Neo Solar Power Corporation Contents of Annual Report 2011 · Neo Solar Power Corporation Contents of Annual Report 2011 I. Letter to Shareholders

Neo Solar Power Corporation Contents of Annual Report 2011

I. Letter to Shareholders …………………………………………………………………………………………… 1 II. Company Profile ……………………………………………………………………………………………… 4 III. Corporate Governance Report ……………………………………………………………………………… 5

1.Organizat ion Chart ………………………………………………………………………….… 5

2.Director and Management Team……………………………………………………………………………. 7 3.Implementation of corporate governance……………………………………………………………………. 17 4. Information about accountant's fees………………………………………………………………………. 26 5.Information about change of accountants....………………………………………………………. 27 6. Chairman, general manager, managers responsible for financial or accounting affairs of this company

who have served at the accountant’s firm or its affiliated firms……………………………………………. 27 7. Change in shareholding of directors, supervisors, managers and major shareholders……………………. 28 8. Information disclosing the re any of the relationship between company’s top ten shareholders……………. 29

9.Holdings with the same venture by the company, company directors, supervisors, managers, and directly or indirectly held by the company, and percentage of combined holdings…….................................. 29

IV. Capital Overview…………………………………………………………………………………………….. 30 1. Capital and shares…………………………………………………………………………………………… 30 2. Corporate bonds, preferred shares, GDR, employee stock option, and new shares issued of merged or

disposed other company stock………………………………………………………………………….......... 33 3. Execution of fund use plan……………………………………………………………………. 35

V. Overview of Operations………………………………………………………………………………………… 38 1. Business content……………………………………………………………………………………………. 38 2. Overview of market, production, and marketing……………………………………………………………. 41 3. Human resources………………….…………………….………………………………………………… 45 4. Environmental protection expenses………………………………………………………………. 46 5. Labor relations…………………………………………………………………………………………. 47 6. Important contracts…………………………………………………………………………………………. 48

VI. Financial Information…………………………………………………………………………………… 50 1.Five-year financial summary…………………………………………………………...……………………. 50 2.Five-year financial analysis………………………………………………………………………………….. 51 3. Audit Committee’s report for 2011 financial statements…………………………………………………… 53 4. Financial statements 2011…………………………………………………………………………………. 54 5. Consolidated financial statements 2011 for headquarters and subsidiaries audited and attested by CPA…. 98 6. Difficulties in financial liquidity, if any, of the Company and its affiliated firms in the last year and as of the printing date of this annual report, shall be listed with their impacts on financial status……………………………………………………………………………………………………... 146

VII. Review, Analysis, and Risk Management of Financial Status and Operation Results……………………….. 146 1. Financial status……………………………………………………………………………………………. 146 2. Operation results…………………………………………………………………………………………. 146 3. Cash flow…………………………………………………………………………………………………. 147 4. Effect of major capital expenditures on business for the recent year…………………………. 147 5. Reinvestment policy in the last year, main causes to its profits or losses, improvement plans and

investment plan for the coming year……………………………………………………………………… 148 6. Risk analysis and assessment………………………………………. ……………………………………… 148 7. Other important matters…………………………………………………………………………………… 150

VIII. Special Notes………………………………………………………………………………………………… 151 1. Information on Affiliated Companies………………………………………………………………………. 151 2. Private placement of securities in the last fiscal year and as of the printing date of this annual repor t……………………………………………………………………………………………. 153 3. The Company’s stock held and disposed by subsidiaries in the last fiscal year and as of the printing date of this annual report………………………………………………………………………………… 153 4. Other Supplementary Disclosure…………………………………………………………………………. 153

5. Events which have taken place in the last year and as of the printing date of this annual report that have significant effect on shareholders’ equities or securities price under Article 36, Provision 2, Item 2…….. 153

1

I. Letter to Shareholders Dear Shareholders, First of all, I appreciate all of you for your support and care for the Neo Solar Power Management Team. 2011 was a year of challenge to New Solar Power Corporation (NSP). Due to supply over demand in global capacity and falling average selling price, the solar industry has undergone a dramatic change. Despite this, with support from all shareholders and un-remitting efforts by all employees, NSP has been marching forward at a steady pace. It has been perfecting its process technique and cell conversion efficiency, while improving its client base and product mix. Even in a difficult industry, this had powered NSP to grow 2.22% against the headwind, compared to 2010. NSP even outshone all its Taiwan peers in terms of solar cell revenue. In 2010, in order to further meet clients’ needs, after expanding its capacity to 830MW, NSP’s Plant III at Tainan Technology Industrial Park began its test run in late 2011. By the end of the year, NSP’s total installed capacity for cells had reached 1.3GW (1.3 billion watts). This has not only powered the Company’s dynamic in its future delivery; but it has further increased the Company’s cost competitiveness and accelerated the Company’s expansion in its global market share. In 2011, NSP received awards and confirmation from everywhere successively, which demonstrated NSP’s outstanding performance in all fields. In June 2011, NSP was selected by Business Next to 8th place in Taiwan’s tech Top 100. In September of the same year, NSP received 2 special honors – “Outstanding Enterprise” and “Best Product” from the National Brand YuShan Award. Besides, in 2011, NSP President Dr. Sam Hong was elected third President by the Taiwan Photovoltaic Industry Association. In addition to serving as a communication and exchange platform for the industry, the government and academia, NSP will continue to work hard for Taiwan’s photovoltaic industry development. NSP has been deeply trusted by suppliers and clients for its high-quality products and high value-added technical support. In order to meet clients’ needs synchronously, NSP successfully rolled out its Mono Cell “Black 18”, with an average conversion efficiency of over 18%; the Full-Square Mono Cell “Perfect 19”, with a conversion efficiency of over 19%; and the 6-inch Mono Cell “Black 19”, with an average conversion efficiency of over 19%. After being rolled out, these products have been recognized by NSP’s clients around the world and have established NSP’s status as a solar cell technology leader. In 2012, the solar market end demand will continue to grow, and the market’s long-line development is relatively optimistic. In particular, in the next few years, many areas will reach grid parity. Then, it is expected that the solar market will have an explosive growth. 2011 was a year in which the strongest remained for the industry. NSP owns an outstanding team, excellent quality and efficiency. With its strong semiconductor technical background and solar physics device technique, the Company will continue to devote itself to process technique and product development. In the future, NSP will also continue to enhance its client service and aggressively make a global layout. NSP has been attempting to bring profits and growth to shareholders to feedback shareholders for their support and encouragement of the Company. NSP’s Business Report for 2011 and Business Plan Overview for 2012 are described below: Business Report for 2011:

1. Implementation achievements of business plan In NT$ Thousand

Item 2011 2010

Consolidate Revenue 20,588,097 20,140,097 Consolidated gross profit (loss) (2,117,086) 3,734,813 Consolidated operating profit (loss) (2,755,388) 2,899,627 Consolidated pretax profit (loss) (2,861,450) 2,940,993 Consolidated after-tax profit (loss) (2,913,433) 2,725,376

NSP’s consolidate revenue for 2011 is NT$20,588,097 thousand. Due to a global supply-demand unbalance in the second half of 2011, the Company still grew 2.22% against 2010. However, regarding its profitability, due to recognizing long-term purchase contracts loss, inventory loss, and price fall in the entire solar supply chain, the Company sustained a gross loss of NT$2,117,086 thousand and operating loss of NT$2,755,388 thousand. Consolidated after-tax loss is NT$2,913,433 thousand. The Company’s overall operating expense is well controlled and improved to NT$638,302 thousand, which is reduced by 23.57% compared with 2010. The Company’s consolidated loss after-tax is NT$2,913,433 thousand, and the EPS is NT$-7.76.

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2. Execution of budgets The Company did not make financial forecasts for 2011 externally.

3. Analysis on financial income and expenditures and profitability (1) Financial income and expenditure The Company’s consolidated net cash outflow from operating activity in 2011is NT$613,011 thousand, down

significantly compared with 2010. This is because the Company suffered a loss in operations. Consolidated net cash outflow from investment activity is $4,841,093 thousand, up against 2010. This is mainly because the Company continued to expand its capacity in 2011 in response to solar energy’s overall need in the long term. Consolidated net cash inflow from financing activity is $4,433,948 thousand, up against 2010. This is mainly because the capital increase by cash in Q2 by issuing GDR and increasing long-term loans. The Company’s overall financial income and expenditure is normal and cash position is abundant. The debt-assets ratio also remains relatively low at 34%. The financial structure is quite robust.

(2) Analysis on profitability Although an imbalance in supply and demand globally in 2011 in the solar power industry, Neo Solar Power still grew against the trend, up 2.22% against 2010. Meanwhile, due to conversion efficiency increase and diversified clientele, the total shipment volume around the year also grew 39.34%. This suggests that despite a difficult environment, the Company still grew firmly. However, due to recognizing long-term purchase contract loss, inventory loss, and price fall in the entire solar industry chain, the Company sustained a operation loss of $2,755,388 thousand. Consolidated loss after-tax in 2011 is $2,913,433 thousand.

4. Research & Development The NSP R&D team has been committed to enhancing solar cell conversion efficiency and product quality. In 2011, the average conversion efficiency for Multi Cell reached over 16.8%, while that of Mono Cells reached 18.4%. Our quality is deeply recognized by our clients. In Q1, Q3 and Q4 2011, NSP rolled out 3 types of new high-efficiency solar cells - Mono Cells “Black 18” & “Black 19”, and the Full-Square Mono Cell “Perfect 19”. The 6-inch Mono Cell “Black 18” launched by NSP this time boasts of an average conversion efficiency of over 18%, whereas the 6-inch Mono Cells “Black 19” and “Perfect 19” even exceed 19%. Relying on its process improvement over the years, device renovation, and unique experience accumulated from material choice, NSP can effectively supply module clients with solar cells with outstanding power generation to meet clients’ business needs timely.

<II> Business Plan Overview for 2012:

1. Management Policy Over the past few years, Europe, the United States, and Japan have been aggressively developing renewable energy and offering related subsidy proposals successively. This has made growth of the entire solar market relatively optimistic. In 2011, though the solar industry’s growth was affected due to a global supply-demand unbalance, in order to meet clients’ long-terms needs, NSP built its Plant III at Tainan Technology Industrial Park and successfully expanded its annual capacity to 1.3GW (1.3 billion watts) in 2011 to increase its cost competitiveness. Regarding conversion efficiency, NSP will continue to introduce new process improvements and upgrade conversion efficiency and quality in general to increase gross profit and performance. In respect of finance, as the market is not clear in the short term and the average selling price continues to be compressed, NSP will maintain a robust conservative financial structure consistently in response to any market change.

2. Expected sales volume and its basis The Company expects the shipment volume of solar cells to progressively grow under the launch of the additional capacity.

3. Important production and marketing policy

(1) Production policy: In order to accurately respond to the future expansion plan, NSP adopts various material suppliers and aggressively maintain a good relationship with them. The purpose is to increase a competition edge in ability and control of material price negotiation. In respect of conversion efficiency, NSP aggressively refines its process techniques and continue to introduce new process improvements and upgrade conversion efficiency and quality in general to increase gross profit and performance.

(2) Marketing policy: In response to rapid growth of the global solar market in the future, NSP will plow deeper into the global existing market, make inroads into emerging markets, and aggressively expand its global clientele. In addition to continuing the long-term sales relations with its clients in the past, in reponse to rapid-growth markets, such as Japan and North America, NSP attempts to upgrade its delivery scale and construct a complete international leader client basic framework to create its global sales channel advantage.

<III> Future Development Strategy

1. Short-term development plan: upgrade advantages in technique, quality and production cost

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(1) Marketing strategy: Aggressively increases the market share with high quality and high conversion efficiency products, and increases interaction with downstream vendors and enhances liaison between industries.

(2) Development strategy: In order to meet the market’s demand, progressively increases the capacity, and aggressively develops downstream-ward to enlarge the market.

(3) Product development direction Lowers costs and raises conversion efficiencies of solar cells.

2. Long-term development plan (1) Marketing strategy

A. Pushes ahead with strategic alliances between upper, mid and lower streams to ensure a healthy industry chain and marketing network.

B. Makes long-term cooperation contracts and consolidates clientele for sustainable development. (2) Development strategy

A. In order to meet the market’s demand, progressively increases the capacity, and aggressively develops downstream-ward to enlarge the market.

B. Increases yields and conversion efficiency. C. Upgrades production quality. D. Lowers costs.

(3) Product development direction: A. Develops new types of solar cells. B. Updates manufacturing process incessantly and develops high conversion efficiency products. Raises solar cell

conversion efficiencies. <IV> Outside Competing Environment, Legal Environment, and Macro-Environment

1. The solar industry will reach Grid Parity soon, and its prospects are relatively optimistic. In order to respond to clients’ needs timely, NSP has insisted on a consistent, circumspect expansion pace over capacity, while aggressively increasing its cost competitiveness advantage. NSP has decided a complete production and marketing strategy by working on raising conversion efficiency and rigorous cost and financial control. The Company will continue to work hard to accomplish its designated annual goals.

2. As the solar industry is export-oriented, NSP has aggressively undertaken control over potential exchange rate risks.

In addition to paying close attention to fluctuating exchange rates, the Company utilizes proper hedging tools in order to minimize effects of rate fluctuation on the Company.

3. The Europe’s debt crisis is likely to have an impact on the Europe, to the extent that European firms decrease their

orders with Taiwanese suppliers and even that reception of accounts receivable may be at risk. As a result, NSP maintains close relations with European clients, assesses their financial status on a regular basis, and takes protective measures such as accounts receivable insurance and factoring. At the same time, NSP is aggressively developing emerging markets and increasing percentages of shipments to rapidly growing markets, such as Japan and North America, in an attempt to minimize effects of the European debt crisis.

Dr. Kun-Si Lin

Chairman

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II. Company Profile Date of establishment: Aug. 26, 2005

<II> Company History

Date Milestones

Aug. 2005 Neo Solar Power Corporation is established. Mar. 2006 Selects Hukou, Hsinchu for FAB I and begins to construct plant facilities. Sept. 2006 FAB 1 Line 1 production equipment is installed in place and begins to trial produce.

Dec. 2006 FAB 1 Line 1 enters into 24hrs mass production in Total Production Capacity, annual capacity 30MW.

Feb. 2007 Receives entry permit to Hsinchu Science-based Industrial Park (HSIP).

Sept. 2007 IPO. Hukou FAB 1 Line 1 capacity utilization rate reaches 120%.

Oct. 2007 Listed on the Emerging Stock Market. Both HSIP Headquarters and Plant (FAB2) break ground; entire plant planned to be annual capacity of 600MW.

Jan. 2008 Both HSIP Headquarters and Plant (FAB2) begin to be constructed. FAB 1 Line 2 begins to mass-produce, annual capacity up to 60MW.

Feb. 2008 Receives opinion about “a technological business and successfully developed and marketable products” from the Industrial Development Bureau.

Apr. 2008 Hukou FAB 1 Line 3 begins to mass-produce, annual capacity up to 90MW. May 2008 Sets up Audit Committee.

Jun. 2008 Hukou FAB 1 overall production capacity up to 120%. Applies for listing with Taiwan Stock Exchange.

Aug. 2008 Hsinchu plant FAB 2 formally goes into use with 2 production lines, annual capacity up to 150MW.

Sept. 2008 2 production lines added to Hsinchu plant FAB 2, annual capacity up to 210MW. Oct. 2008 Approved for listing by the Financial Supervisory Commission, Executive Yuan. Jan. 2009 Listed on Taiwan Stock Exchange. May 2009 Debuts Multi-Cell “Super Cell” with conversion efficiency up to 16.8%.

Oct. 2009 Delivers new-generation full-square Mono-crystalline Cell “Perfect Cell”, average efficiency up to 17.8%.

Mar. 2010 180MW capacity devices added to Hsinchu plant FAB 2, annual capacity up to 420MW.

Aug. 2010 Establishes Southern Taiwan Operating Center (NSP Plant III) at Tainan Technology Industrial Park.

Oct. 2010 Announces new-generation Multi-Cell “Super17” with average conversion efficiency over 17%, and Mono-Cell “Perfect18” with average conversion efficiency over 18%.

Dec. 2010 Annual capacity expanded to 800MW. Mar. 2011 Announces Mono-crystalline Cell “Black18” with average conversion efficiency over 18%.

Apr. 2011 Main product Polycrystalline Silicon Solar Cell passes International Carbon Foot Print’s inspection, and meets the international carbon foot print standard “PAS2050”.

Jun. 2011 Selected by Business Next magazine into Taiwan’s Tech Top 100 at 8th place. Jul. 2011 Successfully issues GDR and raises funds.

Aug. 2011 President & COO Dr. Sam, Chum-Sam Hong was selected to be 3rd Chairman for Taiwan Photovoltaic Industry Association.

Sept. 2011 Rolls out Mono-crystalline Cell “Black19” with conversion efficiency over 19%. Receives 2nd National Brand YuShan Awards: “Outstanding Business” & “Best Product”

Oct. 2011 Rolls out new generation Mono-crystalline Cell “Perfect19” with 19% conversion efficiency, with 2% more generating area than traditional notch mono-crystalline cells.

Dec. 2011 Annual installed capacity up to 1.3GW (10 billion watts). Feb. 2012 Rolls out new generation highly reliable, highly efficient cell “NeoMono”.

III. Corporate Governance Report Corporate Organization

(I) Organization Chart

6

(II) Major Corporate Functions

Department Functions

Chairman Set of operational goals and the future direction of company

Audit To identify deficiencies in the internal control system, to assess the effectiveness and efficiency of operations, and to provide appropriate improvement suggestions to ensure the effectiveness of the internal control system as well as for continuous improvement.

Legal Planning, implementation and control of corporate legal risks

President Strategic planning, authorization and supervision, and being the role of spokesman.

Corporation Development Division

Responsible for the planning and execution of human resource management, and responsible for general administrative operations

Finance & Management

Responsible for the summarization and supply of accounting information, management and operation of finance and investment, annual budgeting, credit control, and stocks services. And responsible for information technology and product management operations

Material Division Procurement operations, import and export operations management, Material requirements planning and Inventory control Product shipping, packaging operations and warehousing inventory control

Quality Assurance & Environment Safety Healthy

Planning and execution of quality control system and establish the environment & safety rules to promote customer satisfaction.

Research & Development Advanced product and technology research and development, intellectual property development and management.

Worldwide Sales & Marketing

Responsible for corporate image planning; maintaining and enhancing external public relations; corporate marketing activities worldwide; and analyzing industry data and trends. It is also in charge of formulating and implementing corporate marketing and product plans.

Supply Chain Management Supplier management & raw material purchase

Operation Capacity & chip scheduling, production-benefit analysis solar cell production, Production planning, schedule planning, and work order management

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<II> Directors and Management Team

(I) Directors

1. Directors and Independent Directors APR.. 21, 2012

Shareholding when Elected

Current Shareholding

Spouse & Minor

Shareholding

Shareholding by Nominee Arrangement

Executives, Directors or

Supervisors who are spouses or within two degrees of

kinship

Title Name Date Elected

Term (Years)

Date First

Elected

Shares ％ Shares ％ Shares ％ Shares ％

Experience（Education） Other Position

Title Name Relation

Chairman Kun-Si Lin 06/18/10 3 12/30/05 1,807,581 0.84% 2,534,020 0.59% 86,134 0.02% - -

1Ph. D. degree in business administration from University of Kentucky

2. MBA and bachelor’s degrees in electronic engineering from National Chiao Tung University.

3.Senior Vice President at TSMC

1. Chairman of Rafael Microelectronics, Inc

2. Independent Director of Powertech Technology Inc.

3. .Independent Director of Chroma Ate Inc.

- - -

Independent Director

Jia-Dong Shea 06/18/10 3 05/30/08 - - - - - - - -

1.Ph.D. degree in economics from Stanford University

2.Bachelor, Master degree in economics for National Taiwan University

3. Director of Institute of Economics, Academia Sinica.

4.Vice President of Central Bank of Taiwan

5. Minister of

1.Chairman of Taiwan Academy of Banking and Finance

2. Independent Director of HUA NAN FINANCIAL HOLDINGS CO.,LTD

3. Independent Director of HUA NAN COMMERCIAL BANK , LTD

4. Chairman of Taiwan Financial Services Roundtable Co., Ltd.

5.Professor of Economics of National Taiwan University

- - -

8



Spouse & Minor

Shareholding




kinship


Term (Years)

Date First

Elected



Title Name Relation Ministry of Finance R.O.C.

6. Chairman of Taiwan External Trade Development Council

Independent Director Simon Lin 06/18/10 3 06/30/08 - - - - - - - -

Bachelor degree in computing and control from National Chiao Tung University

Chairman and Chief executive officer of Wistron Corp. - - -


Shyur-Jen Chien 06/18/10 3 12/26/07 - - - - - - - -

Master’s degree in Chemistry Engineering from Massachusetts Institute of Technology

1.Chairman of KISmart Corp. 2.Director of Yageo Corp. 3.Independent director

of UltraChip Inc.

- - -

Director Hsueh-Lee Lee(1) 06/18/10 3 06/18/10 7,548,920 3.53% 9,030,019 2.10% - - - -

Accounting of Soochow University

Vice President of China Development Industrial Bank

- - -

Director Der-Chang Yeh (2) 06/18/10 3 06/18/10 3,757,359 1.76% 4,593,286 1.07% - - - -

M.A. of National Cheng-Chi University, Department of Economics

1. Director, Taiwan United Venture Management Corporation

2. Director, Taiwan United Venture Capital Corporation

3. Supervisor, USI Management Consulting Corporation

- - -

Director Sam Chum-Sam Hong

06/18/10 3 12/30/05 606,833 0.28% 954,049 0.22% - - - -

1.Ph.D. degree in electrical engineering from National Tsing Hua University

2.Division Director of

1. President, Neo Solar Power Corp 2. Chairman, General

Energy Solutions Inc.

3. Chairman, Prime Energy Corp.

4. Chairman, New Ray

- - -

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Spouse & Minor

Shareholding




kinship


Term (Years)

Date First

Elected



Title Name Relation Photovoltaic Solar Energy Division of the Industry Technology Research Institute

3.Vice president and plant director of Sinonar Solar Corp.

Investment Corp

(1)As a representative of China Development Industrial Bank (2)As a representative of Taiwan United Venture Capital Corp

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2. Major shareholders of the institutional shareholders ARP. 21,2012

Name of institutional shareholders

Major shareholders of the institutional shareholders

China Development Industrial Bank China Development Financial Holding Corp. (100%)

Taiwan United Venture Capital Corp. USI Corporation (70.00%)

3. Professional qualifications and independence analysis of directors and Independent directors

ARP. 21,2012

Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years Work Experience

Independence Criteria(Note)

Criteria Name

An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University

A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company

Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company 1 2 3 4 5 6 7 8 9 10

Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director

Kun-Si Lin � - � - - - � � - � � � � 2

Jia-Dong Shea

� - � � � � � � � � � � � 2

Shyur-Jen Chien

- - � � � � � � � � � � � 1

Simon Lin - - � � � � � � � � � � � 2

Sam,Chum- Sam Hong

- - � - - � � � - � � � � -

Hsueh-Lee Lee

- - � - - � � - - � � � - -

Der-Chang Yeh

- - � - - � � - - � � � - -

Note: Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office.

1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is

an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.

3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.

4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs.

5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking in the top five in holdings.

6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company.

7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.

8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. 9. Not been a person of any conditions defined in Article 30 of the Company Law.

10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.

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(II) Management Team ARP. 21, 2012

Managers who are Spouses or Within Two

Degrees of Kinship Shareholding Spouse &

Minor Shareholding

Shareholding by Nominee Arrangement Title Name

Date Effective

Shares ％ Shares ％ Shares ％


Title Name Relation

Chairman and CEO Kun-Si Lin

12/30/05 2,534,020 0.59% 86,134 0.02% - -

1Ph. D. degree in business administration from University of Kentucky

2.MBA and bachelor’s degrees in electronic engineering from National Chiao Tung University.

3.Senior Vice President at TSMC

1. Chairman of Rafael Microelectronics, Inc

2.Independent Director of Powertech Technology Inc.

3. .Independent Director of Chroma Ate Inc.

N/A N/A N/A

President Sam Hong

10/01/05 954,049 0.22% - - - -

1. Ph.D. degree in electrical engineering from National Tsing Hua University

2.Division Director of Photovoltaic Solar Energy Division of the Industry Technology Research Institute

3.Vice President and plant director of Sinonar Solar Corp

1. Chairman, General Energy Solution Inc.

2. Chairman Prime Energy Corp.

3. Chairman, New Ray Investment Corp

N/A N/A N/A

Senior Vice President of Wafer Business

Alex Wen 10/01/05 595,416 0.14% 238,615 0.06% - -

1.Ph.D. degree in power mechanical engineering from National Tsing Hua University

2.Manager and laboratory director of Materials Research Laboratories of the Industrial Technology Research Institute

- N/A N/A N/A

Senior Vice President of Worldwide Sales and Marketing

Andy Shen

05/05/08 820,549 0.19% - - - -

1.MBA, Santa Clara University 2.Master degree in electrical

engineering from Case Western Reserve University

3.Senior director in TSMC

Supervisors of General Energy Solutions Inc.

N/A N/A N/A

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Minor Shareholding


Date Effective



Title Name Relation

Senior Vice President of Supply Chain Management

Marco Hu 02/23/09 2,818 - - - - -

1.Bachelor degree in Communication Engineering from National Chiao Tung University

2.President of Tynsolar Corp.

Supervisors of Prime Energy Crop.

N/A N/A N/A

Senior Vice President and Chief Financial Officer

Thomas Hsu

01/19/11 - - - - - -

1.MBA, University of Michigan 2.Chief Financial Officer of

Tatung Group and Innolux Display Corp.

1. Supervisors of New Ray Investment Corp.

2. Director of Prime Energy Crop.

N/A N/A N/A

Senior Vice President of Operations

Albert Wang

01/19/11 24,607 0.01% - - - -

1. MBA, Leicester University 2.Plant Director in TSMC 3.Senior Vice President at Gintech

Director of New Ray Investment Corp.

N/A N/A N/A

Vice President of Business Development Division I

Simon Lee

12/01/05 128,306 0.03% 282,611 0.07% - -

1.Ph.D. degree from Leeds University

2.Manager of Holy Stone Enterprise Co., Ltd

- N/A N/A N/A

Vice President of Business Development Division III

Tom Wang

06/21/11 - - - - - -

1.Bachelor and Master degree in Electrical Engineering from National Cheng Kung University and San Jose State University

2.President of Neo Group、Genoa Systems、and Pulse Metric

- N/A N/A N/A

Vice President of RD Bob Chen 03/21/11 1,051 - - - - -

1.Ph. D. degree in Electrical Engineering from the University of Texas at Austin

2. EMBA from National Chiao Tung University.

3. RD Deputy Director of TSMC 4. RD Vice President of XinTec

- N/A N/A N/A

13



Minor Shareholding


Date Effective



Title Name Relation

Vice President of Environmental, Safety & Health Office

Ray Lin 03/22/11 - - - - - -

1.Ph. D. degree in Material Science and Engineering from Cornell University

2.Vice President of Product Quality Management and Environmental Safety & Health of Winbond Electronics Corp

3. Chairman of Taiwan Semiconductor Industry Association (TSIA) ESH committee.

- N/A N/A N/A

Director of Accounting Division

Gary Huang

03/01/12 - - - - - -

1.Bachelor degree, Accounting of Tunghai University

2. Deputy Director of Management Division of Innolux Display Corp.

3. Chief Financial Officer, Taiwan Nano Elector-Optical Technology Co. Ltd.

4.Special Assistant of Finance Department of AUO

- N/A N/A N/A

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(III) Remuneration of Directors, President, and Vice President

1. Remuneration of Directors

Dec. 31, 2011 Unit: NT$ / Share thousands

Remuneration Relevant remuneration received by directors who are also employees

Base Compensation(A)

Severance Pay(B) Bonus to Directors(C) Allowances(D)

Ratio of total remuneration

(A+B+C+D) to net income (%)

Salary, Bonuses, and Allowances (E)

Severance Pay (F) Profit Sharing-

Employee Bonus (G)

Exercisable Employee Stock

Options (H)

Ratio of total compensation

(A+B+C+D+E+F+G) to net income(%)

The company

Companies in the

consolidated financial

statements

Title Name

The company

Companies in the


statements

The company

Companies in the


statements

The company

Companies in the


statements

The company

Companies in the


statements

The company

Companies in the


statements

The company

Companies in the


statements

The company

Companies in the


statements Cash Stock Cash Stock

The company

Companies in the


statements

The company

Companies in the consolidated

financial statements

Compensation paid to directors from an invested company other than the company’s subsidiary

Chairman Kun-Si Lin - - - - - - 120 120 - - 2,581 2,581 - - - - - - 495 495 -0.09% -0.09%

Director Hsueh-Lee Lee(1)

- - - - - - 120 120 - - - - - - - - - - - - - -

Director Der-Chung Yeh(2)

- - - - - - 120 120 - - - - - - - - - - - - - -

Director Yi-Chung Chang(3)

- - - - - - 120 120 - - - - - - - - - - - - - -

Director Sam Chum-Sam Hong

- - - - - - 120 120 - - 4,436 4,436 108 108 - - - - 80 80 -016% -0.16%

Director Ted Sun(4) - - - - - - 30 30 - - - - - - - - - - - - - -


Jia-Dong Shea

- - - - - - 120 120 - - - - - - - - - - - - - -


Simon Lin - - - - - - 120 120 - - - - - - - - - - - - - -


Shyur-Jen Chien

- - - - - - 120 120 - - - - - - - - - - - - - -

N/A

(1)As a representative of China Development Industrial Bank (2)As a representative of Taiwan United Venture Capital Corp. (3) As a representative of Quantum Vision Corporation；discharge on Jan. 31,2012 (4) As a representative of New Castle Investment Co., Ltd.；resignation on March 9, 2011

15

2. Compensation of President and Vice President

Dec.31,2011；Unit: NT$/ Stock thousands

Salary(A) Severance Pay (B) Bonuses and Allowances (C)

Profit Sharing- Employee Bonus (D)

Ratio of total compensation

(A+B+C+D) to net income(%)

Exercisable Employee Stock Options

The company Companies in the

consolidated financial statements

Title Name

The company

Companies in the


statements

The company

Companies in the


statements

The company

Companies in the


statements Cash Stock Cash Stock

The company

Companies in the


statements

The company

Companies in the


statements

Compensation paid to the president and vice president from an invested company other than the company’s subsidiary


President Sam Hong


Alex Wen


Andy Shen


Marco Hu


Thomas Hsu


Albert Wang


Simon Lee


Tom Wang

Vice President of RD Bob Chen

Vice President of Environmental Safety & Health Office

Ray Lin

Vice President of Business Development Division II

SJ Liu (1)

26,808 26,808 1,009 1,009 5,769 5,769 - - - - -1.16% -1.15% 695 695 N/A

(1) Resignation on April 28, 2011

Name of President and Vice President Bracket

The company Companies in the consolidated

financial statements Under NT$ 2,000,000 Bob Chen、Ray Lin、Tom Wang Bob Chen、Ray Lin、Tom Wang

NT$2,000,000 ~ NT$5,000,000 Kun-Si Lin、Sam Hong、Andy Shen、Alex Wen、 Marco Hu、Simon Lee、Thomas Hsu、Albert

Wang、SJ Liu

Kun-Si Lin、Sam Hong、Andy Shen、Alex Wen、 Marco Hu、Simon Lee、Thomas Hsu、Albert

Wang、SJ Liu

NT$5,000,000 ~ NT$10,000,000 NT$10,000,000 ~ NT$15,000,000 NT$15,000,000 ~ NT$30,000,000 NT$30,000,000 ~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000 Over NT$100,000,000 Total 12 12

16

3. Compensation Table of Employee Bonus for President and Vice President

Dec.31,2011

Title Name Employee Bonus

- in Stock (Fair Market Value)

Employee Bonus - in Cash

Total Ratio of Total Amount to Net Income（％）


President Sam Hong


Alex Wen


Andy Shen

Senior Vice President of supply Chain Management

Marco Hu


Thomas Hsu


Albert Wang


Simon Lee


Tom Wang

Vice President of RD Bob Chen

Vice President of Environmental Safety & Health Office

Ray Lin


SJ Liu (1)

Executive Officers

Senior Manager of Accounting

Frank Huang (2)

- - - -

(1) Resignation on April 28, 2011 (2) Resignation on Jan. 13, 2012

4. Comparison of Remuneration for Directors, Independent Directors, Presidents and Vice Presidents in the Most Recent

Two Fiscal Years and Remuneration Policy for Directors, Independent Directors, Presidents and Vice Presidents

Ratio of total remuneration paid to directors and Executive Officers to

2010 net income (%)

Ratio of total remuneration paid to directors and Executive Officers to

2011 net income (%)





Directors & Independent Directors

2.59% 2.61% -0.28% -0.28%

Executive Officers 3.11% 3.13% -1.16% -1.15%

(1) Compensation for the Company’s directors includes remunerations and $10,000 every month. Under

the Company’s Articles of Association, if there is any surplus in the Company’s final general accounts,

in addition to paying taxes under law and offsetting previous losses, 10% shall be allotted as a legal

reserve. If necessary, a special reserve may be considered. Next, the Board of Directors makes an

allotment proposal regarding the balance for the shareholders’ meeting to resolve, where remunerations

are 2%.

(2) Compensation for managers in the Company includes salary, allowances, bonuses, etc. It is decided

according to the responsibility born by the position, rate of achievement for the Company’s overall

17

operating objectives, individual; performance, education & experience, etc. Salary level of position of

same quality in the market of the industry shall also be taken into account.

<III> Implementation of Corporate Governance

(I) Board of Directors

Total of 7(A) meetings of the board of directors were held in the previous period. Director attendance was as follows:

Title Name Attendance in Person(B)

By Proxy Attendance rate (%)【Ｂ/Ａ】

Remarks

Chairman Kun-Si Lin 7/7 0 100.00% Independent

Director Jia-Dong Shea 6/7 0 85.71%

Independent Director Shyur-Jen Chien 5/7 2 71.43%

Independent Director Simon Lin 5/7 0 71.43%

Director Sam Chum-Sam Hong 6/7 1 85.71%

Director Yi-Chung Chang (As a representative

of Quantum Vision Corp.) 6/6 0 100%

Discharged on Jan. 31,2012

Director Simon Dzeng

(As a representative of China Development Industrial Bank)

2/5 3 40% Replaced on Oct. 18,2011

Director Hsueh-Lee Lee

(As a representative of China Development Industrial Bank)

1/2 1 50%

Appoint a new representative of juridical director on Oct. 18,2011

Director Ted Sun (As a representative of Shin-Chen Investment Co. Ltd.) 1/2 1 50%

Resignation on Mar. 9,2011

Director Der-Chang Yeh

(As a representative of Taiwan United Venture Capital Corp.)

