our revenues, we continued to monitor expenses under tight control allowing this revenue increase to fully contribute to our profit increase.

NON-OPERATING INCOME AND LOSS With regard to consolidated non-operating income, there was an up-ramping improvement from loss of NT$ 67 million in 2003 to gain of NT$29 million in 2004. We recognized NT$21 million net loss in long term investment. In addition, our provision for obsolescent inventory decreased from NT$39 million in 2003 to NT$29 million in 2004.

TAXATION

There was no income tax expense in 2004 compared to NT$24 million income tax benefit in 2003. Besides, MTI carried a net deferred tax asset of NT$76 million as of December 31, 2004. In accordance with article 22 of the R.O.C. Financial Accounting Standards Board regulation (FASB), no actual cash payment for income tax would be expected due to the deferred tax benefit resulting from funds used in equipment purchase, R&D, and professional personnel training.

NET INCOME AFTER TAX

With our soaring revenue, well-managed operation and investments, MTI’s consolidated net income before tax

670

733

701

18% 19%

14%

630640650660670680690700710720730740

2002 2003 2004

Mill

ion

in N

TD

0%2%4%6%8%10%12%14%16%18%20%

Operating expenseas a % of net sales

(728)

(67)

29

(800)(700)(600)(500)(400)(300)(200)(100)

0100

2002 2003 2004

Non-Operating Income (Loss)

10

rose six times more to NT$345 million from NT$46 million in 2003.

LIQUIDITY AND CAPITAL RESOURCES As of December 31 2004, our total assets were NT$8,347 million and total liabilities were NT$3,652 million. Compared to December 31 2003, debt to total assets has decreased from 47 percent to 44 percent. Our cash, cash equivalents and short term investments totaled NT$2,948 million which is sufficient to support working capital demands and the redemption of MTI’s convertible bonds. MTI’s current ratio and acid ratio were 186% and 148%, respectively. The decreasing current ratio is primarily due to the first redemption of convertible bonds in July 2005. Shareholders’ equity to total assets slightly increased to 56 percent from 53 percent in 2003. These financial ratios and our adequate cash flow position account for MTI’s solid debt-servicing capability and sound capital structure. In addition, we have successfully improved our inventory turnover days from 117 to 85, decreased our cash conversion cycle, and increased our liquidity.

Aggregate cash used for investing activities showed an inflow of NT$1,071 million, mainly due to disposal of bond fund and long term investments throughout 2004.

43%43%44%44%45%45%46%46%47%47%48%

2002 2003 20040%

50%

100%

150%

200%

250%

300%

350%

Debt to Asset Ratio

Current Ratio

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MICROELECTRONICS TECHNOLOGY, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

2004 2003 2004 2003 ASSETS (Restatement) LIABILITIES AND SHAREHOLDERS' EQUITY (Restatement) Current Assets Current Liabilities Cash and cash equivalents (Note 4(1)) $ 1,908,444 $ 1,288,124 Short-term loans (Notes 4(7) and 6) $ 1,029,293 $ 799,323 Short-term investments (Note 4(2)) 1,039,567 1,806,468 Short-term notes and bills payable 5,000 10,944 Notes and accounts receivable - net Accounts payable (Notes 4(8) and 5) 713,834 608,595 (Notes 4(3) and 5) 1,346,490 881,757 Accrued expenses (Note 5) 284,750 273,888 Other receivables (Notes 4(15) and 5) 154,941 111,903 Other payable 24,479 40,986 Other financial assets-current (Note 6) 119,142 5,429 Current portion of long-term liabilities (Notes 4(9), and 6) 1,045,972 221,403 Inventories - net (Note 4(4)) 1,149,113 848,150 Provision for product warranty 54,320 40,165

Prepaid expenses and prepayments (Note 5) 70,607 64,770 Other current liabilities 7,157 27,861 Deferred income tax assets (Note 4(15)) 100,762 163,507 3,164,805 2,023,165

5,889,066 5,170,108 Long-term Liabilities (Notes 4 (9), and 6) Long-term Investments (Note 4(5)) Bonds payable - 1,249,106

Long-term investment accounted Long-term loans 239,476 343,813 for under the equity method 155,757 168,205 239,476 1,592,919

Long-term investment accounted Other Liabilities for under the cost method 641,456 1,173,430 Accrued pension expense (Note 4(14)) 195,721 160,758

797,213 1,341,635 Deferred income tax liabilities (Note 4(15)) 24,532 87,277 Other financial assets – non-current (Note 5) 162,777 363,905 Fixed Assets - Net (Notes 4(6), 5 and 6) Other liabilities – Other (Note 4 (5)) 27,594 29,672

Buildings 849,966 852,120 247,847 277,707 Machinery 1,774,311 1,563,903 Total liabilities 3,652,128 3,893,791 Transportation equipment 1,559 1,292 Shareholders' Equity Furniture and fixtures 50,192 46,908 Common stock (Note 4(10)) 4,291,480 4,261,626 Leasehold improvements 61,882 12,667 Capital reserve (Note 4(12)) Less: Accumulated depreciation ( 1,280,340 ) ( 1,104,300 ) Additional paid-in capital –bond conversion 34,207 - Prepayment for equipment 585 1,570 Long-term investment 10,664 10,664

1,458,155 1,374,160 Retained earnings (Note 4(13)) Intangible Assets Undistributed earnings / (deficit) 283,743 ( 60,848 )

Deferred pension cost 10,665 - Cumulative translation adjustments 76,105 199,001 Other intangible assets 6,837 6,274 Minority interest ( 1,205 ) ( 1,168 )

17,502 6,274 Total shareholders' equity 4,694,994 4,409,275 Other Assets Commitments and Contingent Liabilities (Notes 5 and 7)

Refundable deposits 2,972 2,151 Deferred charges 19,437 44,833

22,409 46,984 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,347,122 $ 8,303,066 TOTAL ASSETS $ 8,347,122 $ 8,303,066

The accompanying notes are an integral part of these financial statements. See report of independent accountants dated February 15, 2005.

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MICROELECTRONICS TECHNOLOGY, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE

WHICH IS EXPRESSED IN NEW TAIWAN DOLLARS)

2004 2003 (Restatement) Operating revenue (Notes 5 and 12) $ 5,422,002 $ 3,719,483 Sales returns and allowances ( 81,738 ) ( 42,115 )Net operating revenue 5,340,264 3,677,368 Operating costs (Notes 4(17) and 5) ( 4,292,150 ) ( 2,904,274 )Gross profit 1,048,114 773,094 Operating expenses (Notes 4(17) and 5) Marketing expenses ( 240,169 ) ( 231,657 ) Administrative expenses ( 166,970 ) ( 158,437 ) Research and development expenses ( 325,492 ) ( 311,228 ) ( 732,631 ) ( 701,332 )Operating income 315,483 71,772 Non-operating revenues and income Interest income 20,011 31,805 Gains on disposal of investments, net (Note 4(5)) 227,390 - Gains on foreign exchange, net 3,121 8,785 Other income (Note 5) 139,332 223,991 389,854 264,581 Non-operating expenses and loss Interest expense ( 75,644 ) ( 74,400 ) Investment loss accounted under equity-method (Note 4(5)) ( 12,356 ) ( 15,530 ) Other investment loss (Note 4(5)) ( 236,048 ) ( 127,186 ) Loss on disposal of property and equipment ( 10 ) ( 184 ) Loss on disposal of investment, net (Note 4(5)) - ( 49,368 ) Loss on market value decline and obsolescence of inventories ( 29,129 ) ( 38,761 ) Other expenses (Note 5) ( 7,596 ) ( 25,778 ) ( 360,783 ) ( 331,207 )Income before income tax 344,554 5,146 Income tax benefit (Note 4 (15)) - 23,844 Income from continuing operations 344,554 28,990 Loss for minority interest 37 17,120 Net income $ 344,591 $ 46,110 Basis earnings per common share (Note 4 (16)) Income from continuing operations $ 0.80 $ 0.01 Minority interest - 0.04 Income before income tax $ 0.80 $ 0.05 Income from continuing operations $ 0.80 $ 0.07 Minority interest - 0.04 Net income $ 0.80 $ 0.11 Fully diluted earnings per common share (Note 4 (16)) Income from continuing operation $ 0.79 $ 0.01 Minority interest - 0.04 Income before income tax $ 0.79 $ 0.05 Income from continuing operations $ 0.79 $ 0.07 Minority interest - 0.04 Net income $ 0.79 $ 0.11


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MICROELECTRONICS TECHNOLOGY, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT NUMBER OF COMMON SHARES WHICH IS EXPRESSED IN THOUSANDS OF SHARES)

Common Shares Capital Reserve Retained Earnings

Number Amount

Donated assets

Long-term investment

Convertible Bonds

Legal reserve

Special reserve

Undistributed earnings / (Deficit)

Unrealized loss on long-term investments

Cumulative translation adjustments

Minority Interest Total

2003 (Restatement)

Balance at January 1, 2003 $ 426,163 $4,261,626 $ 1,360 $ 10,664 $ - $ 222,876 $ 129,988 ( $ 461,182 ) ( $ 172,955 ) $ 247,948 $ 15,952 $ 4,256,277

Capital reserve used to offset deficit - - ( 1,360 ) - - - - 1,360 - - - -

Legal reserve used to offset deficit - - - - - ( 222,876 ) - 222,876 - - - -

Special reserve transferred to undistributed earnings - - - - - - ( 129,988 ) 129,988 - - - -

Net income for 2003 - - - - - - - 46,110 - - - 46,110

Unrealized loss on long-term investments of investee companies - -

- - - - - - 172,955 - - 172,955

Translation adjustments - - - - - - - - - ( 48,947 ) - ( 48,947 )

Loss for minority interest - - - - - - - - - - ( 17,120 ) ( 17,120 )

Balance at December 31, 2003 426,163 4,261,626 - 10,664 - - - ( 60,848 ) - 199,001 ( 1,168 ) 4,409,275

2004

Convertible bonds converted to common stocks 2,985 29,854 - - 34,207 - - - - - - 64,061

Net income for 2004 - - - - - - - 344,591 - - - 344,591

Translation adjustments - - - - - - - - - ( 122,896 ) - ( 122,896 )

Loss for minority interest - - - - - - - - - - ( 37 ) ( 37 )

Balance at December 31, 2004 429,148 $ 4,291,480 $ - $ 10,664 $ 34,207 $ - $ - $ 283,743 $ - $ 76,105 ( $ 1,205 ) $ 4,694,994


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MICROELECTRONICS TECHNOLOGY, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

2004 2003

Cash flows from operating activities: (Restatement)

Net income $ 344,591 $ 46,110

Adjustments to reconcile net income to net cash provided

by / (used in) operating activities:

Bad debts transferred to other income - ( 1,858 )

Depreciation, Amortization and other expense 244,903 231,311

(Gain) / Loss on disposal of investments, net ( 227,390 ) 49,368

Gain on redemption of convertible bonds ( 9,920 ) -

Compensation interest payable 31,077 33,431

Investment loss accounted under equity-method 12,356 15,530

Loss on impairment of long-term investments 236,048 127,186

Loss on disposal of fixed assets 10 184

Provision for inventory loss 29,129 38,761

Loss for minority interest ( 37 ) ( 17,120 )