6/7 1 85.71%

Other mentionable items: I. Matters listed under Article 14-3 in the Securities and Exchange Act, and other Board of Directors resolutions

which have been objected by independent directors or with reserved opinions and with records or written statements, shall specify Board of Directors date, term, proposal content, opinions of all independent directors, handling of the Company with independent directors’ opinions: no such case.

II. Execution of avoidance of proposal content, reasons of interest to be avoided, participation in voting: 1. In the Company board of directors’ discussions over manager change proposal at Hukou branch on January 19,

2011, as Chairman Kun-Si Lin also serves as a manager for the branch, he did not take part in voting, and director Sam, Chum-Sam Hong served as deputy chair. After the deputy chair consulted the other directors, the proposal was passed unanimously.

2. In the Company board of directors’ discussions over deciding compensation for the Company’s independent directors on December 23, 2011, independent director Jia-Dong Shea, independent director Simon Lin, independent director Shyur-Jen Chien expressed avoidance of interest. After the chair consulted the other directors, the proposal was passed unanimously.

3. In the Company board of directors’ discussions over engaging members for the first Compensation Committee (referred to as the “Committee” hereinafter) on December 23, 2011, independent director Jia-Dong Shea, and independent director Simon Lin expressed avoidance of interest. After the chair consulted the other directors, the proposal was passed unanimously.

4. In the Company board of directors’ discussions over compensation for this Company’s independent directors and functionary committee members on February 21, 2012, independent director Jia-Dong Shea, independent director Simon Lin, independent director Shyur-Jen Chien expressed avoidance of interest. After the chair consulted the other directors, the proposal was passed unanimously.

5.In the Company board of directors’ discussions over salaries for this Company’s Chairman and General Manager on February 21, 2012, Chairman Kun-Si Lin and director Sam, Chum-Sam Hong expressed avoidance of interest. After the chairman consulted the other directors, the proposal was passed unanimously, independent director Simon Lin served as chair. After the chair consulted the other directors, the proposal was passed unanimously.

6.In the Company board of directors’ discussions over salaries for this Company’s managers except General Manager on February 21, 2012, director Sam, Chum-Sam Hong (also served as the Company’s President) expressed avoidance of interest. After the chair consulted the other directors, the proposal was passed unanimously.

7.In the Company board of directors’ discussions over deciding the Company’s “guidelines on annual operating performance bonuses for managers”, director Sam, Chum-Sam Hong (also served as the Company’s President) expressed avoidance of interest. After the chair consulted the other directors, the proposal was passed unanimously.

III. Enhancement of the Board of Directors’ functions (e.g. setting up audit committee, increasing information transparency, etc.) in the current year and the previous year and assessment of execution: On May 15, 2008, the Board of Directors passed Organization Regulations for audit committee on May 15, 2008, which was established after the shareholders’ meeting on June 30, 2008.

18

Note: Way of listing is No. of meetings actually attended / No. of meetings due to attend during one’s term.

(II) Audit Committee： Total of 6(A) meetings of the Audit Committeewere held in the previous period. Independent Director attendance was as follows:

Title Name Attendance in Person(B) By Proxy Attendance

rate (%)【Ｂ/Ａ】 Remarks


Jia-Dong Shea 6／6 0 100% Convener of Audit Committee


Shyur-Jen Chien 5／6 1 83.33%


Simon Lin 3／6 1 50%

Other mentionable items:

I. Matters listed under Article 14-5 in the Securities and Exchange Act, and other matters for resolution which

have been approved by over 2/3 of all directors but not yet been passed by the audit committee, shall

specify Board of Directors date, term, resolution content, resolution results by the audit committee, and

handling of the Company with the audit committee’s opinions: no such case.

II. Execution of avoidance of independent directors with proposals with which they have a conflict of interest,

shall specify name of independent director, proposal content, reasons of interest to be avoided, and

participation in voting: no matters in proposals with which the audit committee has a conflict of interest.

III. Communication between independent directors, internal audit directors, and accountants (e.g. over

company finance, business, methods, results, etc.)

1. The Company audited every meeting of the audit committee and reported to independent directors on a

regular basis. Independent directors did not object to any matters reported. Independent directors

offered their professional opinions regarding reported matters, which were also taken into account by

the Company.

2. Independent directors communicated with CPAs vis-à-vis or in writing over financial status on a

seasonal basis.

(III) Remuneration Committee Total of 1(A) meetings of the Remuneration Committeewere held in the previous period. The member attendance was as follows:

Title Name Attendance in Person(B) By Proxy Attendance rate

(%)【Ｂ/Ａ】 Remarks

Independent

Director Simon Lin 1／1 0 100%

Convener of Remuneration

Committee

Independent

Director Jia-Dong

Shea 1／1 0 100%

Independent

Director Shyur-Jen

Chien 1／1 0 100%

Other mentionable items:

N/A

19

(IV) Corporate Governance Execution Status and Deviations from “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies”

Item Operations differences with practical regulations in listed and OTC

firms’ governance, and why

I. Company equities structure and shareholders’ rights and interests

(I) Way of the Company handling shareholders’ suggestions and disputes.

(II) The Company holds name list of main shareholders

who actually control the Company, and name list of final controllers of main shareholders.

(III) Way of the Company establishing risk control

mechanism and firewall with affiliated firms.

(I) The Company has set dedicated personnel for

spokesperson and deputy spokesperson, and has an e-mail address for investors to handle shareholders’ suggestions, disputes, etc.

(II) The Company has dedicated personnel for shares related affairs and managing related information. It also commits a securities firm to assist with handling share related affairs. The Company holds name list of main shareholders who actually control the Company, and name list of final controllers of main shareholders.

(III) Has established an internal control system.

Corresponds to the Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies.

II. Organization and responsibilities of the Board of Directors

(I) How the Company sets up independent directors (II) Assesses independence of CPAs on a regular basis.

(I) Currently the Company has 3 seats of independent

directors in place. (II) When the Company appointed Yu-feng Huang and

Cheng-Chih Lin of Deloitte & Touche to be CPAs, their independence had been assessed – that they were not stakeholders of this Company.


III. Establishes communicative channels with persons in conflicts of interest.

The Company has dedicated personnel and an e-mail address for coping with affairs related to the Company’s stakeholders.


IV. Publication of information (I) About the Company’s setting up Website, disclosure

of finance and business, and corporate governance (II) The Company adopts other way of disclosing

information (e.g setting up English Website, dedicated person in charge of gathering and disclosing company information, putting spokesperson system in practice, posting investor conference process on company Website, etc.)

(I) The Company has disclosed finance and business

related information and update it on a regular basis.

(II) The Company has set up English Web pages and has spokesperson and deputy spokesperson, 1 each. And dedicated personnel have been assigned for gathering and disclosing company information. And investor conference related information is also posted on the Website.


20

Item Operations differences with practical regulations in listed and OTC

firms’ governance, and why

V. How the Company sets up nomination, compensation or other similar functionary committees.

(I) The Company passed a shareholders’ meeting and a meeting of the Board of Directors on June 30, 2008 to establish an audit committee. (II) The Company set up a compensation committee pursuant to the Board of Directors’ resolution on December 23, 2011.

VI. If the Company has drafted company governance practical regulations under the “Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies”

VII. Other important information which may help to understand how the Company’s governance operates (e.g. employees’ rights and interests, care for staff, investor relations, supplier relations, stakeholder’s rights, further education of directors and supervisors, execution of risk management policy and risk assessment standards, execution of client policy, the Company purchasing liability insurance for directors and supervisors, etc.)

(1) The Company has set up Employees' Welfare Committee, implemented pension system, provides equal employment opportunities, holds various staff training programs and staff group insurance, and arranges health check-ups on a regular basis, etc. The Company values harmonious relations with laborers. (2) In order to enhance employees’ expertise and cultivate them to be international excellent talent, the Company holds a variety of educational and training programs for employees, including orientation training, on-the-job training programs, professional programs, work safety programs, as well as various training programs related to duties, to cultivate them to become excellent talent with professional skill. (3) The Company honestly publishes information about the Company under law to ensure rights of investors and stakeholders and assumes a firm’s responsibility for its shareholders. (4) The Company has smooth communicative channels and good relations with clients and suppliers. (5) Further education of the Company’s directors is listed below:

Name of director Held by Name of program No. hrs

Der-Chang Yeh Securities & Futures Institute Advanced seminar on practice of directors and supervisors

3.0

(6) The Company’s internal control, risk management system, and necessary management regulations, require the Board of Directors’ resolution. (7) The Company rigorously observes contracts signed with clients and related regulations and ensure related rights of clients by providing good service quality. (8) The Company has purchased liability insurance for directors. VIII. Company governance self-assessment reports or governance evaluation reports which commit other professional organizations, shall describe results of self-assessment (or committed evaluation), main deficiencies, and improvements: The Company undertook self-assessment on internal governance and did not find any major deficiencies.

21

(V) Implement social responsibility：

Item Implementation Difference with principles for

TWSE/GTSM Listed Companies’ CSR practice, and why

I. Promoting corporate governance (I) The Company sets up corporate social responsibility

policy or system, and then evaluate the result. (II) The Company establishes a dedicated unit to

responsible for promoting corporate governance (III) The Company holds internal trainings of corporate

code of ethics for directors, supervisors and employees, and sets up effective reward and punish regulation with it.

(I) The Company has not set up any corporate social responsibility

policy or system. (II) “Human Resources Department” and “Quality Assurance

Environment Safety and Health” are the dedicated units to promote the corporate governance related to social responsibility.

(III) The Company holds regular internal trainings, and currently planning to combine the training with employee performance evaluation system.

Corresponds to principles for TWSE/GTSM Listed Companies’ CSR practice.

II. Develop sustainable environment (I) The Company is committed to raising utilization

efficiency of various resources, and uses recycled material which has low impact on the environment.

(II) The Company creates proper environmental management systems based on characteristics of its industry.

(III) Establishes dedicated unit or personnel for environmental management to maintain the environment.

(IV) The Company pays attention to effects of climate change on operating activity, and develops strategy for saving energy and reducing greenhouse gas.

(I) The Company is committed to improving at the source by raising

utilizing efficiency of various resources to accomplish the goals of raw material reduction and waste reduction to decrease impact on the environment.

(II) In respect of promoting environmental safety and health, in addition to conforming to domestic environmental safety and health related laws and regulations, the Company also has been geared to international standards, implemented an environmental safety and health management system. And in October 2009, it received accreditations of ISO14001, OHSAS18001, and TOSHMS. NSP was the first solar cell maker in Taiwan who passed 3 sets of system verification.

(III) The Company has a dedicated environmental safety and health office which is responsible for implementing and executing environmental protection, safety and health related business. In addition to the existing environmental safety and health unit, the Company has set up a company-wide environmental safety and health management committee to develop and decide the Company’s overall environmental safety and health strategy and related proposals.

(IV) Currently Climate Change has become an issue which draws attention from investors and firms. The Company understands that it may cause natural disasters and directly impacts operating activity, and that it may cause raw material prices to rise or even suspend supply. As a result, since the plant was constructed, the Company has been paying close attention to various energy saving and greenhouse gas reduction related issues. In October 2010, to cooperate with the Ministry of Economic Affairs’ “ product carbon footprint demonstration system guidance plan”, the Company began to examine product carbon footprint, which was finished on March 17, 2011.


22



III. Maintains social welfare (I) The Company observes related labor laws and

regulations, protects employees’ legal rights, and establishes proper management methods and procedures.

(II) The Company provides employees with a safe and healthy working environment, and implements safety and health education with employees on a regular basis.

(III) The Company drafts and publishes consumers’ rights policy, and provides a transparent and effective consumers’ complaint procedure regarding its products and service.

(IV) The Company works together with suppliers to enhance its corporate social responsibility (CSR).

(V) By commercial activity, object donations, enterprise volunteer service, or other free professional service, the Company takes part in community development and charity and public benefit group related activities.

(I) The Company observes related labor laws and regulations, and staff employment and discharge are all pursuant to the Company’s internal control management measures to ensure staff’s basic rights.

(II) The Company believes that only healthy employees can create high-efficiency, high quality work performance. To do that, the Company is committed to providing staff with a safe and healthy working environment. In respect of physical health, staff check-ups are held on an annual basis. And through diverse health lectures, health promoting activities, and health education information, staff can further control their own health status, and understand knowledge and methods about own health management. In respect of spiritual health, the Company has set up “Happy Go Station” to offer services such as mental consultation, work and life adaption, sleep consultation, etc. And all kinds of spiritual supply lectures are held on an irregular basis. In respect of work safety, the Company continues to give educational training and promotion in an aim to arm staff with an ability to cope with emergencies and safety concepts. This is to increase staff’s cognitive ability and decrease occurrences of accidents due to unsafe behavior.

(III) The Company has dedicated personnel and e-mail dealing with problems related to consumers’ rights and complaints, which will be handled fairly and timely.

(IV) In order to realize the spirit voluntary reduction of product carbon footprint, the Company called 10 suppliers together in 2010 to join the “product carbon footprint demonstration system guidance plan” initiated by the Industrial Development Bureau, Ministry of Economic Affairs, in a bid to jointly execute product carbon footprint inspection.

(IV) In response to the government’s initiatives, the Company has set up youth employment flagship plans and employment kick-off plans, and held charity bazaars in plant for mentally challenged child, and has aggressively taken part in public-benefit and charity group activities, for example, responding to the Hsinchu Science-based Industrial Park’s “Me to We” action plan, participating in second-hand clothes donations in “Love 828” Grandparents festival; in “Pass it forward to Japan”, assisting with relief the 311 great earthquake; holding “Love is easy” second-hand books and stationery activity, and raising funds for a children’s library.


23



IV. Increases information disclosure (I) How the Company discloses its CSR related

information which is relevant and reliable. (II) The Company compiles a CSR report to reveal how

its CSR has been implemented.

(I) The Company has created a “safe work and sustainable environment”

on its Website. In the future, CSR related information will continue to be disclosed on the Web.

(II) The Company has yet to compile its CSR report. In the future, it will be compiled as needed and increase disclosure of its CSR effort.


V. If the Company has developed its own CSR principles under the “Principles for TWSE/GTSM Listed Companies”, please describe how it works and the differences with the drafted principles: The Company’s CSR practice principles and related rules are still being developed. VI. Other important information that helps to understand how the Company’s CSR works (e.g. systems, measures and implementation adopted regarding environmental

protection, community participation, social contributions, social service, public benefits, consumers’ rights, human rights, safety and health, etc.): (I) The Company has been attaching high value to work safety, environmental protection, safety and health, etc. As such, in October 2008, it received a “Safety and Health

Model” medal from the Industrial Development Bureau. Besides, when Plant II was under construction, the Company was awarded the “Environmental Protection Worksite” honor by the Environmental Protection Bureau of Hsinchu City for promoting worksite air pollution prevent efforts. In 2010, our Tainan plant was honored No.1 environmental protection worksite award. In 2012, NSP also joined the greater Tainan “safety and health family” to function as a work safety leader, in a bid to promote safety and health concepts to every corner of workplace.

(II) In order to correctly, rapidly and effectively control disasters and protect staff’s safety in major abnormal occurrences, in addition to hold educational training for new employees, NSP undertakes PPE wear educational training for rescue team personnel every month, fire extinguisher operation training for all staff, and evacuation drills in case of disaster worsening.

(III) For the sake of our Earth, the Company holds viewing of the movie “Earth” on World Environment Day to wake up humankind and love Earth hand in hand. Holds health related lectures “Low carbon, life, health”, promoting love for Earth with low-carbon diets and healthy vegetables.

(IV) The Company has created a variety of high quality employment opportunities. For this reason, NSP was honored “Employment creation contribution award 2011” by the Council of Labor Affairs, received “Happy enterprise prize” from the Ministry of the Interior, and voted “Charismatic enterprise” by Yes123. At the same time, the Company aggressively took part in diverse employment projects initiated by the government, such as “Youth flagship”, “Employment kick-off”. And employees' welfare committee has been set up, pension system implemented, various employee training programs held, employee group insurance taken, health check-ups arranged regularly, etc. The Company also values a harmonious relationship with laborers.

(V) The Company offers employment opportunities to the visually impaired massagists, while aggressively taking part in community charity activities, such as bazaars for the mentally retarded, international disaster fund-raising, second-hard clothes donations, fund-raising for children’s libraries, etc.

VII. If company products or CSR reports have passed any related certification agencies’ inspection standards, please state it: In order to make the Company’s safety, health and environmental protection related operations managed in a more systematical manner, the Company’s work safety and environmental protection department was granted OHSAS18001, ISO14001, and TOSHMS certificates in October 2009. NSP was the first solar cell maker in Taiwan who was certified for its 3 sets of systems at the same time.

(VI) How the Company has carried out honest operations and adopts related measures: The Company has implemented corporate governance related rules as a matter of fact,

enhanced the Board of Directors’ functions, developed the audit committee’s functions, and stipulated various internal measures to ensure honest operations and legal

compliance. In addition, the Company posted related company information on the Market Observation Post System and on the Company’s Website in order to

materialize its promise of CSR and corporate sustainable operations.

(VII) If the Company has drafted any corporate governance principles and related regulations, please disclose how to check them up: None.

(VIII) Other important information that may facilitate understanding of corporate governance operations shall also be disclosed: None.

24

(XI) Execution of internal control system

1. Internal control statement

NEO SOLAR POWER CORP.

Internal Control System Statement

Date: Feb. 21, 2012

Regarding this Company’s internal control system is stated as follows under self-check results:

I. Acknowledging that establishing, implementing and maintaining its internal control system lies with the Company’s Board of Directors and managers, this Company has establish such system. The purpose is to accomplish objectives for operating effects and efficiency (including profits, performance and ensuring asset safety, etc.), reliability of financial reports, and compliance with related law and regulation, as well as offer reasonable assurance.

II. Internal control systems have their congenital restrictions. Regardless of design, effective internal can only offer reasonable assurance for accomplishment of the aforementioned three objectives. Moreover, due to changes in the environment and situation, its efficiency may vary accordingly. However, this Company’s internal control system is equipped with a self-monitoring mechanism. Once a deficiency is identified, the Company will take corrective action immediately.

III. The Company determines if the design and execution of the internal control system is effective in accordance with the items for determination of effectiveness of internal control system in the “Regulations Governing Establishment of Internal Control Systems by Public Companies” (referred to as “the Regulations” hereinafter). The determination items for internal control system adopted by the Regulations are 5 component elements by dividing an internal control system under a management control process: 1. control environment, 2. risk assessment, 3. control operations, 4. information & communication, and 5. monitoring. Every component element also includes a number of sub-items. Please refer to the “Regulations” for the above items.

IV. This Company has adopted the above determination items for inspecting the efficiency of the design and execution of its internal control system.

V. Based on the previous inspection result, the Company believes that the Company’s internal control system (including supervision and management of branches) on December 31, 2011, includes understanding to what degree operating effects and effectiveness objectives are accomplished, reliability of financial reports, observance of related laws and regulations – design and execution of which are effective, that can reasonably insure that the above objectives are accomplished.

VI. This statement will become the main part and parcel of this Company’s annual report and public offering prospectus.

VII. It is announced herewith that this statement was passed by the Board of Directors on February 21, 2012 and that the 7 directors who were present all agreed to the content of this statement.

Neo Solar Power Corp.

Chairman: Kun-Si Lin

General Manager: Sam, Chun-Sam Hong

25

2. Firms who authorize CPAs to audit their internal control systems shall disclose their CPA audit reports: N/A. (X) In the last year and as of the printing date of the annual report, whether the Company and internal

personnel have been punished under law, whether the Company has punished internal personnel due to

their violation of the internal control system, and whether there were any deficiencies and improvements:

None.

(XI) In the last year and as of the printing date of the annual report, important resolutions by the shareholders

meeting and in the Board of Directors:

1. Important resolutions by shareholders’ meeting

Meeting date Important resolutions

Apr. 11, 2011

1. Recognizes the proposal on the business report and financial statement for 2010. 2. Recognizes the proposal on earning allotment for 2010. 3. Passes the proposal on capital increase by cash by issuing common stock, or by

issuing GDR by issuing common stock. 4. Passes the proposal on private placement of common stock. 5. Passes the proposal on capital increment from retained earnings by issuing new

stock. 6. Passes the proposal on some amended articles in the Articles of Incorporation. 7. Passes the proposal on some amended articles in the “Procedure for Acquisition or

Disposal of Assets”.

2. Important resolutions by the Board of Directors


Jan. 19, 2011

1. Passes the proposal on engaging Mr. Thomas Hsu to serve as this Company’s Senior Vice General Manager and Chief Financial Officer.

2. Passes the proposal on capital increase by cash by issuing common stock, or by issuing GDR by issuing common stock.

3. Passes the proposal on private placement of common stock. 4. Passes the proposal on some amended articles in the Articles of Incorporation. 5. Passes the proposal on some amended articles in the “Procedure for Acquisition or

Disposal of Assets”. 6. Passes the proposal on deciding the meeting date for shareholders’ meeting and related

agenda.

Feb. 15, 2011

1. Passes the proposal on the business report and financial statement for 2010. 2. Passes the proposal on earning allotment for 2010.. 3. Passes the proposal on capital increment from retained earnings by issuing new stock. 4. Passes adding related agenda to the Company’s shareholders’ meeting 2011. 5. Passes the proposal on increasing capital expenditure. 6. Passes the proposal on setting up overseas holding firm and domestic holding firm. 7. Passes the proposal on CPA change in response to the need for internal rotation in

Deloitte & Touche.

Apr. 12, 2011

1. Passes the proposal on capital expenditure of plant affairs, production and high voltage work equipment , FAB 3B at Tainan Science-Based Industrial Park.

2. Passes the proposal on equipment procurement for enhancing FAB 1 & FAB2’s efficiency.

3. Passes the proposal on the Company’s attempting capital increase by cash and issuing GDR in response to machine and equipment procurement and overseas material procurement.

4. Passes the proposal on capital increment from retained earnings by issuing new stock. May 11,

2011 1. Passes the proposal on providing endorsement for branch Sunny Optronics Corp.

Aug. 31, 2011

1. Passes the proposal on the financial statements for the first half of 2011 and consolidated financial statements.

Dec. 23, 2011

1. Passes the proposal on stipulating charter for this Company’s Compensation Committee.

2. Passes the proposal on engaging members for this Company’s first Compensation Committee.

26


Feb. 21, 2012

1. Passes the proposal on the business report and financial statement for 2011. 2. Passes the proposal on loss offsetting for 2011. 3. Passes the proposal on capital increase by cash by issuing common stock, or by issuing

GDR by issuing common stock. 4. Passes the proposal on private placement of common stock. 5. Passes the proposal on some amended articles in the Articles of Incorporation. 6. Passes the proposal on some amended articles in the “Procedure for Acquisition or

Disposal of Assets”. 7. Passes the proposal on deciding the meeting date for shareholders’ meeting and related

agenda. 8. Passes the proposal on engaging Mr. Garry Huang ti serve as Accounting Director for

this Company.

(XII) Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to

Important Resolutions Passed by the Board of Directors：None

(XIII) Resignation or Dismissal of Personnel Involved in Preparation of Financial Reports： April. 21, 2012

Title Name Date of

Appointed Date of

Termination Reasons for Resignation or

dismissal

Senior Accounting Manager

Frank Huang May. 14, 2007 Jan. 13, 2012 Resignation

<IV> Information about Accountant's fees

(I) Accountant’s fees List of Accountant's Fees

Accountant’s firm Accountant Audit period Remarks Deloitte & Touche Yu-feng Huang Shu-jie Huang 2010 Deloitte & Touche Yu-feng Huang Cheng-chih Lin Since 2011

In NT$ Thousand

Item Bracket Audit fee Non-audit fee Total

1 Below $2,000,000 2 $2,000,000 (incl)～$4,000,000 � 3 $4,000,000 (incl.)～$6,000,000 4 $6,000,000 (incl.)～$8,000,000 5 $8,000,000 (incl.)～$10,000,000 � 6 $10,000,000 (incl.) above �

(II) Non-audit fees paid by the Company to CPAs, the CPAs’ firm, and its affiliated firms are over 1/4 of audit

fees: In NT$ Thousand

Non-audit fees Accountant’s firm Accountant Audit

fee System design Registration HR

resources Other Subtotal

Accountant audit period Remarks

Yu-feng Huan

Deloitte & Touche

Cheng-Chih Lin

3,403 8,331 8,331 100/01~ 100/12

Non-audit fees are mainly assisting with implementing IFRS, issuing GDR, and general consulting fee.

27

(III) Accountant’s firm was changed this year, and the audit fee paid for the year of change was less than that paid for the previous year: N/A.

(IV) The audit fee was reduced by over 15% against the previous year: None.

<V> Information about change of accountants

(I) About the previous accountants

Date of change Feb. 15, 2011

Reason & description

In order to maintain CPA’s independency, Deloitte & Touche undertakes internal rotation on a regular basis. Since Q1 of 2011, auditing CPAs of this Company’s financial statements were changed from accountants Yu-feng Huang and Shu-jie Huang, to accounts Yu-Feng Huang and Cheng-Chi Lin.

Persons involved Status

Accountant Principal

Voluntarily terminates - -

Whether the principal or accountant terminates or rejects the commission

Rejects re-commission - - opinions given other than Unqualified Opinions in audit reports in the last 2 yrs, and why

None.

Accounting principle or practice

Disclosure of financial report Scope or procedure of audit Other

Yes

No �

Different opinion with issuer

Description

Other disclosure None.

(II) About succeeding accountants

Name of firm Deloitte & Touche Names of accountants Yu-feng Huang & Cheng-Chih Lin Date of commission Feb. 15, 2011 Before commission, opinions, consultation and result regarding specific accounting processing method or accounting principle and opinions which may be issued over financial report

None

Written opinion of succeeding accountants in different opinions with the previous accountants

None

(III) The previous accountants’ reply under Article 10, Provision 5, Point 1, & Point 2-3: N/A.

<VI> Chairman, General Manager, managers responsible for finance or accounting affairs of this Company who have served at the accountant’s firm or its affiliated firms: None.

28

<VII>Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders (I) Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders holding of more than

10%: Unit: Share

2011 As of Apr. 21, 2012

Title Name Holding Increase

(Decrease)

Pledged Holding Increase

(Decrease)

Holding Increase

(Decrease)

Pledged Holding Increase

(Decrease)

Chairman and CEO Kun-Si Lin 123,460 - - -

Director and President Sam, Chum-Sam Hong (281,638) - (130,000) -

Director China Development Industrial Bank

(473,484) - - -

Director Taiwan United Venture Capital Corp.

223,789 - - -

Independent Director Jia-Dong Shea - - - -

Independent Director Shyur-Jen Chien - - - -

Independent Director Simon Lin - - - -

Director New Castle Investment Co., Ltd. (Resignation on March 9,2011) - - - -

Director Quantum Vision Corporation (Discharge on Jan.31,2012) (1,063,004) - (470,000) -

Senior Vice President of Wafer Business Alex Wen 9,969 - 75,000 -


Andy Shen 34,188 - (9,000) -


Marco Hu 2,638 - - -


Thomas Hsu (Appointed on Jan.19, 2011) - - - -


Albert Wang (Appointed on Jan.19, 2011) 24,607 - - -


Simon Lee (357,244) - - -


Tom Wang (Appointed on June.21, 2011) - - - -

Vice President of RD Bob Chen (Appointed on March.21, 2011) 51 - - -

Vice President of Environmental, Safety & Health Office

Ray Lin (Appointed on March.22, 2011) - - - -

Director of Accounting Division

Gary Huang (Appointed on March.1, 2012) - - - -


SJ Liu ((Resignation on Apr. 28,2011) 160,000 - - -


Frank Huang (Resignation on Jan. 13,2012) (85,123) - - -

(II) Shares Trading with Related Parties：

Name Reason of Transfer

Date of Transaction

Transferee Relationship between Transferee

and Directors, Supervisors, Managers and Major Shareholders

Shares Transaction

Price (NTD)

Frank Huang

endowment Jan.13,2011 Yushan Sun Relative within the second degree of kinship

31,000 70.8

Frank Huang

endowment Jan.13,2011 Yulin Sun Spouse 31,000 0

(III) Shares Pledge with Related Parties：N/A。

29

<VIII>Information Disclosing the Re any of the relationship between Company’s Top Ten Shareholders：：：：

As of Apr. 21, 2012

<IX> Holdings with the same venture by the Company, company directors, supervisors, managers,

and directly or indirectly held by the Company, and percentage of combined holdings:

Mar. 31, 2012 / In share

Invested by this Company

Investment by directors, supervisors, managers and

directly or directly controlled businesses

Combined investment Re-invested firm

Shares Holding ratio Shares Holding ratio Shares Holding

ratio

General Energy Solutions Inc.

27,372,753 65.17% 1,971,289 4.69% 29,344,042 69.86%

Prime Energy Corp. 5,000,000 100% - - 5,000,000 100%

New Ray Investment Corp.

11,500,000 100% - - 11,500,000 100%

ThinTech Materials Technology Co., Ltd.

4,000,000 6.09% 4,000,000 6.09% 8,000,000 12.18%

Shareholding Spouse & Minor Shareholding by Nominee Arrangement

The relationship between

any of the Company’s

Top Ten Share holders

Name

Shares % Shares % Shares % Name Relation

Remarks

China Development Industrial Bank

9,030,019 2.10% - - - - N/A N/A -

New Castle Investment Co., Ltd.

4,884,552 1.14% - - - - N/A N/A -

Taiwan United Venture Capital Corp.

4,593,286 1.07% - - - - N/A N/A -

Labor Pension Fund (New System)

3,080,000 0.72% - - - - N/A N/A -

Kun-Si Lin 2,534,020 0.59% 86,134 0.02% - - N/A N/A -

Mega International Commercial Bank Co., Ltd

2,474,912 0.58% - - - - N/A N/A -

Wisdomtree Trust-Wisdomtree Emerging Markets High-Yielding Equity Fund

1,976,678 0.46% - - - - N/A N/A -

Hc Second Asset Management Co., Ltd

1,940,954 0.45% - - - - N/A N/A -

Dimensional Emerging Markets Value Fund

1,846,000 0.43% - - - - N/A N/A -

Cathay Greater China Fund 1,804,000 0.42% - - - - N/A N/A -

30

IV. Capital Overview Capital and Shares

(I)Source of Capital As of April 21, 2012

Authorized Capital Paid-in Capital Remark

Month/ Year

Par Value (NTD) Shares

Amount (NTD)

Shares Amount (NTD)

Sources of Capital

Capital Increased

by Assets Other

than Cash

Other

Feb /2011 10 500 ,000 ,000 5 ,000 ,000 ,000 297 ,173 ,061 2 ,971 ,730 ,610Issuance of common shares for conversion of ECB & ESOP

N/A N/A

Ap r /2011 10 500 ,000 ,000 5 ,000 ,000 ,000 312 ,629 ,574 3 ,126 ,295 ,740Issuance of common shares for conversion of ECB & ESOP

N/A N/A

Ju l /2011 10 500 ,000 ,000 5 ,000 ,000 ,000 328 ,649 ,767 3 ,286 ,497 ,670Issuance of common shares of retained earnings

N/A N/A

Au g/2011 10 800 ,000 ,000 8 ,000 ,000 ,000 428 ,649 ,767 4 ,286 ,497 ,670Issuance of common shares for cash capital increase

N/A N/A

Sep/2011 10 800 ,000 ,000 8 ,000 ,000 ,000 428 ,864 ,767 4 ,288 ,647 ,670Issuance of common shares for ESOP

N/A N/A

Jan /2012 10 800 ,000 ,000 8 ,000 ,000 ,000 428 ,904 ,767 4 ,289 ,047 ,670Issuance of common shares for ESOP

N/A N/A

Ap r /2012 10 800 ,000 ,000 8 ,000 ,000 ,000 429 ,314 ,767 4 ,293 ,147 ,670Issuance of common shares for ESOP

N/A N/A

(II)General Report System and related Information: N/A

Type of Stock

As of April 21, 2012 Authorized Capital Share Type

Issued Shares Un-issued Shares Total Shares Remarks

Common Stock

429,314,767 Shares

370,685,233 Shares 800,000,000 Shares

(IV)Status of Shareholders As of April 21,2012

Item Government Agencies

Financial Institutions

Other Juridical Person

Foreign Institutions & Natural Persons

Domestic Natural Persons

Treasury Stock

Total

Number of Shareholders 0 6 122 136 68,490 0 68,754

Shareholding (shares) 0 11,873,954 35,769,354 28,560,862 353,110,597 0 429,314,767

Percentage 0.00% 2.77% 8.33% 6.65% 82.25% 0.00% 100.00%

(V)Shareholding Distribution Status

As of April 21,2012

Class of Shareholding (Unit : Share)

Number of Shareholders Shareholding (Shares) Percentage

1-999 12,846 2,361,220 0.55%

1,000-5,000 40,569 86,072,373 20.05%

5,001-10,000 8,181 60,137,523 14.01%

10,001-15,000 2,813 33,595,774 7.83%

15,001-20,000 1,403 25,431,540 5.92%

20,001-30,000 1,268 31,053,677 7.23%

30,001-40,000 534 18,602,579 4.33%

31

Class of Shareholding (Unit : Share)

Number of Shareholders Shareholding (Shares) Percentage

40,001-50,000 290 13,258,576 3.09%

50,001-100,000 529 37,464,010 8.73%

100,001-200,000 191 26,122,528 6.08%

200,001-400,000 70 19,034,252 4.43%

400,001-600,000 19 9,312,931 2.17%

600,001-800,000 9 6,250,515 1.46%

800,001-1,000,000 9 7,752,729 1.81%

Over 1,000,001 23 52,864,540 12.31%

Total 68,754 429,314,767 100.00%

(VI)List of Major Shareholders

As of April 21,2012

Shareholder's Name Shares Percentage China Development Industrial Bank 9,030,019 2.10%

New Castle Investment Co., Ltd. 4,884,552 1.14%

Taiwan United Venture Capital Corp. 4,593,286 1.07%

Labor Pension Fund (New System) 3,080,000 0.72%

Kun-Si Lin 2,534,020 0.59%

Mega International Commercial Bank Co., Ltd 2,474,912 0.58%

Wisdomtree Trust-Wisdomtree Emerging Markets High-Yielding Equity Fund

1,976,678 0.46%

Hc Second Asset Management Co., Ltd 1,940,954 0.45%

Dimensional Emerging Markets Value Fund 1,846,000 0.43%

Cathay Greater China Fund 1,804,000 0.42%

(VII) Market Price, Net Worth, Earnings, and Dividends per Share

Year Item 2010 2011 01/01/2012~

03/31/2012

Highest Market Price 90.60 87.00 35.30 Lowest Market Price 51.7 14.40 18.75

Market Price per Share

Average Market Price 71.3 46.95 26.23 Before Distribution 47.29 33.93 29.74 Net Worth

per Share After Distribution 40.30 - - Weighted Average Shares (thousand shares)

249,251 373,441 429,163

Diluted Earnings Per Share

11.55 (7.76) (4.23) Earnings per Share Earnings per

Share Adjusted Diluted Earnings Per Share

10.99 - -

Cash Dividends 4.6095 - - Dividends from Retained Earnings

0.5122 - - Stock Dividends Dividends from

Capital Surplus - - -

Dividends per Share

Accumulated Undistributed Dividends - - - Price / Earnings Ratio (Note 1) 6.49 - - Price / Dividend Ratio (Note 2) 15.47 - -

Return on Investment

Cash Dividend Yield Rate (Note 3) 6.46% - - Note 1: Price / Earnings Ratio = Average Market Price / Earnings per Share Note 2: Price / Dividend Ratio = Average Market Price / Cash Dividends per Share

Note 3: Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price

(VIII) Company Dividend policy & Execution 1. Dividend allotment policy stipulated in the Articles of Incorporation

Regarding this Company’s profit after final accounting each, if there is any surplus in the Company’s

32

final general accounts, in addition to paying taxes under law and offsetting losses of the previous year, a 10% shall be allotted as legal reserve. If necessary, a special reserve may be considered. If there is still earnings, an employee bonus not less than 3% and a director's remuneration not more than 2% shall be allotted. Regarding the balance, plus the unallotted earnings of the previous year, the Board of Directors make a shareholder dividend allotment proposal for the shareholders’ meeting to resolve. Employee bonuses are distributed to the Company’s employees who qualify for certain conditions. Related conditions and measures are decided by the Board of Directors or by a person(s) authorized by it. Shareholder dividends are distributed with a proper collocation of share dividends and cash dividends, in which cash dividends to be allotted must not be lower than 10% of total shareholder dividends.