Changes in assets and liabilities:

(Increase) / decrease in:

Notes and accounts receivable ( 591,031 ) ( 134,892 )

Other receivables ( 48,462 ) ( 42,813 )

Inventories ( 342,015 ) 157,895

Prepaid expenses and prepayments ( 21,800 ) ( 27,170 )

Deferred income tax - ( 23,844 )

Increase / (decrease) in:

Accounts payable 126,292 ( 89,828 )

Accrued expenses 12,003 26,485

Other payables, advance receipts and other current liabilities 8,196 ( 18,409 )

Accrued pension expense 24,298 ( 46,755 )

Provision for product warranty 15,219 ( 12,105 )

Other liabilities ( 466 ) ( 10,943 )

Net cash (used in ) / provided by operating activities ( 156,999 ) 300,524

Cash flows from investing activities:

Decrease / (Increase) in short-term investments, net 782,139 ( 932,442 )

Decrease in time deposits pledged as collateral 1,401 2,606

Decrease / (Increase) in accounts receivable for loans to subsidiary 188,159 ( 192,984 )

Increase in long-term investments ( 20,067 ) ( 666 )

Proceeds on disposal long-term investments 480,164 23,759

Acquisition of fixed assets ( 349,165 ) ( 155,696 )

Proceeds on disposal of fixed assets 48 611

(Increase) / Decrease in refundable deposits ( 857 ) 1,461

Increase in deferred changes ( 11,148 ) ( 21,914 )

Net cash provided by / (used in) investing activities 1,070,674 ( 1,275,265 )

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MICROELECTRONICS TECHNOLOGY, INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

2004 2003

Cash flows from financing activities: (Restatement)

Increase in short-term loans, net $ 241,652 $ 498,000

Decrease in short-term notes and bills payable ( 5,944 ) ( 56 )

Increase in long-term loans 200,000 19,680

Repayment of long-term loans ( 446,020 ) ( 233,012 )

Redemption of convertible bonds ( 239,950 ) -

Net cash (used in) / provided by financing activities ( 250,262 ) 284,612

Effect of change in exchange rates ( 43,093 ) ( 6,992 )

Net increase / (decrease) in cash and cash equivalents 620,320 ( 697,121 )

Cash and cash equivalents:

At the beginning of year 1,288,124 1,985,245

At the end of year $ 1,908,444 $ 1,288,124

Supplemental disclosures of cash flow information:

Cash paid for interest $ 41,545 $ 44,236

Investing activities partially paid by cash:

Increase in property and equipment $ 304,677 $ 119,979

Add: property and equipment payable at the beginning of the year ( 14,030 ) ( 58,518 )

Decrease: property and equipment payable at the end of the year 58,518 94,235

Cash paid $ 349,165 $ 155,696

Non-cash flows from financing activities

Convertible bonds converted to common stocks $ 64,061 $ -

The accompanying notes are an integral part of these financial statements.

See report of independent accountants dated February 15, 2005.

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MICROELECTRONICS TECHNOLOGY, INC. AND CONSOLIDATED SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2004 AND 2003 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,

EXCEPT AS OTHERWISE INDICATED AND 2003 WAS RESTATED)

1. HISTORY AND ORGANIZATION

(1) The Company was approved under the "Statute for the Establishment and Administration of Science-Based Industrial Park" in September 1982 and was incorporated on March 31, 1983 under the Company Law of the Republic of China (R.O.C.). The Company commenced its operations on April 29, 1983.

The main activities of the Company are the design and manufacture of wireless communication products and standard products, including microwave products, digital microwave radio transceivers and systems, VSAT, TVRO/DBS products and microwave components. The Company also manufactures customer designed products suited to the specific requirements of its customers' various microwave systems.

The principal foreign shareholder of the Company is Agilent Technologies Inc., which was incorporated in the U.S.A.

As of December 31, 2004, the Company and its subsidiaries had 1,666 employees.

(2) Consolidated subsidiaries

Relationship with Percentage of direct and

Company name the Company Main operating items indirect holding interest

Sasson International Holding Inc.

A directly held wholly owned subsidiary

Investment planning and consulting

100%

Global PCS Inc. A directly held majority owned subsidiary

Satellite communication and microwave communication and consulting service.

80.19%

Jupiter Network Crop. An indirectly held wholly owned subsidiary


100%

Zeus Communications, Inc.

An indirectly held wholly owned subsidiary


100%

Jupiter Technology (Wuxi) Inc.



100%

Wuxi Zeus Technology Inc.



100%

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(3) Millennium Telecom Inc., AsiaCast Network Systems, Inc., Welltop Technology Co., Ltd., EURO-MTI S.A.R.L. and Optical Microwave Network Inc. are the subsidiaries with total assets and operating revenue of less than 10 percent of the Company’s non-consolidated total assets and operating revenue, respectively, and, therefore, did not meet the criteria for consolidation.

(4) Adjustment for the effect of different accounting period adopted by the consolidation subsidiaries and that of the Company：None.

(5) Exceptional risks of foreign subordinate companies: None.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements are prepared in accordance with the “Rules Governing the Preparation of Financial Statements of Securities Issuers” and generally accepted accounting principles in the Republic of China. The Company significant accounting policies are summarized as follows.

1) Principles of consolidation

In accordance with the R.O.C. generally accepted accounting principles and R.O.C. Securities and Exchange Commission’s regulations, the Company prepares annual financial statements on a non-consolidated and consolidated basis. All transactions among the Company and the consolidated subsidiary are eliminated in the consolidated financial statements. The consolidated financial statements include all majority owned subsidiaries, except for subsidiaries with total assets and operating revenue of less than 10 percent of the Company’s non-consolidated total assets and operating revenues. Irrespective of the above test, if the combined total assets or operating revenues of all such non-consolidated subsidiaries exceed 30 percent of the Company’s non-consolidated total assets or operating revenue, then each individual subsidiary with total assets or operating revenues greater than 3 percent of the Company’s respective non-consolidated total assets or operating revenue shall be consolidated.

2) Translation of financial statements of foreign subsidiaries into New Taiwan dollars

Assets and liabilities of foreign subsidiaries are translated into New Taiwan dollars at the exchange rates prevailing at the balance sheet date; equity accounts are translated at historical rates, except for beginning retained earnings which are transferred from prior year's ending retained earnings, and income and expense accounts are translated into New Taiwan dollars at the average rates of exchange prevailing during the period. Translation adjustments are taken directly to a separate component of shareholders' equity, “cumulative translation adjustment.”

3) Translation of foreign currency transactions

The accounts of the Company are maintained in New Taiwan dollars. Transactions arising in foreign currencies are translated into New Taiwan dollars at the exchange rates prevailing at the dates of the transactions. Receivables and other monetary assets and liabilities denominated in foreign currencies are translated into New Taiwan dollars at the exchange rate prevailing at the balance sheet date. Gains or losses from foreign currency translations are included in the current year's net income.

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4) Forward contracts and options

Foreign currency forward contracts used for hedging purposes are translated into New Taiwan dollars using the spot rate at the inception of the contract. The difference between the forward rate and the spot rate is amortized over the life of the contract. The foreign currency amounts of outstanding contracts are also translated into functional currencies at the rate of exchange prevailing at the balance sheet date. Exchange gains or losses are included in current net income. Gains and losses on forward contracts used to hedge foreign currency commitments are deferred until the underlying transaction is recorded, unless deferral would result in recognizing a loss in a later period. Foreign currency forward contracts not for hedging purposes are translated into New Taiwan dollars using the forward rate at the inception of the contract. At the balance sheet date, adjustment is made by using the forward rate of the outstanding contract with exchange gains or losses recognized in current period.

5) Options

Premiums and discounts on option contracts are recorded at cost. Premiums and discounts on option contracts entered into for hedging purposes are recorded as assets or liabilities and amortized over the contract period on a straight-line basis and valued at market value at the balance sheet date. Unrealized gains and losses from option contracts entered into for hedging the risk of foreign currency denominated assets or liabilities are recorded in current net income. Unrealized gains and losses from option contracts entered into for hedging the risk of anticipated transactions are deferred until the transactions have settled and are recorded as adjustments to the purchase price.

6) Income tax

a. Income tax expense is provided based on accounting income after adjusting for permanent differences. The provision for income tax includes deferred income tax resulting from items reported in different periods for tax and financial reporting purposes. Deferred tax consequences of loss carry forwards and investment tax credits are recorded as deferred tax assets. A valuation allowance is provided on deferred income tax assets to the extent that it is more likely than not that the tax benefits will not be realized. Over or under provision of prior years’ income tax liabilities is included in current year’s income tax expense.

b. According to R.O.C. FAS NO.12, “Accounting for income tax credits”, the Company’s income tax credits generated from the acquisition of automation equipment or technology, expenses for research and development and loss carry forwards are recognized in the period when the tax credits arise.

c. An additional 10% corporate income tax on earnings derived on or after January 1, 1998, which are not distributed in the following year, is included as income tax expense in the year when the stockholders approved the resolution to retain the earnings.

7) Cash equivalents

Cash equivalents are highly liquid and short-term investments that are readily convertible to known amounts of cash and with a maturity of three months or less at the time of purchase.

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8) Marketable securities

Marketable securities are recorded at cost when acquired. The carrying amount of the marketable securities portfolio is stated at the lower of its aggregate cost or market value at the balance sheet date.

9) Allowance for bad debts

Allowance for bad debts is provided according to the evaluation of the collectibility of ending balances of notes receivable, accounts receivable and other receivables.

10) Inventories

Inventories are stated at cost less provision for obsolete and slow-moving items. Cost is calculated using the weighted-average method. At the balance sheet date, inventories are valued at the lower of cost or market value. Market value is determined based on the current replacement cost for raw materials and supplies, and the net realizable value is used for work in process and finished goods.

11) Long-term investments

Long-term investments in which the Company owns less than 20% of the investee company's voting rights and has no significant influence on the investee company's operational decisions are accounted for at cost, unless the investee company is a public listed company in which case the lower of market value or cost method is adopted. Under the lower of cost or market value method, the allowance for unrealized loss is shown under the shareholders' equity. When it becomes evidently clear that there has been a permanent impairment in value, and the chance of recovery is minimal, loss is recognized in the current year's net income.

Long-term investments in which the Company owns at least 20% of the investee company's shares are accounted for under the equity method, unless the Company cannot exercise significant influence over the investee company, in which case, the investment is accounted for at cost. The excess of acquisition cost over the investee company's net asset value is capitalized and amortized over five to ten years using the straight-line method. The capital reserve and long-term investment amounts are adjusted by the variance between the investment cost and net assets of the investee companies due to the disproportionate acquisition of shares in connection with the capital increase by the investee company.

12) Fixed assets

Fixed assets are stated at cost. Depreciation is provided on a straight-line method using the estimated useful lives of the assets. The Company’s subsidiaries, Jupiter Technology (Wuxi) Inc. and Wuxi Zeus Technology Inc. are using 10% of the fixed assets’ cost to estimate the salvage values. Residual values of fixed assets still in use at the end of the original service lives are depreciated based on the new estimated remaining service lives of the assets.