2. How shareholders’ meeting desires to resolve dividend allotment: None.

(IX) Effect of gratuitous stock which this shareholders’ meeting desires to deliberate on the Company’s operating performance, earning per share, and shareholder’s return on investment (ROI): N/A.

(X) Employee dividends, and remunerations of directors and supervisors: 1. Information about employee dividends, and remunerations of directors and supervisors stated in the

Articles of Incorporation: In consideration of company operation needs and maximizing shareholders’ interests and rights, this Company’s dividend policy is profit yielded after final accounting each year. in addition to paying taxes under law and offsetting losses of the previous year, a 10% shall be allotted as legal reserve. If necessary, a special reserve may be considered. If there is still earnings, an employee bonus not less than 3% and a director's remuneration not more than 2% shall be allotted. Regarding the balance, plus the unallotted earning of the previous year, the Board of Directors make a shareholder dividend allotment proposal for the shareholders’ meeting to resolve. Employee bonuses are distributed to the Company’s employees who qualify for certain conditions. Related conditions and measures are decided by the Board of Directors or by a person(s) authorized by it.

2. Employee dividends and remunerations for directors and supervisors which have been passed by the

Board of Directors but not decided by a shareholders’ meeting: N/A. 3. Employee dividends and directors and supervisors’ remunerations actually distributed the previous

year (2010):

Earning Distribution for 2010

In NT$

Cash dividends Stock dividends Director’s

remuneration Employee cash

dividends

1,441,817,440 160,201,930 40,000,000 370,341,973

Note 1: Distributed stock dividends NT$ 160,201,930, or 51 shares for every thousand shares. Note 2: Distributed cash dividends NT$ 1,441,817,440, or NT$4,609 for every thousand shares.

4. Company shares purchased back by this Company: None.

33

<II> Corporate bonds, preferred shares, GDR, employee stock option, and new shares issued of merged or disposed other company stock:

(I) Proceeding of corporate bonds (including overseas corporate bonds): None. (II) Proceeding of preferred shares: None. (III) Proceeding of GDR:

Proceeding of GDR

Date of issuing Item

July 19, 2011

Place of issuing and trading Luxembourg Stock Exchange

Total issued amount US$132,400,000 (NT$3,826,227,600)

Unit issue price US$6.62 Total of issued units 20,000,000 units

Source of securities Common stock issued for this Company’s cash capital increase

Amount of securities 100,000,000 shares Rights and obligations of DR Holders Rights & obligations same as common stock Trustee N/A Depositary institution Citibank Trust institution First Commercial Bank Unredempted balance 178,000 units

Apportionment of related costs at issue and duration

(1) Related costs of DR: Unless this Company agrees otherwise with lead underwriter and depository institutions, all costs, including legal cost, listing cost, underwriter service cost, and other related costs, are born by this Company. (1) Related costs of on DR duration: Unless law and regulation stipulates or this Company agrees otherwise with lead underwriter and depository institutions, all listing cost, information disclosure and other related costs during DR duration, are all born by this Company.

Important agreements in deposit contracts and custody contracts

Refer to deposit contracts and custody contracts for details

Max. 7.339

Min. 2.451

2011

Ave. 4.433

Max. 5.825

Min. 3.107 Mar

ket p

rice

per

un

it

As of Mar. 31, 2012

Ave. 4.351

34

(IV) Proceeding of Employee Stock Options 1. Disclosure of unmature Employee Stock Options (ESO) as of the printing date of the Annual Report and

their effect on shareholders’ equities:

Apr. 21, 2012 Type o f ESO 2006 1s t ESO

(Note 2) 2006 2n d ESO

(Note 3) 2007 1s t ESO

(Note 4)

Approved by governing agency

(Note 6) (Note 6) 96年 11月 22日

Date o f issuing (undertaking) Dec. 30, 2005 Jul. 28, 2006 Dec. 26, 2007

No. o f units issued

6,000,000 3,000,000 4,800,000

Ratio o f ava i lable shares for subscr ip t ion to tota l issued shares (%)

1.04% 0.70% 1.12%

Durat ion o f subscr ip t ion

10 yrs 10 yrs 6 yrs

Performance Issue o f new shares Issue o f new shares Issue o f new shares Restr ic ted subscr ip t ion per iod & rat io

1yr mature： 25% 2yr mature： 50% 3yr mature： 75% 4yr mature： 100%

1yr mature： 25% 2yr mature： 50% 3yr mature： 75% 4yr mature： 100%

2yr mature： 50% 3yr mature： 75% 4yr mature： 100%

Obta ined shares executed

5,487,500 shares 2,227,500 shares 2,826,500 shares

Subscr ibed amount executed

$54,875,000 $22,275,000 $53,301,275

Subscr ibed quant i ty not executed (Note 1)

175,000 shares 100,000 shares 582,500 shares

Subscr ip t ion pr ice per share o f unexecuted shares

NT$10/share NT$10/share NT$18.07/share

(Note 5)

Rat io o f unexecuted shares for subscr ipt ion to to tal issued shares (%)

0.04% 0.02% 0.14%

Effects on shareholders ’ equit ies

After matur i ty o f 1yr a f ter the date o f issue, restr ic t ions for this warrant are l i f ted over a per iod of 4yrs, and executable durat ion is up to 9 yrs. Ef fects on or ig ina l shareholders ’ equit ies wi l l be di luted.

Af ter matur i ty o f 1yr a f ter the date o f issue, restr ic t ions for this warrant are l i f ted over a per iod of 4yrs, and executable durat ion is up to 9 yrs. Ef fects on or ig ina l shareholders ’ equit ies wi l l be di luted.

Af ter matur i ty o f 2yr af ter the date o f issue, restr ic t ions for this warrant are l i f ted over a per iod of 4yrs, and executable durat ion is up to 4yrs. Ef fects on or iginal shareholders ’ equit ies wi l l be di luted.

Note 1: As of Apr. 21, 2012, units written off with staff who had left were 337,500, 672,500, and 1,391,000, respectively.

Note 2: Same as the ESO plan 2005 described in this Company’s financial report and CPA’s audit report. Note 3: Same as the ESO plan 2006 described in this Company’s financial report and CPA’s audit report. Note 4: Same as the ESO plan 2005 described in this Company’s financial report and CPA’s audit report. Note 5: Subscription price executed for 2007 1st ESO was changed from NT$19/share to NT$18.07/share, starting with

the base day for dividend. Note 6: This Company was not listed when ESO was issued first time 2006 and second time 2006.

35

2. List of Executives Receiving Employee Stock Options and the Top 10 Employees with Options Valued in Excess of NT$30 Million

As of Apr. 21, 2012 Exercised Unexercised

Title Name No. of Option Shares

Option Shares as a Percentage of Shares

lssued

No. of Shares

Converted

Strike Price (NT$)

Amount (NT$

thousand)

Converted Shares as a Percentage of Shares

lssued

No. of Shares

Converted

Strike Price (NT$)

Amount

(NT$ thousan

d)

Converted Shares as a Percentage of Shares

lssued Chairman and CEO

Kun-Si Lin

President Sam, Chum-Sam Hong


Alex Wen


Andy Shen


Marco Hu


Simon Lee


SJ Liu (Resignation on Apr 28,2011)


Frank Huang (Resignation on Jan 13,2012)

3,995 0.93% 3,370 10~19 36,610 0.78%

605

10~18.07 8,713 0.14%

(V) Status of New Shares Issuance in Connection with Mergers and Acquisitions：N/A。

<III> Execution of fund use plan:

(I) Analysis on issuing new shares of the previous cash capital increase, merged or disposed other company shares: 1. 2010 1st cash capital increase

(1) Plan content I. Date of approval by governing agency: Jul. 21, 2010, No.0990036653. II. Total fund required for this plan: NT$4,250,000,000 III. Source of cash: Regarding this cash capital increase, 70,000,000 new shares were issued at

NT$10 face value per share, at $67 premium per share, estimated to raise NT$4,690,000,000.

VI. Plan item and expected execution progress: In NT$ Thousand

Estimated fund use schedule

2010 2011 Plan item Expected

completion date

Total required fund

Q2 Q3 Q4 Q1 Q2 Q3 Purchase machine & equipment and related facilities

Q3 2011 4,250,000 460,000 340,000 1,200,000 1,400,000 450,000 400,000

TOTAL 4,250,000 460,000 340,000 1,200,000 1,400,000 450,000 400,000

36

(2) Status of execution In NT$ Thousand

Plan item Status of execution

Ahead of or behind schedule, reason, and

remedies

Expected 4,250,000 100% Purchase machines & equipment and related facilities

Expenses & execution Actual 4,250,200 100%

Expected 4,250,000 100% TOTAL

Expenses & execution

Actual 4,250,200 100%

Completed on expected schedule.

(3) Assessment of plan benefits

Unit：NT$ Thousand Year

Item 2010 2011 Plus/minus Percentage

Fixed assets 7,317,591 10,949,627 3,632,036 49.63% Operating income 20,146,194 20,576,838 430,644 2.14%

Operating cost 16,374,417 22,630,793 6,256,376 38.21% Operating profit 2,985,237 (2,639,175) (5,624,412) -

As the solar power industry was confronted by a market freeze since Q2 of 2011, the Company’s profit underperformed. As a result, the Company will utilize machines and equipment procured through this cash capital increase to aggressively refine process and technique. And the Company will continue to enhance its production yield and conversion efficiency in order to raise its future business and profitability.

(4) Date designated by the Securities and Futures Bureau for information declaration: Jul. 21, 2010

2. 2011 1st cash capital increase (1) Content of plan

I. Date of approval by governing agency: May 16, 2011, No.1000018283 II. Total fund required for this plan: US$273,487,000 III. Source of cash: Regarding this cash capital increase, 100,000,000 new shares were issued, all

of which served as overseas DR, estimated 20,000,000 units overseas DR, DR each unit 5 of this Company’s common shares, trading price per unit of overseas DR US$6.62, estimated to raise a total of US$132,400,000.

VI. Plan item and expected execution progress: In NT$ Thousand

Expected fund use schedule

2011 2012 Plan item Expected

completion date

Total required fund

Q2 Q3 Q4 Q1 Q2 Q3 Q4

US$ 123,487 13,336 10,477 21,338 14,784 31,966 25,103 6,483Purchase machines & equipment

Q4 2012 NT$ 3,581,094 386,732 303,821 618,808 428,733 927,000 728,000 188,000

US$ 150,000 50,000 100,000 — — — — —Purchase materials from overseas

Q3 2011 NT$ 4,350,000 1,450,000 2,900,000 — — — — —

US$ 273,487 63,336 110,477 21,338 14,784 31,966 25,103 6,483TOTAL

NT$ 7,931,094 1,836,732 3,203,821 618,808 428,733 927,000 728,000 188,000

37

(2) Status of execution In NT$ Thousand

Plan item Status of execution (as of Mar. 31, 2012) Ahead of or behind

schedule, reason, and remedies

Expected 1,738,094 48.54% Purchase machines & equipment and related facilities

Actual 1,930,069 53.90%

Expected 4,350,000 100% Purchase materials from overseas

Expenses & execution

Actual 4,351,182 100%

Expected 6,088,094 76.76% TOTAL

Expenses & execution Actual 6,281,251 79.20%

Actual execution was slightly ahead of schedule, and fund execution schedule was reasonable.

(3) Assessment of plan benefits

In NT$ Thousand

Plan item Year Qty Sales Value Gross profit Operating

profit

101 182,494 182,494 21,508,589 2,482,345 1,800,807 Purchase machines & equipment 102 241,361 241,361 27,479,469 3,044,771 2,183,404

TOTAL 423,855 423,855 48,988,058 5,527,115 3,984,211

(4) Date designated by the Securities and Futures Bureau for information declaration: May 16, 2011

38

V. Overview of Operations

 Business Content

(I) Scope of business 1. Main content of business operated:

(1) CC01080 – electronic parts & components manufacturing. (2) CC01090 – Cell manufacturing. (3) CC01010 – Power generation, power transmission, power distribution mechanics manufacuting. (4) F119010 – Electronic material wholesale (limited to operation beyond the district). (5) F219010 – Electronic material retail (limited to operation beyond the district) (6) F401010 – International trading. Research, development, design, manufacturing, and sales of following products: (1) Solar cells and related systems. (2) Solar power modules and wafers. (3) Import and export trading related to this Company’s products.

2. Revenue mix

In NT$ Thousand 2011 Revenue mix

Item Net sales Percent of revenue Solar cells 19,748,407 95.97% Other 828,431 4.03%

TOTAL 20,576,838 100.00%

3. Current Products (1) Polycrystalline Silicon Solar Cells 156mm x 156mm (6”) (2) Monocrystalline Silicon Solar Cells 156mm x 156mm (6”)

4. New Products to be developed

New Structure High-efficiency Silicon Solar Cells

(II) Overview of the Industry 1. Current status & development of the industry

A solar cell is a semiconductor element which converts solar energy into electric energy. Basically, sunlight shines on the P-N bonding element to generate an electron-hole pair. The electric field generated by the P-N junction drives the electron and the hole to under and above the surface of the element, forming a power voltage. When connecting with outside load, a current is generated (Fig.1). Depending on materials used, solar cells are divided into 3 categories: Silicon, Compound, and Organic semiconductor. In which, silicon categories are sub-divided into Mono-crystalline, Multi-crystalline, and α-Si.

Fig.1: A sketch of a solar cell

Due to their good conversion efficiency and high stability, crystalline silicon solar cells (Mono-crystalline & Multi-crystalline) have now become the mainstream in the solar cell market. Mono-crystalline silicon has higher silicon base material and an average conversion efficiency of approximately 18.6%~19% in general, and a higher cost. Multi-crystalline silicon has a slightly loose base material, and a conversion efficiency of around 16.6%~17%. Although its efficiency is lower, modules made of it will more meet the market’s needs in terms of cost per watt. In respect of Thin Film Solar Cells, currently α-Sim, CdTe, and CIGS are mainstreams. Due to lower conversion efficiency and poor process stability, their market development apparently falls behind. Under the estimate of Photon International and NSP, in 2011, crystalline silicon solar cells and thin film solar cells accounted for 89% and 11% in market share.

39

Fig.2: Cell market share

Source: Photon International & NSP

In recent years, incessantly rising traditional energies due to limited reserves around the globe, signing of the Kyoto Protocol, and global environmental awareness, have all facilitated renewable energies. Solar energy features sustainable supply, high weather resistance, not limited to geographical environment, continuing upgrading production technique, etc. Hence, it has become an important part of energy policy of all countries. It has also driven needs for solar cells in recent years. Initially, all countries promoted solar energy by relying on a subsidy policy to increase civil use. Following Germany, Japan, France, Italy, and Britain, Eastern Europe and India are working hard to catch up.

Overall, technically the crystalline silicon solar sector, which is most mature, is speeding up its growth, expanding its capacity, and has reached an economy of scale. At the same time, in the value chain, all links are consolidating and competing with each other. The entire value chain is advancing along a cost-cutting curve. Therefore, it has the brightest outlooks. In reviewing Feed-in Tariff policy, the Germany-led developed countries always deliberate on the status quo of the industry. While urging for a further cost cut, they give consideration and incentives to the industry for a healthy development. The purpose is to anticipate a grid-parity for solar generation at the earliest time possible. When the time comes, there will be a significant growth in the market scale, which will have reached developing and underdeveloped countries.

It is estimated that, in areas where electricity price is high and sunshine is strong and easily collected, approximately by 2012, the price of solar power generation will reach a balance of grid parity with traditional electricity price. This will cause another wave of demand for solar energy. In other areas, between 2014 and 2015, it will fall to about the same level with traditional power generation. When the time comes, solar cells will speed up their popularity to maturity.

2. Connection between up-, mid-, and down-streams

Top down, the solar cell industry’s industry chain is divided into: up stream - raw materials and wafers; mid-stream - cells and modules; down-stream - system manufacturers, distributors, and peripherals parts & components suppliers (Fig.3).

Fig.3: Connection between up-, mid-, and down-streams

電池市佔率,依技術別 (%)

89.8% 87.4% 86.0% 81.0% 86.1% 89.0% 88.0%

0.102 0.126 0.14 0.19 0.139 0.11 0.12

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010 2011 2012E

Thin Film

c-Si

Solar Cell Market Share, by Technology (%)

40

3. Development trends of products

In the next 10 years, solar power development trend will continue to grow due to: (1) Signing of the Kyoto Protocol and effects of the ecology and environment (e.g. greenhouse effect

and reduction of CO2 emissions). (2) Diverse needs for alternative energies. (3) Effects of global reserves of traditional energies, such as oil, coal, natural gas, uranium (U). (4) Upgrade of production technique and economies of scale, which lower production costs. (5) Implementation of government incentives and measures (6) Policy and trend of nuclear free A number of countries, like Germany, Japan, southern European countries, some states in America, and Canada, have sound subsidies for alternative energies to facilitate rapid development of the industry: a) financial subsidies, b) preferential taxes, c) Feedback money, d) low-interest loans, etc., to shorten pay-off period for investments. Hence, power plants, community power supply systems, independent power generation stations connected to main circuit, and supplementary power supply systems for buildings that derive from application of solar cells, have been flourishing in recent years.

4. Competition According to a survey by Photon Consulting in March 2012, in terms of crystalline cells, NSP’s shipments rank No.11 around the world. If professional solar cell plants alone, NSP ranks No.4.

Currently, cell plant technique slightly varies depending on equipment suppliers and process ability. However, material price negotiation of up-stream raw materials, cell conversion efficiency, manufacturing cost, and control of clients, are critical to competition and profits.

This Company adapts to the market’s dynamic needs in its near-term and long-term plans. Material supply also is stable for capacity. And it adjusts clients’ composition dynamically by aggressively responding to all countries’ solar energy subsidy policies, in order to raise its market share. In respect of cost control, NSP is considerably competitive. The Company aggressively launch resources into R&D and enhancement of conversion efficiency is significant. NSP expects itself to be a high-efficiency, low-cost, and high-quality leader. It will continnue to promote solar energy to be a competitive main energy to reach the goal of Grid Parity at the earliest time possible.

(III) Overview of technique and R&D

The Company presented monocrystalline products Black19 and Perfect19 in 2011. These two products’ conversion efficiency can reach over 19%. Once made into a module, it can reach over a 260 watts power. In R&D and production technique, NSP has become a leader in the world. In respect of multi-crystalline products such as Super17, NSP has been refining them and developed the latest technique and introduced new material in order to raise efficiency or lower costs. It should be noted that in respect of fine metal leads, now it is NSP’s 4th generation. NSP can stably mass-produce thinner wire widths than its peers. In respect of patent layout, NSP also has made some progress. As of the printing date of this annual report, NSP has obtained 60 patents, and 59 patents are under review.

In the latest year and as of the printing date of this annual report, NSP has invested R&D fees and successfully developed techniques or products as follows: 1. R&D fees invested as of the printing date of this annual report:

In NT$ Thousand Year / Item 2009 2010 2011 R&D fee 69,845 172,094 98,906

2. In the the latest year and as of the printing date of this annual report, NSP has successfully developed

techniques or products as follow

Year R&D achievements 2009 1. Completed adjustment to process parameters, multi-crystalline

solar cell average conversion efficiency in mass production up to 16.4%.

2. Completed the latest process technique development, multi-crystalline solar cell average conversion efficiency up to 16.8%.

2010 1. Completed process parameter adjustment and successfully transferred online for production, multi-crystalline solar cell average conversion efficiency in mass production up to 16.5%.

41

Year R&D achievements 2. Completed the latest technique development for fine grid and

metallization, multi-crystalline solar cell average conversion efficiency in mass production up to 17.4%.

2011 1. Multi-crystalline solar cell average conversion efficiency in mass production up to 17.0%.

2. Mono-crystalline solar cell average conversion efficiency in mass production up to 19.0%.

3. Completed the latest technique development for double print metallization.

(IV) Overview of the Company’s short-term and long-term development plans

1. Short-term development plan: (1) Marketing strategy:

I. Increases profits through product differentiation. II. Increases the Company’s image by passing reputable certifications and improving after-sale

service. III. Participates in related exhibitions and seminars at home and abroad, and increases interaction

with down-stream vendors at home and abroad, and increases liaison between industries. (2) Development strategy:

I. Optimizes current capacity to meet supply needs. II. Refines quality to improve product categorization. III. Controls down-stream markets.

(3) Product development direction: I. Raises solar cell conversion efficiency. II. Lowers costs.

2. Long-term development plan:

(1) Marketing strategy: I. Promotes up-, mid-, and down-stream strategic alliances, and ensures a healthy industry chain and marketing network.

II. Signs long-term cooperation contracts with down-stream vendors and cements clientele for sustainable operations.

(2) Development strategy: I. Meets the market’s needs, progressively increases capacity, and aggressively develops

down-stream to expand territory. II. Raises yield and conversion efficiencies. III. Raises production quality. IV. Lowers costs.

(3) Product development direction: I. Develops the latest solar cells. II. Incessantly updates process, develops high conversion efficiency products, and raises

conversion efficiencies of solar cells. <II> Overview of Market, Production, and Marketing

(I) Market analysis: 1. Sales areas for main products:

Sales area for this Company’s main products cover Europe, Americas, mainland China, Japan, Taiwan, etc. In NT$ Thousand

2010 2011 Year Sales area Amount Percentage Amount Percentage

Domestic sales 979,603 4.86% 2,576,566 12.52% China 7,336,147 36.42% 4,936,247 23.99%

Germany 4,350,872 21.60% 3,892,768 18.92% Japan 117,502 0.58% 2,463,057 11.97%

America 757,590 3.76% 2,461,913 11.96% Spanish 2,329,349 11.56% 711,101 3.46% Other 4,275,131 21.22% 3,535,186 17.18%

Exports

Subtotal 19,166,591 95.14% 18,000,272 87.48% TOTAL 20,146,194 100.00% 20,576,838 100.00%

42

2. Market share, future supply and demand, growth As prices over the entire value chain fell In 2011, in order to lower costs and ensure quality, giants around the world have increased purchase of solar cells and OEM percentages. In particular, giants in Japan, Europe, and America have gradually recognized that, as it is very difficult to compete with Chinese vendors in cost, they began to focus on brand and channel and to purchase competitive high-quality products from Taiwanese suppliers and seek OEM collaboration. In respect of China, with cost and size advantages, the country continues to expand their overseas market share. In the domestic market, the government has made a great effort by adopting a new “Golden Sun Program” and launching subsidies for electricity price for Internet access. Therefore, the domestic market grew significantly. In response to growth needs, China also purchases competitive high-quality products from Taiwanese suppliers and seeks OEM collaboration. Overall, Taiwanese firms choose to continue to optimize their advantageous place in the industry value chain. If they can meet clients’ strategic needs, they must be able to grow with the trend. NSP expects to work, with its outstanding conversion efficiencies and recognized quality and service, towards becoming the biggest winner under this big trend. (1) Market share:

This Company’s shipments in 2011 were 733MW, and its market share was around 3%, equivalent to that in 2010.

(2) Future needs and growth Earth warming has become an issue of great urgency which requires every country to work together to solve. The European Union and many other countries have set the minimum percentage of renewable energies in total energy output. Japan’s great earthquake in 2011, and the subsequent nuclear pollution crisis, urged Japan and Germany to eliminate nuclear power generation, while aggressively pushing ahead with development of renewable energies including solar power. Currently, countries which are advancing solar power generation subsidy programs include Germany, Japan, Canada, Italy, America, mainland China, Britain, etc. Presently, they all have long-term plans for implementing related acts or significantly loosening government subsidy policies. And with the effort of the entire value chain, solar power generation costs have been going down, solar power generation has reached grid parity in many areas. This suggests that the industry can develop by itself without the need to rely on the government’s policy and subsidies. Moreover, developing and under-developed countries’ needs are rising rapidly. Data from iSuppli suggests that the global solar energy market size was estimated to leap from 26.5GW in 2011 to 29~35 GW in 2012. Besides, the latest report proposed by European Photovoltaic Industry Association (EPIA) in May 2012 shows that, in the next 5 years, the global solar power capacity (PV capacity) is estimated to grow at 200~400% and that Asia and other emerging markets will surpass Europe to become the main market. From the foregoing development, market needs and growth in the solar industry will be very appreciable indeed.

3. Competition niche (1) Management team

Leaders in this Company’s management team are all armed with professional experience in solar energy or semiconductor process related plant construction, equipment, generation, business marketing, production management, etc. They have complete expertise regarding production and R&D in the solar industry which has high connection in process.

(2) Own process technique and equipment improvement The Company has procured state-of-the-art equipment from abroad, complete with own process technique. At the early stage of mass production, NSP already developed quality products. Then, the formula was improved to raise output and surpass the originally designed capacity. Gradually, the conversion efficiency was raised, and the production cost was lowered.

(3) Yield control Currently, apart from aggressively optimizing existing capacity, cutting production costs, and increasing yield control, we spare no effort to optimize quality and cost structure.

(4) Supply source of upstream silicon materials The Company’s cost and quality are excellent because it utilizes rich technique and experience

built up in the industry, along with a distributed source of up-stream silicon material supply. (5) Partnership with clients

NSP owns an excellent sales team and boasts after-sale service quality and has won over a number of long-term collaboration orders and partnerships. Its clients spread all over the world, including Germany, the United States, Canada, Spain, Italy, Japan, China, etc.

43

4. Advantages and disadvantages in prospects and countermeasures (1) Advantages

I. Operation and management ability The management team, equipped with rich related industry experience, is familiar with

operations, management and execution of the solar industry. II. Process technique and R&D ability

Every member in the R&D team has either solar or semiconductor industry practical experience. The team excels at product yield, efficiency upgrade, and R&D. III. Continual R&D and innovation

The R&D team has incessantly made breakthroughs in yield, conversion efficiencies, and low cost manufacturing, regarding element characteristics, new material testing, and process R&D

IV. Advanced technique and equipment NSP’s state-of-the-art techniques and equipment, accompanied by mature semiconductor process and solar cell element techniques, have kept NSP’s products competitive in the market.

V. Flourishing market Due to decreasing traditional energy reserves and an awareness to reduce CO2 emissions, every country has greater demand for renewable energies. In order to promote use of solar power, every country has provided numerous subsidies like Feed-in Tariff and incentives. In addition, industry technique development continues to cut solar power generation costs to come near traditional electricity price. This also makes growth in demand and development in the solar industry optimistic.

(2) Disadvantages As governments in main markets are cutting down their subsidies, price in the solar industry is coming under pressure. Moreover, over the past few years, the global supply chain has expanded enormously, placing the industry at a supply-over-demand situation. How to obtain low-cost materials and raise efficiency in order to meet clients’ needs, is a short-term challenge. For mid- and long-term, economies of scale, cutting cost, and winning over strategic clients, increasing client satisfaction, and unique company strategic position, will be key to the Company’s growth. Needs in the solar market are affected by government policy to a great degree. As a result, maintaining a balance in supply and demand is a great challenge. The latest report from the EPIA in May 2012 suggests the following forecasts regarding effects of government policies on installations around the world:

Forecasts on global solar power installations (as of 2016) In MWp

Policy support

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

General 20,205 20,555 26,790 31,890 38,822

High 2,529 6,330 7,437 16,817 29,665

40,204 41,361 52,201 62,095 77,265 Source: EPIA, May 2012

(3) Countermeasures

I. Develop material suppliers diversely and control material supply. II. Raise products, technique, and service quality. III. Make down-stream strategic partnerships, work on long-term clients, and raise market share. IV. Stay on top of the industry, develop new materials and new processes.

(II) Important purposes and production process

1. Purposes of main products Solar power generation and Solar Thermal Heaters (converting solar light to heat) are different. Solar cells are used to directly convert solar light energy to direct current. The energy of solar power generation comes from sunlight with the need of petrochemical fuel. Hence, there will be no concerns for waste and pollution. And due to the use of semiconductor elements, there will be no problems of rotating components and noise. Application of solar cells – a solar cell module may serve up to over 20 years. Its exterior and size may be varied at will and has wide applications, from consumer products like calculators and watches, to home, industry, power plants, etc. In short, applications which are similar to of Taiwan Power Company power supply purposes can be substituted by NSP’s products.

2. Production process of main products: In general, a crystalline silicon solar cell structure is made with p-type silicon waters (chips) as its basic material. The silicon chips are etched with acid or basic chemical etching liquid. The chip surface is roughened in an aim to reduce reflection of incident light. Utilizing tubular high-temperature for expansion, the original p-type chip changes to an n-type (positive), the purpose of which is to form a p/n junction of the basic structure of a solar cell. The electric field caused by this p/n junction may effectively separate electrons and holes generated after the solar cell receives light. Light shoots down

44

on the silicon surface through air, which leads to a reflection phenomenon. As a result, a good anti-reflection layer may reduce the reflection of incident light. n-type chip surface may use PECVD deposition to serve as an anti-reflection coating. After that, the front and back sides undergo silver paste or aluminum paste screen printing to form metal electrodes. The metal electrodes of the front and back sides are designed to induce with minimum loss electrons and holes generated after the solar cell receives light, thereby generating light current for use. Metal electrodes must be characterized by low series resistance, high bonding strength, and resistance to welding. The shape of the light-receiving front side of the solar cell is designed to minimize light loss - the smaller the area the electrode occupies, the better. But the series resistance will rise accordingly. The backside electrode of the solar cell has good ohm contact due to no light loss. Hence, the backside electrode often serves as a comprehensive electrode. The solar cell process is sketched below (Fig.4):

Fig.4: Crystalline silicon solar cell manufacturing process

3. Supply of main materials

Main materials

Suppliers (note) Supply

condition

Si chips 100960, 100927, 100986 Good

Paste 100010, 100869, 100623 Good

Chemicals 100245, 100011, 100571 Good

Note: NSP has signed non-disclosure agreements with suppliers. Hence, codes are used here instead.

4. Major Suppliers and Clients： (1) Major Suppliers Information for the Last Two Calendar Years

Unit：NT$ Thousand 2010 2011 2012 (As of March 31)

Item Company

Name Amount Percent

Relation with

Issuer

Company Name

Amount Percent Relation

with Issuer

Company Name


with Issuer

1 100926 1,433,897 9.96 N/A 100960 2,094,340 11.87 N/A 100900 426,657 15.82 N/A

2 - - - - - - - - 100963 299,424 11.10 N/A

3 Other 12,964,086 90.04 - Other 15,556,035 88.13 - Other 1,970,463 73.08 -

Net Total Supplies

14,397,983 100 - Net Total Supplies

17,650,375 100 - Net Total Supplies

2,696,544 100 -

Note 1: Major suppliers mean each commanding 10%-plus share of annual order volume.

Wafer Surface Cleaning & Finish

p/n Junction making

PSG Removal Anti-reflection coating deposits

Electrode Print Sintering Edge -isolation Efficiency Inspection

Solar Cell Products

45

(2) Major Clients (each commanding 10%-plus share of annual order volume) Information for the Last Two Calendar Years：

Unit：NT$ Thousand 2010 2011 2012 (As of March 31)

Item Company

Name Amount Percent

Relation with

Issuer

Company Name


with Issuer

Company Name


with Issuer

1 100009 2,639,847 13.10% N/A - - - - 100303 469,139 15.13% N/A

2 100053 2,433,656 12.08% N/A - - - - 100273 348,647 11.25% N/A

3 Other 15,072,691 74.82% - Other 20,576,838 100% - Other 2,281,919 73.62% -

Net Sales 20,146,194 100% - Net Sales 20,576,838 100% - Net Sales 3,099,705 100% -

Note: NSP has signed non-disclosure agreements with clients. Hence, codes are used here instead

5. Production over the Last Two Years

Unit：NT$ Thousand/ Thousand PCS

2010 2011 Year

Major Products

Capacity Quantity Amount Capacity Quantity Amount

Solar 128,508 129,683 15,973,891 215,073 187,626 20,296,098

Total 128,508 129,683 15,973,891 215,073 187,626 20,296,098

6. Shipments and Sales over the Last Two Years Unit：NT$ Thousand/ Thousand PCS

2010 2011

Local Export Local Export

Year Shipments & Sales Major Products (or by departments)

Quantity Amount Quantity Amount Quantity Amount Quantity Amount

Solar 5,020 915,522 126,106 19,100,043 20,343 2,301,065 156,520 17,447,342

Other 450 64,081 543 66,548 1,127 275,501 370 552,930

Total 5,470 979,603 126,649 19,166,591 21,470 2,576,566 156,890 18,000,272

<III> Human Resources：

Year 2010 2011 As of Mar. 31, 2012

IDL 500 590 574

DL 937 1,161 1,043 Number of Employees

Total 1,437 1,751 1,617

Average Age 31 32 32

Average Years of Service 1.75 1.70 1.96

Ph.D. 11 13 13

Masters 194 226 222

Bachelor’s Degree 691 886 830

Senior High School 534 613 541 Education

Below Senior High School 7 13 11

46

<IV> Environmental Protection Expenses: (I) Describe in the last 2 years and as of the printing date of this annual report, the loss (including

compensation) sustained by the Company due to polluting the environment, and total amount of disciplinary action, and disclose your subsequent countermeasures (including improvement measures) and likely expenses: At the initial stage of plant construction, the Company was focusing on investment in pollution prevention equipment and commissioned professional qualified cleaning agencies to remove waste. As of the printing date of the annual report, no dispute due to pollution has taken place. In response to international environmental protection trends, NSP has always introduced highest standard environmental protection in the design structure of the Company’s pollution treatment facilities by investing large sums in pollution treatment facilities. The purpose was to provide employees with a safe and clean environment and minimize various hazards to the environment. With regard to various treatment systems, NSP commissions related professional contractors for inspection and testing on a regular basis for prevention. In the future, we will still continue to add all types of environmental protection equipment depending on the progress of plant construction, to ensure a good working environment, while protecting and maintaining the plant environment.