The estimated useful lives are 5 to 40 years for buildings and improvements and 3 to 10 years for the other fixed assets.

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Renewals and improvements are treated as capital expenditure and depreciated accordingly. Maintenance and repairs are charged to expense as incurred.

13) Deferred charges

Deferred charges, consisting of costs of electrical installation and acquisition of software, are amortized on a straight-line method.

14) Convertible Bonds

When bonds are redeemed before maturity, the excess of the stated redemption price over the par value is recognized as interest expense and compensation interest payable using the effective interest method during the period from the issue date to the last day of redemption period.

The cost method is adopted when bondholders exercise their conversion rights, the book value of bonds is credited to common stock at an amount equal to the par value of the common stock and the excess is credited to capital reserve; no gain or loss is recognized on bond conversion.

For convertible bonds with redemption options, the right of redemption becomes invalid if the bondholders fail to exercise their redemption right during the redemption period. The balance of compensation interest payable is amortized over the period from the date following the redemption period to the maturity date using the effective interest method. If the variance between the price paid and book value of the bond before its maturity is significant, the difference is recognized as extraordinary gain or loss.

15) Reserve for product warranty

Under the warranty provisions of its sale contracts, the Company is obligated to correct any deficiencies in its products that occur under normal operation within a certain period after the date of sale. The Company provides a reserve for product warranty based on a certain percentage of the sales value of each product line, using historical experience.

16) Retirement plan

The Company and its subsidiary, Global PCS Inc. have a defined benefit retirement plan covering all their regular employees. This plan is separately funded. Net periodic pension cost which includes components such as service cost, interest cost, expected return on plan assets and amortization of net obligation at transition, is computed based on an actuarial valuation.

The Company’s subsidiaries, Jupiter Technology (Wuxi) Inc. and Wuxi Zeus Technology Inc. are required to participate in a government pension scheme where by it shall pay monthly retirement contributions to a government-managed fund. Under the scheme, retirement benefits of existing and retired employees are to be provided by the government-managed fund and the Company has no further obligations beyond the monthly contributions.

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17) Revenue and expenses

Revenue is recognized when goods are shipped or installed. The related costs and expenses are recognized as incurred.

18) Capital expenditure and expense expenditure

Cost shall be capitalized when it prolongs or maintains the usefulness of an asset; otherwise, treated as current period expense or loss.

19) Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those assumptions and estimates.

3. EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES AND ESTIMATES

1. The Company’s subsidiaries, Global PCS Inc. and Wuxi Zeus Technology Inc. with operating revenue were more than 10 percent of the Company’s non-consolidated operating revenue as of and for the year ended December 31, 2004. Accordingly, Global PCS Inc. and Wuxi Zeus Technology Inc. were included in the consolidated entities for year 2004, and thus the Company has restated its 2003 consolidated financial statements restated for the change in the consolidated entities. As a result of the restatement, total assets and operating revenue as of and for the year ended December 31, 2003 increased $205,105 and $115,065, respectively, and the increased amount were 3% and 3%, of the restated consolidated total assets and operating revenue respectively.

2. In accordance with R.O.C general accepted accounting principles No.18, the Company’s subsidiary, Global PCS Inc. recognized minimum pension liability equal to accumulated benefit obligation minus pension plan assets based on actuarial valuation since December 31, 2004. The effect of change in accounting principle is minor to net income for year 2004.

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4. CONTENTS OF SIGNIFICANT ACCOUNTS

(1) CASH AND CASH EQUIVALENTS

December 31, 2004 2003 Cash on hand $ 3,450 $ 2,769 Cash in bank 337,104 97,594 Time deposits 829,810 592,990 Cash equivalents - STMM (Note 1) 117,715 594,771 - Repurchase bonds 458,279 - - GLF (Note 2) 162,086 - $ 1,908,444 $ 1,288,124

Note 1: Short-term money market funds.

Note 2: Global liquidity funds.

(2) SHORT-TERM INVESTMENTS

December 31, 2004 2003 Beneficiary Certificates $ 908,641 $ 1,806,468 Listed equity securities - stock 19,903 - Convertible bonds 15,815 - Structured financial instruments 95,208 - $ 1,039,567 $ 1,806,468

(3) NOTES AND ACCOUNTS RECEIVABLE - NET

December 31, 2004 2003 Notes receivable $ 9 $ 1,128 Accounts receivable 1,345,156 872,739 Accounts receivable – related parties 1,325 7,890

$ 1,346,490 $ 881,757

(4) INVENTORIES

December 31, 2004 2003 Raw materials $ 675,351 $ 451,448 Work in process 355,926 292,366 Finished goods 154,597 113,529 Inventories in transit 5,958 5,621 1,191,832 862,964 Provision for inventory loss ( 42,719 ) ( 14,814 ) $ 1,149,113 $ 848,150

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(5) LONG-TERM INVESTMENTS December 31,

2004 2003

Company name ownership

percentage Amount ownership

percentage Amount

Equity method:

Millennium Telecom Inc. 99.99 $ 154,241 99.99 $ 162,713

AsiaCast Network Systems, Inc. 37.04 - 37.04 3,878

EURO-MTI S.A.R.L. 100.00 1,516 100.00 1,614

Welltop Technology Co., Ltd. 100.00 ( 27,574 ) 100.00 ( 29,485 )

128,183 138,720

Credit balance of long-term investmentstreated as other liabilities

27,574

29,485

155,757 168,205

Cost method:

Easy Data Communication Co., Ltd. 8.85 2,867 8.85 2,867

Taiwan Aerospace Corp. 0.48 25,000 0.48 25,000

KG Telecommunications Co., Ltd. (Note 1) - - 1.12 247,073

Kopin Taiwan Corporation 3.00 42,300 3.00 42,300

Greast Communication Technology Co., Ltd. 19.98 48,138 19.20 47,906

Taicom Capital Ltd. 13.56 254,066 14.95 339,780

Scientific Technology Inc. 11.00 111,710 11.00 118,923

Mobile Telesystems, Inc. 9.00 18,352 9.00 19,537

InterWAVE Communications International Ltd. 5.15 - 5.15 24,906

NAVII - LP 5.16 60,706 5.16 110,429

NAVII - GP 5.00 1,068 5.00 1,138

Intelligent Epitaxy Technology, Inc. 2.20 31,917 1.86 33,978

Applied Wireless Identifications Group, Inc. 2.00 15,959 - -

SR Telecom Crop. (Note 2) 0.01 2,020 2.00 6,454

@Network Inc. 1.94 - 1.94 33,978

Vaultus, Inc. 1.00 9,894 1.00 33,978

Bayspec, Inc. 1.00 3,830 1.00 16,989

Digital United Holding Limited 0.34 13,629 0.34 68,194

641,456 1,173,430

$ 797,213 $ 1,341,635

For the years ended December 31, 2004 and 2003, the investment loss amounted to $8,472 and $3,152, respectively, and the related long-term investment balances of $154,241 and $162,713 as of December 31, 2004 and 2003, respectively, were recognized based on the investee companies’ financial statements audited by other auditors. AsiaCast Network Systems, Inc. is in the process of disposing the remaining properties and expects to complete its liquidation in 2005. The Company

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does not expect to recover any investment amount, accordingly the book value of the long-term investment was fully written off in 2004.

In 2004, the Company and its subsidiary, Sasson International Holding Inc. disposed the shares of Far Eastone Telecommunication Co., Ltd.(Note1), InterWAVE Communications International Ltd., and SR Telecom Corporation.(Note2) amounting to $480,164 and recognized gains on disposal of investments of $204,258. The Company’s subsidiary, Sasson International Holding Inc. recognized permanent impairment in value of Taicom Capital Ltd., NAVII – LP, @Network Inc., Vaultus, Inc., Bayspec, Inc. and Digital United Holding Limited amounting to $236,048 using the lower of cost or market value method (shown in other investment loss).

In 2003, the Company and its subsidiary, Sasson International Holding Inc. disposed the shares of Enovation Group Inc., Telecommunication Development Corp., Blue Wireless, Inc., InterWAVE Communications International Ltd. and Netro Corporation amounting to $23,759 and recognized loss on disposal of investments of $76,742. The Company’s subsidiary, Sasson International Holding recognized a permanent impairment in value of InterWAVE Communications International Ltd. amounting to $127,186 under the lower of cost or market value method (shown in other investment loss).

All shares of @Network Inc., Intelligent Epitaxy Technology Inc., Blue Wireless Inc., Bayspec Inc., and part of the shares of Taicom Capital Ltd. are preferred stocks.

In 2004, the Company committed to provide continuous financial support for Welltop Technology Co., Ltd. Accordingly, the credit balance of long-term investment was treated as deferred credit (shown in other liabilities).

Note 1：In 2004, KG Telecommunication Co., Ltd. was merged with Far Eastone Telecommunication Co., Ltd.

Note 2：The former name was Netro Corporation.

(6) FIXED ASSETS

December 31, 2004 2003 Buildings $ 849,966 $ 852,120 Machinery 1,774,311 1,563,903 Transportation equipment 1,559 1,292 Furniture and fixtures 50,192 46,908 Leasehold improvements 61,882 12,667 2,737,910 2,476,890 Accumulated depreciation ( 1,280,340 ) ( 1,104,300 ) 1,457,570 1,372,590 Prepayments for equipment and

construction in process 585

1,570

Book value $ 1,458,155 $ 1,374,160

Please see Note 6, fixed assets were pledged as security for long-term loans.

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(7) SHORT-TERM LOANS

December 31, Type of loan 2004 2003 Material, L/C loans $ 871,745 $ 489,976 Pre-export loans 30,959 276,347 Operating loans 27,500 33,000 Assignment of accounts receivable 99,089 - $ 1,029,293 $ 799,323 Interest rates per annum 2.28%~5.22% 1.72%~3.01%

(8) ACCOUNTS PAYABLE

December 31, 2004 2003 Accounts payable $ 706,628 $ 602,359 Accounts payable-related parties 7,206 6,236 $ 713,834 $ 608,595

(9) LONG-TERM LIABILITIES

1) LONG-TERM LOANS

December 31,

Bank name and type of loan Interest rate and repayment term 2004 2003

Chiao-Tung Bank

The 9 th import equipment loan Floating rate-Quarterly installments ending May 2006

$ 112,600

$ 187,000

Project loan Floating rate, Settlement in May 2008

100,000

-

Project loan Floating rate, Settlement in May 2009

100,000

-

The 9 th domestic equipment loan Floating rate-Quarterly installments ending May 2006

6,596

11,915

The 8 th domestic equipment loan Floating rate-Quarterly installments ending July 2004

-

2,651

The 8 th import equipment loan Floating rate-Quarterly installments ending July 2004

-

14,850

Loan of plant Floating rate-Quarterly installments ending July 2004

-

20,080

Project loan Floating rate–Yearly installmentsending May 2006

-

300,000

Domestic equipment loan Floating rate-Semi-yearly installments ending March 2006

-

5,140

Import equipment loan Floating rate-Semi-yearly installments ending March 2006

-

23,580

319,196 565,216

Current portion ( 79,720 ) ( 221,403 )

$ 239,476 $ 343,813

Interest rates per annum 3.015%~4.25% 3.225%~6.37%

Please see Note 6 about guarantee for long-term loans.