(II) Under law and regulation, an application shall be made for a polluting facility installation permit or pollution emissions permit, or a pollution prevention fee shall be paid, or environmental protection dedicated personnel shall be set in place. Please describe the above application, payment or establishment:

1. Apply for polluting facility installation permit or pollution emissions permit:

A. Hukou Plant a. Air pollution: fixed pollution source operating permit (receiving date: Jun. 2, 2011) b. Water pollution: water pollution prevention permit (receiving date: Mar. 1, 2012) c. Waste: business waste cleaning plan (receiving date: Feb. 21, 2012)

B. Hsinchu Plant a. Air pollution: fixed pollution source operating permit (receiving date: Aug. 10, 2011) b. Water pollution: water pollution prevention permit (receiving date: Oct. 18, 2010) c. Waste: business waste cleaning plan (receiving date: Feb. 16, 2012) C. Tainan Plant a. Air pollution: fixed pollution source operating permit (receiving date: Mar. 30, 2012) b. Water pollution: water pollution prevention permit (receiving date: Jan. 19, 2012) c. Waste: business waste cleaning plan (receiving date: Mar. 13, 2012) 2. Pollution prevention fees: A. Hukou Plant: Air pollution control fee $64,006 (Q1~Q4 2011) Soil and groundwater pollution remediation fee $1,471 (Q1~Q4 2011) B. Hsinchu Plant: Air pollution control fee $1,055,326 (Q1~Q4 2011) Soil and groundwater pollution remediation fee $132,016 (Q1~Q4 2011) C. Tainan Plant: Air pollution control fee $1,055,326 (Q1~Q4 2011) Soil and groundwater pollution remediation fee $0 (Q1~Q4 2011) 3. Dedicated personnel for environmental protection

A. Hukou Plant a. Air pollution control: Chao-jun Zhang (No.0980003342) b. Water pollution prevention: Chao-jun Zhang (No.0980101257)

B. Hsinchu Plant a. Air pollution control: Shu-bo Yang (No.0970202771) b. Water pollution prevention: Shu-bo Yang (No.0970203115) C. Tainan Plant a. Air pollution control: Zhi-yuan Sun (No.1000783678) b. Water pollution prevention: Bo-zhou Chen (No.1000847317)

(III) List the Company’s investments in main equipment regarding preventing environmental pollution and likely benefits: At the initial stage of plant construction, the Company was focusing on investing in pollution prevention equipment, polluted waste and waste gas treatment. It also commissioned professional qualified cleaning agencies for removing wastes. Lists of preventive equipment are as follows:

47

A. Hukou Plant: (FAB1) Pollution control

equipment Quantity Purposes and estimated likely benefits

Air pollution control facility

6 Purpose: treating waste gas produced in plant process. Benefit: conforms to air pollution emissions standards in environmental protection law.

Wastewater treatment system

1

Purpose: treating waste water produced in plant process. Benefit: conforms to environmental protection law and meets the influent standards for waste water in the industrial district.

B. Hsinchu Plant: (FAB2) Pollution control

equipment Quantity Purposes and estimated likely benefits




1


High-concentration hydrogen fluoride recycling improvement work

4

Purpose: recycles, commission, and reuse high-concentration hydrogen fluoride discharged in plan process. Benefit: conforms to environmental protection law and meets the influent standards for waste water in the industrial district.

C. Tainan Plant: (FAB3)

Pollution control equipment

Quantity Purposes and estimated likely benefits




1


(IV) Some products of this Company sold to Europe involve European environmental protection directives

related regulations. The Company’s solar cell products were already certified by SGS conforming to ROHS.

<V> Labor relations

(I) Current employee benefit measures, education and training, retirement system and their implementation, as well as agreement between labor and capital and maintenance and implementation of employees’ rights: 1. Employee benefit measures:

Based on honest principle and maintaining employees’ rights, the Company stipulated management procedures and work rules under the Labor Standard Law, in order to provide employees with good salary treatment and safe working environment. In addition to taking out health insurance and labor insurance under related laws and regulations, the Company plans to take out group insurance for all employees and hold health check-ups for employees on an annual basis. Moreover, Employees’ Welfare Committee was set up, and a welfare fund has been allotted. The fund has been increased to plan and execute various welfare measures and activities.

2. Education and training:

In order to enhance employees’ professional skills and cultivate them to be international talent, the Company encourages employees to receive diverse education and training programs, including orientation training, on-the-job training courses, professional courses, work safety courses, as well as various work related training courses.

48

3. Retirement system and implementation: All employees of this Company apply to the new labor retirement system. A 6% allotted from individual salary by the Company into the laborer’s personal pension account. If any laborers would like to allot voluntarily, the allotted amount will be deposited into the same account.

4. Negotiations and coordination between labor and capital:

This Company belongs in an industry to which the Labor Standard Law applies. NSP attaches great importance to labor relations, and all operations proceed accordingly. Labor-capital meeting is held on a regular basis, employees’ opinions are heard, and positive replies and improvements are made. As of the printing date of this annual report, labor relations have been harmonious, and no significant labor dispute has taken place in this Company.

(II) Describe in the last 2 years and as of the printing date of this annual report, any loss sustained due to labor

dispute, and disclose any likely estimated amount and countermeasures currently and in the future: 1. In the last 2 years and as of the printing date of this annual report, labor relations have been

harmonious, and no significant labor dispute has taken place in this Company, neither has there been any loss sustained due to labor dispute.

2. Current and future likely countermeasures:

(1) Follow related laws and regulations and proceed accordingly. (2) Reinforce welfare measures and actively strive for employee welfare. (3) Establish open and honest labor relations and communicative channels.

3. Current and future likely loss amount: N/A. <VI> Important contracts

Currently marketing contracts, technical cooperation contracts, work contracts, long-term loan contracts, and other important contracts which may affect investors’ rights that are still effective and matured in the last 1 year:

Contract Parties involved Contract period Main

content

Restrictive

clause

First Bank, Hua Nan Bank, Chang Hwa Bank, Mega Bank, and Land Bank

2007.12.06~2013.01.22 Syndication Loan contract

Cooperative Bank, First Bank, etc.

2010.08.05~2015.08.06

Syndicated Loan

Financial reports need to maintain a certain financial ratio

Zinwell Corp. 2006.02.01~2016.03.31 Plant lease None Lease contract

Science Park Administration 2007.08.13~2026.12.31 Land lease None

2007.08.22~2010.12.31 LDK Solar

2008.01.15~2018.12.31

100902 2006.12.28~2015.12.31 100926 2010.01.01~2017.12.31

2008.02.27~2014.12.31 100909

2008.09.30~2017.12.31 REC Scanwafer AS 2008.08.26~2015.12.31

Wafer Works Corp. 2008.10.01~2016.12.31

Hankook 2010.11.19~2017.12.31

100960 2010.12.20~2012.01.01

OCI Company Ltd. 2011.03.18~2018.12.31

Prepayment

GCL 2010.10.01~2013.12.31

OSUNG LST Co., Ltd. 2010.11.19~2013.12.31

2010.06.30~2013.12.31 100927

2010.07.05~2013.12.31

Supply contract

100963 2010.09.17~2013.12.31

Long-term material supply

None

Sales contract Canadian Solar Inc. 2008.05.01~2013.12.31 Solar cell None

49

Contract Parties involved Contract period Main

content

Restrictive

clause

2008.04.16~2011.12.31 Solarday S.p.A.

2009.07.01~2013.12.31 100189 2010.06.21~2013.12.31

2008.12.19~2013.12.31 100182

2009.03.30~2013.12.31

100249 2010.12.27~2011.12.27 automatically

extended 2008.03.27~2011.12.31

ET Solar Group 2010.12.06~2013.12.31

sales

Note: NSP has signed non-disclosure agreements with suppliers. Hence, codes are used here instead.

50

VI. Financial Information Five-Year Financial Summary

(I) Condensed Balance Sheet Unit: NT$ Thousand

Five-Year Financial Summary Year Item 2007 2008 2009 2010 2011

As of March 31,2012

Current assets 2,239,769 5,902,004 6,118,562 11,168,535 8,345,024 7,466,324 Funds & Long-term investments

- - 99,825 183,665 385,714 503,813

Fixed assets 775,062 3,591,886 3,808,545 7,317,591 10,949,627 10,543,942 Intangible assets - - - - - - Other assets 1,071,666 1,470,714 1,655,698 1,926,637 2,263,816 2,155,529 Total assets 4,086,497 10,964,604 11,682,630 20,596,428 21,944,181 20,669,608

Before distribution

1,454,074 1,705,990 2,741,058 5,638,369 5,186,470 6,099,828 Current liabilities After

distribution 1,552,450 1,910,690 2,741,058 7,070,807 5,186,470 6,099,828

Long-term liabilities - 3,751,510 3,258,904 904,000 2,205,800 1,800,000 Other liabilities 67 56 45 45 474 474

Before distribution

1,454,141 5,457,556 6,000,007 6,542,414 7,392,744 7,900,302 Total liabilities After

distribution 1,552,517 5,662,256 6,000,007 7,974,852 7,392,744 7,900,302

Capital stock 1,439,904 2,119,698 2,971,830 4,289,048 4,293,148 Capital surplus 3,029,604 4,017,660 8,343,689 12,023,580 12,052,612

Before distribution

552,956 1,037,540 (454,735) 2,738,495 (1,761,191) (3,576,454) Retained earnings After

distribution 206,201 656,394 (454,735) 1,145,855 (1,761,191) (3,576,454)

Unrealized gain or loss on financial instruments

- - - - - -

Cumulative translation adjustments

- - - - - -

Net loss unrecognized as pension cost

- - - - - -

Before distribution

2,632,356 5,507,048 5,682,623 14,054,014 14,551,437 12,769,306 Total shareholders’ equity After

distribution 2,533,980 5,302,348 5,682,623 12,621,576 14,551,437 12,769,306

(II) Condensed Statement of Income Unit: NT$ Thousand


As of March 31,2012

Operating revenue 3,662,088 10,176,014 10,301,103 20,146,194 20,576,838 3,099,705

Gross profit 586,510 838,591 27,927 3,771,777 (2,053,955) (1,588,796)

Realized gain or loss on Inter-Affiliate Accounts

- - - 194 (290) 37

Gross income (loss) from operations

586,510 838,591 27,927 3,771,971 (2,054,245) (1,588,759)

Operating income (loss) 503,778 523,799 (267,780) 2,985,237 (2,639,175) (1,801,782)

Non-operating income and gain

37,916 430,876 108,672 309,110 112,117 13,286

Non-operating expenses and losses

(8,347) (186,280) (777,488) (340,235) (318,626) (26,767)

Income (loss) from operations of continued segments-before tax

533,347 768,395 (936,596) 2,954,112 (2,845,684) (1,815,263)

51


As of March 31,2012

3Income (loss) from operations of continued segments

548,354 831,339 (1,139,383) 2,738,495 (2,897,667) (1,815,263)

Income (loss) from discontinued segments

- - - - - -

Extraordinary gain or loss - - - - - -

Cumulative effect of accounting principle changes

- - - - - -

Net income (loss) 548,354 831,339 (1,139,383) 2,738,495 (2,897,667) (1,815,263)

Earnings (loss) per share 4.91 5.52 (5.99) 10.99 (7.76) (4.23)

(III) Auditors’ Opinions from 2007 to 2011

Year CPA Firm CPA's Name Auditing Opinion

2007 Deloitte & Touche Huang, Yu-Feng、 Huang, Shu-Chieh

Unqualified Opinion


Modified Unqualified Opinion


Modified Unqualified Opinion


Unqualified Opinion

2011 Deloitte & Touche Huang, Yu-Feng、 Lin, Cheng-Chih

Unqualified Opinion

<II> Five-Year Financial Analysis


As of March 31,2012

Ratio of liabilities to assets 35.58 49.77 51.36 31.76 33.69 38.22 Financial structure (%) Ratio of long-term capital to fixed

assets 339.63 257.76 234.78 204.41 153.04 138.18

Current ratio 154.03 345.96 223.22 198.08 160.90 122.40

Quick ratio 56.02 139.64 180.20 158.42 137.05 101.90 Solvency (%)

Times interest earned ratio 71.90 6.01 - 12.65 - -

Accounts receivable turnover (turns)

27.65 47.56 20.80 12.87 10.34 6.11

Average collection period 13.20 7.67 17.55 28.35 35.29 59.69

Inventory turnover (turns) 10.01 6.71 6.11 11.35 13.61 12.97

Accounts payable turnover (turns) 59.54 72.01 28.51 17.37 19.21 15.06

Average days in sales 36.46 54.40 59.74 32.16 26.81 28.14

Fixed assets turnover (turns) 4.72 2.83 2.70 2.75 1.88 1.18

Operating ability

Total assets turnover (turns) 0.90 0.93 0.88 0.98 0.94 0.60

Return on total assets (%) 22.08 12.58 (8.40) 18.27 (13.49) (33.85)

Return on stockholders' equity (%) 33.74 20.43 (20.36) 27.75 (20.26) (53.15)

Operating income 51.44 36.38 (12.63) 100.45 (61.53) (167.88) Ratio to issued capital (%)

Pre-tax income 54.46 53.36 (44.19) 99.40 (66.35) (169.13)

Profit ratio (%) 14.97 8.17 (11.06) 13.59 (14.08) (58.56)

Profitability

Earnings per share ($) 4.91 5.52 (5.99) 10.99 (7.76) (4.23)

Cash flow ratio (%) (Note 2) (Note 2) 66.81 46.66 (Note 2) (Note 2)

Cash flow adequacy ratio (%) (Note 2) (Note 2) (Note 2) 14.13 7.87 14.58 Cash flow Cash reinvestment ratio (%) (Note 2) (Note 2) 16.97 15.90 (Note 2) (Note 2)

Operating leverage 1.44 2.26 (2.52) 1.68 0.11 0.58 Leverage

Financial leverage 1.02 1.41 0.52 1.09 0.99 0.99

52

Please state reasons to changes in financial ratios in the last 2 years (no analysis is required if a change plus/minus did not reach 20%). Changes in financial ratios in the last 2 years reached over 20% are described as follows: 1. Decrease in the long-term fund to fixed asset ratio:

This year the Company continued to carry out its capacity expansion plan by purchasing fixed assets. But this was caused by the long-term funds and shareholders’ equities payment ratio.

2. Decrease in accounts receivable turnover rate and increase in average collection days As the European storm affected the global economy, demand growth in the solar market went slow and clients were given a longer credit period.

3. Increase in inventory turnover and decrease in average sales days This year due to subsidy policy in the main solar energy markets like Germany and Italy, demand growth went slow and product price continued to go down. But shipments still grew, causing an increase in inventory turnover rate.

4. Decrease in fixed asset turnover: This year the Company’s capacity continued to expand by purchasing fixed assets. But due to slow demand growth and falling product price, the Company’s income only grew slightly, which caused the fixed asset turnover rate to fall.

5. Profitability: Down in financial indicators like ROA, ROE, Operating income to paid-in capital, pre-tax income margin to paid-in capital and income margin, against the previous year. As product prices continued to fall, a loss was caused.

6. Down in Cash Flow Adequacy Ratio This year a cash outflow took place in operating activity, causing a fall in the Cash Flow Adequacy Ratio.

7. Decrease in degree of operating leverage: As the European storm affected the global economy, demand growth in the solar market went slow and product prices continued to fall. Therefore, the DOL fell.

Note 1: EPS was calculated based on weighted average outstanding shares. Note 2: Net cash flow from operations is negative and was not included in calculations. Note 3: Starting with Jan. 1, 2009, NSP adopted No.10 “Accounting for Inventories” in the newly amended “Statement of Financial

Accounting Standards” (SFAS). It also re-placed non-operating profit and loss (including revenue from sale of scraps and gain/loss on physical inventory) 2008 under “cost of goods sold”.

53

<III> Audit Committee’s Report for 2011 Financial Statements

Neo Solar Power Corporation

Audit Committee’s Report

The Board of Directors has prepared the Company’s 2011 Business Report,

Financial Statements, and Proposal of 2011 Deficit Compensation. The

Financial Statements have been reviewed by CPA firm Deloitte &

Touche, and CPAs Yu-Feng Huang and Lin, Cheng-Chih of Deloitte &

Touche has provided an audit report according to law. The Business

Report, Financial Statements, and 2011 Deficit Compensation Proposal

have been reviewed and determined to be correct and accurate by the

Audit Committee members of Neo Solar Power Corporation. According

to Article 14-4 of the Securities and Exchange Act and Article 219 of the

Company Law, we hereby submit this report.

Audit Committee of Neo Solar Power Corporation.

Convener：Independent Auditor: Jia-Dong Shea

February 21, 2012

54

<IV> Financial Statements for the Years Ended December 31, 2011 and 2010 and Independent Auditors’ Report INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Neo Solar Power Corp. We have audited the accompanying balance sheets of Neo Solar Power Corp. (the “Corporation”) as of December 31, 2011 and 2010, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neo Solar Power Corp. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China. We have also audited the consolidated financial statements of Neo Solar Power Corp. as of and for the years ended December 31, 2011 and 2010 and have expressed an unqualified opinion thereon in our report dated February 21, 2012 (not presented herewith). February 21, 2012

Notice to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail.

55

NEO SOLAR POWER CORP. BALANCE SHEETS DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Par Value) 2011 2010 2011 2010 ASSETS Amount % Amount % LIABILITIES AND SHAREHOLDERS’ EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES

Cash and cash equivalents (Notes 2 and 4) $ 5,439,989 25 $ 6,426,019 31 Short-term bank loans (Note 13) $ 679,949 3 $ 268,557 1 Notes and accounts receivable, net (Notes 2, 3 and 6) 1,569,075 7 2,384,283 12 Financial liabilities at fair value through profit or loss - Other receivables (Note 6) 92,813 - 99,631 - current (Notes 2, 5 and 15) 1,017 - 252,099 1 Inventories (Notes 2 and 7) 881,626 4 1,624,487 8 Notes and accounts payable (Note 24) 956,551 4 1,399,807 7 Prepaid expenses - current (Notes 2, 8 and 26) 355,286 2 611,880 3 Income tax payable (Notes 2 and 18) 40,574 - 226,392 1 Pledged time deposits (Notes 4 and 25) 4,235 - 20,235 - Bonuses payable to employees and directors (Notes 2 and 19) 3,969 - 419,721 2 Other current assets 2,000 - 2,000 - Payables to contractors and equipment suppliers 1,425,232 7 849,805 4

Receipts in advance (Note 26) 111,945 1 287,107 2 Total current assets 8,345,024 38 11,168,535 54 Current portion of bonds payable (Notes 2 and 15) - - 773,701 4

Current portion of long-term bank loans (Notes 16 and 25) 998,200 5 678,000 3 LONG-TERM INVESTMENTS Accrued expenses and other current liabilities (Notes 2, 14 and 24) 969,033 4 483,180 2

Equity-method investment (Notes 2 and 9) 242,914 1 183,665 1 Financial assets carried at cost-noncurrent (Notes 2 and 10) 142,800 1 - - Total current liabilities 5,186,470 24 5,638,369 27

Total long-term investments 385,714 2 183,665 1 LONG-TERM LIABILITIES, NET OF CURRENT PORTION

Long-term bank loans (Notes 16 and 25) 2,205,800 10 904,000 5 PROPERTY, PLANT AND EQUIPMENT (Notes 2, 11 and 25)

Cost OTHER LIABILITIES Land 440,596 2 440,596 2 Guarantee deposits (Note 24) 474 - 45 - Buildings 2,737,205 13 1,336,475 7 Machinery and equipment 9,928,975 45 6,671,081 32 Total liabilities 7,392,744 34 6,542,414 32 Research and development equipment 7,142 - 1,516 - Office equipment 7,704 - 7,704 - SHAREHOLDERS' EQUITY (Notes 2, 15, 19 and 20) Leasehold improvements 11,088 - 11,088 - Capital stock, NT$10.00 par value Miscellaneous equipment 146,639 1 107,581 1 Authorized - 800,000 thousand shares in 2011 and 500,000 thousand

13,279,349 61 8,576,041 42 shares in 2010 Accumulated depreciation (2,964,827) (14) (1,585,063) (8) Issued - 428,905 thousand shares in 2011 and 297,183 thousand 10,314,522 47 6,990,978 34 shares in 2010 4,289,048 19 2,971,830 14 Construction in progress and prepayments for equipment 635,105 3 326,613 2 Capital surplus

Additional paid-in capital from share issuance in excess of par 10,360,260 47 7,633,003 37 Net property, plant and equipment 10,949,627 50 7,317,591 36 Conversion of bonds 1,663,320 8 709,312 4

Long-term investments - - 1,374 - OTHER ASSETS Retained earnings

Refundable deposits 28,938 - 30,207 - Legal reserve 273,849 1 - - Deferred charges, net (Notes 2 and 12) 72,414 - 69,465 - (Accumulated deficits) unappropriated earnings (2,035,040) (9) 2,738,495 13 Prepaid expense - noncurrent (Notes 2, 8 and 26) 2,162,464 10 1,826,965 9

Total shareholders' equity 14,551,437 66 14,054,014 68 Total other assets 2,263,816 10 1,926,637 9

TOTAL $ 21,944,181 100 $ 20,596,428 100 TOTAL $ 21,944,181 100 $ 20,596,428 100 The accompanying notes are an integral part of the financial statements.

56

NEO SOLAR POWER CORP. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share) 2011 2010 Amount % Amount % GROSS SALES $ 20,716,903 $ 20,204,346 SALES RETURNS AND ALLOWANCES 140,065 58,152 NET SALES (Notes 2, 24 and 26) 20,576,838 100 20,146,194 100 COST OF SALES (Notes 7, 21 and 24) 22,630,793 110 16,374,417 81 GROSS (LOSS) PROFIT BEFORE REALIZED

INTERCOMPANY PROFIT (2,053,955) (10) 3,771,777 19

REALIZED INTERCOMPANY (LOSS) PROFIT

(Note 2) (290) - 194 -

REALIZED GROSS (LOSS) PROFIT (2,054,245) (10) 3,771,971 19 OPERATING EXPENSES (Notes 21 and 24)

Selling 198,937 1 147,621 1 General and administrative 287,087 1 467,019 2 Research and development 98,906 1 172,094 1

Total operating expenses 584,930 3 786,734 4

OPERATING (LOSS) INCOME (2,639,175) (13) 2,985,237 15 NONOPERATING INCOME AND GAINS

Foreign exchange gain, net (Note 2) 46,123 1 76,983 1 Interest income (Note 23) 20,878 - 17,967 - Gain on disposal of investments (Note 2) 764 - 3,466 - Valuation gain on financial instruments, net

(Notes 2, 5 ,15 and 23) - - 198,961 1

Others (Note 24) 44,352 - 11,733 -

Total nonoperating income and gains 112,117 1 309,110 2 NONOPERATING EXPENSES AND LOSSES

Valuation loss on financial instruments, net (Notes 2, 5, 15 and 23)

183,461 1 - -

Equity in losses of equity-method investees (Notes 2 and 9)

100,669 1 82,168 1

Interest expense (Notes 2, 15 and 23) 34,496 - 253,537 1 (Continued)

57

NEO SOLAR POWER CORP. STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share) 2011 2010 Amount % Amount %

Loss on disposal of property, plant and equipment (Note 2)

$ - - $ 4,510 -

Others - - 20 -

Total nonoperating expenses and losses 318,626 2 340,235 2 (LOSS) INCOME BEFORE INCOME TAX (2,845,684) (14) 2,954,112 15 INCOME TAX EXPENSE (Notes 2 and 18) (51,983) - (215,617) (1) NET (LOSS) INCOME $ (2,897,667) (14) $ 2,738,495 14 2011 2010 Before

Income Tax

After Income

Tax

Before Income

Tax

After Income

Tax (LOSS) EARNINGS PER SHARE (Note 22)

Basic (loss) earnings per share $ (7.62) $ (7.76) $ 11.85 $ 10.99 Diluted (loss) earnings per share $ (7.62) $ (7.76) $ 10.06 $ 9.36

The accompanying notes are an integral part of the financial statements. (Concluded)

58

NEO SOLAR POWER CORP. STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) Capital Surplus (Notes 19 and 20) Additional Retained Earnings (Note 19) Paid in Capital (Accumulated Capital Stock from Share Deficits) Total Shares Issuance in Conversion Long-term Employee Unappropriated Shareholders' (Thousands) Amount Excess of Par of Bonds Investments Stock Options Legal Reserve Earnings Equity BALANCE, JANUARY 1, 2010 211,970 $ 2,119,698 $ 3,968,849 $ - $ - $ 48,811 $ 138,429 $ (593,164) $ 5,682,623 Offset of deficit against capital surplus and legal reserve - - (454,735) - - - (138,429) 593,164 - Issuance of capital stock - September 10, 2010 70,000 700,000 3,985,000 - - - - - 4,685,000 Compensation recognized for employee stock options - - 121,076 - - (48,811) - - 72,265 Issuance of shares upon exercise of employee stock options 2,911 29,112 12,813 - - - - - 41,925 Conversion of bonds into capital stock 12,302 123,020 - 709,312 - - - - 832,332 Adjustment arising from changes in percentage of ownership in

equity-method investees - - - - 1,374 - - - 1,374 Net income in 2010 - - - - - - - 2,738,495 2,738,495 BALANCE, DECEMBER 31, 2010 297,183 2,971,830 7,633,003 709,312 1,374 - - 2,738,495 14,054,014 Insurance of capital stock - July 19, 2011 100,000 1,000,000 2,723,867 - - - - - 3,723,867 Issuance of shares upon exercise of employee stock options 613 6,128 3,390 - - - - - 9,518 Conversion of bonds into capital stock 15,089 150,888 - 954,008 - - - - 1,104,896 Appropriation of prior year's earnings

Legal reserve - - - - - - 273,849 (273,849) - Cash dividends - NT$4.61 per share - - - - - - - (1,441,817) (1,441,817) Stock dividends - NT$0.51 per share 16,020 160,202 - - - - - (160,202) -

Adjustment arising from changes in percentage of ownership in

equity-method investees - - - - (1,374) - - - (1,374) Net loss in 2011 - - - - - - - (2,897,667) (2,897,667) BALANCE, DECEMBER 31, 2011 428,905 $ 4,289,048 $ 10,360,260 $ 1,663,320 $ - $ - $ 273,849 $ (2,035,040) $ 14,551,437 The accompanying notes are an integral part of the financial statements.

59

NEO SOLAR POWER CORP. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income $ (2,897,667) $ 2,738,495 Adjustments to reconcile net (loss) income to net cash (used in)

provided by operating activities:

Depreciation 1,379,764 777,647 Amortization 60,816 45,797 Realized intercompany loss (profit) 290 (194) Valuation loss (gain) on financial instruments, net 93,175 (198,961) Provision for doubtful accounts 1,966 8,044 Provision (reversal of allowance) for loss on inventories 379,154 (138,512) Gain on disposal of investments (764) - Equity in loss of equity-method investees 100,669 82,168 Reclassification of property, plant and equipment to expenses 7,600 - Loss on disposal of property, plant and equipment - 4,510 Amortization of discount and issuance costs on bonds payable - 191,781 Foreign exchange gain on bonds payable (13,062) (93,115) Compensation cost of employee stock options - 72,265 Net changes in operating assets and liabilities

Notes and accounts receivable 813,242 (1,661,895) Other receivables 6,818 51,376 Inventories 363,707 (803,127) Prepaid expenses (78,905) (326,195) Notes and accounts payable (443,256) 938,112 Income tax payable (185,818) 206,626 Bonuses payable to employees and directors (415,752) 419,721 Receipts in advance (175,162) 96,895 Accrued expenses and other current liabilities 485,533 219,145

Net cash (used in) provided by operating activities (517,652) 2,630,583

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of: Available-for sale financial assets (1,800) - Equity-method investment (161,292) (164,634) Financial assets carried at cost (142,800) - Property, plant and equipment (4,443,973) (3,836,064) Deferred charges (63,765) (88,393)

Proceeds from disposal of available-for-sale financial assets 2,564 - Decrease (increase) in pledged time deposits 16,000 (9,942) Decrease (increase) in refundable deposits 1,269 (17,771)

Net cash used in investing activities (4,793,797) (4,116,804)

(Continued)

60

NEO SOLAR POWER CORP. STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010 CASH FLOWS FROM FINANCING ACTIVITIES

Increase in short-term bank loans $ 411,392 $ 268,557 Increase (decrease) in long-term bank loans 1,622,000 (1,078,000) Increase in guarantee deposits 429 - Proceeds from:

Issuance of capital stock 3,723,867 4,685,000 Exercise of employee stock options 9,518 41,925 Cash dividends (1,441,787) -

Net cash provided by financing activities 4,325,419 3,917,482

NET (DECREASE) INCREASE IN CASH AND CASH

EQUIVALENTS (986,030) 2,431,261

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,426,019 3,994,758 CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,439,989 $ 6,426,019 SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid $ 43,298 $ 62,221 Income tax paid $ 237,801 $ 994

NONCASH INVESTING AND FINANCING ACTIVITIES

Conversion of bonds into capital stock and additional paid-in capital $ 1,104,896 $ 832,332 Current portion of long-term bank loans $ 998,200 $ 678,000 Current portion of bonds payable $ - $ 773,701

CASH PAID FOR ACQUISITION OF PROPERTY, PLANT AND

EQUIPMENT

Acquisition of property, plant and equipment $ 5,019,400 $ 4,291,203 Increase in payables to contractors and equipment suppliers (575,427) (455,139) Cash paid $ 4,443,973 $ 3,836,064

The accompanying notes are an integral part of the financial statements. (Concluded)

61

NEO SOLAR POWER CORP. NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATION

Neo Solar Power Corp. (“the Corporation”) was incorporated in the Republic of China on August 26, 2005. Its common shares have been listed on the Taiwan Stock Exchange (“TWSE”) since January 2009. The Corporation also issued Global Depositary Shares (GDS), which are listed on the Luxembourg Stock Exchange and have been traded on the Euro MTF Market of the Luxembourg Stock Exchange since July 2011. The Corporation specializes in manufacturing high-quality solar cells, solar cell modules and wafers. The Corporation’s main business activities include designing, manufacturing and selling solar cells and other solar related businesses. As of December 31, 2011 and 2010, the Corporation had 1,751 and 1,430 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting and accounting principles generally accepted in the Republic of China (R.O.C.). For readers’ convenience, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version, or if differences arise in the interpretation of the two versions, the Chinese version of the financial statements shall prevail. Significant accounting policies are summarized as follows: Foreign-currency Transactions Nonderivative foreign-currency transactions related to foreign-currency assets, liabilities, income or costs are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses on the settlement of assets and liabilities denominated in foreign currencies are recognized in profit or loss. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rate, with the resulting gains or losses recognized in profit or loss. Accounting Assumptions Under above guidelines, laws and principles, certain estimates and assumptions have been used for the provision for doubtful accounts, provision for loss on inventories, depreciation of property, plant and equipment, amortization of deferred charges, income tax, bonuses payable to employees and directors, default fines, loss on purchase contracts, and product warranty expenses. Results may differ from these estimates.

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Classification of Current and Noncurrent Assets and Liabilities Current assets include cash and cash equivalents, and those assets held primarily for trading purposes or to be realized, sold or consumed within 12 months from the balance sheet date. Property, plant and equipment, deferred expenses and other assets that are not classified as current are noncurrent assets. Current liabilities are obligations incurred for trading purposes or to be settled within 12 months from the balance sheet date. All other liabilities not classified as current are noncurrent liabilities. Cash Equivalents Repurchase agreements with maturities of less than three months from the date of purchase are classified as cash equivalents. Their carrying amount approximates fair value. Financial Assets/Liabilities at Fair Value through Profit or Loss Financial instruments that do not meet the criteria for hedge accounting are classified as financial assets or financial liabilities held for trading.

The Corporation recognizes a financial asset or a financial liability on its balance sheet when the Corporation becomes a party to the contractual provisions of the financial instrument. A financial asset is deducted when the Corporation has lost control of its contractual rights over the financial asset. A financial liability is deducted when the Corporation is discharged, cancelled or expired from its contractual obligation specified in the relevant contract. These financial instruments are initially recognized at fair value, with transaction costs expensed as incurred. The financial instruments are remeasured at fair value subsequently with changes in fair value recognized in profit or loss. A regular way purchase or sales of financial assets is accounted for using settlement date accounting. A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: Derivatives - at values determined using valuation techniques. Available-for-sale financial Assets Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in equity until the financial assets are disposed of, at which time, the corresponding cumulative gain or loss are recognized in profit or loss when the financial assets are derecognized from the balance sheet. A regular way purchases or sales of financial assets are recognized and derecognized on a settlement date basis. Allowance for Doubtful Receivables Allowance for doubtful receivables is provided on the basis of the aging and review of the collectability of accounts receivables. The Corporation assesses the probability of collections of accounts receivable by examining the aging analysis of the outstanding receivables. As discussed in Note 3, the Corporation adopted the third-time revised Statement of Financial Accounting Standards (SFAS) No. 34 - “Financial Instruments: Recognition and Measurement.” One of the main revisions is that the impairment of receivables originated by the Corporation should be covered by SFAS No. 34. Accounts receivables are assessed for impairment at the end of each reporting period and considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the

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accounts receivable, the estimated future cash flows of the asset have been affected. Objective evidence of impairment could include: � Significant financial difficulty of the debtor; or � It becoming probable that the debtor will enter into bankruptcy or undergo financial reorganization; or � A default or delinquency in interest or principal payments; or � Extension of the maturity date; or � Significant financial difficulty of the final issuer or debtor; or � The disappearance of an active market for that financial asset because of the issuer’s financial

difficulties or other reasons. Accounts receivables that are assessed not to be impaired individually are further assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable could include the Corporation’s past experience of collecting payments, an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. The amount of the impairment loss recognized is the difference between the asset carrying amount and the present value of estimated future cash flows, after taking into account the related collateral and guarantees, discounted at the receivable’s original effective interest rate. The carrying amount of the accounts receivable is reduced through the use of an allowance account. When accounts receivable are considered uncollectible, they are written off against the allowance account. Recoveries of amounts previously written off are credited to the allowance account. Changes in the carrying amount of the allowance account are recognized as bad debt expense in profit or loss. Factoring of Accounts Receivable

The following three conditions must be met to recognize factoring of accounts receivable as sales:

a. The accounts receivable are legally separated from the Corporation and its creditors. b. The transferees have obtained the right to pledge or exchange accounts receivable, which are either the

transferred accounts receivable or beneficial interest in the transferred assets. c. The transferor does not maintain effective control, through an agreement to repurchase or redeem the

transferred accounts receivable before their maturities, over the transferred accounts receivable. Upon sale of the accounts receivable, the difference between the proceeds and the carrying value of the accounts receivable is recognized as a loss and recorded as non-operating expenses. Inventories Inventories consist of raw materials, supplies, work-in-process and finished goods. Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at weighted-average costs. Since April 2011, inventories have been recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

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Equity-method Investments

Investments in which the Corporation holds 20 percent or more of the investees’ voting shares or exercises significant influence over the investees’ operating and financial policy decisions are accounted for by the equity method. When the Corporation subscribes for its investee’s newly issued shares at a percentage different from its existing ownership percentage, the Corporation records the change in its equity in the investee’s net assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus. When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term investments is insufficient, the shortage is debited to retained earnings. All the profit and loss from downstream transactions with an investee over which the Corporation has control are eliminated. Profits from upstream transactions with an equity-method investee are eliminated in proportion to the Corporation’s percentage of ownership in the investee. All the deferred gains and losses are realized upon the sale of the related products to third parties. The Corporation evaluates whether there are indications of impairment on the investments on the financial statement date. If there is objective evidence that an investee is significantly impaired, the carrying amount of the investment in excess of its recoverable amount is recognized as impairment loss. For those investees over which the Corporation holds a controlling interest, the assessment of impairment is based on an estimation of the value in use of the cash-generating units of the consolidated entity. Financial Assets Carried at Cost

Investments in securities such as non-publicly traded stocks without quoted market prices in an active market and with fair values that cannot be reliably measured are stated at original cost. Cash dividends are recognized as investment income upon resolution of the shareholders of an investee but are accounted for as reductions of the original cost of investment if such dividends are declared on the investees’ earnings attributable to periods before the Corporation’s purchase of the investments. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The Corporation’s cost per share is then recalculated on the basis of the new number of shares. If there is objective evidence that a financial asset is impaired, a loss is recognized. No recording of a subsequent recovery of fair value is allowed. Prepayments to Suppliers The prepayments to suppliers are recorded as current assets if such prepayments are expected to be deducted from purchase payments made to suppliers within 12 months from the balance sheet date. Other prepayments, by contractual term that such portion are expected to be deducted from purchase payments beyond 12 months from the balance sheet date, will be classified as noncurrent assets.

Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Borrowing costs directly attributable to the acquisition or construction of property, plant and equipment are capitalized as part of the cost of those assets. Significant additions, renewals and improvements made to property, plant and equipment are capitalized. Repairs and maintenance are expensed as incurred. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized.

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Depreciation is calculated on the straight-line method over the following estimated useful lives: buildings - 15 to 20 years; machinery and equipment - 3 to 5 years; research and development equipment - 3 to 5 years; office equipment - 3 years; leasehold improvements - 3 to 10 years; and miscellaneous equipment - 3 to 15 years. Property, plant and equipment which are still in service beyond their originally estimated useful lives are further depreciated over their revised estimated useful lives. Upon sale or disposal of property, plant and equipment to others, the related cost and accumulated depreciation are deducted from the corresponding accounts with any gain or loss recorded as non-operating gains or losses in the year of sale or disposal. Deferred Charges All research-phase expenditures are expensed as incurred. Expenditures incurred in the development phase are capitalizes as intangible assets and then amortized using the straight-line method over estimated useful lives if the recognition criteria for intangible asset have been met; otherwise, expenditures are expensed when incurred. Deferred charges, including computer software costs, subsidy of electric system and other deferred charges, are amortized using the straight-line method over the following periods: computer software - 1 to 3 years, subsidy of electric system - 3 years; and others deferred charges - 1 to 5 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized. Capitalized and Other Expenditures Expenditures that will benefit periods in the future are capitalized. Other expenditures are recorded as expenses or losses. Convertible Bonds The Corporation records the carrying values of the host contract as the total proceeds from the issuance less the (1) fair values of embedded derivatives and (2) issuance costs allocated to bond payable in proportion to the initially relative recognized amount. The bonds are subsequently measured at amortized cost using the effective interest method, the related interest expense or redemption gain is recognized in profit or loss. When the bondholder exercises the conversion option before maturity, the adjusted carrying value of the debt components (bonds and embedded derivatives are included) is credited to a capital stock accounts. The carrying value of bonds is accounted for by the effective interest method until the day before the conversion date, and that of embedded derivatives is the fair value of the day before the conversion date. Pension Costs Actual contributions made to employees’ individual pension accounts under a defined contribution plan are recorded as pension costs during the period in which employees render services. Share-based Compensation Employee stock options granted on or after January 1, 2008 are accounted for under SFAS No. 39 -“Share-based Payment.” Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting period, with a corresponding adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates.

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Employee stock options granted in the period from January 1, 2004 to December 31, 2007 were accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China (“ARDF”). The Corporation adopted the intrinsic value method and any compensation cost determined under this method was recognized in profit or loss over the vesting period stated in the employee stock option plan. Revenue Recognition Revenue is recognized when rewards of ownership and significant risk of goods have been transferred to customers, primarily upon shipment, as major part of the earnings process is completed and revenues are realized or are realizable. The Corporation does not recognize sales on transactions involving the delivery of materials to subcontractors as the ownership over the materials are not transferred. Revenue is measured at fair value of the consideration received or receivable, taking into account the amount of any trade discounts and volume rebates agreed to by the Corporation and customers. Since the trade receivables due within one year from the balance sheet date and sales transaction are frequent, the fair value of receivables is equivalent to the nominal amount of the consideration to be received without discounting future receipts using an imputed rate of interest. Income Tax The Corporation applies inter-period allocation to its income tax, whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, unused loss carryforward and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures and personnel training expenditures are recognized using the flow-through method. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. According to the Income Tax Law, income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated. Reclassifications Certain accounts in the financial statements as of and for the year ended December 31, 2010 have been reclassified to be consistent with the financial statements as of and for the year ended December 31, 2011.

3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES

SFAS No. 34 - “Financial Instruments: Recognition and Measurement” On January 1, 2011, the Corporation prospectively adopted the newly revised SFAS No. 34. The main revisions includes (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Corporation are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost a debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Corporation’s financial statements as of and for the year ended December 31, 2011.

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SFAS No. 41 - “Accounting for Operating Segments Disclosures” On January 1, 2011, the Corporation adopted the newly issued SFAS No. 41- “Operating Segments” (“SFAS No. 41”). The requirements of the statement are based on the information about the components of the Corporation that management uses to make decisions about operating matters. SFAS No. 41 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Corporation's chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20 - “Segment Reporting.” The information for the year ended December 31, 2010 has been recast to reflect the new segment reporting requirement.

4. CASH AND CASH EQUIVALENTS

December 31 2011 2010 Demand deposits $ 3,453,804 $ 2,185,893 Time deposits 1,988,235 4,258,235 Checking accounts 1,874 1,845 Cash on hand 311 281 5,444,224 6,446,254 Pledged time deposits (4,235) (20,235) $ 5,439,989 $ 6,426,019

5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT O R LOSS

December 31 2011 2010 Financial liabilities held for trading Forward exchange contracts $ 1,017 $ 3,142 Cross-currency swap contract - 6,689 Embedded derivatives of convertible bonds (Note 15)

Conversion option - 242,268 $ 1,017 $ 252,099

The Corporation entered into cross-currency swap contract and forward exchange contracts in 2011 and 2010 and option contracts in 2011 to manage exposures due to exchange rate and interest rate fluctuations. The financial risk management objective of the Corporation is to minimize risks due to changes in fair value. As of December 31, 2011 and 2010, outstanding forward exchange contracts consisted for the following: Maturity Date Contract Amount (In Thousands) December 31, 2011 Sell USD/Buy NTD January 6, 2012 USD6,000/NTD180,780 December 31, 2010 Sell EUR/Buy USD February 14, 2011 EUR5,000/USD6,568

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All the option contracts as of December 31, 2011 had been settled before contract maturity. As of December 31, 2010, outstanding cross-currency swap contracts consisted of the following:

Contract Amount (In Thousands)

Maturity Date Interest Rates

Paid (In NT$) Interest Rates Received (In US$)

US$11,665 July 8, 2011 0.29% 2% For all convertible bonds had been requested to convert into common shares, the Corporation early settled the cross-currency swap contract in January 2011. The results of transactions on financial instruments held for trading were a net loss of $167,484 thousand in 2011 and a net gain of $222,278 thousand in 2010, respectively. Among them, a net loss and a net gain resulted from convertible bonds were $87,148 thousand in 2011 and $253,353 thousand in 2010.

6. NOTES AND ACCOUNTS RECEIVABLE, NET

December 31 2011 2010 Notes and accounts receivable $ 1,582,500 $ 2,395,742 Provision for doubtful accounts (13,425) (11,459) $ 1,569,075 $ 2,384,283

The factored accounts receivable for 2011 and 2010 are summarized as follows:

Unit: In Thousands

Counter-parties

Receivables

Sold

Amounts Collected

Advances Received at Year-end

Interest Rates on Advances Received (%)

Credit Line Year ended December 31, 2011 Chinatrust Commercial Bank US$ 649 US$ 649 $ - - US$ 2,000 UPS Capital HK Limited US$ 5,693 US$ 5,693 - - EUR 824 EUR 824 - -

US$ 5,000

US$ 525 US$ 260 - - EUR 1,500 Year ended December 31, 2010 Chinatrust Commercial Bank US$ 5,392 US$ 4,386 - - EUR 261 EUR 261 - -

US$ 3,250

First Commercial Bank US$ 467 US$ 467 - - US$ 500 EUR 238 EUR 238 - - US$ 500 The above credit line can be used on a revolving basis. However, the related contracts with the financial institutions, except that with UPS Capital HK Limited., had expired as of December 31, 2011. Based on the factoring agreements, losses from commercial disputes (such as sales returns and discounts) should be borne by the Corporation, while losses from credit risk should be borne by the financial institutions. As of December 31, 2011 and 2010, the retentions (US$265 thousand in 2011 and US$1,006 thousand in 2010) on the factored accounts receivable were recorded under other receivables.

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7. INVENTORIES

December 31 2011 2010 Finished goods $ 525,523 $ 505,219 Work in process 69,926 506,469 Raw materials and supplies 286,177 612,799 $ 881,626 $ 1,624,487

As of December 31, 2011 and 2010, the provision for losses on inventories were $598,751 thousand and $219,597 thousand, respectively. For 2011, the cost of sales related to inventories was $22,630,793 thousand, which included (1) unallocated fixed manufacturing overheads of $277,480 thousand; (2) revenue from sale of scraps of $38,616 thousand and (3) a provision for losses on inventories amounting to $379,154 thousand. For 2010, the cost of sales related to inventories was $16,374,417 thousand, which included (1) unallocated fixed manufacturing overheads of $12,124 thousand; (2) revenue from sale of scraps of $23,233 thousand and (3) a reversal of the provision for losses on inventories amounting to $138,512 thousand. The reversal was due to the decrease in unit costs of products in 2010.

8. PREPAID EXPENSE

December 31 2011 2010 Prepayments to suppliers

Contractual (Note 26) $ 2,504,433 $ 2,301,771 Non-contractual - 107,331

2,504,433 2,409,102 Less: Noncurrent portion (2,162,464) (1,826,965)

Prepayments to suppliers - current 341,969 582,137 Others 13,317 29,743 $ 355,286 $ 611,880

9. EQUITY-METHOD INVESTMENTS

December 31 2011 2010 % of % of

Amount Ownership Amount Ownership New Ray Investment Corp. (“New Ray

Investment”) $ 114,835 100.00 $ - - Sunny Optronics Corporation (“Sunny

Optronics”) 78,395 86.96 173,771 84.88 Prime Energy Corp. (“Prime Energy”) 49,684 100.00 9,894 100.00 $ 242,914 $ 183,665

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The equity-method investees’ financial statements, which had been used to determine the carrying amount of the Corporation’s investments, had been audited, except those of Prime Energy in 2010. The Corporation’s management believed that, had all subsidiaries financial statement been audited, there would have had no material effect on the Corporation’s financial statements. Investment losses are summarized as follows:

Year Ended December 31 2011 2010 Sunny Optronics $ 100,294 $ 82,062 Prime Energy 210 106 New Ray Investment 165 - $ 100,669 $ 82,168

On February 3, 2012, Sunny Optronics’s Board of Directors proposed to reduce capital by $100,000 thousand and to cancel 10,000 thousand issued common stock to offset Sunny Optronics’s accumulated deficit; the canceled shares had a par value of NT$10.00 and represented a capital reduction ratio of 33.33%. The capital reduction plan will be presented at the shareholders’ meeting for approval. In September 2011, Prime Energy bought 1,000 thousand shares of ThinTech Materials Technology Co., Ltd. (TTMC) for $40,040 thousand; As of December 31, 2011, the percentage of the ownership was 1.52%. In October 2011, the Corporation invested $115,000 thousand to establish a subsidiary (New Ray Investment). New Ray Investment then made an additional acquisition of 3,000 thousand shares sold by TTMC for $107,100 thousand through a private equity placement; As of December 31, 2011, the percentage of the ownership was 4.57%. In April, 2010, the Corporation invested in Prime Energy, which specializes in manufacturing of electronic components and wholesaling. The consolidated financial statements as of and for the years ended December 31, 2011 and 2010 included all subsidiaries.

10. FINANCIAL ASSETS CARRIED AT COST

December 31, 2011 Domestic unquoted common stocks

ThinTech Materials Technology Co., Ltd. (“TTMC”) $ 142,800 In October 2011, TTMC sold to the Corporation 4,000 thousand shares for $142,800 thousand through private equity placement; As of December 31, 2011, the percentage of the ownership was 6.09%. Under Article 43-8 of the Securities and Exchange Act, there is a legally enforceable restriction on private-placement shares that prevents their trading. The above equity investment, which had no quoted price in an active market and had a fair value that could not be reliably measured, was carried at cost.

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11. PROPERTY, PLANT AND EQUIPMENT

Year Ended December 31, 2011 Balance,

Beginning of Year Additions

Reclassific- ations

Balance, End of Year

Cost Land $ 440,596 $ - $ - $ 440,596 Buildings 1,336,475 2,215 1,398,515 2,737,205 Machinery and equipment 6,671,081 24,319 3,233,575 9,928,975 Research and development

equipment 1,516

744

4,882

7,142

Office equipment 7,704 - - 7,704 Leasehold improvement 11,088 - - 11,088 Miscellaneous equipment 107,581 13,270 25,788 146,639 Construction in progress and

prepayment for equipment 326,613

4,978,852

(4,670,360)

635,105

8,902,654 $ 5,019,400 $ (7,600) 13,914,454 Accumulated depreciation Buildings 105,886 $ 87,245 $ - 193,131 Machinery and equipment 1,446,671 1,265,650 - 2,712,321 Research and development

equipment 1,290

263

-

1,553

Office equipment 3,012 1,640 - 4,652 Leasehold improvement 2,816 1,377 - 4,193 Miscellaneous equipment 25,388 23,589 - 48,977 1,585,063 $ 1,379,764 $ - 2,964,827 $ 7,317,591 $ 10,949,627


Beginning of Year Additions Disposals

Reclassific- ations


Cost Land $ - $ - $ - $ 440,596 $ 440,596 Buildings 1,210,876 504 - 125,095 1,336,475 Machinery and equipment 2,968,770 11,659 - 3,690,652 6,671,081 Research and development

equipment 1,516

-

-

-

1,516

Office equipment 6,131 1,573 - - 7,704 Leasehold improvement 14,127 3,650 (6,689) - 11,088 Miscellaneous equipment 57,104 17,066 - 33,411 107,581 Construction in progress and

prepayment for equipment 359,616

3,816,155

-

(3,849,158)

326,613

Prepayment for land - 440,596 - (440,596) - 4,618,140 $ 4,291,203 $ (6,689) $ - 8,902,654

(Continued)

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Beginning of Year Additions Disposals

Reclassific- ations


Accumulated depreciation Buildings $ 45,456 $ 60,430 $ - $ - $ 105,886 Machinery and equipment 746,886 699,785 - - 1,446,671 Research and development equipment

911

379

-

-

1,290

Office equipment 1,520 1,492 - - 3,012 Leasehold improvement 3,569 1,426 (2,179) - 2,816 Miscellaneous equipment 11,253 14,135 - - 25,388 809,595 $ 777,647 $ (2,179) $ - 1,585,063 $ 3,808,545 $ 7,317,591

(Concluded)

The property, plant and equipment pledged as collaterals are shown in Note 25. 12. DEFERRED CHARGES, NET

Year Ended December 31, 2011

Computer Software

Subsidy of Electric System Others Total

Cost Balance, beginning of year $ 42,624 $ 14,069 $ 86,964 $ 143,657 Additions 40,225 12,122 11,418 63,765 Balance, end of year 82,849 26,191 98,382 207,422 Accumulated amortization Balance, beginning of year 21,492 12,045 40,655 74,192 Additions 19,605 3,407 37,804 60,816 Balance, end of year 41,097 15,452 78,459 135,008 Balance, end of year, net $ 41,752 $ 10,739 $ 19,923 $ 72,414


Computer Software


Cost Balance, beginning of year $ 21,463 $ 12,394 $ 21,407 $ 55,264 Additions 21,161 1,675 65,557 88,393 Balance, end of year 42,624 14,069 86,964 143,657

(Continued)

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Computer Software


Accumulated amortization Balance, beginning of year $ 10,593 $ 8,183 $ 9,619 $ 28,395 Additions 10,899 3,862 31,036 45,797 Balance, end of year 21,492 12,045 40,655 74,192 Balance, end of year, net $ 21,132 $ 2,024 $ 46,309 $ 69,465

(Concluded) 13. SHORT-TERM BANK LOANS

December 31 2011 2010 Working capital loans - interest at 0.95%-2.18% on December 31,

2011; 0.75%-1.59% on December 31, 2010 $ 679,949

$ 268,557

14. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

December 31 2011 2010 Loss on contracts $ 448,979 $ - Bonus 100,078 131,280 Salaries 74,018 61,260 Product warranty expenses 51,646 30,978 Others 294,312 259,662 $ 969,033 $ 483,180

Bonus Salaries January 1, 2011 $ 131,280 $ 61,260 Add: Accrued 119,624 860,807 Less: Paid (150,826) (848,049) December 31, 2011 $ 100,078 $ 74,018 January 1, 2010 $ 72,230 $ 32,277 Add: Accrued 240,623 563,194 Less: Paid (181,573) (534,211) December 31, 2010 $ 131,280 $ 61,260

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15. BONDS PAYABLE

December 31 2011 2010 European unsecured convertible bonds $ - $ 773,701 Current portion - (773,701) $ - $ - On July 15, 2008, the Corporation issued 3-year unsecured convertible bonds, with a face value of US$50,000 thousand. As of December 31, 2011, bonds holders with principal amount of US$50,000 thousand had requested to convert the bonds into 27,391 thousand common shares, which had all been issued. According to SFAS No. 36 - “Financial Instruments: Disclosure and Presentation” (“SFAS No. 36”), the Corporation separated conversion and price reset option from the convertible bond and recognized these options as financial liabilities at fair value through profit or loss. As of December 31, 2010, the fair values of the embedded derivatives was $242,268 thousand and the amortized costs of bonds payable was $773,701 thousand. Terms of the bonds are as follows:

a. Issue Date: July 15, 2008. b. Par Value: US$1 thousand c. Issue and Listing: Issued overseas and traded in global over-the-counter market. No application will

be made to list the bonds on any stock exchange. d. Offering Price: 100% of the principal amount of the bonds. e. Aggregate Principal: US$50,000 thousand. f. Coupon Rate: 2% g. Term: 3-year; with maturity date at July 15, 2011. h. Conversion Right and Conversion Securities: The bonds are convertible into the Corporation’s

common shares (at an exchange rate of US$1.00 to NT$30.397) i. Conversion Period: The bonds are convertible at any time on or after the date which the Corporation’s

shares are listed on the TWSE and prior to July 5, 2011. j. Conversion Price: NT$107 per share upon issuance and is adjustable. k. Redemption: The bonds will be redeemed at 100% of their principal amount in U.S. dollars on July

15, 2011. The Corporation accounted for such convertible bonds in accordance with SFAS No. 34 and SFAS No. 36. For the years ended December 31, 2011 and 2010, the Corporation recognized the amortization of bond discount of NT$0 and NT$191,781 thousand, respectively. The Corporation also recognized a valuation loss on financial liabilities of NT$101,989 thousand and a valuation gain of NT$236,401 thousand for the years ended December 31, 2011 and 2010, respectively. Related amortization of bond discount was presented under “Non-operating expenses and losses - interest expense,” while valuation loss and gain were presented under “Non-operating expenses and losses - valuation loss on financial instruments” and “Non-operating income and gains - Valuation gain on financial instruments.”

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16. LONG-TERM BANK LOANS

December 31 2011 2010 Taiwan Cooperative Bank syndicated loan

Repayable semiannually from November 2012 to November 2015, repay 10% each period before 2015 and 40% in 2015, with annual floating interest at 1.5905% in 2011

$ 1,250,000

$ - Repayable semiannually from November 2012 to November 2015,

with annual floating interest at 1.5379% in 2011 1,050,000

-

First Bank syndicated loan Repayable quarterly from January 2010 to January 2013, with

annual floating interest at 1.4326% in 2011 and 1.1832% in 2010

904,000

1,582,000 3,204,000 1,582,000

Current portion (998,200) (678,000) $ 2,205,800 $ 904,000 The loan agreements require the maintenance of certain financial ratios based on the Corporation’s annual and semiannual financial reports. The related restrictions are as follows: First Bank syndicated loan: a. Current ratio (Current assets/Current liabilities): At least 100%; b. Debt to equity ratio (Total liabilities/Total shareholders’ equity): No more than 120%; c. Interest coverage ratio [(Income before income tax + Depreciation + Amortization + Interest

expense)/Interest expense]: No less than four times; Taiwan Cooperative Bank syndicated loan: a. Current ratio (Current asserts/Current liabilities): At least 100%; b. Debt to equity ratio (Total financial liabilities/Total shareholders’ equity): No more than 110%; c. Interest coverage ratio [(Income before income tax + Depreciation + Amortization + Interest

expense)/Interest expense]: No less than two times. The income before tax should not include the amount of valuation on financial liabilities.

d. Tangible net worth: At least $6,000,000 thousand. As of December 31, 2011, the Corporation was in compliance with the above ratio requirements, except that for the interest coverage ratio. Nevertheless, breaking the requirement was not considered a breach. If the Corporation improves the interest coverage ratio by the next compliance examination date, the Corporation will not have to pay the compensation. The assets pledged as collaterals are shown in Note 25.

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17. PENSION PLAN The Corporation makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages in accordance with the Labor Pension Act and these contributions are recognized as pension costs. The pension costs for the years ended December 31, 2011 and 2010 were $48,739 thousand and $30,812 thousand, respectively.

18. INCOME TAX EXPENSE

a. A reconciliation of income tax expense based on (loss) income before income tax at the statutory rate and income tax expense was as follows:

Year Ended December 31 2011 2010 Tax on (loss) income before income tax at statutory rate $ (483,766) $ 502,199 Tax effect of the following:

Tax-exempt income - (252,638) Permanent differences 94,527 14,555 Temporary differences 93,117 (39,301)

Income tax currently payable $ (296,122) $ 224,815

b. Income tax expense for the years ended December 31, 2011 and 2010 consisted of:

Year Ended December 31 2011 2010 Income tax currently payable $ - $ (224,815) Additional 10% income tax on unappropriated earnings (86,263) - Loss carryforwards - 56,933 Tax credits 45,688 - Additional income tax under the Alternative Minimum Tax Act - (59,504) Net change in deferred income tax assets and liabilities

Investment tax credits (65,431) 151,166 Loss carryforwards 296,122 (78,844) Temporary differences 116,833 (59,772)

Valuation allowance (347,524) (12,550) Adjustments for prior years’ tax (11,408) 11,769 $ (51,983) $ (215,617)

c. Deferred income tax assets were as follows:

December 31 2011 2010 Current

Temporary differences $ 104,684 $ 101,471 Investment tax credits 8,038 2,557 112,722 104,028 Valuation allowance (112,722) (104,028)

$ - $ -

(Continued)

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December 31 2011 2010 Noncurrent

Loss carryforwards $ 296,122 $ - Investment tax credits 152,693 223,605 Temporary differences 152,222 38,602

601,037 262,207 Valuation allowance (601,037) (262,207)

$ - $ -

(Concluded)

Under Article 10 of the Statute for Industrial Innovation (SII) passed by the Legislative Yuan in April 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the fiscal year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that fiscal year. This incentive took effect from January 1, 2010 and is effective till December 31, 2019. In May 2010, the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which reduces a profit-seeking enterprise’s income tax rate from 20% to 17%, effective January 1, 2010.

d. The Corporation’s related information under the Integrated Income Tax System is as follows:

December 31 2011 2010 Balance of Imputation Credit Account (“ICA”) $ 256,159 $ 48,685 For 2011, there was no tax creditable ratio because the Corporation incurred a deficit; the Corporation’s actual creditable ratio for the distribution of earnings for 2010 was 2.12%.

e. As of December 31, 2011, the loss carryforwards and investment tax credits comprised:

Total Remaining Creditable Creditable Expiry Regulatory Basis of Tax Credits Items Amount Amount Year Income Tax Law Loss carryforwards $ 296,122 $ 296,122 2021 Statute for Upgrading Industries Purchase of machinery $ 46,508 $ 3,376 2012 and equipment 9,003 9,003 2013 129,426 129,426 2014 $ 184,937 $ 141,805 Statute for Upgrading Industries Research and development $ 2,523 $ - 2011 expenditures 4,390 4,390 2012 14,090 14,090 2013 $ 21,003 $ 18,480

(Continued)

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Total Remaining Creditable Creditable Expiry Regulatory Basis of Tax Credits Items Amount Amount Year Statute for Upgrading Industries Personnel training $ 33 $ - 2011 expenditures 272 272 2012 174 174 2013 $ 479 $ 446

(Concluded)

f. Profits attributable to the following projects were exempted from income tax:

Tax-exemption Period Statute for Upgrading Industries

Initial investment January 1, 2007 - November 30, 2010 First expansion of the manufacturing plant April 10, 2008 - April 9, 2013 Second expansion of the manufacturing plant January 1, 2010 - December 31, 2014

g. Income tax returns through 2009 have been assessed by the tax authorities. However, the Corporation

is contesting the tax authorities’ assessment of its 2007 and 2008 returns. The Corporation believes that any additional assessment will not have a material effect on its financial statements.

19. SHAREHOLDERS’ EQUITY Under the R.O.C. Company Law, capital surplus can only be used to offset a deficit. However, the capital surplus from shares issued in excess of par may be capitalized, which however is limited to a certain percentage of the Corporation’s paid-in capital once a year. Under the revised Company Law issued on January 4, 2012, the aforementioned capital surplus also may be distributed in cash. The capital surplus from long-term investments may not be used for any purpose. Under the Corporation’s Articles of Incorporation, upon closing of accounts, if there is profit, the Corporation shall first pay the corporate income tax in accordance with law, offset a deficit in previous years and then set aside a legal reserve of 10% of the profits left over, unless the accumulated legal reserve equals to the total capital of the Corporation, and retain special reserve(s) pursuant to applicable laws. Then, the Corporation will appropriate the remaining earnings as employees’ bonus (no less than 3%) and remuneration to directors (no more than 2%). As to any balance left over and plus unappropriated earnings of preceding years, the board of directors shall make a proposal concerning appropriation of shareholders’ bonus to be approved in the meeting of the shareholders. The Corporation may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors. The board chairman is authorized to decide the actual amount appropriated as employees’ bonus. Bonus to shareholders should be paid by either cash or stocks. Cash bonus shall be more than 10% of the total bonus to shareholders. The amounts of bonus to employees and directors were estimated on the basis of statutes, the Corporation’s Articles of Incorporation and experiences. For the year ended December 31, 2010, the estimated bonus to employees and remuneration to directors were estimated at $370,342 thousand and $49,379 thousand, respectively. The Corporation incurred a deficit for the year ended December 31, 2011; thus, neither bonus to employees nor remuneration to directors was estimated. Material differences between these estimates and the amounts proposed by the Board of Directors in the following year are adjusted for in year of the proposal. If the actual amounts subsequently resolved by the shareholders’ meeting differ from the proposed amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If a stock bonus is resolved to be distributed to employees, the number of stock is

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determined by dividing the amount of the stock bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day immediately preceding the shareholders’ meeting. The R.O.C. Company Law provides that legal reserve should be appropriated until the reserve equals the Corporation’s paid-in capital. The reserve may be used to offset a deficit. Under the revised Company Law issued on January 4, 2012, when the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash. Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Corporation. The Corporation’s appropriation of earnings for 2010 had been approved in the shareholders’ meetings on April 11, 2011. The appropriation and dividends per share were as follows:

Appropriation of Earnings

Dividends Per Share (NT$)

Legal reserve $ 273,849 $- Cash dividends 1,441,817 4.61 Stock dividends 160,202 0.51 $ 1,875,868 Bonus to employees and the remuneration to directors for 2010 approved in the shareholders’ meetings on April 11, 2011 was as follows:

Year Ended December 31, 2010 Bonus to

Employees Remuneration

to Directors Cash bonus $ 370,342 $ 40,000 Stock bonus - - Amounts approved in shareholders’ meetings 370,342 40,000 Amounts recognized in financial statements 370,342 49,379 $ - $ (9,379) The differences between the approved amounts of remuneration to directors and the accrual amounts reflected in the financial statements for the year ended December 31, 2010, as the result of difference in estimate had been adjusted in profit or loss for the year ended December 31, 2011. On February 21, 2012, the Board of Directors had resolved to offset the Corporation’s accumulated deficit against legal reserve of NT$273,849 thousand and capital surplus of NT$1,761,191 thousand. On February 21, 2012, the Corporation’s Board of Directors proposed to offering private-placement common shares at par value NT$10 per share within amount of 160,000 thousand shares and increase the Corporation’s capital by issuing common shares or listing global depositary shares (GDS) within amount of 160,000 thousand shares. The above share issuance will be presented at shareholders’ meeting for approval. Information on appropriations can be accessed online through the Market Observation Post System of the Taiwan Stock Exchange Corporation. On July 14, 2011 the Corporation offered 100,000 thousand shares of capital stock for 20,000 thousand global depositary share (GDS) offering. Each GDS represented 5 common shares. The price for GDS was US$6.62 per share, and total US$132,400 thousand was raised. The GDS was listed on the

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Luxembourg Stock Exchange on July 20, 2011. 20. EMPLOYEE STOCK OPTIONS

On December 30, 2005 and July 28, 2006, the Corporation’s Board of Directors approved the employee stock option plans, hereinafter referred to as “2005 Plan” and “2006 Plan,” respectively. Also, on November 22, 2007 the Financial Supervisory Commission, Executive Yuan, approved the Corporation’s employee stock option plans, hereinafter referred to as “2007 Plan”. The 2005 Plan, 2006 Plan and 2007 Plan have reserved 6,000 thousand, 3,000 thousand and 4,800 thousand option units, respectively, with each unit representing 1 share of the Corporation’s common stock. The 2005 Plan and the 2006 Plan granted are valid for 10 years and exercisable at certain percentages from 1 year after the date of grant, while the 2007 plan granted is valid for 6 years and exercisable at certain percentages from 2 years after the date of grant. For any subsequent changes in the Corporation’s common shares, the exercise price and the number of options are adjusted accordingly. Other information on the stock option plan is as follows: 2007 Plan 2006 Plan 2005 Plan Weighted Weighted Weighted Number of Average Number of Average Number of Average Outstanding Exercise Outstanding Exercise Outstanding Exercise Stock Prices Stock Prices Stock Prices Option (NT$/ Option (NT$/ Option (NT$/ Rights Per Share) Rights Per Share) Rights Per Share) For the year ended December 31, 2011

Beginning balance 1,471 $19.00 630 $10.00 212 $10.00 Options exercised (383) 18.85 (193) 10.00 (37) 10.00 Options canceled (125) 19.00 (300) 10.00 - - Ending balance 963 18.07 137 10.00 175 10.00 For the year ended December 31, 2010

Beginning balance 3,254 $19.00 1,150 $10.00 1,347 $10.00 Options exercised (1,423) 19.00 (353) 10.00 (1,135) 10.00 Options canceled (360) 19.00 (167) 10.00 - 10.00 Ending balance 1,471 19.00 630 10.00 212 10.00 As of December 31, 2011, the information about the outstanding stock options was as follows: Options Outstanding Weighted Options Exercisable Numbers Average Weighted Numbers Weighted Outstanding Remaining Average Exercisable Average (Per Thousand Contractual Exercise Price (Per Thousand Exercise Price Exercise Price Options) Life (In Years) (Per Share) Options) (Per Share)

$10.00 175 4.00 $10.00 175 $10.00 10.00 137 4.58 10.00 137 10.00 18.07 963 1.99 18.07 963 18.07

1,275 1,275

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The Corporation uses the intrinsic value method to evaluate the compensation cost for the employee stock options. The compensation cost recognized for the years ended December 31, 2011 and 2010 was zero since the stock options were granted at an exercise price higher than the equity per share of common shares on the measurement dates. Had the Corporation applied the fair value based method to evaluate compensation cost for the employee stock options granted, the assumptions and pro forma results of the Corporation for the years ended December 31, 2011 and 2010 would be as follows:

Year Ended December 31 2011 2010 Method: Black-Scholes model Assumptions:

Risk-free interest rate 2.08%-2.33% 2.08%-2.33% Expected life (in years) 6-10 years 6-10 years Expected stock price volatility 0.46%-33.63% 0.46%-33.63% Dividend yield - -

Fair value per option (NT$/per share) $1.89-$9.43 $1.89-$9.43 Net (loss) income:

Net (loss) income as reported $ (2,897,667) $ 2,738,495 Pro forma net (loss) income $ (2,900,261) $ 2,731,979

(Loss) earnings per share (L/EPS): Basic L/EPS as reported $(7.76) $10.99 Pro forma basic L/EPS $(7.77) $10.96 Diluted L/EPS as reported $(7.76) $9.36 Pro forma diluted L/EPS $(7.77) $9.34

The weighted average number of shares outstanding for EPS calculation has been retroactively adjusted for the issuance of employee stock bonuses distributed out of earnings for the year ended December 31, 2010 and stock dividends. This adjustment caused the basic and diluted after income tax EPS for the year ended December 31, 2010 to decrease from NT$11.52 to NT$10.96 and from NT$9.76 to NT$9.34, respectively. On July 5, 2010, the Board of Directors resolved the issuance of common shares and retained portion to the Corporation’s employees. In 2010, the Corporation recognized the compensation cost of $72,265 thousand by using the fair value method.

21. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSE

Year Ended December 31 2011 2010

Classified as Cost of Sales

Classified as Operating Expenses

Total



Total Labor cost

Salary $ 672,792 $ 214,597 $ 887,389 $ 719,854 $ 465,722 $ 1,185,576 Labor/health

insurance

67,923 16,124 84,047

40,951 10,303 51,254 Pension 38,610 10,129 48,739 24,042 6,770 30,812 Others 48,760 23,552 72,312 36,156 13,427 49,583

$ 828,085 $ 264,402 $ 1,092,487 $ 821,003 $ 496,222 $ 1,317,225 Depreciation $ 1,339,507 $ 40,257 $ 1,379,764 $ 740,010 $ 37,637 $ 777,647 Amortization $ 49,724 $ 11,092 $ 60,816 $ 38,314 $ 7,483 $ 45,797

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22. (LOSS) EARNINGS PER SHARE

The numerators and denominators used in calculating basic and diluted (loss) earnings per share (L/EPS) were as follows: L/EPS (Dollars) Amount (Numerator) Share Before After Before After (Denominator) Income Income Income Tax Income Tax (Thousand) Tax Tax For the year ended December 31, 2011 Net loss $ (2,845,684) $ (2,897,667) Basic and diluted LPS

Loss attributable to common shareholders

$ (2,845,684) $ (2,897,667) 373,441 $ (7.62) $ (7.76)

For the year ended December 31, 2010 Net income $ 2,954,112 $ 2,738,495 Basic EPS

Income attributable to common shareholders

$ 2,954,112 $ 2,738,495 249,251 $ 11.85 $ 10.99

Effect of dilutive potential common stock Bonus to employees - - 5,201 Stock options - - 2,582 Convertible bonds (108,384) (89,959) 25,932

Diluted EPS Income attributable to common and

potential common shareholders

$ 2,845,728 $ 2,648,536 282,966 $ 10.06 $ 9.36 The weighted average number of shares outstanding for EPS calculation has been retroactively adjusted for the issuance of employee stock bonuses distributed out of earnings for the year ended December 31, 2010 and stock dividends. This adjustment caused the basic and diluted after income tax EPS for the year ended December 31, 2010 to decrease from NT$11.55 to NT$10.99 and from NT$9.78 to NT$9.36, respectively. The Corporation’s employee stock option plans (please see Note 20) and convertible bonds (please see Note 15) were potential common shares. Under SFAS No. 24 - “Earnings Per Share”, the Corporation tested the potential common shares by the treasury stock method and if converted method. The employee stock option plans and convertible bonds for the year ended December 31, 2011 had no dilutive effects; thus, these have not been included in the calculation of diluted loss per share. The ARDF issued Interpretation 2007-052 that requires companies to recognize bonuses paid to employees, directors and supervisors as compensation expenses beginning January 1, 2008. These bonuses were previously recorded as appropriations from earnings. If the Corporation may settle the bonus to employees by cash or shares, the Corporation should presume that the entire amount of the bonus will be settled in shares and the resulting potential shares should be included in the weighted average number of shares outstanding used in the calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the entire amount of the bonus by the closing price of the shares at the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shareholders resolves the number of shares to be distributed to employees at their meeting in the following year.

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23. DISCLOSURES FOR FINANCIAL INSTRUMENTS

a. Fair values of financial instruments were as follows:

December 31 2011 2010 Carrying Carrying Value Fair Value Value Fair Value Assets

Cash and cash equivalents $ 5,439,989 $ 5,439,989 $ 6,426,019 $ 6,426,019 Notes and accounts receivable, net 1,569,075 1,569,075 2,384,283 2,384,283 Other receivables 92,813 92,813 99,631 99,631 Pledged time deposits 4,235 4,235 20,235 20,235 Financial assets carried at cost-noncurrent 142,800 - - -

Liabilities Short-term bank loans 679,949 679,949 268,557 268,557 Financial liabilities at fair value through profit or

loss - current

1,017

1,017

252,099

252,099 Notes and accounts payable 956,551 956,551 1,399,807 1,399,807 Payables to contractors and equipment suppliers 1,425,232 1,425,232 849,805 849,805 Bonds payable (including current portions) - - 773,701 773,701 Long-term bank loans (including current portions) 3,204,000 3,204,000 1,582,000 1,582,000

b. Methods and assumptions used in determining fair values of financial instruments

1) The carrying amounts of the following short-term financial instruments approximate their fair

values because of their short maturities: Cash and cash equivalents, notes and accounts receivable, other receivables, pledged time deposits, short-term bank loans, notes and accounts payable and payable to contractors and equipment suppliers.

2) Fair values of derivatives are based on their quoted prices in an active market. For those

derivatives with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments. Fair values of forward exchange contracts were accounted under the foreign exchange rate referred to the Reuter’s quotation system according to the maturity dates of each forward exchange contract. Fair value of cross-currency swap contract is calculated on the balance sheet date through discounted cash flow analysis, using yield curve and the U.S. dollars forward rate quoted by Reuter’s quotation system. Fair value of the debt components of convertible bonds is calculated on the balance sheet date by using the rate of T-Bonds quoted by Bloomberg and the Corporation’s operating condition and ability to repay its debts, forecast of the industry, competition in the market, the rates for long-term bank loans, the conversion price, the stock price at the balance sheet date and the expected stock price volatility.

3) Financial assets carried at cost are invested in unquoted shares, which have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

4) Fair values of long-term bank loans are estimated using discounted cash flow analysis, based on the

Corporation’s current incremental borrowing rates for borrowings of similar types ( with similar maturity dates). The fair values of long-term bank loans with floating interest rates are equivalent to their carrying value. Fair values of bonds payable are estimated using the present value of discounted future cash flows.

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c. Fair values of financial assets and liabilities based on quoted market prices or valuation techniques were as follows:

Quoted Market Prices Valuation Techniques December 31 December 31 2011 2010 2011 2010 Assets

Cash and cash equivalent $ 5,439,989 $ 6,426,019 $ - $ - Notes and accounts receivable, net - - 1,569,075 2,384,283 Other receivables - - 92,813 99,631 Pledged time deposits 4,235 20,235 - -

Liabilities Short-term bank loans - - 679,949 268,557 Financial liabilities at fair value through profit or

loss - current

-

-

1,017

252,099 Notes and accounts payable - - 956,551 1,399,807 Payables to contractors and equipment suppliers - - 1,425,232 849,805 Bonds payable (including current portion) - - - 773,701 Long-term bank loans (including current portion) - - 3,204,000 1,582,000

d. Valuation (loss) gain arising from changes in fair value of financial instruments determined using

valuation techniques were $(93,175) thousand and $198,961 thousand, respectively, for the years ended December 31, 2011 and 2010.

e. As of December 31, 2011 and 2010, financial assets (liabilities), which were exposed to fair value

interest rate risk and cash flow interest rate risk, were as follows:

December 31 2011 2010 Fair value interest rate risk

Financial assets $ 1,988,235 $ 4,258,235 Financial liabilities (435,077) (852,790)

Cash flow interest rate risk Financial assets 3,453,804 2,185,893 Financial liabilities (3,449,889) (1,781,299)

f. For the years ended December 31, 2011 and 2010, interest income/expense associated with arising

financial assets/liabilities, other than those at fair value through profit and loss, was as follows:

Year Ended December 31 2011 2010 Total interest income $ 19,714 $ 10,567 Total interest expense 32,656 250,560

g. Financial risks

1) Market risk. The derivative financial instruments categorized as financial assets at fair value through profit or loss are mainly used to hedge the exchange rate fluctuation of foreign-currency liability; therefore, the market risk of derivatives will be offset by the foreign exchange risk of these hedge items.

2) Credit risk. Credit risk represents the potential loss that would be incurred by the Corporation if

the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The maximum credit risks of other financial assets held by the Corporation are their carrying values.

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3) Liquidity risk. The Corporation has sufficient operating capital to meet the cash demand. Therefore, liquidity risk is not considered to be significant.

The Corporation’s investments in financial assets carried at cost have no active markets; therefore, the liquidity risk is expected. As of December 31, 2011, the Corporation’s expected future cash demand for the outstanding forward exchange contracts were as follows: Inflow Outflow Term (In Thousands) (In Thousands) Within one year NT$ 180,780 US$ 6,000 The exchange rates for forward exchange contracts are fixed. Thus, the cash flow risks are not material.

4) Cash flow interest rate risk. Long-term and short-term bank loans mainly bear floating interest

rates. Thus, the fluctuations of market interest rates will result in changes in the effective interest rate of long-term and short-term bank loans and the fluctuation of future cash flows.

24. RELATED-PARTY TRANSACTIONS

a. Related parties and their relationships with the Corporation

Related Party Relationship with the Corporation Wafer Works Corp. (“Wafer Works”) (Note) Parent company of Heli-Vantech Corp., which

was the director of the Corporation (until June 18, 2010)

eBsuccess Solutions Inc. (“eBsuccess”) Spouse of the Corporation’s chairman is the chairman of eBsuccess

Sunny Optronics Corporation (“Sunny Optronics”) Subsidiary Prime Energy Corp. (“Prime Energy”) Subsidiary New Ray Investment Corp. (“New Ray

Investment”) Subsidiary

Note: Wafer Works was no longer the Corporation’s related party as of June 30, 2010; thus, the

amounts disclosed as of the year ended December 31, 2010 are for reference only.

b. Significant transactions with related parties:

Year Ended December 31 2011 2010 Amount % Amount % For the year Net Sales

Sunny Optronics $ 50,105 - $ 6,112 -

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Year Ended December 31 2011 2010 Amount % Amount %

Purchases

Wafer Works $ - - $ 169,740 1 Manufacturing expenses

Sunny Optronics $ 313,773 11 $ 145,160 5 General and administrative expenses

eBsuccess $ 5,485 2 $ 4,915 1

Research and development expenses Wafer Works $ - - $ 234 -

Other income Prime Energy $ 120 - $ 90 1 New Ray Investment 30 - - - Wafer Works - - 60 1 Sunny Optronics - - 10 - eBsuccess - - 2 - $ 150 - $ 162 2

At end of year Accounts payable

Sunny Optronics $ 413 - $ 8 -

Accrued expense and other current liabilities eBsuccess $ 1,118 - $ 1,455 -

Guarantee deposits eBsuccess $ 2 - $ 2 4

All transaction between the Corporation and related parties were made at normal commercial prices and terms.

c. Compensation of directors, supervisors and management personnel:

Year Ended December 31 2011 2010 Salaries $ 26,136 $ 21,022 Incentives 4,109 12,789 Honorarium 990 1,020 Bonus - 108,600

$ 31,235 $ 143,431 The compensation of directors and management personnel for the year ended December 31, 2010 included the bonuses appropriated from the 2010 earnings and approved by shareholders in their annual meeting held in 2011.

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25. PLEDGED OR MORTGAGED ASSETS The following assets had been pledged or mortgaged as collateral for long-term bank loans and import duties:

December 31 2011 2010

Pledged time deposits $ 4,235 $ 20,235 Property, plant and equipment, net 5,211,002 2,653,843 $ 5,215,237 $ 2,674,078

26. COMMITMENTS AND CONTINGENCIES

In addition to those disclosed in other notes, significant commitments and contingencies of the Corporation as of December 31, 2011 were as follows: a. Short-term purchase contracts

In December 2010, the Corporation entered into a short-term material supply agreement with Company AA. Under the agreement, the Corporation should make the payment from December 20, 2010 to January 1, 2012. In return, an agreed quantity of raw material shall be provided by Company AA. As of December 31, 2011, an amount of US$1,964 thousand (NT$58,798 thousand) was recorded under prepaid expense.

b. Long-term purchase contracts: 1) In December 2006, the Corporation entered into a long-term material supply agreement with

Company J. Under the agreement, the Corporation should make the non-refundable payment from January 1, 2007 to December 31, 2015. In return, an agreed quantity of raw material shall be provided by Company J. As of December 31, 2011, an amount of US$6,557 thousand (NT$214,177 thousand) was recorded under prepaid expense. The Corporation had renegotiated the purchase price with Company J in November 2009. Both parties agreed to rearrange the purchase quantity and price monthly since December 2009.

2) In June 2007, the Corporation entered into a long-term material supply agreement with Company I.

Under the agreement, the Corporation should make the non-refundable payment from January 1, 2010 to December 31, 2017. In return, an agreed quantity of raw material shall be provided by Company I. The purchase price would be adjusted yearly according to the mode which both parties had agreed. Under the agreement, if either party defaults, the other party is entitled to terminate this agreement and request compensation. As of December 31, 2011, an amount of EUR7,635 thousand (NT$332,384 thousand) was recorded under prepaid expense. In June 2010, the Corporation had renegotiated the purchase price with Company I. Both parties agreed to adjust the purchase price and quantity yearly from January 1, 2011 to December 31, 2017. The purchase price and quantity for 2011 are still under negotiation by both parties. As of December 31, 2011, the Corporation had accrued related loss on contracts. In addition, the purchase price, quantity and terms of transaction for 2012 are still under negotiation by both parties.

3) In August 2007 and January 2008, the Corporation entered into long-term material supply

agreements with Company G. Under the agreements, the Corporation should make the payments from January 1, 2009 to December 31, 2018, respectively. In return, Company G should provide an agreed quantity of raw materials. As of December 31, 2011, an amount of US$16,259 thousand ($538,333 thousand) was recorded under prepaid expense. In May 2009, the Corporation and Company G revised the agreements. Under the new agreements, Company G should provide an

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agreed quantity of raw materials from 2009 to December 31, 2018. The prepaid expense could be deducted in the above period, and the purchase price would be adjusted on the basis of market price. The last agreement revision by the Corporation and Company G was in January 2011. Both parties agree to complete the quantity which should be completed in 2009 and 2010 during 2012, and the purchase price would be adjusted monthly according to the mode which both parties had agreed and the state of supply and demand.

4) In February 2008, the Corporation entered into a long-term material supply agreement with

Company H. Under the agreement, the Corporation should make payments from July 2009 to December 31, 2014. In return, an agreed quantity of raw materials should be provided by Company H. As of December 31, 2011, both parties had objections to complete the contracts and were still under negotiation, and the Corporation thus accrued the possible loss on contracts. In addition, an amount of US$4,404 thousand (NT$138,194 thousand) was recorded under prepaid expense.

In September 2008, the Corporation entered into a long-term material supply agreement with Company H. Under the agreement, the Corporation should make payments from October 1, 2008 to December 31, 2017. In return, Company H should provide an agreed quantity of raw materials. Because of the change of market, the Corporation failed to complete the agreed quantity. On June 30, 2011, Company H claimed its right with a letter. On August 15, 2011, the Corporation and Company H agreed to revise the agreement. Under the agreement, both parties agreed to revise the mode of transaction. As of December 31, 2011, the Corporation had accrued related loss on this contract.

5) In August 2008, the Corporation entered into a long-term material supply agreement with Company

U. Under the agreement, an agreed quantity of raw material shall be provided by Company U from January 1, 2009 to December 31, 2015. Under the agreement, if the Corporation delay the payment, Company U shall be entitled to request the interest of delayed payment which is counted with the rate that both parties agreed. In addition, to ensure the completion of the agreement, the Corporation provide bank guarantees that are supplied by Chinatrust Commercial Bank and First Commercial Bank, respectively. Due to Company U scaled back its operation recently, the Corporation are still under negotiation with Company U about the mode and terms of transaction in the future.

6) In October 2008, the Corporation entered into a long-term material supply agreement with

Company K. Under the agreement, the Corporation should make the payment from January 2009 to December 31, 2016. In return, an agreed quantity of raw material shall be provided by Company K. The Corporation had renegotiated with Company K in December 2010. Both parties agreed that Company K will provide an agreed quantity of raw material at its purchase price markup certain percentage to the Corporation from January 2011 to December 31, 2016. As of December 31, 2011, an amount of US$19,160 thousand (NT$580,233 thousand) was recorded under prepaid expense.

7) In June and July 2010, the Corporation entered into long-term material supply agreements with

Company V. Under the agreements, an agreed quantity of raw material shall be provided by Company V from July 2010 to December 31, 2013 and October 2010 to December 31, 2013, respectively. Both parties agreed to rearrange the purchase price and quantity quarterly since 2011. Under the agreement, if the Corporation fails to make purchases at quantities agreed on by both parties, Company V is entitled to terminate this agreement and request compensation.

8) In September 2010, the Corporation entered into a long-term material supply agreement with

Company W. Under the agreement, an agreed quantity of raw material shall be provided by Company W from January 2011 to December 31, 2013. The purchase price will be adjusted monthly according to the agreement which both parties had agreed.

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9) In November 2010, the Corporation entered into a long-term material supply agreement with Company X. Under the agreement, the Corporation should make the payment from January 2011 to December 31, 2017. In return, an agreed quantity of raw material shall be provided by Company X. As of December 31, 2011, an amount of US$11,701 thousand (NT$349,028 thousand) was recorded under prepaid expense. Moreover, both parties agreed to rearrange the purchase price monthly since 2012. Under the agreement, if the Corporation fails to make purchases at quantities agreed last year by both parties before first quarter of the following year, Company X is entitled to take the payment as compensation.

10) In October 2010, the Corporation entered into a long-term material supply agreement with

Company Y. Under the agreement, an agreed quantity of raw material shall be provided by Company Y from October 2010 to December 31, 2013. Both parties agreed to adjust the purchase price monthly according to the mode which both parties had agreed from October 2010. Under the agreement, if the Corporation fails to complete the purchase of the required quantity or delays its payments, Company Y is entitled to request compensation.

11) In November 2010, the Corporation entered into a long-term materials supply agreement with

Company Z. Under the agreement, Company Z should provide an agreed quantity of raw materials from March 2011 to December 31, 2013. Both parties agreed to adjust the purchase price monthly from March 2011. Under the agreement, if both parties fail to agree on the purchase price for three consecutive months, the Corporation is entitled to terminate the agreement. In addition, if the Corporation delays the payment, Company Z is entitled to request to have interest on the delayed payment at a rate already agreed upon by both parties.

12) In February 2011, the Corporation entered into a long-term material supply agreement with

Company AC. Under the agreement, an agreed quantity of raw material shall be provided by Company AC from January 1, 2013 to December 31, 2017. Both parties agreed to rearrange the purchase price quarterly according to the mode which both parties had agreed. In April 2011, the Corporation and Company AC revised the agreement. Under the new agreement, Company AC should provide an agreed quantity of raw materials from January 1, 2013 to December 31, 2017. In addition, both parties agreed to adjust the purchase quantity yearly from January 1, 2015 to December 31, 2017. As of December 31, 2011, condition precedent was not met.

13) In March 2011, the Corporation entered into a long-term material supply agreement with Company

AD. Under the agreement, the Corporation should make the payment from January 2012 to December 31, 2018. In return, Company AD should provide an agreed quantity of raw materials. As of December 31, 2011, a prepaid expense of US$10,032 thousand ($293,286 thousand) was recorded. Under the agreement, if the Corporation delays the payment, Company AD is entitled to request the interest on the delayed payment at a rate already agreed on by both parties.

c. Long-term sales contracts:

Under several long-term sales contracts with customers, the Corporation should deliver its products at an agreed quantity and price from 2008 to 2013. A guaranteed deposit shall be received in several contracts which could be in the form of cash payment, irrevocable letter of credit, a bank guarantee or a warranty provided by the parent company of the buyer. Aforementioned deposit will be deducted as the products are delivered or transferred as guarantee deposit of new contracts.

d. Construction contracts. 1) In October 2010, the Corporation entered into a construction agreement with Fu Tsu Construction

Co., Ltd. in a total amount of $1,275,000 thousand. As of December 31, 2011, $920,359 thousand had been paid.

90

2) In April 2011, the Corporation entered into a construction agreement with Chang Ji Construction Co., Ltd. in a total amount of $532,000 thousand. As of December 31, 2011, $151,246 thousand had been paid.

e. The Taiwan High Court ruled on the lawsuit filed by SilRay Inc. against the Corporation, for the

Corporation to pay the plaintiff US$1,269 thousand and a compensation interest of 5% per annum from October 9, 2008 to the discharged date. The Corporation has retained lawyers to appeal in the Taiwan Supreme Court on January 5, 2011; nevertheless, the rulings and damages do not post significant impact to the Corporation ’s operation.

f. Unused letters of credit amounted to approximately US$4,065 thousand and EUR7,351 thousand as of

December 31, 2011. g. As of December 31, 2011, the Corporation has guaranteed $380,000 thousand for Sunny Optronics. h. The Corporation leased lands from Zinwell Company and Science-Based Industrial Park Administration

under renewable agreements expiring in March 2016 and December 2026, respectively. As of December 31, 2011, the annual rents are $11,400 thousand and $17,147 thousand, respectively. As of December 31, 2011, future lease payments were as follows:

Year Amount 2012 $ 28,547 2013 28,547 2014 28,547 2015 28,547 2016 19,997 2017 and thereafter 171,470 $ 305,655

27 ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for the Corporation: a. Financings provided: None. b. Endorsements/guarantees provided: Table 1 (attached). c. Marketable securities held: Table 2 (attached). d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the

paid-in capital: Table 3 (attached). e. Acquisition of long-term equity investment and individual real estate at costs of at least NT$100 million

or 20% of the paid-in capital: Table 4 (attached). f. Disposal of individual real estate at prices of at least NT$100 million or 20% of the paid-in capital:

None. g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital:

Table 5 (attached).

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h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: None.

i. Names, locations, and related information of investees over which the Corporation exercises significant

influence: Table 6 (attached). j. Financial instrument’s information: Please see Notes 5 and 23. k. Investments in Mainland China: None.

28. OTHERS The significant financial assets and liabilities denominated in foreign currencies were as follow:

December 31 2011 2010 Foreign Foreign Currencies Currencies (In Thousands) Exchange Rate (In Thousands) Exchange Rate

Financial assets Monetary assets

USD $ 59,962 30.29 $ 71,299 30.37 EUR 6,560 39.17 12,498 38.89 JPY 2,982 0.3902 35,979 0.3733 RMB 619 4.8054 - -

Financial liabilities Monetary liabilities

USD 55,471 30.29 62,401 30.37 EUR 17,460 39.17 20,097 38.89 JPY 10,978 0.3902 45,029 0.3733

Nonmonetary liabilities USD 34 30.29 7,978 30.37

29. OPERATING SEGMENT INFORMATION

The Corporation has provided the operating segments disclosure in the consolidated financial statements.

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TABLE 1 NEO SOLAR POWER CORP. ENDORSEMENTS/GUARANTEES PROVIDED December 31, 2011 (In Thousands of New Taiwan Dollars)

Counter-party

No. Financing Company Name Nature of Relationship

Limits on Endorsement/

Guarantee Amount Provided to Each

Counter-party (Note 1)

Maximum Balance for the Period Ending Balance

Amount of Endorsement/

Guarantee Collateralized by

Properties

Ratio of Accumulated Endorsement/

Guarantee to Net Equity per Latest

Financial Statements

Maximum Endorsement/

Guarantee Amount Allowable (Note 1)

0 Neo Solar Power Corp. Sunny Optronics Corporation Subsidiary $2,910,287 $390,000 $380,000 $- 2.34 $7,275,719

Note 1: In accordance with the “Rules of Guarantees by the Corporation,” the ceiling for total guaranteed amount was 50% of the Corporation's net asset value, and the limit of guaranteed amount for a single party was 20% of the Corporation's

net asset value. Note 2: As of December 31, 2011, NT$50,000 thousand had been drawn down by Sunny Optronics Corporation.

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TABLE 2 NEO SOLAR POWER CORP. AND SUBSIDIARIES MARKETABLE SECURITIES HELD December 31, 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

December 31, 2011

Holding Company Name Marketable Securities Type and Issuer Relationship with the Holding Company Financial Statement Account Shares

(Thousands/ Units)

Carrying Value Percentage of Ownership

(%)

Market Value or Net Asset Value

Note

Neo Solar Power Corp. Stock Sunny Optronics Corporation Subsidiary Equity-method investments 26,087 $ 78,395 86.96 $ 78,395 Note 1 Prime Energy Corp. Subsidiary Equity-method investments 5,000 49,684 100.00 49,684 Note 1 New Ray Investment Corp. Subsidiary Equity-method investments 11,500 114,835 100.00 114,835 Note 1 ThinTech Materials Technology Co., Ltd. Investee Financial assets carried at cost 4,000 142,800 6.09 142,800 Note 2 Prime Energy Corp. Stock ThinTech Materials Technology Co., Ltd. Investee Financial assets carried at cost 1,000 40,040 1.52 40,040 Note 2 New Ray Investment Corp. Stock ThinTech Materials Technology Co., Ltd. Investee Financial assets carried at cost 3,000 107,100 4.57 107,100 Note 2 Note 1: The net asset value is based on audited financial statements as of December 31, 2011. Note 2: The net asset value is based on book value as of December 31, 2011. Note 3: The above marketable securities, except ThinTech Materials Technology Co., Ltd. were restricted under Article 43-8 of the Security and Exchange Act due to private equity placement, had not been pledged or mortgaged as of December

31, 2011.

94

TABLE 3

NEO SOLAR POWER CORP. AND SUBSIDIARIES MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT C OSTS OR PRICES OF AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL YEAR ENDED DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars)

Beginning Balance Acquisition Disposal Ending Balance Company Name

Marketable Securities Type and Issuer

Financial Statement Account Counter-party

Nature of Relationship Shares

(Thousands) Amount Shares


(Thousands) Amount Carrying

Value Gain (Loss) on Disposal

Shares (Thousands)

Amount (Note)

Neo Solar Power Corp. Stock New Ray Investment Corp. Equity-method investments - - - $ - 11,500 $ 115,000 - $ - $ - $ - 11,500 $ 114,835 ThinTech Materials Technology

Co., Ltd. Financial assets carried at

cost - - - - 4,000 142,800 - - - - 4,000 142,800

New Ray Investment Corp. Stock ThinTech Materials Technology


cost - - - - 3,000 107,100 - - - - 3,000 107,100

Note: The ending balance included the recognition of the investment loss and the adjustment for changes in investee’s equity.

95

TABLE 4

NEO SOLAR POWER CORP. AND SUBSIDIARIES ACQUISITION OF LONG TERM EQUITY INVESTMENT AND INDIVIDUAL REA L ESTATE AT COSTS OF AT LEAST $100 MILLION OR 20% OF THE PAID-IN C APITA L YEAR ENDED DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars)

Prior Transaction of Related Counter-party Company Name Property Transaction Date Transaction Amount Payment Status Counter-party Nature of

Relationship Owner Relationship Transfer Date Amount Price Reference Purpose of

Acquisition Other Terms

Neo Solar Power

Corp. Equity-method

investments (New Ray Investment Corp.)

October 4, 2011 $ 115,000 $ 115,000 Note 1 Subsidiary - - - $ - Note 1 Equity-method investment

-

Financial assets carried at cost (ThinTech Materials Technology Co., Ltd.)

October 6, 2011 142,800 142,800 Note 2 Investee - - - - Note 2 Financial assets carried at cost

-

Construction in progress April 8, 2011 532,000 151,246 Chang Ji Construction Co., Ltd.

- - - - - As purchase order Construction of new factory

-

New Ray Investment

Corp. Financial assets carried

at cost (ThinTech Materials Technology Co., Ltd.)


-

Note 1: Issuance of capital stock. Note 2: Private-placement common stock.

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TABLE 5

NEO SOLAR POWER CORP. TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING T O AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL YEAR ENDED DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars)

Transaction Details Abnormal Transaction Note/Accounts Receivable (Payable) Company Name Related Party Nature of Relationship

Purchase/ Sale Amount % to

Total Payment Terms Unit Price Payment Terms Ending Balance

% to Total

Note

Neo Solar Power Corp. Sunny Optronics Corporation Subsidiary Subcontract $ 313,773 11 Cash on delivery - - $ (413) - -

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TABLE 6

NEO SOLAR POWER CORP. NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEE S ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUE NCE December 31, 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Original Investment Amount Balance as of December 31, 2011 Investor

Company Investee Company Location Main Businesses and Products December 31,

2011 December 31,

2010 Shares

(Thousands) % of

Ownership Carrying

Value

Net Loss of the Investee

Investment Loss

Note

Neo Solar Power

Corp. Sunny Optronics

Corporation Hsin-chu,

Taiwan Electronic component

manufacturing and selling $ 260,926 $ 254,634 26,087 86.96 $ 78,395 $ (114,569) $ (100,294) Note

Prime Energy Corp. Hsin-chu, Taiwan

Electronic component manufacturing and selling

50,000 10,000 5,000 100.00 49,684 (210) (210) Note


Hsin-chu, Taiwan

Investment company 115,000 - 11,500 100.00 114,835 (165) (165) Note

Note: Investment loss is based on audited financial statements as of December 31, 2011.

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<V>Consolidated financial statements 2011 for headquarters and subsidiaries audited and attested by CPA INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Neo Solar Power Corp. We have audited the accompanying consolidated balance sheets of Neo Solar Power Corp. and subsidiaries (the “Corporation”) as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to issue a report on these consolidated financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Neo Solar Power Corp. and subsidiaries as of December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China. February 21, 2012

Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to review such consolidated financial statements are those generally accepted and applied in the Republic of China. For the convenience of readers, the auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language accountants’ review and consolidated financial statements shall prevail.

99

NEO SOLAR POWER CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Par Value) 2011 2010 2011 2010 ASSETS Amount % Amount % LIABILITIES AND SHAREHOLDERS’ EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES

Cash and cash equivalents (Notes 2 and 4) $ 5,488,679 25 $ 6,508,835 31 Short-term bank loans (Note 12) $ 729,949 3 $ 270,126 1 Notes and accounts receivable, net (Notes 2, 3 and 6) 1,576,032 7 2,384,283 12 Financial liabilities at fair value through profit or loss - current Other receivables (Note 6) 92,837 - 103,765 1 (Notes 2, 5 and 14) 1,017 - 252,099 1 Inventories (Notes 2 and 7) 897,387 4 1,659,286 8 Notes and accounts payable 969,664 4 1,436,435 7 Prepaid expenses - current (Notes 2, 8 and 25) 362,706 2 614,973 3 Income tax payable (Notes 2 and 17) 40,574 - 226,392 1 Pledged time deposits (Notes 4 and 24) 10,215 - 20,235 - Bonuses payable to employees and directors (Notes 2 and 18) 3,969 - 419,721 2 Other current assets 16,257 - 6,767 - Payables to contractors and equipment suppliers 1,427,151 6 871,102 4

Receipts in advance (Note 25) 122,729 1 287,107 2 Total current assets 8,444,113 38 11,298,144 55 Current portion of bonds payable (Notes 2 and 14) - - 773,701 4

Current portion of long-term bank loans (Notes 15 and 24) 1,009,017 5 678,000 3 INVESTMENT Accrued expenses and other current liabilities (Notes 2, 13 and 23) 1,002,880 5 512,658 3

Financial assets carried at cost-noncurrent (Notes 2 and 9) 289,940 1 - - Total current liabilities 5,306,950 24 5,727,341 28 PROPERTY, PLANT AND EQUIPMENT (Notes 2, 10 and 24)

Cost LONG-TERM LIABILITIES, NET OF CURRENT PORTION Land 440,596 2 440,596 2 Long-term bank loans (Notes 15 and 24) 2,259,883 10 904,000 4 Buildings 2,737,205 12 1,336,475 6 Machinery and equipment 10,104,255 46 6,743,144 33 OTHER LIABILITIES Research and development equipment 11,223 - 1,760 - Guarantee deposits (Note 23) 474 - 45 - Office equipment 8,749 - 8,749 - Leasehold improvements 13,720 - 12,958 - Total liabilities 7,567,307 34 6,631,386 32 Miscellaneous equipment 154,725 1 114,367 1

13,470,473 61 8,658,049 42 EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT Accumulated depreciation (2,993,471) (14) (1,591,801) (8) (Notes 2, 14, 18 and 19) 10,477,002 47 7,066,248 34 Capital stock, NT$10.00 par value Construction in progress and prepayments for equipment 636,905 3 418,034 2 Authorized - 800,000 thousand shares in 2011 and 500,000 thousand

shares in 2010 Net property, plant and equipment 11,113,907 50 7,484,282 36 Issued - 428,905 thousand shares in 2011 and 297,183 thousand

shares in 2010 4,289,048 20 2,971,830 15 OTHER ASSETS Capital surplus

Refundable deposits 30,682 - 31,947 - Additional paid-in capital from share issuance in excess of par 10,360,260 47 7,633,003 37 Deferred charges, net (Notes 2 and 11) 89,398 1 75,016 - Conversion of bonds 1,663,320 7 709,312 3 Prepaid expense - noncurrent (Notes 2, 8 and 25) 2,162,464 10 1,826,965 9 Long-term investments - - 1,374 -

Retained earnings Total other assets 2,282,544 11 1,933,928 9 Legal reserve 273,849 1 - -

(Accumulated deficits) unappropriated earnings (2,035,040) (9) 2,738,495 13 Total equity attributable to shareholders of the parent 14,551,437 66 14,054,014 68 MINORITY INTEREST (Note 2) 11,760 - 30,954 - Total shareholders' equity 14,563,197 66 14,084,968 68 TOTAL $ 22,130,504 100 $ 20,716,354 100 TOTAL $ 22,130,504 100 $ 20,716,354 100 The accompanying notes are an integral part of the consolidated financial statements.

100

NEO SOLAR POWER CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Consolidated (Loss) Earnings Per Share) 2011 2010 Amount % Amount % GROSS SALES $ 20,728,286 $ 20,198,249 SALES RETURNS AND ALLOWANCES 140,189 58,152 NET SALES (Notes 2 and 25) 20,588,097 100 20,140,097 100 COST OF SALES (Notes 7, 20 and 23) 22,705,183 110 16,405,284 82 GROSS (LOSS) PROFIT (2,117,086) (10) 3,734,813 18 OPERATING EXPENSES (Notes 20 and 23)

Selling 204,692 1 149,639 1 General and administrative 320,777 2 509,745 2 Research and development 112,833 - 175,802 1

Total operating expenses 638,302 3 835,186 4

OPERATING (LOSS) INCOME (2,755,388) (13) 2,899,627 14 NONOPERATING INCOME AND GAINS

Foreign exchange gain, net (Note 2) 48,759 - 67,629 1 Interest income (Note 22) 20,963 - 18,102 - Gain on disposal of investments (Note 2) 764 - 3,466 - Valuation gain on financial instruments, net (Notes 2, 5 ,14 and 22) - - 198,961 1 Others 44,208 - 11,684 -

Total nonoperating income and gains 114,694 - 299,842 2

NONOPERATING EXPENSES AND LOSSES

Valuation loss on financial instruments, net (Notes 2, 5, 14 and 22) 183,461 1 - -

Interest expense (Notes 2, 14 and 22) 35,804 - 253,946 1 Loss on disposal of property, plant and equipment

(Note 2) - - 4,510 - Others 1,491 - 20 -

Total nonoperating expenses and losses 220,756 1 258,476 1

(LOSS) INCOME BEFORE INCOME TAX (2,861,450) (14) 2,940,993 15 INCOME TAX EXPENSE (Notes 2 and 17) (51,983) - (215,617) (1) NET (LOSS) INCOME $ (2,913,433) (14) $ 2,725,376 14

(Continued)

101

NEO SOLAR POWER CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Consolidated (Loss) Earnings Per Share) 2011 2010 Amount % Amount % ATTRIBUTABLE TO:

Shareholders of the parent $ (2,897,667) (14) $ 2,738,495 14 Minority interest (Note 2) (15,766) - (13,119) -

$ (2,913,433) (14) $ 2,725,376 14

2011 2010 Before

Income Tax

After Income

Tax

Before Income

Tax

After Income

Tax CONSOLIDATED (LOSS) EARNINGS PER SHARE

(Note 21)

Basic (loss) earnings per share $ (7.62) $ (7.76) $ 11.85 $ 10.99 Diluted (loss) earnings per share $ (7.62) $ (7.76) $ 10.06 $ 9.36

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

102

NEO SOLAR POWER CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except Dividends Per Share) Equity Attributable to Shareholders of the Parent Capital Surplus (Notes 18 and 19) Additional Retained Earnings (Note 18) Paid-in Capital Unappropriated Capital Stock from Share Earnings Total Shares Issuance Conversion of Long-term Employee (Accumulated Shareholders' (Thousands) Amount in Excess of Par Bonds Investments Stock Options Legal Reserve Deficits) Total Minority Interest Equity BALANCE, JANUARY 1, 2010 211,970 $ 2,119,698 $ 3,968,849 $ - $ - $ 48,811 $ 138,429 $ (593,164) $ 5,682,623 $ 14,969 $ 5,697,592 Offset of deficit against capital surplus and legal reserve - - (454,735) - - - (138,429) 593,164 - - - Issuance of capital stock - September 10, 2010 70,000 700,000 3,985,000 - - - - - 4,685,000 - 4,685,000 Compensation recognized for employee stock options - - 121,076 - - (48,811) - - 72,265 - 72,265 Issuance of shares upon exercise of employee stock options 2,911 29,112 12,813 - - - - - 41,925 - 41,925 Conversion of bonds into capital stock 12,302 123,020 - 709,312 - - - - 832,332 - 832,332 Increase in minority interest - - - - 1,374 - - - 1,374 29,104 30,478 Net income in 2010 - - - - - - - 2,738,495 2,738,495 (13,119) 2,725,376 BALANCE, DECEMBER 31, 2010 297,183 2,971,830 7,633,003 709,312 1,374 - - 2,738,495 14,054,014 30,954 14,084,968 Issuance of capital stock - July 19, 2011 100,000 1,000,000 2,723,867 - - - - - 3,723,867 - 3,723,867 Issuance of shares upon exercise of employee stock options 613 6,128 3,390 - - - - - 9,518 - 9,518 Conversion of bonds into capital stock 15,089 150,888 - 954,008 - - - - 1,104,896 - 1,104,896 Appropriation of prior year's earnings

Legal reserve - - - - - - 273,849 (273,849) - - - Cash dividends - NT$4.61 per share - - - - - - - (1,441,817) (1,441,817) - (1,441,817) Stock dividends - NT$0.51 per share 16,020 160,202 - - - - - (160,202) - - -

Decrease in minority interest - - - - (1,374) - - - (1,374) (3,428) (4,802) Net loss in 2011 - - - - - - - (2,897,667) (2,897,667) (15,766) (2,913,433) BALANCE, DECEMBER 31, 2011 428,905 $ 4,289,048 $ 10,360,260 $ 1,663,320 $ - $ - $ 273,849 $ (2,035,040) $ 14,551,437 $ 11,760 $ 14,563,197 The accompanying notes are an integral part of the consolidated financial statements.

103

NEO SOLAR POWER CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010 CASH FLOWS FROM OPERATING ACTIVITIES

Net (loss) income attributable to shareholders of the parent $ (2,897,667) $ 2,738,495 Net loss attributable to minority interest (15,766) (13,119) Adjustments to reconcile net (loss) income to net cash (used in)

provided by operating activities: Depreciation 1,401,670 784,385 Amortization 65,974 46,926 Valuation loss (gain) on financial instruments, net 93,175 (198,961) Provision for doubtful accounts 1,966 8,044 Provision (reversal of allowance) for loss on inventories 395,070 (136,102) Gain on disposal of investments (764) - Reclassification of property, plant and equipment to expenses 7,600 - Loss on disposal of property, plant and equipment - 4,510 Amortization of discount and issuance costs on bonds payable - 191,781 Foreign exchange gain on bonds payable (13,062) (93,115) Compensation cost of employee stock options - 72,265 Net changes in operating assets and liabilities

Notes and accounts receivable 806,285 (1,661,895) Other receivables 10,928 47,243 Inventories 366,829 (840,336) Prepaid expenses (83,232) (328,710) Other current assets (9,490) (4,751) Notes and accounts payable (466,771) 974,740 Income tax payable (185,818) 206,626 Bonuses payable to employees and directors (415,752) 419,721 Receipts in advance (164,378) 96,895 Accrued expenses and other current liabilities 490,192 248,417

Net cash (used in) provided by operating activities (613,011) 2,563,059

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of: Available-for sale financial assets (1,800) - Financial assets carried at cost (289,940) - Property, plant and equipment (4,482,846) (3,978,835) Deferred charges (80,356) (95,073)

Proceeds from disposal of available-for-sale financial assets 2,564 - Decrease (increase) in pledged time deposits 10,020 (9,942) Decrease (increase) in refundable deposits 1,265 (17,771)

Net cash used in investing activities (4,841,093) (4,101,621)

(Continued)

104

NEO SOLAR POWER CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars) 2011 2010 CASH FLOWS FROM FINANCING ACTIVITIES

Increase in short-term bank loans $ 459,823 $ 270,126 Increase (decrease) in long-term bank loans 1,686,900 (1,078,000) Increase in guarantee deposits 429 - Proceeds from:

Issuance of capital stock 3,723,867 4,685,000 Exercise of employee stock options 9,518 41,925

Cash dividends (1,441,787) - (Decrease) increase in minority interests (4,802) 30,478

Net cash provided by financing activities 4,433,948 3,949,529

NET (DECREASE) INCREASE IN CASH AND CASH

EQUIVALENTS (1,020,156) 2,410,967

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,508,835 4,097,868 CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,488,679 $ 6,508,835 SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid $ 44,612 $ 62,624 Income tax paid $ 237,801 $ 994

NONCASH INVESTING AND FINANCING ACTIVITIES

Conversion of bonds into capital stock and additional paid-in capital $ 1,104,896 $ 832,332 Current portion of long-term bank loans $ 1,009,017 $ 678,000 Current portion of bond payables $ - $ 773,701

CASH PAID FOR ACQUISITION OF PROPERTY, PLANT AND

EQUIPMENT

Acquisition of property, plant and equipment $ 5,038,895 $ 4,455,271 Increase in payables to contractors and equipment suppliers (556,049) (476,436) Cash paid $ 4,482,846 $ 3,978,835

The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

105

NEO SOLAR POWER CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATION

Neo Solar Power Corp. (“NSP”) was incorporated in the Republic of China on August 26, 2005. Its common shares have been listed on the Taiwan Stock Exchange (“TWSE”) since January 2009. NSP also issued Global Depositary Shares (GDS), which are listed on the Luxembourg Stock Exchange and have been traded on the Euro MTF Market of the Luxembourg Stock Exchange since July 2011. NSP specializes in manufacturing high-quality solar cells, solar cell modules and wafers. NSP’s main business activities include designing, manufacturing and selling solar cells and other solar related businesses. Sunny Optronics Corporation (“Sunny Optronics”), which was incorporated in July 2009, specializes in manufacturing electronic components and cells and wholesaling cells. As of December 31, 2011 and 2010, NSP’s equity interests in Sunny Optronics were 86.96% and 84.88%, respectively. Prime Energy Corp. (“Prime Energy”), which was incorporated in May 2010, specializes in manufacturing electronic components and wholesaling. As of December 31, 2011 and 2010, NSP’s equity interests in Prime Energy were 100%. New Ray Investment Corp. (New Ray Investment”), which was incorporated in October 2011, specializes in investing. As of December 31, 2011, NSP’s equity interests in New Ray Investment were 100%. On February 3, 2012, Sunny Optronics’s Board of Directors proposed to reduce capital by $100,000 thousand and to cancel 10,000 thousand issued common stock to offset Sunny Optronics’s accumulated deficit; the canceled shares had a par value of NT$10.00 and represented a capital reduction ratio of 33.33%. The capital reduction plan will be presented at the shareholders’ meeting for approval. The following diagram shows the intercompany relationships and ownership percentages among the consolidated entities as of December 31, 2011:

As of December 31, 2011 and 2010, NSP and its subsidiaries had 1,939 and 1,648 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China (R.O.C.).

86.96% 100%

NSP

Sunny Optronics Prime Energy New Ray Investment

100%

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For readers’ convenience, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. If there is any conflict between the English version and the original Chinese version, or if differences arise in the interpretation of the two versions, the Chinese version of the consolidated financial statements shall prevail. Significant accounting policies are summarized as follows: Principles of Consolidation Based on the revised Statement of Financial Accounting Standards (“SFAS”) No. 7 - “Consolidated Financial Statements,” all the investees over which NSP has controlling interests were included in the accompanying consolidated financial statements. Thus, the consolidated financial statements as of and for the years ended December 31, 2011, include the accounts of NSP, Sunny Optronics, Prime Energy and New Ray Investment; the consolidated financial statements as of and for the years ended December 31, 2010, include the accounts of NSP, Sunny Optronics and Prime Energy. All significant intercompany balances and transactions have been eliminated upon consolidation. NSP and its subsidiaries are hereinafter referred to collectively as the “Corporation.” Minority interests in Sunny Optronics are presented under minority interests in the consolidated financial statements.

Foreign-currency Transactions Nonderivative foreign-currency transactions related to foreign-currency assets, liabilities, income or costs are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses on the settlement of assets and liabilities denominated in foreign currencies are recognized in profit or loss. At the balance sheet date, monetary assets and liabilities denominated in foreign currencies are revalued at prevailing exchange rate, with the resulting gains or losses recognized in profit or loss. Accounting Assumptions Under above guidelines and principles, the Corporation should make certain estimates and assumptions on the amounts of the provision for doubtful accounts, provision for loss on inventories, depreciation of property, plant and equipment, amortization of deferred charges, income tax, bonuses payable to employees and directors, default fines, loss on purchase contracts, and product warranty expenses. Results may differ from these estimates. Classification of Current and Noncurrent Assets and Liabilities Current assets include cash and cash equivalents, and those assets held primarily for trading purposes or to be realized, sold or consumed within 12 months from the balance sheet date. Property, plant and equipment, deferred expenses and other assets that are not classified as current are noncurrent assets. Current liabilities are obligations incurred for trading purposes or to be settled within 12 months from the balance sheet date. All other liabilities not classified as current are noncurrent liabilities. Cash Equivalents Repurchase agreements with maturities of less than three months from the date of purchase are classified as cash equivalents. Their carrying amount approximates fair value.

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Financial Assets/Liabilities at Fair Value through Profit or Loss Financial instruments that do not meet the criteria for hedge accounting are classified as financial assets or financial liabilities held for trading.

The Corporation recognizes a financial asset or a financial liability on its balance sheet when the Corporation becomes a party to the contractual provisions of the financial instrument. A financial asset is deducted when the Corporation has lost control of its contractual rights over the financial asset. A financial liability is deducted when the Corporation is discharged, cancelled or expired from its contractual obligation specified in the relevant contract. These financial instruments are initially recognized at fair value, with transaction costs expensed as incurred. The financial instruments are remeasured at fair value subsequently with changes in fair value recognized in profit or loss. A regular way purchase or sales of financial assets is accounted for using settlement date accounting. A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability. Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: Derivatives - at values determined using valuation techniques. Available-for-sale financial Assets Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in equity until the financial assets are disposed of, at which time, the corresponding cumulative gain or loss are recognized in profit or loss when the financial assets are derecognized from the balance sheet. A regular way purchases or sales of financial assets are recognized and derecognized on a settlement date basis. Allowance for Doubtful Receivables Allowance for doubtful receivables is provided on the basis of the aging and review of the collectability of accounts receivables. The Corporation assesses the probability of collections of accounts receivable by examining the aging analysis of the outstanding receivables. As discussed in Note 3 to the consolidated financial statements, the Corporation adopted the third-time revised Statement of Financial Accounting Standards (SFAS) No. 34 - “Financial Instruments: Recognition and Measurement.” One of the main revisions is that the impairment of receivables originated by the Corporation should be covered by SFAS No. 34. Accounts receivables are assessed for impairment at the end of each reporting period and considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the accounts receivable, the estimated future cash flows of the asset have been affected. Objective evidence of impairment could include: � Significant financial difficulty of the debtor; or � It becoming probable that the debtor will enter into bankruptcy or undergo financial reorganization; or � A default or delinquency in interest or principal payments; or � Extension of the maturity date; or � Significant financial difficulty of the final issuer or debtor; or

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� The disappearance of an active market for that financial asset because of the issuer’s financial difficulties or other reasons.

Accounts receivables that are assessed not to be impaired individually are further assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable could include the Corporation’s past experience of collecting payments, an increase in the number of delayed payments, as well as observable changes in national or local economic conditions that correlate with defaults on receivables. The amount of the impairment loss recognized is the difference between the asset carrying amount and the present value of estimated future cash flows, after taking into account the related collateral and guarantees, discounted at the receivable’s original effective interest rate. The carrying amount of the accounts receivable is reduced through the use of an allowance account. When accounts receivable are considered uncollectible, they are written off against the allowance account. Recoveries of amounts previously written off are credited to the allowance account. Changes in the carrying amount of the allowance account are recognized as bad debt expense in profit or loss. Factoring of Accounts Receivable

The following three conditions must be met to recognize factoring of accounts receivable as sales:

a. The accounts receivable are legally separated from the Corporation and its creditors. b. The transferees have obtained the right to pledge or exchange accounts receivable, which are either the

transferred accounts receivable or beneficial interest in the transferred assets. c. The transferor does not maintain effective control, through an agreement to repurchase or redeem the

transferred accounts receivable before their maturities, over the transferred accounts receivable. Upon sale of the accounts receivable, the difference between the proceeds and the carrying value of the accounts receivable is recognized as a loss and recorded as non-operating expenses. Inventories Inventories consist of raw materials, supplies, work-in-process and finished goods. Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on an item-by-item basis, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at weighted-average costs. Since April 2011, NSP’s inventories have been recorded at standard cost and adjusted to approximate weighted-average cost on the balance sheet date.

Financial Assets Carried at Cost

Investments in securities such as non-publicly traded stocks without quoted market prices in an active market and with fair values that cannot be reliably measured are stated at original cost. Cash dividends are recognized as investment income upon resolution of the shareholders of an investee but are accounted for as reductions of the original cost of investment if such dividends are declared on the investees’ earnings attributable to periods before the Corporation’s purchase of the investments. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The Corporation’s cost per share is then recalculated on the basis of the new number of shares. If there is objective evidence that a financial asset is impaired, a loss is recognized. No recording of a subsequent recovery of fair value is allowed.

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Prepayments to Suppliers The prepayments to suppliers are recorded as current assets if such prepayments are expected to be deducted from purchase payments made to suppliers within 12 months from the balance sheet date. Other prepayments, by contractual term that such portion are expected to be deducted from purchase payments beyond 12 months from the balance sheet date, will be classified as noncurrent assets. Property, Plant and Equipment Property, plant and equipment are stated at cost less accumulated depreciation. Borrowing costs directly attributable to the acquisition or construction of property, plant and equipment are capitalized as part of the cost of those assets. Significant additions, renewals and improvements made to property, plant and equipment are capitalized. Repairs and maintenance are expensed as incurred. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, as if no impairment loss had been recognized. Depreciation is calculated on the straight-line method over the following estimated useful lives: buildings - 15 to 20 years; machinery and equipment - 3 to 5 years; research and development equipment - 3 to 5 years; office equipment - 3 years; leasehold improvements - 3 to 10 years; and miscellaneous equipment - 3 to 15 years. Property, plant and equipment which are still in service beyond their originally estimated useful lives are further depreciated over their revised estimated useful lives. Upon sale or disposal of property, plant and equipment to others, the related cost and accumulated depreciation are deducted from the corresponding accounts with any gain or loss recorded as non-operating gains or losses in the period of sale or disposal. Deferred Charges All research-phase expenditures are expensed as incurred. Expenditures incurred in the development phase are capitalizes as intangible assets and then amortized using the straight-line method over estimated useful lives if the recognition criteria for intangible asset have been met; otherwise, expenditures are expensed when incurred. Deferred charges, including computer software costs, subsidy of electric system and other deferred charges, are amortized using the straight-line method over the following periods: computer software - 1 to 3 years, subsidy of electric system - 3 years; and others deferred charges - 1 to 5 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, as if no impairment loss had been recognized. Capitalized and Other Expenditures Expenditures that will benefit periods in the future are capitalized. Other expenditures are recorded as expenses or losses.

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Convertible Bonds The Corporation records the carrying values of the host contract as the total proceeds from the issuance less the (1) fair values of embedded derivatives and (2) issuance costs allocated to bond payable in proportion to the initially relative recognized amount. The bonds are subsequently measured at amortized cost using the effective interest method, the related interest expense or redemption gain is recognized in profit or loss. When the bondholder exercises the conversion option before maturity, the adjusted carrying value of the debt components (bonds and embedded derivatives are included) is credited to a capital stock accounts. The carrying value of bonds is accounted for by the effective interest method until the day before the conversion date, and that of embedded derivatives is the fair value of the day before the conversion date. Pension Costs Actual contributions made to employees’ individual pension accounts under a defined contribution plan are recorded as pension costs during the period in which employees render services. Share-based Compensation Employee stock options granted on or after January 1, 2008 are accounted for under SFAS No. 39 -“Share-based Payment.” Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting period, with a corresponding adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates. Employee stock options granted in the period from January 1, 2004 to December 31, 2007 were accounted for by the interpretations issued by the Accounting Research and Development Foundation of the Republic of China (“ARDF”). The Corporation adopted the intrinsic value method and any compensation cost determined under this method was recognized in profit or loss over the vesting period stated in the employee stock option plan. Revenue Recognition Revenue is recognized when rewards of ownership and significant risk of goods have been transferred to customers, primarily upon shipment, as major part of the earnings process is completed and revenues are realized or are realizable. The Corporation does not recognize sales on transactions involving the delivery of materials to subcontractors as the ownership over the materials are not transferred. Revenue is measured at fair value of the consideration received or receivable, taking into account the amount of any trade discounts and volume rebates agreed to by the Corporation and customers. Since the trade receivables due within one year from the balance sheet date and sales transaction are frequent, the fair value of receivables is equivalent to the nominal amount of the consideration to be received without discounting future receipts using an imputed rate of interest. Income Tax The Corporation applies inter-period allocation to its income tax, whereby deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, unused loss carryforward and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the consolidated financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

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Any tax credits arising from purchases of machinery, equipment and technology, research and development expenditures and personnel training expenditures are recognized using the flow-through method. Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision. According to the Income Tax Law, income tax on unappropriated earnings at a rate of 10% is expensed in the year of shareholder approval which is the year subsequent to the year the earnings are generated. Reclassifications Certain accounts in the consolidated financial statements as of and for the year ended December 31, 2010 have been reclassified to be consistent with the consolidated financial statements as of and for the year ended December 31, 2011.

3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES

SFAS No. 34 - “Financial Instruments: Recognition and Measurement” On January 1, 2011, the Corporation prospectively adopted the newly revised SFAS No. 34. The main revisions includes (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Corporation are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost a debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change did not have a significant effect on the Corporation’s consolidated financial statements as of and year ended December 31, 2011. SFAS No. 41 - “Accounting for Operating Segments Disclosures” On January 1, 2011, the Corporation adopted the newly issued SFAS No. 41- “Operating Segments” (“SFAS No. 41”). The requirements of the statement are based on the information about the components of the Corporation that management uses to make decisions about operating matters. SFAS No. 41 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Corporation's chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20 - “Segment Reporting.” The information for the year ended December 31, 2010 has been recast to reflect the new segment reporting requirement.

4. CASH AND CASH EQUIVALENTS

December 31 2011 2010 Demand deposits $ 3,499,009 $ 2,268,679 Time deposits 1,994,215 4,258,235 Checking accounts 5,319 1,845 Cash on hand 351 311 5,498,894 6,529,070 Pledged time deposits (10,215) (20,235) $ 5,488,679 $ 6,508,835

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5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31 2011 2010 Financial liabilities held for trading Forward exchange contracts $ 1,017 $ 3,142 Cross-currency swap contract - 6,689 Embedded derivatives of convertible bonds (Note 14)

Conversion option - 242,268 $ 1,017 $ 252,099

The Corporation entered into cross-currency swap contract and forward exchange contracts in 2011 and 2010 and option contracts in 2011 to manage exposures due to exchange rate and interest rate fluctuations. The financial risk management objective of the Corporation is to minimize risks due to changes in fair value. As of December 31, 2011 and 2010, outstanding forward exchange contracts consisted for the following: Maturity Date Contract Amount (In Thousands) December 31, 2011 Sell US$/Buy NT$ January 6, 2012 US$6,000/NT$180,780 December 31, 2010 Sell EUR/Buy US$ February 14, 2011 EUR5,000/US$6,568 All the option contracts as of December 31, 2011 had been settled before contract maturity. As of December 31, 2010, outstanding cross-currency swap contracts consisted of the following:

Contract Amount (In Thousands)

Maturity Date Interest Rates

Paid (In NT$) Interest Rates Received (In US$)

US$11,665 July 8, 2011 0.29% 2% For all convertible bonds had been requested to convert into common shares, the Corporation early settled the cross-currency swap contract in January 2011. The results of transactions on financial instruments held for trading were a net loss of $167,484 thousand in 2011 and a net gain of $222,278 thousand in 2010, respectively. Among them, a net loss and a net gain resulted from convertible bonds were $87,148 thousand in 2011 and $253,353 thousand in 2010.

6. NOTES AND ACCOUNTS RECEIVABLE, NET

December 31 2011 2010 Notes and accounts receivable $ 1,589,457 $ 2,395,742 Provision for doubtful accounts (13,425) (11,459) $ 1,576,032 $ 2,384,283

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The factored accounts receivable for 2011 and 2010 are summarized as follows:

Unit: In Thousands

Counter-parties

Receivables

Sold

Amounts Collected

Advances Received at Year-end

Interest Rates on Advances Received (%)

Credit Line Year ended December 31, 2011 Chinatrust Commercial Bank US$ 649 US$ 649 $ - - US$ 2,000 UPS Capital HK Limited US$ 5,693 US$ 5,693 - - EUR 824 EUR 824 - -

US$ 5,000

US$ 525 US$ 260 - - EUR 1,500 Year ended December 31, 2010 Chinatrust Commercial Bank US$ 5,392 US$ 4,386 - - US$ 3,250 EUR 261 EUR 261 - - First Commercial Bank US$ 467 US$ 467 - - US$ 500 EUR 238 EUR 238 - - US$ 500 The above credit line can be used on a revolving basis. However, the related contracts with the financial institutions, except that with UPS Capital HK Limited., had expired as of December 31, 2011. Based on the factoring agreements, losses from commercial disputes (such as sales returns and discounts) should be borne by the Corporation, while losses from credit risk should be borne by the financial institutions. As of December 31, 2011 and 2010, the retentions (US$265 thousand in 2011 and US$1,006 thousand in 2010) on the factored accounts receivable were recorded under other receivables.

7. INVENTORIES

December 31 2011 2010 Finished goods $ 528,803 $ 514,864 Work in process 71,292 507,297 Raw materials and supplies 297,292 637,125 $ 897,387 $ 1,659,286

As of December 31, 2011 and 2010, the provision for losses on inventories were $616,161 thousand and $222,007 thousand, respectively. For 2011, the cost of sales related to inventories was $22,705,183 thousand, which included (1) unallocated fixed manufacturing overheads of $326,715 thousand; (2) revenue from sale of scraps of $38,822 thousand; (3) a provision for losses on inventories amounting to $394,154 thousand and (4) losses on abandonment of inventory of $916 thousand. For 2010, the cost of sales related to inventories was $16,405,284 thousand, which included (1) unallocated fixed manufacturing overheads of $29,164 thousand; (2) revenue from sale of scraps of $23,283 thousand and (3) a reversal of the provision for losses on inventories amounting to $136,102 thousand. The reversal was due to the decrease in unit costs of products in 2010.

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8. PREPAID EXPENSE

December 31 2011 2010 Prepayments to suppliers

Contractual (Note 25) $ 2,504,433 $ 2,301,771 Non-contractual 473 107,375

2,504,906 2,409,146 Less: Noncurrent portion (2,162,464) (1,826,965)

Prepayments to suppliers - current 342,442 582,181 Others 20,264 32,792 $ 362,706 $ 614,973

9. FINANCIAL ASSETS CARRIED AT COST

December 31, 2011

Domestic unquoted common stocks

ThinTech Materials Technology Co., Ltd. (“TTMC”) $ 289,940

In September 2011, Prime Energy bought the shares of TTMC, total 1,000 thousand shares, with $40,040 thousand; as of December 31, 2011 the percentage of the ownership was 1.52%.

In October 2011, TTMC sold to New Ray Investment 3,000 thousands shares with $107,100 thousand through private equity placement; as of December 31, 2011, the percentage of the ownership was 4.57%. In October 2011, TTMC sold to NSP 4,000 thousand shares for $142,800 thousand through private equity placement; as of December 31, 2011 the percentage of the ownership was 6.09%. Under Article 43-8 of the Securities and Exchange Act, there is a legally enforceable restriction on private-placement shares that prevents their trading. The above equity investment, which had no quoted price in an active market and had a fair value that could not be reliably measured, was carried at cost.

10. PROPERTY, PLANT AND EQUIPMENT


Beginning of Year Additions Reclassifications


Cost Land $ 440,596 $ - $ - $ 440,596 Buildings 1,336,475 2,215 1,398,515 2,737,205 Machinery and equipment 6,743,144 36,115 3,324,996 10,104,255 Research and development

equipment

1,760

4,581 4,882

11,223

Office equipment 8,749 - - 8,749 (Continued)

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Beginning of Year Additions Reclassifications


Leasehold improvement $ 12,958 $ 762 $ - $ 13,720 Miscellaneous equipment 114,367 14,570 25,788 154,725 Construction in progress and

prepayment for equipment

418,034

4,980,652 (4,761,781)

636,905

9,076,083 $ 5,038,895 $ (7,600) 14,107,378 Accumulated depreciation Buildings 105,886 $ 87,245 $ - 193,131 Machinery and equipment 1,452,353 1,284,620 - 2,736,973 Research and development

equipment

1,290

812 -

2,102

Office equipment 3,184 1,901 - 5,085 Leasehold improvement 2,932 1,616 - 4,548 Miscellaneous equipment 26,156 25,476 - 51,632 1,591,801 $ 1,401,670 $ - 2,993,471 $ 7,484,282 $ 11,113,907

(Concluded)


Balance,

Beginning of Year Additions Disposals Reclassifications Balance,

End of Year Cost Land $ - $ - $ - $ 440,596 $ 440,596 Buildings 1,210,876 504 - 125,095 1,336,475 Machinery and equipment 2,968,770 83,722 - 3,690,652 6,743,144 Research and development

equipment 1,516 244 - - 1,760 Office equipment 6,131 2,618 - - 8,749 Leasehold improvement 14,127 5,520 (6,689 ) - 12,958 Miscellaneous equipment 57,104 23,852 - 33,411 114,367 Construction in progress and

prepayment for equipment 368,977 3,898,215 - (3,849,158 ) 418,034 Prepayment for land - 440,596 - (440,596 ) - 4,627,501 $ 4,455,271 $ (6,689 ) $ - 9,076,083 Accumulated depreciation Buildings 45,456 $ 60,430 $ - $ - 105,886 Machinery and equipment 746,886 705,467 - - 1,452,353 Research and development

equipment 911 379 - - 1,290 Office equipment 1,520 1,664 - - 3,184 Leasehold improvement 3,569 1,542 (2,179 ) - 2,932 Miscellaneous equipment 11,253 14,903 - - 26,156 809,595 $ 784,385 $ (2,179 ) $ - 1,591,801 $ 3,817,906 $ 7,484,282

The property, plant and equipment pledged as collaterals are shown in Note 24.

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11. DEFERRED CHARGES, NET


Computer Software




Computer Software



12. SHORT-TERM BANK LOANS

December 31 2011 2010 Working capital loans - interest at 0.95%-2.18% on December 31,

2011; 0.75%-1.59% on December 31, 2010 $ 729,949

$ 270,126

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13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

December 31 2011 2010 Loss on contracts $ 448,979 $ - Bonus 119,628 143,562 Salaries 79,754 69,120 Product warranty expenses 52,166 31,123 Others 302,353 268,853 $ 1,002,880 $ 512,658

Bonus Salaries January 1, 2011 $ 143,562 $ 69,120 Add: Accrued 139,909 941,910 Less: Paid (163,843) (931,276) December 31, 2011 $ 119,628 $ 79,754 January 1, 2010 $ 72,230 $ 32,277 Add: Accrued 254,225 609,824 Less: Paid (182,893) (572,981) December 31, 2010 $ 143,562 $ 69,120

14. BONDS PAYABLE

December 31 2011 2010 European unsecured convertible bonds $ - $ 773,701 Current portion - (773,701) $ - $ - On July 15, 2008, NSP issued 3-year unsecured convertible bonds, with a face value of US$50,000 thousand. As of December 31, 2011, bonds holders with principal amount of US$50,000 thousand had requested to convert the bonds into 27,391 thousand common shares, which had all been issued. According to SFAS No. 36 - “Financial Instruments: Disclosure and Presentation” (“SFAS No. 36”), NSP separated conversion and price reset option from the convertible bond and recognized these options as financial liabilities at fair value through profit or loss. As of December 31, 2010, the fair values of the embedded derivatives was $242,268 thousand and the amortized costs of bonds payable was $773,701 thousand. Terms of the bonds are as follows:

a. Issue date: July 15, 2008. b. Par value: US$1 thousand. c. Issue and listing: Issued overseas and traded in global over-the-counter market. No application will

be made to list the bonds on any stock exchange. d. Offering price: 100% of the principal amount of the bonds.

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e. Aggregate principal: US$50,000 thousand. f. Coupon rate: 2%. g. Term: 3-year; with maturity date at July 15, 2011. h. Conversion right and conversion securities: The bonds are convertible into NSP’s common shares (at

an exchange rate of US$1.00 to NT$30.397). i. Conversion period: The bonds are convertible at any time on or after the date which NSP’s shares are

listed on the TWSE and prior to July 5, 2011. j. Conversion price: NT$107 per share upon issuance and is adjustable. k. Redemption: The bonds will be redeemed at 100% of their principal amount in U.S. dollars on July 15,

2011.

NSP accounted for such convertible bonds in accordance with SFAS No. 34 and SFAS No. 36. For the years ended December 31, 2011 and 2010, NSP recognized the amortization of bond discount of NT$0 and NT$191,781 thousand, respectively. NSP also recognized a valuation loss on financial liabilities of NT$101,989 thousand and a valuation gain of NT$236,401 thousand for the years ended December 31, 2011 and 2010, respectively. Related amortization of bond discount was presented under “Non-operating expenses and losses - interest expense,” while valuation loss and gain were presented under “Non-operating expenses and losses - valuation loss on financial instruments” and “Non-operating income and gains - Valuation gain on financial instruments.”

15. LONG-TERM BANK LOANS

December 31 2011 2010 Taiwan Cooperative Bank syndicated loan

Repayable semiannually from November 2012 to November 2015, repay 10% each period before 2015 and 40% in 2015, with annual floating interest at 1.5905% in 2011 $ 1,250,000 $ -

Repayable semiannually from November 2012 to November 2015, with annual floating interest at 1.5379% in 2011 1,050,000 -

First Bank syndicated loan Repayable quarterly from January 2010 to January 2013, with

annual floating interest at 1.4326% in 2011 and 1.1832% in 2010 904,000 1,582,000

First Bank secured loan Repayable quarterly from June 2012 to September 2016, with

annual floating interest at 2.08% in 2011 64,900 - 3,268,900 1,582,000

Current portion (1,009,017) (678,000) $ 2,259,883 $ 904,000

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The loan agreements require the maintenance of certain financial ratios based on NSP’s annual and semiannual financial reports. The related restrictions are as follows: First Bank syndicated loan: a. Current ratio (Current assets/Current liabilities): At least 100%; b. Debt to equity ratio (Total liabilities/Total shareholders’ equity): No more than 120%; c. Interest coverage ratio [(Income before income tax + Depreciation + Amortization + Interest

expense)/Interest expense]: No less than four times; Taiwan Cooperative Bank syndicated loan: a. Current ratio (Current asserts/Current liabilities): At least 100%; b. Debt to equity ratio (Total financial liabilities/Total shareholders’ equity): No more than 110%; c. Interest coverage ratio [(Income before income tax + Depreciation + Amortization + Interest

expense)/Interest expense]: No less than two times. The income before tax should not include the amount of valuation on financial liabilities.

d. Tangible net worth: At least $6,000,000 thousand. As of December 31, 2011, NSP was in compliance with the above ratio requirements, except that for the interest coverage ratio. Nevertheless, breaking the requirement was not considered a breach. If NSP improves the interest coverage ratio by the next compliance examination date, NSP will not have to pay the compensation. The assets pledged as collaterals are shown in Note 24.

16. PENSION PLAN

The Corporation makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages in accordance with the Labor Pension Act and these contributions are recognized as pension costs. The pension costs for the years ended December 31, 2011 and 2010 were $52,972 thousand and $33,148 thousand, respectively.