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2) BONDS PAYABLE

December 31, 2004 2003 Convertible bonds payable $ 904,500 $ 1,200,000 Compensation interest payable 61,752 49,106 966,252 1,249,106 Current portion ( 966,252 ) -

$ - $ 1,249,106

On July 10, 2002, the Company issued unsecured convertible bonds. The main terms of issue are as follows:

(a) Total amount: $1,200,000

(b) Interest rate: zero

(c) Maturity date: July 9, 2007

(d) Redemption at the option of the bondholders: Bondholders may request the Company to redeem the bonds in cash equal to par value of the bonds plus interest of 7.69% and 11.46% of the par value on July 9, 2005 and July 9, 2006, respectively.

The conversion price was $20.5(in dollars) at issuance. The conversion price will be subject to adjustment in the manner in accordance with the indenture. As of December 31, 2004, the conversion price was $20.5 and the bonds were converted to common stocks amounted to $61,200.

As bondholders may request the Company to redeem the bonds at beginning 3 years after the issue date, the Company treated bonds payable as current liabilities on July 10, 2004.

(10) COMMON STOCK

1) Pursuant to the resolution adopted at the special stockholders' meeting held on December 11, 1993, and after obtaining approval from the SFC, the Company issued 2,600 thousand units of global depository receipts (GDRs) in Europe, Asia and USA, which are represented by 13,000 thousand shares of common stock (Deposited Shares). Total amount received by the Company in relation to these GDRs on May 24, 1994 was $837,333. The main terms and conditions of the GDRs are as follows:

A. Voting

Holders of GDRs have no right to directly exercise voting rights or attend the Company's stockholders' meeting. A holder or holders together holding at least 51% of the GDRs outstanding at the relevant record date of the stockholders' meeting can instruct the Depositary to vote in the same direction in respect of one or more resolutions to be proposed at the meeting.

B. Sale and withdrawal of GDRs

Under the current R.O.C. law, the shares represented by the GDRs may not be withdrawn by holders of GDRs commencing three months after the initial issue of GDRs. A holder of GDR may, provided that the Company has delivered to the custodian physical share certificates in respect of the Deposited Shares,

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request the Depositary to sell or cause to be sold on behalf of such holder the shares represented by such GDRs.

C. Dividends

GDR holders are entitled to receive dividends to the same extent as the holders of common stock subject to the terms of the Deposit Agreement and applicable laws of the R.O.C.

2) As of December 31, 2004, the Company's authorized share capital comprised of 700,000 thousand common shares (of which 50,000 thousand shares are reserved for convertible bonds, stock option certificates and convertible preferred stock issued) with NT$10 (in dollars) par value per share. As of December 31,2004 the total issued and outstanding common shares amounted to 429,148 thousand shares.

(11) EMPLOYEE STOCK OPTION PLAN

1) The Company

a. On May 23, 2002 and January 7, 2003, the Company’s employee stock option plan (the “Option Plan”) were approved by SFC to issue 33,000 units of stock options, representing 33,000,000 shares of common stock. The major terms of the Option Plan are as follows:

(a) The grant dates of the options were May 23, 2003 and January 7, 2004 and the exercise price were $23 and $14.7 (in NT dollars) per share, respectively.

(b) The Company will issue new shares of common stock upon exercise of the options.

(c) Adjustments to the exercise price: The exercise price will be adjusted due to the capitalization of capital reserve and retained earnings. This adjustment will be made in accordance with the Option Plan and related regulations.

(d) The life of the options is six years from the grant date. The options can only be transferred through inheritance.

b. A summary of the number of options and the weighted average exercisable price under the Company’s stock option plan for the years ended December 31, 2004 and 2003 are as set forth below: For the years ended December 31, 2004 For the years ended December 31, 2003

In thousands of shares

Weighted average exercisable price (in NT dollars)



Outstanding at the beginning of the year

32,011

$ 18.33

14,011

$ 23.00

Option granted - - 18,000 14.70 Stock dividends or

adjustment of number of options

-

-

-

-

Option exercised - - - - Option confiscated - - - - Outstanding at the end

of the year 32,011

$ 18.33

32,011

$ 18.33

Exercisable options at the end of the year

7,005

-

Approved and not yet issued options at the end of the year

-

989

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c. As of December 31, 2004, the summary of outstanding stocks option was as follows: Number of options outstanding at the end of the year Exercisable options at the end of the year

Range of exercisable price (in NT dollars)


Expected weighted average residual years

Weighted average exercise price (in NT dollars)



$14.70~$23.00 32,011 3.74 years $ 18.33 7,005 $ 23.00

2) The Company’s subsidiary, Global PCS Inc.

a. A summary of the number of options and the weighted average exercisable price under the Company’s subsidiary, Global PCS Inc.’s stock option plan for the years ended December 31, 2004 and 2003 are as set forth below: For the year ended December 31, 2004 For the year ended December 31, 2003





Outstanding at the beginning of the year

644

$ 10

1,578

$ 10

Option granted - - - - Stock dividends or

adjustment of number of options

-

-

-

-

Option exercised - - - - Option confiscated ( 48 ) - ( 934 ) - Outstanding at the end

of the year 596

$ 10

644

$ 10

Exercisable options at the end of the year

298

-

Approved and not yet issued options at the end of the year

36

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b. As of December 31, 2004, the summary of outstanding stock options was as follows: Number of options outstanding at the end of the year Exercisable options at the end of the year

Range of exercisable price (in NT dollars)


Expected weighted average residual years




$ 10 596 3.08 years $ 10 298 $ 10

(12) CAPITAL RESERVE

According to the R.O.C. Company Law, capital reserve shall be exclusively used to offset against accumulated deficit, except for capital reserve arising from paid-in capital in excess of par and donation surplus which can be used to increase capital after covering accumulated deficit.

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(13) RETAINED EARNINGS

1) The R.O.C. Company Law requires that at least 10% of the net income each year, less losses of prior years, shall be set aside as legal reserve until the accumulated reserve equals the total registered capital of the Company and can be used to offset against accumulated deficit.

2) According to the R.O.C. Securities and Exchange Act, the Company allocates a certain portion of earnings as special reserve and shown as the deduction in shareholder’s equity.

3) According to the Company's Articles of Incorporation, 1% and no less than 7% of net income, after deducting legal reserve, shall be distributed as directors' and supervisors' remuneration and employees' bonus, respectively, at the time dividends are declared.

4) The Taiwan imputation tax system requires that any undistributed current earnings, on tax basis, of a company derived on or after January 1, 1998 be subject to an additional 10% corporate income tax if the earnings are not distributed before a specific time. This 10% additional tax on undistributed earnings paid by the company may be used as tax credit by shareholders, including foreign shareholders, against the withholding tax on dividends. In addition, the domestic shareholders can claim a proportionate share in the company’s corporate income tax as tax credit against its individual income tax liability effective 1998.

5) The Company has not yet held the meeting of board of directors to discuss the proposal of earnings distribution for the fiscal year 2004. The approval of resolutions adopted by the board of directors and shareholders could be obtained from the “ Market Observation Post System” website of Taiwan Stock Exchange Corporation. In 2003, there was no earnings distribution for employees’ bonus and directors’ and supervisors’ remuneration.

6) As of December 31, 2004, the balance of stockholders tax credit account was $6 and the creditable tax ratio was zero.

(14) PENSION EXPENSE

1) All of the regular employees of the Company and its subsidiary, Global PCS Inc. are covered by a defined benefit pension plan. Employees receive 2 base points each year for their first 15 service years and plus 1 base point each years for over 15 years of service. Maximum base points are 45 points. The benefits provided are based on length of service and average six months salaries prior to retirement. Under the plan, the Company and its subsidiary, Global PCS Inc. contribute each an amount equal to 2% of total salaries on a monthly basis to the independent pension fund deposited at the Central Trust of China. The Company’s subsidiaries, Jupiter Technology (Wuxi) Inc. and Wuxi Zeus Technology Inc. are required to participate in a government pension scheme where by it shall pay monthly retirement contributions to a government-managed fund. Under the scheme, retirement benefits of existing and retired employees are to be provided by the government-managed fund and the Company has no further obligations beyond the monthly contributions.

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2) The actuarial assumptions are using by the Company and its subsidiary, Global PCS Inc. as follows：

2004 2003

The discount rate 3.75% 3.50%

The rate of compensation increase 4.00% 4.00%

Expected rate of return on plan assets 2.75% 2.75%

3) The funded status of the pension plan of the Company and its subsidiary, Global PCS Inc. are as follows:

a) The Company December 31, 2004 2003 Vested benefit obligation ($ 21,389 ) ($ 20,460 ) Non-vested benefit obligation ( 199,819 ) ( 171,897 ) Accumulated benefit obligation ( 221,208 ) ( 192,357 ) Additional benefits based on future salaries ( 170,764 ) ( 154,760 ) Projected benefit obligation ( 391,972 ) ( 347,117 ) Plan assets at fair value 156,910 150,226 Funded status ( 235,062 ) ( 196,891 ) Unrecognized transition obligation 34,902 40,719 Unrecognized pension gain 15,104 ( 4,586 ) Accrued pension ($ 185,056 ) ($ 160,758 ) Vested benefit $ 21,389 $ 20,815

b) The Company’s subsidiary, Global PCS Inc. December 31,2004

(Measurement date) Vested benefit obligation $ - Non-vested benefit obligation ( 13,693 ) Accumulated benefit obligation ( 13,693 ) Additional benefits based on future salaries ( 6,707 ) Projected benefit obligation ( 20,400 ) Plan assets at fair value 3,028 Funded status ( 17,372 ) Unrecognized transition obligation 17,314 Additional liability ( 10,607 ) Accrued pension ($ 10,665 ) Vested benefit $ -

Global PCS Inc. recognized pension expense as 2% of total salaries before 2004. Since December 31, 2004, the subsidiary recognized net pension cost to comply with R.O.C. general accepted accounting principles N0.18.

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4) The Company recognized net pension cost based on the actuarial report. Other consolidated subsidiaries such as Global PCS Inc, etc, recognized based on actual contributing amount. The details of net pension cost are as follows:

a) The Company For the years ended December 31, 2004 2003 Service cost $ 26,270 $ 32,829 Interest cost 12,149 16,606 Plan assets on future reward ( 4,131 ) ( 4,507 ) Amortization of unrecognized transition

obligation 5,817 5,817 Net periodic pension cost $ 40,105 $ 50,745

b) The subsidiaries For the years ended December 31, 2004 2003 Global PCS Inc. $ 712 $ 743 Jupiter Technology ( Wuxi ) Inc. $ 4,115 $ 2,381 Wuxi Zeus Technology Inc. $ 3,028 $ 946

(15) INCOME TAX

1) The balances of deferred income tax assets / (liabilities) are summarized below: December 31, 2004 2003 Deferred income tax assets - current $ 172,596 $ 216,983 Less: Valuation allowance ( 71,834 ) ( 53,476 ) 100,762 163,507 Deferred income tax liabilities– non-current ( 24,532 ) ( 87,277 ) Total deferred income tax assets $ 76,230 $ 76,230

32

2) The temporary differences and the related deferred income tax assets / (liabilities) comprise the following: December 31, 2004 December 31, 2003

Amount Income tax effect Amount

Income tax effect

Deferred income tax assets - current Temporary differences: Warranty provision $ 33,381 $ 8,345 $ 40,175 $ 10,044 Allowance for bad debts 134,889 33,722 134,889 33,722 Provision for inventory loss 355,810 88,953 328,759 82,190 Compensation interest payable 61,752 15,438 33,431 8,358 Others 6,837 1,709 12,654 3,163 148,167 137,477 Investment tax credits 20,830 74,643 Loss carry-forward 3,599 4,863 Less: Valuation allowance for deferred income tax assets ( 71,834 ) ( 53,476 ) $ 100,762 $ 163,507 Deferred income tax assets / (liabilities) – non-current Temporary differences: Loss on idle assets $ 69,071 $ 17,268 $ 71,495 $ 17,874 Net pension cost 185,056 46,264 160,758 40,190 Foreign investment income accounted under the equity method ( 907,972 ) ( 226,993 ) ( 968,604 ) ( 242,151 ) Others 3,488 872 11,093 2,773 ( 162,589 ) ( 181,314 ) Investment tax credits 174,601 129,881 Loss curry-forward 39,058 41,136 Less: Valuation allowance for deferred income tax assets ( 75,602 ) ( 76,980 ) ( $ 24,532 ) ( $ 87,277 )

33

3) Income tax benefit and income tax refundable were reconciled as follows: December 31, 2004 2003 Tax on pretax income at statutory tax

rate $ 86,703 $ 5,566

Tax effect on permanent differences ( 39,636 ) 15,820 Investment tax credits ( 67,389 ) ( 67,466 ) Loss carry-forward 3,342 ( 18,883 ) Valuation allowance of income tax

assets 16,980 29,284

10% additional income tax on unappropriated earnings

-

11,835

Income tax benefit - ( 23,844 ) Net effect of deferred income tax - 23,844 Prepaid income tax ( 969 ) ( 1,378 ) Income tax refundable (shown in

other receivables) ($ 969 ) ($ 1,378 )

4) The Company is eligible for income tax exemption for a period of four consecutive years due to an expansion of production equipment through increase of capital. The effective date of this exemption is to be decided by the Company within two years from the start of operation of the new machinery and equipment of each expansion. The maximum period of such deferral of the four-year tax holiday shall not exceed four years. The details are as follows:

Capital increase method Tax - exempt period

Unappropriated earnings, capital reserve and employees' bonus capitalized in 1995

January 1, 2002~December 31, 2005

Unappropriated earnings, capital reserve and employees' bonus capitalized in 1996

January 1, 2004~December 31, 2007.

Unappropriated earnings, employees' bonus capitalized in 2000

January 1, 2004~December 31, 2007.


Tax-exempt period has not been decided by the Company


Tax-exempt period has not been decided by the Company

5) As of December 31, 2004, the Company's income tax returns for the years through 2001 have been assessed and approved by the Tax Authority. The Company’s subsidiary, GPI PCS Inc. income tax for the years through 2002 have been assessed and approved by the Tax Authority.

34

6) At December 31, 2004, the balance of unused investment tax credits and loss carry-forward were $195,431 and $42,657, which will expire as follows:

Expiry Investment tax credits 2005 $ 20,830 2006 52,187 2007 55,025 2008 67,389

$ 195,431

Expiry Loss carry-forward 2005 $ 3,599 2006 5,602 2007 11,094 2008 22,362

$ 42,657

(16) EARNINGS PER SHARE For the period ended December 31, 2004 Amount Outstanding Earnings per share (In NT dollars) Income before Common Income before income tax Net income Shares (Note) income tax Net income Basic earnings

per share:

Income from continuing operations

$ 344,554

$ 344,554

428,552

$ 0.8

$ 0.8

Loss for minority interest

37

37

-

-

Net income $ 344,591 $ 344,591 $ 0.8 $ 0.8 Effects of potential

diluted earnings per share:

Convertible bonds 31,077 31,077 44,122 Diluted earnings per

share:


$ 375,631

$ 375,631

$ 0.79

$ 0.79


37

37

-

-

Net income of common stockholders plus effect of diluted share equivalent

$ 375,668

$ 375,668

472,674

$ 0.79

$ 0.79

Note: The stock option had no dilution effect.

35

For the period ended December 31, 2003 Amount Outstanding Earnings per share (In NT dollars) Income before Common Income before income tax Net income Shares (Note) income tax Net income Basic earnings

per share:


$ 5,146

$ 28,990

426,163

$ 0.01

$ 0.07


17,120

17,120

0.04

0.04

Net income $ 22,266 $ 46,110 $ 0.05 $ 0.11 Effects of potential

diluted earnings per share:

Employee stock option

-

-

4,413

Diluted earnings per share:


$ 5,146

$ 28,990

$ 0.01

$ 0.07


17,120

17,120

0.04

0.04

Net income of common stockholders plus effect of diluted share equivalent

$ 22,266

$ 46,110

430,576

$ 0.05

$ 0.11

Note: The convertible bond had no dilution effect.

(17) PERSONNEL EXPENSES, DEPRECIATION, AND AMORTIZATION EXPENSES

For the years ended December 31,

2004 2003

Shown in

cost of sales

Shown in operating expenses Total

Shown in cost of sales

Shown in operating expenses Total

Personnel expenses

Salary $367,441 $282,452 $649,893 $314,465 $301,633 $616,098

Insurance 25,293 17,771 43,064 22,729 19,924 42,653

Pension 28,042 19,918 47,960 29,847 24,968 54,815

Others 17,343 12,917 30,260 10,556 10,309 20,865

Depreciation 193,074 37,685 230,759 176,436 31,248 207,684

Amortization 2,957 11,187 14,144 7,806 15,821 23,627

36

5. RELATED PARTY TRANSACTIONS

1) Names and relationship of related parties

Names Relationship with the Company Agilent Technologies Inc. Major foreign shareholder Millennium Telecom Inc. 99.99% owned subsidiary

AsiaCast Network Systems, Inc. 37.04% owned subsidiary

Welltop Technology Co., Ltd. Investment accounted for by equity method of the Company’s subsidiary

EURO-MTI S.A.R.L Investment accounted for by equity method of the Company’s subsidiary

Optical Microwave Network Inc. Investment accounted for by equity method of the Company’s subsidiary

Taicom capital Ltd. Common board chairman TCM Limited Common board chairman

2) Transactions with related parties

a) Sales For the years ended December 31, 2004 2003 ﹒Optical Microwave Networks Inc. $ 10,104 $ 25,184 ﹒Agilent Technologies Inc. 790 1,435

$ 10,894 $ 26,619

The sales prices to related parties are similar to those sales to third parties. b) Purchases of materials For the years ended December 31, 2004 2003 ﹒Optical Microwave Networks Inc. $ 103,002 $ 21,018 ．Agilent Technologies Inc. 649 406

$ 103,651 $ 21,424

The purchases are at market prices and payment terms are similar to those purchases from third parties’. The payment period is 30 days after receiving date.

c) Purchases of fixed assets For the years ended December 31, 2004 2003 ﹒Agilent Technologies Inc. $ 203,481 $ 42,206 ﹒Optical Microwave Networks Inc. 9,329 -

$ 212,810 $ 42,406

The fixed assets are acquired based on market value.

37

d) Accounts receivable December 31, 2004 2003 ﹒Optical Microwave Networks Inc. $ 1,296 $ 7,817

﹒Agilent Technologies Inc. 29 73

$ 1,325 $ 7,890

e) Prepaid expenses and prepayments December 31, 2004 2003 Optical Microwave Networks Inc. $ 139 $ 4,414 Agilent Technologies Inc. - 1,166 $ 139 $ 5,580

f) Long-term receivables (Shown in other financial assets non-current) December 31, 2004 2003 Millennium Telecom Inc. $ 162,777 $ 363,905

g) Accounts payable December 31, 2004 2003 ﹒Optical Microwave Networks Inc. $ 7,186 $ 6,234

﹒Agilent Technologies Inc. 20 2

$ 7,206 $ 6,236

h) Accrued expense December 31, 2004 2003

﹒Agilent Technology Inc. $ 1,359 $ 379

﹒Optical Microwave Networks Inc. 1,711 -

$ 3,070 $ 379

2004 2003 i) Other receivables-Optical Microwave

Networks Inc. $ 44

$ 12

j) Service and inspection expenses-Optical Microwave Networks Inc.

$ 6,509

$ 38,142

k) Inspection service expense- Agilent Technology Inc.

$ 5,479

$ 3,034

l) Other income-consultant- TCM Limited $ 25,028 $ 31,740

38

December 31, 2004 2003

m) Rental expenditures-Optical Microwave Networks Inc.

$ 7,765

$ 4,066

n) Other expenses-Optical Microwave Networks Inc.

$ 3,106

$ 4,862

o) As of December 31, 2004 and 2003, the Company acted as guarantor for the following subsidiaries:

Subsidiary name

Line of credit

Outstanding balance of credit line

December 31, 2004 Optical Microwave Networks Inc. $ 35,109 $ 31,125 December 31, 2003 Optical Microwave Networks Inc. $ 37,376 $ 29,057

6. ASSETS PLEDGED AS COLLATERAL

The book value of the assets for pledged are as follow as of December 31, 2004 and 2003:

December 31, Name of assets 2004 2003 Purpose of collateral Buildings $ 233,889 $ 242,430 Bank loans Machinery 229,159 368,325 Bank loans Furniture and fixtures 746 2,832 Bank loans Time Deposits - 1,401 Bank loans Accounts receivable (Note) 101,673 - Bank loans $ 565,467 $ 614,988

Note: The subsidiaries entered into assignments of accounts receivable with certain banks for short-term loans (shown in Other financial assets–current).

39

7. COMMITMENTS AND CONTINGENT LIABILITIES

a) The Company leases land under a non-cancelable operating lease agreement. As of December 31, 2004, the future minimum lease payments under this lease are as follows:

Period Rental payable 2005 to 2007 $ 46,473

b) The Company was informed that European agency, FTA, had filed a lawsuit about commercial contention in Luxembourg court. The Company had employed LEE AND LI attorneys at law response to relevant arrangement. Because the lawsuit is in the initial stage of handling, the actual influence on finance and business of the Company shall be estimated according to further litigant result. However, the Company believes that the lawsuit will not cause serious influence on the whole operating activities of the Company.

8. SIGNIFICANT LOSS OF CALAMITY

None.

9. SIGNIFICANT SUBSEQUENT EVENT

None.

10. OTHERS

1) Remittability of capital and earnings

The foreign investors in the Company can repatriate their invested capital and dividends declared from net income provided that income tax on such dividends is paid to the Tax Authorities.

2) Information on derivative transactions

The Company and the subsidiaries, Sasson International Holding Inc. entered into derivative contracts with certain banks. The major information is as follows:

a) Purpose:

To hedge the fluctuation of exchange rate of foreign currency denominated assets.

b) Credit risk and market risk:

There is no significant credit risk with respect to the above contracts because the banks are of good standing. The market risk is low as the purpose of the contracts is solely for hedging.

40

c) As of December 31, 2004 and 2003, terms and characteristics of the Company were as follows:

December 31, 2004 Conditions of transaction

Item Contract amount (In US dollars) Contract

inception datesAverage rates at settlement dates

Settlement dates

Recognized and deferred exchange

loss during the periodForward USD 23,000,000 October

19~December 31, 2004

US$1= NT$31.589~

33.771

January 5~April 15,

2005

$16,786

Option (call)

USD 2,000,000 December 31, 2004

US$1= NT$31.42

April 12, 2005 64

Option (put)

USD 2,000,000 December 31, 2004

US$1= NT$31.42

April 12, 2005 167

Option (call)

USD 2,000,000 July 27, 2004 NT$1= USD34.6

January 25, 2005

169

December 31, 2003

Conditions of transaction

Item Contract amount (In US dollars) Contract

inception datesAverage rates at settlement dates

Settlement dates

Recognized and deferred exchange

loss during the periodForward USD 9,000,000 September

3~December 4, 2003

US$1=NT$ 33.911~34.081

January 8~ February 12,

2004

($6,454)

Option (put)

USD 8,000,000 September 4~December 18,

2003

US$1= NT$33.8~34.4

January 6~April 6,

2004

(525)

Option (call)

USD 14,000,000 July 4~ December 18,

2003

US$1= NT$33.8~34.8

January 6~July 6,

2004

1,820

d) As of December 31, 2004 and 2003, terms and characteristics of the Company’s subsidiaries, Sasson International Holdings Inc were as follows:

December 31, 2004 Condition of transaction

Issuer Item

Contract Amount

(In US dollars)

Contract inception

date Settlement

date Settlement term Linked target Note

Morgan Stanley

Structured financial instrument-deposit linked to equity.

USD983,000 93.12.4 94.2.4 In settlement date, the market price of linked target is USD 28.89 per share. The deposit will be converted to equivalent equity securities of linked target.

Stock of Broadcom

Corp.

Note 1

Sinopac assets management Corp.

Structured financial instrument-Credit linked to notes.

USD2,000,000 93.12.7 94.7.19 In settlement date, the issuer of linked target has not occurred yet any violation of liquidating. The Company will recover contract amount plus 4.2% interest revenue.

Shin-bong convertible bonds

Note 2

Note 1：Until settlement date, the settlement term was not effective, and the Company earned an interest income amounting of 17,000 in US dollars.

41

Note 2：The issuer redeemed the structured financial instrument actively ahead of time in January 20 and 27, 2005. The settlement term was not effective, and the company earned an interest income amounting of 17,000 in US dollars.

Note 3：Information on derivative transactions as of December 31,2003：None.

3) Financial instruments

December 31, 2004 2003 Book value Fair value Book value Fair value Non-derivative transactions- Financial assets: Financial assets whose fair

values equal book values $ 3,694,766

$ 3,694,766

$ 2,653,269

$ 2,653,269

Short-term investments 944,359 947,636 1,806,468 1,806,468 Long-term investments 797,213 797,652 1,341,635 1,348,956 Financial liabilities: Financial liabilities whose

fair values equal book values

( 3,402,324 )

( 3,402,324 )

( 3,765,770 )

( 3,765,770 )

Accrued pension expense ( 195,721 ) ( 252,433 ) ( 160,758 ) ( 196,891 )Derivative transactions- Foreign exchange forward

contracts 16,786

16,786

( 49 )

( 49 )

Options 208 208 1,037 1,037 Linked financial instruments 95,208 95,208 - -

The methods and assumptions used to measure the fair values of financial instruments are as follows:

a) The carrying amounts of short-term financial assets and liabilities approximate fair values due to their short maturity.

b) The fair values of marketable securities and long-term investments are based on the market value of the securities or, if market value is unavailable, the net equity of the investee companies are used as fair value.

c) The book value of long-term loans is used as fair values as the loans bear floating interest rates.

d) The fair value of accrued pension expense equals the “Projected Benefit Obligation” minus “Plan Assets At Fair Value” based on the actuarial report.

42

4) Elimination of transactions between the Company and consolidated subsidiaries：

Amount Transactions Transaction Parties 2004 2003

Microelectronics Technology, Inc.

$ 1,870,859 $ 2,048,4551.Elimination of Long-term investments and stockholders equity Sasson International

Holdings Inc.

Global PCS Inc. Jupiter Network Corp. Zeus Communications, Inc. Jupiter Technology (Wuxi)

Inc.

Wuxi Zeus Technology Inc. 2. Elimination of assets

and liabilities.

a) Accounts receivable / Accounts payable / inventories

$ 248,988 $ 102,129

b) Other receivable / Accounts payable

111,158 25,682

c) Other receivable / Other payable

4,844 27,407

d) Refundable deposits / Guarantee deposits received

Microelectronics Technology Inc.

Global PCS Inc. Jupiter Technology (Wuxi)

Inc. Wuxi Zeus Technology Inc.

1,678 1,678

3. Elimination of revenue and expenses

a) Sales / Purchases $ 1,068,624 $ 660,039b) Revenues / Expenses

Microelectronics Technology Inc. Global PCS Inc. Jupiter Technology (Wuxi) Inc. Wuxi Zeus Technology Inc.

2,456 6,065

43

11. SPECIAL DISCLOSURE ITEMS

Pursuant to the SFC requirements, the related information of the Company and its investee companies are as follows:

1) Information of Significant Transactions:

a) Loans to others attributed to financial activities as of December 31, 2004:

None.

b) The endorsements and guarantees provided by the Company to others as of December 31, 2004: The ratio of

Company being guaranteed The limit of The highest outstanding The amount of The amount of accumulated guarantee The ceiling of the Guarantor company Relationship with guarantee guarantee amount guarantee amount guarantee with amount to net asset outstanding guarantee

Name Name the Company for such party during 2004 at Dec. 31, 2004 collateral placed value of the Company for the respective party Microelectronics

Technology, Inc.Optical

Microwave Networks Inc.

100% owned subsidiary $4,694,994 $37,382 $31,125 None 0.66% $4,694,994



100% owned subsidiary 4,694,994 203,904 130,860 None 2.79% 4,694,994


Global PCS Inc. 80.19% owned subsidiary 4,694,994 50,000 42,732 None 0.91% 4,694,994

c) The details of marketable securities as of December 31, 2004: Kinds of marketable Name of marketable The relationship of the General ledger December 31, 2004

Investor securities securities issuers with the Company accounts Number of shares Book value Percentage Market value (Note) Microelectronics Technology, Inc.

Beneficiary certificate

Fu-Hwa Albatross Bond Fund

None Short-term investments 9,138,690 $100,122 - $100,133

〃 Beneficiary certificate

Fu-Hwa Bond Fund None Short-term investments 8,857,266 114,846 - 114,857


Capital Cash Reserves Bond Fund

None Short-term investments 15,413,965 175,751 - 175,767


Capital Safe Income Bond Fund



IIT Wan Pao Bond Fund



IIT High-Yield Bond Fund



TLAN Solomon Bond Fund



Shinkong Chi Shin Bond Fund


〃 Stock Sasson International Holdings Inc.

Wholly-owned subsidiary Long-term investments 2,350 1,873,341 100.00% 1,873,341

〃 Stock Global PCS Inc. Majority-owned subsidiary Other liabilities 16,192,499 (2,482) 80.19% (2,482)

44

Kinds of marketable Name of marketable The relationship of the General ledger December 31, 2004

Investor securities securities issuers with the Company accounts Number of shares Book value Percentage Market value (Note) Microelectronics Technology, Inc

Stock Millennium Telecom, Inc.

Majority-owned subsidiary Long-term investments 18,999,994 $154,241 99.99% $154,241

〃 Stock Easy Data Communication Co., Ltd.

None Long-term investments 442,308 2,867 8.85% 2,867

〃 Stock Taiwan Aerospace Corp.

None Long-term investments 2,500,000 25,000 0.48% 25,000

〃 Stock Kopin Taiwan Corporation

None Long-term investments 3,000,000 42,300 3.00% 42,300

Note: The market value of investment accounted for under equity method was based on the net asset value of the investee company, while the market value of investment accounted for under cost method was based on acquisition cost if not listed or the average closing price during the last month of the year if listed.

d) The cumulative buying, selling of one specific security over $100,000 or 20 percent of the capital stock for the year ended December 31, 2004: Beginning balance Additions Disposals Ending balance

Investor Name of the securities General ledger account

Number of shares Amount Number of

shares Amount Number of shares Amount Book value Gain/Loss

from disposalNumber of

shares Amount

MicroelectronicTechnology Inc.

PCA Bond Fund Short-term investments

14,085,900 $210,336 43,894,164 $659,217 57,980,064 $871,961 $869,553 $ 2,408 - $ -

〃 PCA Well Pool Fund 〃 17,797,042 214,356 6,352,865 77,000 24,149,907 291,611 291,356 255 - - 〃 Grand Cathay Bond

Fund 〃 23,378,261 290,865 43,446,113 543,523 66,824,374 837,023 834,388 2,635 - -

〃 Ta Chong Bond Fund 〃 - - 29,049,600 364,682 29,049,600 365,545 364,682 863 - - 〃 IIT Increment Bond

Fund 〃 16,442,935 240,008 46,488,248 681,633 62,931,183 924,154 921,641 2,513 - -

〃 IIT Wan Pao Bond Fund

〃 - - 11,496,938 169,545 7,349,095 108,337 108,215 122 4,147,843 61,330

〃 IIT High-Yield Bond Fund

〃 18,585,494 257,532 38,385,032 535,773 50,688,239 706,993 704,895 2,098 6,282,287 88,410

〃 Capital Cash Reserves Bond Fund

〃 5,693,700 63,767 51,935,596 589,235 42,215,331 479,235 477,251 1,984 15,413,965 175,751

〃 Capital Safe Income Bond Fund

〃 3,178,287 44,978 29,482,060 423,090 23,892,423 343,090 341,573 1,517 8,767,924 126,495

〃 Truswell Bond Fund 〃 - - 11,593,590 142,821 11,593,590 143,096 142,821 275 - - 〃 Truswell Premier Fund 〃 21,293,741 227,309 60,739,682 651,379 82,033,423 881,244 878,688 2,556 - - 〃 President James Bond

Fund 〃 5,213,460 77,249 7,620,222 113,062 12,833,682 190,831 190,311 520 - -

〃 Fu-Hwa Albatross Bond Fund

〃 9,138,690 98,184 36,554,761 397,622 36,554,761 397,622 395,684 1,938 9,138,690 100,122

〃 Fu-Hwa Bond Fund 〃 - - 34,672,489 446,625 25,815,223 332,580 331,779 801 8,857,266 114,846 〃 Shinkong Chi Shin

Bond Fund 〃 - - 29,697,789 413,245 20,898,436 291,065 290,456 609 8,799,353 122,789

〃 Shinkong Chi Shun Bond Fund

〃 - - 14,030,263 200,166 14,030,263 200,713 200,166 547 - -

45

Beginning balance Additions Disposals Ending balance

Investor Name of the securities General ledger account

Number of shares Amount Number of

shares Amount Number of shares Amount Book value Gain/Loss

from disposalNumber of

shares Amount

MicroelectronicTechnology Inc.

TLAN Solomon Bond Fund

Short-term investments

- $ - 31,355,288 $ 354,263 22,120,629 $249,986 $249,480 $506 9,234,659 $ 104,783

〃 TLAM B.B. Bond Fund

〃 - - 11,147,360 122,117 11,147,360 122,466 122,117 349 - -

〃 Far Eastone Telecommunication Co.

Long-term investments

19,563,208 247,073 - - 19,563,208 440,754 247,073 193,681 - -

e) Real estate acquired amounting to over $100,000 or 20 percent of the Company’s capital stock for the year ended December 31, 2004:

None.

f) Real estate disposed amounting to over $100,000 or 20 percent of the Company’s capital stock for the year ended December 31, 2004:

None.

g) Purchases and sales transactions with related parties over $100,000 or 20 percent of the Company’s capital stock for the year ended December 31, 2004: Transactions Difference with general transactions Accounts receivable (payable)

Company Counter party

Relationship with the

Company Purchases

(Sales) Amount

Percentages of purchases

(sales) Term Unit price Term Amount

Percentage of accounts

receivable (payable)

Microelectronic Technology Inc.


Wholly-owned subsidiary

Purchase $411,819 11% Immediate N/A N/A ($41,704) 7%

〃 Optical Microwave Network Inc.


Purchase $103,002 2% 30 days N/A N/A ($7,186) 1%

〃 Global PCS Inc.

Majority-owned subsidiary

Sale $344,421 8% 30 days N/A N/A $189,092 17%

h) Receivables from related parties over $100,000 or 20 percent of the Company’s capital stock as of December 31, 2004:

Balance of receivable from related party Overdue receivable

Company Counter party Relationship

with the Company

Notes/Accounts receivable

Other receivables Total Turnover

rate (times) Amount Collection method

Subsequent received amount

Bad debt allowance provided

Microelectronic Technology Inc.

Global PCS Inc. Majority-owned subsidiary

$189,092 $3,260 $192,352 3.26 $ 62,161 Subsequent received

$ 62,773 $ -

〃 Wuxi Zeus Technology Inc.


$ - $106,314 $106,314 Note $ 9,482 Subsequent received

$ 9,482 $ -

Note: Receivable resulted from buying special material for Wuxi Zeus Technology Inc. The receivable was not taken into account to turnover rate calculation.

46

i) Information on derivative transactions:

Please see Note 10.

2) Information of Subsidiaries:

a) Related information on subsidiaries as of December 31, 2004: The net income Original amount Shares held by the Company / (loss) of the The income / The main business December December Number Investee (loss) recorded

Investor Investee company Location scope 31, 2004 31, 2003 of shares Percentage Book value Company by the company Note Microelectronics Technology, Inc.

Sasson International Holdings Inc.

BVI Investment planning and consulting

$659,428 $659,428 2,350 100.00% $1,873,341 ($56,958) ($56,958) Wholly-owned subsidiary

〃 Global PCS Inc. Hsinchu, Taiwan

Communication 134,847 134,847 16,192,499 80.19% (2,482) 2,812 4,798 Majority-owned subsidiary

〃 Millennium Telecom Inc.

Taipei, Taiwan


190,000 190,000 18,999,994 99.99% 154,241 (8,410) (8,472) Majority-owned subsidiary

〃 AsiaCast Network Systems, Inc.

Taipei, Taiwan

Communication 82,327 82,327 7,962,738 37.04% - Note (3,878) Investment accounted for under equity method

Sasson International Holding Inc.

EURO-MIT S.A.R.L

Luxembourg Communication USD 15,000(in dollars)

USD 15,000(in dollars)

500 100.00% 1,516 - - Wholly-owned subsidiary

〃 Welltop Technology Co.,Ltd




828,000 100.00% (27,574) 6 6 Wholly-owned subsidiary

〃 Jupiter Network Corp.


USD7,749,000(in dollars)


7,749,000 100.00% 275,075 100,262 100,262 Wholly-owned subsidiary

〃 Zeus Communications, Inc.

Delaware, USA




777,800 100.00% 27,372 9,916 9,916 Wholly-owned subsidiary

Welltop TechnologyCo., Ltd

Optical Microwave Networks Inc.

California USA

Communication USD 37,600(in dollars)


43,000,000 100.00% (27,667) 101 101 Wholly-owned subsidiary

Jupiter Network Corp.

Jupiter Technology (Wuxi) Inc

Wuxi China Communication USD5,460,000(in dollars)


- 91.00% 100,146 (23,530) (21,412) Wholly-owned subsidiary


Wuxi China Communication USD2,275,000(in dollars)


- 91.00% 174,827 133,788 121,747 Wholly-owned subsidiary

Zeus Communications,Inc.


Wuxi China Communication USD 540,000(in dollars)


- 9.00% 9,905 (23,530) (2,118) Wholly-owned subsidiary


Wuxi China Communication USD 225,000(in dollars)


- 9.00% 17,290 133,788 12,041 Wholly-owned subsidiary

Millennium Telecom Inc.

Neobits Technology Inc.

Taipei, Taiwan

Communication 30,575 30,575 1,363,000 40.00% - (17,628) (7,051) Investment accounted for under equity method

〃 Asia Global Crossing Taiwan

Taipei, Taiwan

Communication 320,000 320,000 32,000,000 40.00% 320,000 - - Investment accounted for under equity method

Note: AsiaCast Network Systems, Inc. is in the process of disposing its remaining properties and expects to complete its liquidation in 2005. As the Company does not expect to receive any amount after liquidation, the

remaining book value of the long-term investment was fully written off.

47

b) Loans to others attributed to financial activities as of December 31, 2004:

Collateral

Number Loan of company Lower General ledger account

The biggest amount in 2004

December 31, 2004 Rate Type of

loan

Amount of selling each

other

Required reason of short-term financing

Appropriation allowance for

bad debts Name Value

The credit limit for each borrower

The limited of total amount

of loan 1 Sasson

International Holding Inc.

Millennium Telecom, Inc.

Other receivables

$173,318 $162,777 - Note $ - Operations $ - - $ - $806,102 $806,102

Note: Short-term financing.

c) The endorsements and guarantees provided by the subsidiaries to others as of December 31, 2004: None.

d) The details of marketable securities as of December 31, 2004:

Investor Kinds of

marketable securities

Name of marketable securities The relationship of the issuers with the Company General ledger accounts Number of shares Book value Percentage Market value (Note)

Sasson International Holdings Inc. Stock Applied Materials None Short-term investments 40,000 $19,903 - $21,831 〃 ECB ASE Convertible bonds None Short-term investments 500,000 15,815 - 16,755 〃 Beneficiary

certificate Capital Cash Income Fund None Short-term investments 11,064 115 - 118


Fu-Hwu Bond Fund None Short-term investments 1,106,606 14,000 - 14,350

〃 Stock Euro-MTI S.A.R.L Wholly-owned subsidiary Long-term investments 500 1,516 100.00% 1,516 〃 Stock Welltop Technology Co., Ltd Wholly-owned subsidiary Long-term investments 828,000 (27,574) 100.00% (27,574) 〃 Stock Jupiter Network Corp. Wholly-owned subsidiary Long-term investments 7,749,000 275,075 100.00% 275,075 〃 Stock Zeus Communications, Inc. Wholly-owned subsidiary Long-term investments 777,800 27,372 100.00% 27,372 〃 Stock Taicom Capital Ltd. None Long-term investments 20,000 254,066 13.56% 254,066 〃 Stock Scientific Technology Inc. None Long-term investments 29,273 111,710 11.00% 111,710 〃 Fund NAVF II-LP None Long-term investments - 60,706 5.16% 60,706 〃 Stock Intelligent Epitary Technology,

Inc. None Long-term investments 333,333 31,917 2.20% 31,917

〃 Stock Digital United Holdings Limited

None Long-term investments 223,000 13,629 0.34% 13,629

〃 Stock SR Telecom None Long-term investments 24,457 2,020 0.01% 2,459 〃 Stock Greast Communication

Technology Co., Ltd. None Long-term investments - 48,138 19.98% 48,138

〃 Stock Other None Long-term investments 9,600,000 49,103 - 49,103

Welltop Technology Co., Ltd Stock Optical Microwave Networks Inc.

Wholly-owned subsidiary Long-term investments 43,000,000 (27,667) 100.00% (27,667)

48

Investor Kinds of

marketable securities

Name of marketable securities The relationship of the issuers with the Company General ledger accounts Number of shares Book value Percentage Market value (Note)

Jupiter Network Corp. Stock Jupiter Technology (Wuxi) Inc Investment accounted for under equity method

Long-term investments - $100,146 91.00% $100,146

〃 Stock Wuxi Zeus Technology Inc. 〃Investment accounted for under equity method

Long-term investments - 174,827 91.00% 174,827

Zeus Communications, Inc. Stock Jupiter Technology (Wuxi) Inc Investment accounted for under equity method


〃 Stock Wuxi Zeus Technology Inc. Investment accounted for under equity method


Millennium Telecom. Inc. Stock Neobits Technology Inc. Investment accounted for under equity method

Long-term investments 1,363,000 - 40.00% -

〃 Stock Asia Global Crossing Taiwan. Investment accounted for under cost method

Long-term investments 32,000,000 320,000 40.00% 320,000

〃 Stock Transcom Inc. None Long-term investments 600,000 7,200 1.30% 7,200

(Note): The market value of investments accounted for under cost method is based on average closing price during the last month of the year if listed, or on acquisition cost if not listed. The market value of investment accounted for under equity method is based on the net asset value of the investee company. The market value of Asia Global Crossing Taiwan is based on the option exercise price.

e) The cumulative buying, selling of one specific security over $100,000 or 20 percent of the Company’s capital stock for the year ended December 31, 2004:None. f) Real estate acquired amounting to over $100,000 or 20 percent of the Company’s capital stock for the year ended December 31, 2004: None.

g) Real estate disposed amounting to over $100,000 or 20 percent of the Company’s capital stock for the year ended December 31, 2004: None.

h) Purchases and sales transactions with related parties over $100,000 or 20 percent of the Company’s capital stock for the year ended December 31, 2004: None.

i) Receivables from related parties over $100,000 or 20 percent of the Company’s capital stock as of December 31, 2004: None.

j) Information on derivative transactions: Please see Note 10.

49

3) Disclosure of related information of investment in Mainland China:

a) Basic information, change in investment balance and profits/losses recognized from the indirect investment:

Amount of remittance in 2004

Name of investee in Mainland

China

Main activities of investee Capital

(In US dollars)Method of investment

Beginning balance of

remittance in 2004

(In US dollars)

Remittance out (In US dollars)

Remittance in

(In US dollars)

Ending balance of remittance from

Taiwan on December 31, 2004

(In US dollars)

Shares held by the Company

(Direct / indirect)

(Note ) Profit/losses recognized in

2004

Ending balance of book value on

December 31, 2004

Ending balance of profit

remittance into Taiwan


Satellite communication and microwave communication and consulting service

USD 6,000,000 Invest to Mainland China through activating company on third area

USD 4,750,000 USD 1,250,000 $ - USD 6,000,000 100% ($23,530) $110,051 -

Wuxi Zeus Technology Inc.

Satellite communication and microwave communication and consulting service


USD 2,500,000 - $ - USD 2,500,000 100% 133,788 192,117 -

Greast Communication Technology Co., Ltd.

GreastCom designs, manufactures, and sells the following items for W-CDMA and cdma2002： Base band RF Sub-system；

Repeater；Low Noise Power Amplifier；Linear Power Amplifier；Up/Down Converter；RF Chipset


USD 1,410,000 USD 98,000 $ - USD 1,508,000 19.98% - 48,138 -

Note: Profit/losses recognized based on the financial statements audited by the Company’s auditors.

The ceiling amount of the Company for investment in Mainland China

Ending balance of investment from Taiwan as of December 31, 2004 (in US dollars)

Approved investment amount by Ministry of Economic Affairs R.O.C. (in US dollars) Net worth × 40%

USD$10,008,000 USD$12,508,000 $1,878,480

50

b. Significant transactions with the direct and indirect investees in Mainland China (the amount is the figures prior to eliminating the purchase and sales transactions between the Company and the investee companies in China through its subsidiaries (the middlemen) in other countries.)

(a) Purchase and processing expenditures:

(i) The Company’s net purchase from Jupiter Technology (Wuxi) Inc. For the years ended December 31, 2004 2003 Amount Percentage Amount Percentage Jupiter Technology (Wuxi) Inc. $ 647,430 21% $ 595,435 32%

(ii) Net purchase from Trusin Limited in Hong Kong. For the years ended December 31, 2004 2003

Amount Percentage Amount Percentage Trusin Limited $ - - $ 720 100%

(b) Sales: For the years ended December 31, 2004 2003 Amount Percentage Amount Percentage Jupiter Technology (Wuxi) Inc. $ 243,962 6% $ 267,887 7% Wuxi Zeus Technology Inc. - - 27,723 1% $ 249,962 6% $ 295,610 8%

(c) Materials purchased on behalf of others For the years ended December 31, 2004 2003 Amount Percentage Amount Percentage Wuxi Zeus Technology Inc. $ 381,897 Note $ - -

Note：Materials the Company bought for Wuxi Zeus Technology Inc. were not regarded as purchase and sales transactions. The net amount of relevant revenues and costs was recognized as Non-operating income or expenses. The related receivables amount was shown in other receivables.

(d) Accounts receivable: December 31, 2004 2003 Amount Percentage Amount Percentage Jupiter Technology (Wuxi) Inc. $ 56,942 5% $ 119,128 15% Wuxi Zeus Technology Inc. - - 13,245 2% $ 56,942 5% $ 132,373 17%

51

(e) Other receivables: December 31, 2004 2003 Amount Percentage Amount Percentage Jupiter Technology (Wuxi) Inc. $ 19,947 11% $ - - Wuxi Zeus Technology Inc. 106,314 59% - - $ 126,261 70% $ - -

(f) Accounts payable: December 31, 2004 2003 Amount Percentage Amount Percentage Jupiter Technology (Wuxi) Inc. $ 58,807 9% $ 87,656 22%

(g)Property transactions: Please see Note 5.

(h) Loans to subsidiaries in other countries and Mainland China: None.

(i) The endorsements and guarantees provided by the Company to Mainland China subsidiaries: Please see Note 11.

(j) Other significant transactions which affect current income or financial conditions: None.

52

12. SEGMENT INFORMATION

1) Sales by class of business For the year ended December 31, 2004

Sat.-com. Telecom.

Foreign operation department

Adjustment and Eliminations

Total

Sales to unaffiliated customers

$ 1,708,773

$ 3,631,491

$ 100,409

$ -

$ 5,440,673

Inter-segment sales 654,422 414,202 110,178 ( 1,178,802 ) - Total revenue $ 2,363,195 $ 4,045,693 $ 210,587 ( $ 1,178,802 ) $ 5,440,673 Operating (loss) / profit ( $ 54,161 ) $ 387,781 ( $ 56,957 ) $ 122,271 $ 398,934 Investment loss 35,943 General corporate expenses ( 34,653 )Interest Expense ( 55,633 )Income before income tax expense

$ 344,591

at December 31, 2004: Identifiable assets $ 1,417,504 $ 2,808,860 $ 884 ( $ 273,490 ) $ 3,953,758 Long-term Investments 797,213

General corporate assets 3,596,151 Total assets $ 8,347,122 Depreciation $ 76,558 $ 154,818 $ 953 ( $ 1,570 ) $ 230,759 Capital expenditure $ 230,646 $ 174,075 $ 294 ( $ 23,778 ) $ 381,237

For the year ended December 31, 2003

Sat.-com. Telecom.

Foreign operation department

Adjustment and Eliminations

Total

Sales to unaffiliated customers

$ 1,375,152

$ 2,302,216

$ 215,955

$ -

$ 3,893,323

Inter-segment sales 609,346 50,693 - ( 660,039 ) - Total revenue $ 1,984,498 $ 2,352,909 $ 215,955 ( $ 660,039 ) $ 3,893,323 Operating (loss) / profit ( $ 69,345 ) $ 148,140 ( $ 60,377 ) $ 238,744 $ 257,162 Investment loss ( 131,707 )General corporate expenses ( 36,750 )Interest Expense ( 42,595 )Income before income tax expense

$ 46,110

at December 31, 2003: Identifiable assets $ 900,163 $ 2,300,293 $ 1,498 ( $ 97,887 ) $ 3,104,067 Long-term Investments 1,341,635

General corporate assets 3,857,364 Total assets $ 8,303,066 Depreciation $ 47,154 $ 167,745 $ 366 ( $ 7,581 ) $ 207,684 Capital expenditure $ 59,297 $ 156,014 $ 1,133 ( $ 39,629 ) $ 176,815

53

2) Sales by geographical origin For the year ended December 31, 2004 Asia Others Taiwan Adj & Elim. ConsolidatedSales to unaffiliated customers

$ 834,551 $ 100,409 $ 4,505,713 $ - $ 5,440,673

Inter-segment sales 646,071 110,178 422,553 ( 1,178,802 ) - Total revenue $ 1,480,622 $ 210,587 $ 4,928,266 ( $ 1,178,802 ) $ 5,440,673 Operating (loss) / profit $ 117,685 ( $ 56,957 ) $ 215,935 $ 122,271 $ 398,934 Investment income 35,943 General corporate

expenses (including non-operating items)

( 34,653 )

Interest Expense ( 55,633 )Income before income tax expense

$ 344,591

At December 31, 2004 Identifiable assets $ 695,524 $ 884 $ 3,530,840 ( $ 273,490 ) $ 3,953,758 Long-term Investments 797,213 General corporate assets 3,596,151 Total assets $ 8,347,122 For the year ended December 31, 2003 Asia Others Taiwan Adj & Elim . Consolidated Sales to unaffiliated customers

$ 79,472 $ 215,995 $ 3,597,896 $ - $ 3,893,363

Inter-segment sales 595,435 - 64,604 ( 660,039 ) - Total revenue $ 674,907 $ 215,995 $ 3,662,500 ( $ 660,039 ) $ 3,893,363 Operating (loss) / profit ( $ 44,352 ) ( $ 60,377 ) $ 123,147 $ 238,744 $ 257,162 Investment loss ( 131,707 )General corporate

expenses (including non-operating items)

( 36,750 )

Interest Expense ( 42,595 )Income before income tax expense

$ 46,110

At December 31, 2003 Identifiable assets $ 354,883 $ 1,498 $ 2,845,573 ( $ 97,887 ) $ 3,104,067 Long-term Investments 1,341,635 General corporate assets 3,857,364 Total assets $ 8,303,066

3) Export sales by geographical destination

For the year ended December 31,

2004 2003 America $ 2,928,746 $ 1,948,535 Europe 683,658 684,449 Asia 1,037,114 999,395 Other areas 9,583 35,832 Total $ 4,659,101 $ 3,668,211

54

4) Sales to major customers

For the year ended December 31,

2004 2003

Customer Sales % Sales % Product

A $ 1,589,670 28 $ 1,346,625 34 Telecommunication

B - - 457,378 12 Satellite communication

C 783,098 14 668,046 17 Telecommunication

D - - 510,459 13 Satellite communication

E 671,883 12 - - Satellite communication

$ 3,044,651 54 $ 2,982,508 76

55

REPORT OF INDEPENDENT ACCOUNTANTS

M81M5125-D05

To the Board of Directors and Stockholders of Microelectronics Technology, Inc.

We have audited the accompanying consolidated balance sheets of Microelectronics Technology, Inc. (the Company) and its subsidiaries, Sasson International Holdings Inc. and Global PCS Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, of changes in shareholders' equity and of cash flows for the years then ended, which are expressed in thousands of New Taiwan dollars. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. As described in Note 4 (5) to the consolidated financial statements, certain long-term investments were accounted for under the equity method based on the investee company’s financial statements which were audited by other auditors. Our opinion in so far as it relates to the investment loss amounting to NT$8 million and NT$3 million for the years ended December 31, 2004 and 2003, respectively, and the related long-term investment balances of NT$154 million and NT$163 million as of December 31, 2004 and 2003, respectively, which were included in the financial statements, is based solely on the reports of the other auditors.

We conducted our audits in accordance with generally accepted auditing standards and related rules in the Republic of China. Those rules and standards require that we plan and perform the audits 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statements presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Microelectronics Technology, Inc. and its subsidiaries, Sasson International Holdings Inc. and Global PCS Inc. as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles and the “Rules Governing the Preparation of Financial Statements of Securities Issuers” in the Republic of China.

February 15, 2005 ------------------------------------------------------------------------------------------------------------------------------- The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows of the Company and its subsidiary in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such consolidated financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of the independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

56

Corporate Directory Directors and Executive Officers

Patrick Wang Chairman Chi-Chia Hsieh Vice-Chairman Lory Pike Director, Representative of Agilent Technologies Inc. Lee Ting Director Wayne Chan Director Wilhelm Wurst Supervisor Sue-Fung Wang Supervisor Andrew Chu President Allen Yen Senior Vice President, GM of Satcom and Mobile Division Victor Your Senior Vice President Allen Chen Vice President, GM of Radio Division Shu-huei Fuong Vice President and Chief Financial Officer Jason Chang Vice President, R&D Ken Su Vice President, Manufacturing Location Headquater Microelectronics Technology Inc. No.1, Innovation Road II Hsinchu Science Industrial Park, Taiwan Tel:886-3-577-3335 Fax: 886-3-577-0194 Manufacturing Sites Jupiter Technology (Wuxi) Co., Ltd. B15, Block 52, Wuxi State High & New Technology Industry Development Zone, Wuxi, Jiangsu Province, China Tel: 510-588-9890 Fax:510-522-9892 Optical Microwave Networks Inc. (OMNI) 130, Rose Orchard Way, San Jose, CA95134, USA Tel: 408-954-0466 Fax: 408-954-0908

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MICROELECTRONICS TECHNOLOGY, INC