17. INCOME TAX EXPENSE

a. A reconciliation of income tax expense based on (loss) income before income tax at the statutory rate and income tax expense was as follows:

Year Ended December 31 2011 2010 Tax on (loss) income before income tax at statutory rate $ (503,307) $ 502,199 Tax effect of the following:

Tax-exempt income - (252,638) Permanent differences 94,527 14,555 Temporary differences 95,808 (39,301)

Income tax currently payable $ (312,972) $ (224,815)

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b. Income tax expense for the years ended December 31, 2011 and 2010 consisted of:

Year Ended December 31 2011 2010 Income tax currently payable $ - $ (224,815) Additional 10% income tax on unappropriated earnings (86,263) - Loss carryforwards - 56,933 Tax credits 45,688 - Additional income tax under the Alternative Minimum Tax Act - (59,504) Net change in deferred income tax assets and liabilities

Investment tax credits (65,489) 158,935 Loss carryforwards 310,798 (62,750) Temporary differences 119,401 (59,649)

Valuation allowance (364,710) (36,536) Adjustments for prior years’ tax (11,408) 11,769 $ (51,983) $ (215,617)

c. Deferred income tax assets were as follows:

December 31 2011 2010 Current

Temporary differences $ 107,375 $ 101,594 Investment tax credits 8,038 2,557 115,413 104,151 Valuation allowance (115,413) (104,151)

$ - $ - Noncurrent

Loss carryforwards $ 326,933 $ 16,135 Investment tax credits 160,404 231,374 Temporary differences 152,222 38,602

639,559 286,111 Valuation allowance (639,559) (286,111)

$ - $ -

Under Article 10 of the Statute for Industrial Innovation (SII) passed by the Legislative Yuan in April 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the fiscal year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that fiscal year. This incentive took effect from January 1, 2010 and is effective till December 31, 2019. In May 2010, the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which reduces a profit-seeking enterprise’s income tax rate from 20% to 17%, effective January 1, 2010.

d. NSP’s related information under the Integrated Income Tax System is as follows:

December 31 2011 2010 Balance of Imputation Credit Account (“ICA”) $ 256,159 $ 48,685

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For 2011, there was no tax creditable ratio because the corporation incurred a deficit; NSP’s actual creditable ratio for the distribution of earnings for 2010 was 2.12%.

e. As of December 31, 2011, the loss carryforwards and investment tax credits comprised:

Total Remaining Creditable Creditable Expiry Regulatory Basis of Tax Credits Items Amount Amount Year Income Tax Law Loss carryforwards $ 35 $ 35 2019 13,926 13,926 2020 312,972 312,972 2021 $ 326,933 $ 326,933 Statute for Upgrading Industries Purchase of machinery $ 46,508 $ 3,376 2012 and equipment 9,003 9,003 2013 137,137 137,137 2014 $ 192,648 $ 149,516 Statute for Upgrading Industries Research and development $ 2,523 $ - 2011 expenditures 4,390 4,390 2012 14,090 14,090 2013 $ 21,003 $ 18,480 Statute for Upgrading Industries Personnel training $ 33 $ - 2011 expenditures 272 272 2012 174 174 2013 $ 479 $ 446

f. Profits attributable to the following projects were exempted from income tax:

Tax-exemption Period Statute for Upgrading Industries

Initial investment January 1, 2007 - November 30, 2010 First expansion of the manufacturing plant April 10, 2008 - April 9, 2013 Second expansion of the manufacturing plant January 1, 2010 - December 31, 2014

g. Income tax returns through 2009 have been assessed by the tax authorities. However, NSP is

contesting the tax authorities’ assessment of its 2007 and 2008 returns. NSP believes that any additional assessment will not have a material effect on its consolidated financial statements.

18. SHAREHOLDERS’ EQUITY Under the R.O.C. Company Law, capital surplus can only be used to offset a deficit. However, the capital surplus from shares issued in excess of par may be capitalized, which however is limited to a certain percentage of NSP’s paid-in capital once a year. Under the revised Company Law issued on January 4, 2012, the aforementioned capital surplus also may be distributed in cash. The capital surplus from long-term investments may not be used for any purpose.

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Under NSP’s Articles of Incorporation, upon closing of accounts, if there is profit, NSP shall first pay the corporate income tax in accordance with law, offset a deficit in previous years and then set aside a legal reserve of 10% of the profits left over, unless the accumulated legal reserve equals to the total capital of NSP, and retain special reserve(s) pursuant to applicable laws. Then, NSP will appropriate the remaining earnings as employees’ bonus (no less than 3%) and remuneration to directors (no more than 2%). As to any balance left over and plus unappropriated earnings of preceding years, the board of directors shall make a proposal concerning appropriation of shareholders’ bonus to be approved in the meeting of the shareholders. NSP may issue profit sharing to employees in stock of an affiliated company meeting the conditions set by the Board of Directors. The board chairman is authorized to decide the actual amount appropriated as employees’ bonus. Bonus to shareholders should be paid by either cash or stocks. Cash bonus shall be more than 10% of the total bonus to shareholders. The amounts of bonus to employees and directors were estimated on the basis of statutes, NSP’s Articles of Incorporation and experiences. For the year ended December 31, 2010, the estimated bonus to employees and remuneration to directors were estimated at $370,342 thousand and $49,379 thousand, respectively. NSP incurred a deficit for the years ended December 31, 2011; thus, neither bonus to employees nor remuneration to directors was estimated. Material differences between these estimates and the amounts proposed by the Board of Directors in the following year are adjusted for in year of the proposal. If the actual amounts subsequently resolved by the shareholders’ meeting differ from the proposed amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If a stock bonus is resolved to be distributed to employees, the number of stock is determined by dividing the amount of the stock bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day immediately preceding the shareholders’ meeting. The R.O.C. Company Law provides that legal reserve should be appropriated until the reserve equals NSP’s paid-in capital. The reserve may be used to offset a deficit. Under the revised Company Law issued on January 4, 2012, when the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash. Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by NSP. NSP’s appropriation of earnings for 2010 had been approved in the shareholders’ meetings on April 11, 2011. The appropriation and dividends per share were as follows:

Appropriation of Earnings

Dividends Per Share (NT$)

Legal reserve $ 273,849 $- Cash dividends 1,441,817 4.61 Stock dividends 160,202 0.51 $ 1,875,868 Bonus to employees and the remuneration to directors for 2010 approved in the shareholders’ meetings on April 11, 2011 was as follows:

Year Ended December 31, 2010 Bonus to

Employees Remuneration to Directors

Cash bonus $ 370,342 $ 40,000 Stock bonus - - Amounts approved in shareholders’ meetings 370,342 40,000 Amount recognized in financial statements 370,342 49,379 $ - $ (9,379)

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The differences between the approved amounts of remuneration to directors and the accrual amounts reflected in the consolidated financial statements for the year ended December 31, 2010, as the result of difference in estimate, had been adjusted in profit or loss for the year ended December 31, 2011. On February 21, 2012, NSP’s Board of Directors had resolved to offset NSP’s accumulated deficit against legal reserve of NT$273,849 thousand and capital surplus of NT$1,761,191 thousand. On February 21, 2012, NSP’s Board of Directors proposed to offering private-placement common shares at par value NT$10 per share within amount of 160,000 thousand shares and increase NSP’s capital by issuing common shares or listing global depositary shares (GDS) within amount of 160,000 thousand shares. The above share issuance will be presented at shareholders’ meeting for approval. Information on appropriations can be accessed online through the Market Observation Post System of the Taiwan Stock Exchange Corporation. On July 14, 2011 NSP offered 100,000 thousand shares of capital stock for 20,000 thousand global depositary share (GDS) offering. Each GDS represented 5 common shares. The price for GDS was US$6.62 per share, and total US$132,400 thousand was raised. The GDS was listed on the Luxembourg Stock Exchange on July 20, 2011.

19. EMPLOYEE STOCK OPTIONS

On December 30, 2005 and July 28, 2006, NSP’s Board of Directors approved the employee stock option plans, hereinafter referred to as “2005 Plan” and “2006 Plan,” respectively. Also, on November 22, 2007 the Financial Supervisory Commission, Executive Yuan, approved NSP’s employee stock option plans, hereinafter referred to as “2007 Plan”. The 2005 Plan, 2006 Plan and 2007 Plan have reserved 6,000 thousand, 3,000 thousand and 4,800 thousand option units, respectively, with each unit representing 1 share of NSP’s common stock. The 2005 Plan and the 2006 Plan granted are valid for 10 years and exercisable at certain percentages from 1 year after the date of grant, while the 2007 plan granted is valid for 6 years and exercisable at certain percentages from 2 years after the date of grant. For any subsequent changes in the NSP’s common shares, the exercise price and the number of options are adjusted accordingly. Other information on the stock option plan is as follows: 2007 Plan 2006 Plan 2005 Plan Weighted Weighted Weighted Number of Average Number of Average Number of Average Outstanding Exercise Outstanding Exercise Outstanding Exercise Stock Prices Stock Prices Stock Prices Option (NT$/ Option (NT$/ Option (NT$/ Rights Per Share) Rights Per Share) Rights Per Share) For the year ended December 31, 2011 Beginning balance 1,471 $19.00 630 $10.00 212 $10.00 Options exercised (383) 18.85 (193) 10.00 (37) 10.00 Options canceled (125) 19.00 (300) 10.00 - - Ending balance 963 18.07 137 10.00 175 10.00 For the year ended December 31, 2010 Beginning balance 3,254 19.00 1,150 10.00 1,347 10.00 Options exercised (1,423) 19.00 (353) 10.00 (1,135) 10.00 Options canceled (360) 19.00 (167) 10.00 - 10.00 Ending balance 1,471 19.00 630 10.00 212 10.00

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As of December 31, 2011, the information about the outstanding stock options was as follows: Options Outstanding Weighted Options Exercisable Numbers Average Weighted Numbers Weighted Outstanding Remaining Average Exercisable Average (Per Thousand Contractual Exercise Price (Per Thousand Exercise Price Exercise Price Options) Life (In Years) (Per Share) Options) (Per Share)

$10.00 175 4.00 $10.00 175 $10.00 10.00 137 4.58 10.00 137 10.00 18.07 963 1.99 18.07 963 18.07

1,275 1,275

NSP uses the intrinsic value method to evaluate the compensation cost for the employee stock options. The compensation cost recognized for the years ended December 31, 2011 and 2010 was zero since the stock options were granted at an exercise price higher than the equity per share of common shares on the measurement dates. Had NSP applied the fair value based method to evaluate compensation cost for the employee stock options granted, the assumptions and pro forma results of NSP for the years ended December 31, 2011 and 2010 would be as follows: Year Ended December 31 2011 2010 Method: Black-Scholes model Assumptions:

Risk-free interest rate 2.08%-2.33% 2.08%-2.33% Expected life (in years) 6-10 years 6-10 years Expected stock price volatility 0.46%-33.63% 0.46%-33.63% Dividend yield - -

Fair value per option (NT$/per share) $1.89-$9.43 $1.89-$9.43 Consolidated net (loss) income attributable to common shareholders

of the parent:

Net (loss) income as reported $ (2,897,667) $ 2,738,495 Pro forma net (loss) income $ (2,900,261) $ 2,731,979

Consolidated (loss) earnings per share (L/EPS):

Basic L/EPS as reported $(7.76) $10.99 Pro forma basic L/EPS $(7.77) $10.96 Diluted L/EPS as reported $(7.76) $9.36 Pro forma diluted L/EPS $(7.77) $9.34

The weighted average number of shares outstanding for EPS calculation has been retroactively adjusted for the issuance of employee stock bonuses distributed out of earnings for the year ended December 31, 2010 and stock dividends. This adjustment caused the basic and diluted after income tax EPS for the year ended December 31, 2010 to decrease from NT$11.52 to NT$10.96 and from NT$9.76 to NT$9.34, respectively. On July 5, 2010, NSP’s Board of Directors resolved the issuance of common shares and retained portion to NSP’s employees. In 2010, NSP recognized the compensation cost of NT$72,265 thousand by using the fair value method.

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20. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSE

Year Ended December 31 2011 2010



Total



Total Labor cost

Salary $ 745,145 $ 239,159 $ 984,304 $ 756,737 $ 487,108 $ 1,243,845 Labor/health

insurance

73,703 17,851 91,554

43,575 11,749 55,324 Pension 41,694 11,278 52,972 25,484 7,664 33,148 Others 54,401 25,514 79,915 38,776 17,758 56,534 $ 914,943 $ 293,802 $ 1,208,745 $ 864,572 $ 524,279 $ 1,388,851

Depreciation $ 1,359,008 $ 42,662 $ 1,401,670 $ 744,706 $ 39,679 $ 784,385 Amortization $ 51,214 $ 14,760 $ 65,974 $ 39,032 $ 7,894 $ 46,926

21. CONSOLIDATED (LOSS) EARNINGS PER SHARE

The numerators and denominators used in calculating consolidated basic and diluted (loss) earnings per share (L/EPS) were as follows: L/EPS (Dollars) Amount (Numerator) Share Before After Before After (Denominator) Income Income Income Tax Income Tax (Thousand) Tax Tax For the year ended December 31, 2011 Consolidated net loss $ (2,861,450) $ (2,913,433) Consolidated basic and diluted LPS

Loss attributable to common shareholders of the parent $ (2,845,684) $ (2,897,667) 373,441 $ (7.62) $ (7.76)

For the year ended December 31, 2010 Consolidated net income $ 2,940,993 $ 2,725,376 Consolidated basic EPS

Income attributable to common shareholders of the parent $ 2,954,112 $ 2,738,495 249,251 $ 11.85 $ 10.99

Effect of dilutive potential common stock Bonus to employees - - 5,201 Stock options - - 2,582 Convertible bonds (108,384) (89,959) 25,932

Consolidated diluted EPS Income attributable to common and

potential common shareholders of the parent $ 2,845,728 $ 2,648,536 282,966 $ 10.06 $ 9.36

The weighted average number of shares outstanding for EPS calculation has been retroactively adjusted for the issuance of employee stock bonuses distributed out of earnings for the year ended December 31, 2010 and stock dividends. This adjustment caused the basic and diluted after income tax EPS for the year ended December 31, 2010 to decrease from NT$11.55 to NT$10.99 and from NT$9.78 to NT9.36, respectively.

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NSP’s employee stock option plans (please see Note 19) and convertible bonds (please see Note 14) were potential common shares. Under SFAS No. 24 - “Earnings Per Share”, NSP tested the potential common shares by the treasury stock method and if converted method. The employee stock option plans and convertible bonds for the year ended December 31, 2011 had no dilutive effects; thus, these have not been included in the calculation of consolidated diluted loss per share. The ARDF issued Interpretation 2007-052 that requires companies to recognize bonuses paid to employees, directors and supervisors as compensation expenses beginning January 1, 2008. These bonuses were previously recorded as appropriations from earnings. If NSP may settle the bonus to employees by cash or shares, NSP should presume that the entire amount of the bonus will be settled in shares and the resulting potential shares should be included in the weighted average number of shares outstanding used in the calculation of consolidated diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the entire amount of the bonus by the closing price of the shares at the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of consolidated diluted EPS until the shareholders resolves the number of shares to be distributed to employees at their meeting in the following year.

22. DISCLOSURES FOR FINANCIAL INSTRUMENTS

a. Fair values of financial instruments were as follows:

December 31 2011 2010 Carrying Carrying Value Fair Value Value Fair Value Assets

Cash and cash equivalents $ 5,488,679 $ 5,488,679 $ 6,508,835 $ 6,508,835 Notes and accounts receivable, net 1,576,032 1,576,032 2,384,283 2,384,283 Other receivables 92,837 92,837 103,765 103,765 Pledged time deposits 10,215 10,215 20,235 20,235 Financial assets carried at cost-noncurrent 289,940 - - -

Liabilities Short-term bank loans 729,949 729,949 270,126 270,126 Financial liabilities at fair value through profit or

loss - current 1,017 1,017 252,099 252,099 Notes and accounts payable 969,664 969,664 1,436,435 1,436,435 Payables to contractors and equipment suppliers 1,427,151 1,427,151 871,102 871,102 Bonds payable (including current portions) - - 773,701 773,701 Long-term bank loans (including current portions) 3,268,900 3,268,900 1,582,000 1,582,000

b. Methods and assumptions used in determining fair values of financial instruments

1) The carrying amounts of the following short-term financial instruments approximate their fair

values because of their short maturities: Cash and cash equivalents, notes and accounts receivable, other receivables, pledged time deposits, short-term bank loans, notes and accounts payable and payable to contractors and equipment suppliers.

2) Fair values of derivatives are based on their quoted prices in an active market. For those

derivatives with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments. Fair values of forward exchange contracts were accounted under the foreign exchange rate referred to the Reuter’s quotation system according to the maturity dates of each forward exchange contract.

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Fair value of cross-currency swap contract is calculated on the balance sheet date through discounted cash flow analysis, using yield curve and the U.S. dollar forward rate quoted by Reuter’s quotation system. Fair value of the debt components of convertible bonds is calculated on the balance sheet date by using the rate of T-Bonds quoted by Bloomberg and the Corporation’s operating condition and ability to repay its debts, forecast of the industry, competition in the market, the rates for long-term bank loans, the conversion price, the stock price at the balance sheet date and the expected stock price volatility.

3) Financial assets carried at cost are invested in unquoted shares, which have no quoted prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

4) Fair values of long-term bank loans are estimated using discounted cash flow analysis, based on the Corporation’s current incremental borrowing rates for borrowings of similar types (with similar maturity dates). The fair values of long-term bank loans with floating interest rates are equivalent to their carrying values. Fair values of bonds payable are estimated using the present value of discounted future cash flows.

c. Fair values of financial assets and liabilities based on quoted market prices or valuation techniques were

as follows:

Quoted Market Prices Valuation Techniques December 31 December 31 2011 2010 2011 2010 Assets

Cash and cash equivalent $ 5,488,679 $ 6,508,835 $ - $ - Notes and accounts receivable, net - - 1,576,032 2,384,283 Other receivables - - 92,837 103,765 Pledged time deposits 10,215 20,235 - -

Liabilities Short-term bank loans - - 729,949 270,126 Financial liabilities at fair value through profit or

loss - current - - 1,017 252,099 Notes and accounts payable - - 969,664 1,436,435 Payables to contractors and equipment suppliers - - 1,427,151 871,102 Bonds payable (including current portion) - - - 773,701 Long-term bank loans (including current portion) - - 3,268,900 1,582,000

d. Valuation (loss) gain arising from changes in fair value of financial instruments determined using

valuation techniques were $(93,175) thousand and $198,961 thousand, respectively, for the years ended December 31, 2011 and 2010.

e. As of December 31, 2011 and 2010, financial assets (liabilities), which were exposed to fair value

interest rate risk and cash flow interest rate risk, were as follows:

December 31 2011 2010 Fair value interest rate risk

Financial assets $ 1,994,215 $ 4,258,235 Financial liabilities (465,077) (854,359)

Cash flow interest rate risk Financial assets 3,499,009 2,268,679 Financial liabilities (3,534,789) (1,781,299)

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f. For the year ended December 31, 2011 and 2010, interest income/expense associated with arising financial assets/liabilities, other than those at fair value through profit and loss, was as follows:

Year Ended December 31 2011 2010 Total interest income $ 19,799 $ 10,702 Total interest expense 33,964 252,916

g. Financial risks

1) Market risk. The derivative financial instruments categorized as financial assets at fair value through profit or loss are mainly used to hedge the exchange rate fluctuation of foreign-currency liability; therefore, the market risk of derivatives will be offset by the foreign exchange risk of these hedge items.

2) Credit risk. Credit risk represents the potential loss that would be incurred by the Corporation if

the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The maximum credit risks of other financial assets held by the Corporation are their carrying values.

3) Liquidity risk. The Corporation has sufficient operating capital to meet the cash demand.

Therefore, liquidity risk is not considered to be significant. The Corporation’s investments in financial assets carried at cost have no active markets; therefore, the liquidity risk is expected.

As of December 2011, the Corporation’s expected future cash demand for the outstanding forward exchange contracts were as follows: Inflow Outflow Term (In Thousands) (In Thousands) Within one year NT$ 180,780 US$ 6,000 The exchange rates for forward exchange contracts are fixed. Thus, the cash flow risks are not material.

4) Cash flow interest rate risk. Long-term and short-term bank loans mainly bear floating interest rates. Thus, the fluctuations of market interest rates will result in changes in the effective interest rate of long-term and short-term bank loans and the fluctuation of future cash flows.

23. RELATED-PARTY TRANSACTIONS

a. Related parties and their relationships with the Corporation

Related Party Relationship with the Corporation Wafer Works Corp. (“Wafer Works”) (Note) Parent company of Heli-Vantech Corp., which

was the director of NSP (until June 18, 2010) eBsuccess Solutions Inc. (“eBsuccess”) Spouse of NSP’s chairman is the chairman of

eBsuccess

Note: Wafer Works was no longer NSP’s related party as of June 30, 2010; thus, the amounts disclosed as of the year ended December 31, 2010 are for reference only.

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b. Significant transactions with related parties:

Year Ended December 31 2011 2010 Amount % Amount % For the year Purchases

Wafer Works $ - - $ 169,740 1

General and administrative expenses eBsuccess $ 5,485 2 $ 4,915 1

Research and development expenses Wafer Works $ - - $ 234 -

Other income Wafer Works $ - - $ 60 1 eBsuccess - - 2 - $ - - $ 62 1

At end of year Accrued expense and other current liabilities

eBsuccess $ 1,118 - $ 1,455 -

Guarantee deposits eBsuccess $ 2 - $ 2 4

All transaction between the Corporation and related parties were made at normal commercial prices and terms.

c Compensation of directors, supervisors and management personnel:

December 31 2011 2010

Salaries $ 41,066 $ 28,469 Incentives 9,043 13,703 Honorarium 990 1,020 Bonus - 108,600 $ 51,099 $ 151,792 The compensation of directors and management personnel for the year ended December 31, 2010 included the bonuses appropriated from the 2010 earnings and approved by shareholders in their annual meeting held in 2011.

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24. PLEDGED OR MORTGAGED ASSETS The following assets had been pledged or mortgaged as collateral for long-term bank loans, import duties and product warranties:

December 31 2011 2010

Pledged time deposits $ 10,215 $ 20,235 Property, plant and equipment, net 5,313,437 2,653,843 $ 5,323,652 $ 2,674,078

25. COMMITMENTS AND CONTINGENCIES

In addition to those disclosed in other notes, significant commitments and contingencies of the Corporation as of December 31, 2011 were as follows: a. Short-term purchase contracts

In December 2010, NSP entered into a short-term material supply agreement with Company AA. Under the agreement, NSP should make the payment from December 20, 2010 to January 1, 2012. In return, an agreed quantity of raw material shall be provided by Company AA. As of December 31, 2011, an amount of US$1,964 thousand (NT$58,798 thousand) was recorded under prepaid expense.

b. Long-term purchase contracts: 1) In December 2006, NSP entered into a long-term material supply agreement with Company J.

Under the agreement, NSP should make the non-refundable payment from January 1, 2007 to December 31, 2015. In return, an agreed quantity of raw material shall be provided by Company J. As of December 31, 2011, an amount of US$6,557 thousand (NT$214,177 thousand) was recorded under prepaid expense. NSP had renegotiated the purchase price with Company J in November 2009. Both parties agreed to rearrange the purchase quantity and price monthly since December 2009.

2) In June 2007, NSP entered into a long-term material supply agreement with Company I. Under

the agreement, NSP should make the non-refundable payment from January 1, 2010 to December 31, 2017. In return, an agreed quantity of raw material shall be provided by Company I. The purchase price would be adjusted yearly according to the mode which both parties had agreed. Under the agreement, if either party defaults, the other party is entitled to terminate this agreement and request compensation. As of December 31, 2011, an amount of EUR7,635 thousand (NT$332,384 thousand) was recorded under prepaid expense. In June 2010, NSP had renegotiated the purchase price with Company I. Both parties agreed to adjust the purchase price and quantity yearly from January 1, 2011 to December 31, 2017. The purchase price and quantity for 2011 are still under negotiation by both parties. As of December 31, 2011, NSP had accrued related loss on contracts. In addition, the purchase price, quantity and terms of transaction for 2012 are still under negotiation by both parties.

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3) In August 2007 and January 2008, NSP entered into long-term material supply agreements with Company G. Under the agreements, NSP should make the payments from January 1, 2009 to December 31, 2018, respectively. In return, Company G should provide an agreed quantity of raw materials. As of December 31, 2011, an amount of US$16,259 thousand ($538,333 thousand) was recorded under prepaid expense. In May 2009, NSP and Company G revised the agreements. Under the new agreements, Company G should provide an agreed quantity of raw materials from 2009 to December 31, 2018. The prepaid expense could be deducted in the above period, and the purchase price would be adjusted on the basis of market price. The last agreement revision by NSP and Company G was in January 2011. Both parties agree to complete the quantity which should be completed in 2009 and 2010 during 2012, and the purchase price would be adjusted monthly according to the mode which both parties had agreed and the state of supply and demand.

4) In February 2008, NSP entered into a long-term material supply agreement with Company H.

Under the agreement, NSP should make payments from July 2009 to December 31, 2014. In return, an agreed quantity of raw materials should be provided by Company H. As of December 31, 2011, both parties had objections to complete the contracts and were still under negotiation, and NSP thus accrued the possible loss on contracts. In addition, an amount of US$4,404 thousand (NT$138,194 thousand) was recorded under prepaid expense.

In September 2008, NSP entered into a long-term material supply agreement with Company H. Under the agreement, NSP should make payments from October 1, 2008 to December 31, 2017. In return, Company H should provide an agreed quantity of raw materials. Because of the change of market, NSP failed to complete the agreed quantity. On June 30, 2011, Company H claimed its right with a letter. On August 15, 2011, NSP and Company H agreed to revise the agreement. Under the agreement, both parties agreed to revise the mode of transaction. As of December 31, 2011, NSP had accrued related loss on this contract.

5) In August 2008, NSP entered into a long-term material supply agreement with Company U. Under

the agreement, an agreed quantity of raw material shall be provided by Company U from January 1, 2009 to December 31, 2015. Under the agreement, if NSP delay the payment, Company U shall be entitled to request the interest of delayed payment which is counted with the rate that both parties agreed. In addition, to ensure the completion of the agreement, NSP provide bank guarantees that are supplied by Chinatrust Commercial Bank and First Commercial Bank, respectively. Due to Company U scaled back its operation recently, NSP are still under negotiation with Company U about the mode and terms of transaction in the future.

6) In October 2008, NSP entered into a long-term material supply agreement with Company K.

Under the agreement, NSP should make the payment from January 2009 to December 31, 2016. In return, an agreed quantity of raw material shall be provided by Company K. NSP had renegotiated with Company K in December 2010. Both parties agreed that Company K will provide an agreed quantity of raw material at its purchase price markup certain percentage to NSP from January 2011 to December 31, 2016. As of December 31, 2011, an amount of US$19,160 thousand (NT$580,233 thousand) was recorded under prepaid expense.

7) In June and July 2010, NSP entered into long-term material supply agreements with Company V.

Under the agreements, an agreed quantity of raw material shall be provided by Company V from July 2010 to December 31, 2013 and October 2010 to December 31, 2013, respectively. Both parties agreed to rearrange the purchase price and quantity quarterly since 2011. Under the agreement, if NSP fails to make purchases at quantities agreed on by both parties, Company V is entitled to terminate this agreement and request compensation.

8) In September 2010, NSP entered into a long-term material supply agreement with Company W.

Under the agreement, an agreed quantity of raw material shall be provided by Company W from January 2011 to December 31, 2013. The purchase price will be adjusted monthly according to the agreement which both parties had agreed.

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9) In November 2010, NSP entered into a long-term material supply agreement with Company X. Under the agreement, NSP should make the payment from January 2011 to December 31, 2017. In return, an agreed quantity of raw material shall be provided by Company X. As of December 31, 2011, an amount of US$11,701 thousand (NT$349,028 thousand) was recorded under prepaid expense. Moreover, both parties agreed to rearrange the purchase price monthly since 2012. Under the agreement, if NSP fails to make purchases at quantities agreed last year by both parties before first quarter of the following year, Company X is entitled to take the payment as compensation.

10) In October 2010, NSP entered into a long-term material supply agreement with Company Y.

Under the agreement, an agreed quantity of raw material shall be provided by Company Y from October 2010 to December 31, 2013. Both parties agreed to adjust the purchase price monthly according to the mode which both parties had agreed from October 2010. Under the agreement, if NSP fails to complete the purchase of the required quantity or delays its payments, Company Y is entitled to request compensation.

11) In November 2010, NSP entered into a long-term materials supply agreement with Company Z.

Under the agreement, Company Z should provide an agreed quantity of raw materials from March 2011 to December 31, 2013. Both parties agreed to adjust the purchase price monthly from March 2011. Under the agreement, if both parties fail to agree on the purchase price for three consecutive months, NSP is entitled to terminate the agreement. In addition, if NSP delays the payment, Company Z is entitled to request to have interest on the delayed payment at a rate already agreed upon by both parties.

12) In February 2011, NSP entered into a long-term material supply agreement with Company AC.

Under the agreement, an agreed quantity of raw material shall be provided by Company AC from January 1, 2013 to December 31, 2017. Both parties agreed to rearrange the purchase price quarterly according to the mode which both parties had agreed. In April 2011, NSP and Company AC revised the agreement. Under the new agreement, Company AC should provide an agreed quantity of raw materials from January 1, 2013 to December 31, 2017. In addition, both parties agreed to adjust the purchase quantity yearly from January 1, 2015 to December 31, 2017. As of December 31, 2011, condition precedent was not met.

13) In March 2011, NSP entered into a long-term material supply agreement with Company AD.

Under the agreement, NSP should make the payment from January 2012 to December 31, 2018. In return, Company AD should provide an agreed quantity of raw materials. As of December 31, 2011, a prepaid expense of US$10,032 thousand ($293,286 thousand) was recorded. Under the agreement, if NSP delays the payment, Company AD is entitled to request the interest on the delayed payment at a rate already agreed on by both parties.

c. Long-term sales contracts:

Under several long-term sales contracts with customers, NSP should deliver its products at an agreed quantity and price from 2008 to 2013. A guaranteed deposit shall be received in several contracts which could be in the form of cash payment, irrevocable letter of credit, a bank guarantee or a warranty provided by the parent company of the buyer. Aforementioned deposit will be deducted as the products are delivered or transferred as guarantee deposit of new contracts.

d. Construction contracts.

1) In October 2010, NSP entered into a construction agreement with Fu Tsu Construction Co., Ltd. in

a total amount of $1,275,000 thousand. As of December 31, 2011, $920,359 thousand had been paid.

2) In April 2011, NSP entered into a construction agreement with Chang Ji Construction Co., Ltd. in a total amount of $532,000 thousand. As of December 31, 2011, $151,246 thousand had been paid.

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e. The Taiwan High Court ruled on the lawsuit filed by SilRay Inc. against NSP, for NSP to pay the

plaintiff US$1,269 thousand and a compensation interest of 5% per annum from October 9, 2008 to the discharged date. NSP has retained lawyers to appeal in the Taiwan Supreme Court on January 5, 2011; nevertheless, the rulings and damages do not post significant impact to NSP’s operation.

f. Unused letters of credit amounted to approximately US$4,065 thousand and EUR7,351 thousand as of

December 31, 2011. g. As of December 31, 2011, NSP has guaranteed $380,000 thousand for Sunny Optronics. h. The Corporation leased lands from Zinwell Company, Science-Based Industrial Park Administration

and Hsin Lung Accessories Co., Ltd. under renewable agreements expiring in March 2016, December 2026 and December 2019, respectively. As of December 31, 2011, the annual rents are $11,400 thousand, $17,147 thousand and $6,798 thousand, respectively.

As of December 31, 2011, future lease payments were as follows:

Year Amount 2012 $ 35,345 2013 35,345 2014 35,549 2015 35,549 2016 27,209 2017 and thereafter 193,539 $ 362,536

26. ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the SFB for the Corporation: All significant intercompany balances and transactions have been eliminated upon consolidation. a. Financings provided: None. b. Endorsements/guarantees provided: Table 1 (attached) c. Marketable securities held: Table 2 (attached) d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the

paid-in capital: Table 3 (attached). e. Acquisition of long-term equity investment and individual real estate at costs of at least NT$100 million

or 20% of the paid-in capital: Table 4 (attached) f. Disposal of individual real estate at prices of at least NT$100 million or 20% of the paid-in capital:

None. g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital:

Table 5 (attached) h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:

None.

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i. Names, locations, and related information of investees over which the Corporation exercises significant influence: Table 6 (attached).

j. Financial instrument’s information: Please see Notes 5 and 22. k. Investments in Mainland China: None. l. Intercompany relationships and significant intercompany transaction: Table 7 (attached)

27. OTHERS

The significant financial assets and liabilities denominated in foreign currencies were as follow:

December 31 2011 2010 Foreign Foreign Currency Currency (In Thousands) Exchange Rate (In Thousands) Exchange Rate

Financial assets Monetary items

USD $ 60,555 30.29 $ 71,299 30.37 EUR 6,560 39.17 12,498 38.89 JPY 2,982 0.3902 35,979 0.3733 RMB 619 4.8054 - -

Financial liabilities Monetary items

USD 55,617 30.29 62,452 30.37 EUR 17,460 39.17 20,097 38.89 JPY 11,461 0.3902 49,409 0.3733

Nonmonetary items USD 34 30.29 7,978 30.37

28. OPERATING SEGMENT INFORMATION

Financial information reported to the Corporation’s chief operating decision maker for the purposes of resource allocation and assessment of segment performance is more specifically focused on revenue from each type of products. The accounting policies of the reportable segments are the same as the Corporation’s accounting policies. The Corporation’s reportable segment under Statement of Financial Accounting Standards No. 41 - “Operating Segments” is solar cell, which mainly manufactures and sells solar cell.

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a. Segment revenue and results

Segment Revenue Year Ended December 31 2011 2010 From External Inter-segment From External Inter-segment Customer Sales Customer Sales Solar cell $ 18,791,926 $ 33,219 $ 19,159,267 $ 6,112 Others 1,796,171 330,659 980,830 145,160 Total for continuing operations $ 20,588,097 $ 363,878 $ 20,140,097 $ 151,272

Segment Profit or Loss Year Ended December 31 2011 2010 Solar cell $ (2,046,977) $ 3,693,805 Others (69,819) 41,202 Reportable segments gross (loss) profit (2,116,796) 3,735,007 Elimination of intersegment gross (loss) profit (290) (194) (2,117,086) 3,734,813 Unallocated amount

Operating expenses (638,302) (835,186) Nonoperating income and gains 114,694 299,842 Nonoperating expenses and losses (220,756) (258,476)

(Loss) income before income tax $ (2,861,450) $ 2,940,993

Segment profit or loss represents profit or loss created by each segment without allocation operating expenses, non-operating income and gains, and non-operating expenses and losses. This is the measure reported to the Corporation’s chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

b. Segment assets

Segment assets is not the measure reported to the Corporation’s chief operating decision maker; thus, the measurement amount of segment assets is NT$0.

c. Revenue from major products and services The following is an analysis of the Corporation’s revenue from continuing operations from its major products and services: Year Ended December 31 2011 2010 Solar cell $ 18,791,926 $ 19,159,267 Others 1,796,171 980,830 $ 20,588,097 $ 20,140,097

136

d. Geographical information The Corporation’s income from continuing operation and non-current assets by geographical location are detailed below.

Revenue from External

Customers Non-current Assets December 31 December 31 2011 2010 2011 2010 China $ 4,936,247 $ 7,336,147 $ - $ - Germany 3,892,768 4,350,872 - - Taiwan 2,587,825 973,507 11,113,907 7,484,282 Japan 2,463,057 117,502 - - United States of America 2,461,913 757,590 - - Spain 711,101 2,329,349 - - Others 3,535,186 4,275,130 - - $ 20,588,097 $ 20,140,097 $ 11,113,907 $ 7,484,282 Non-current assets excluded those classified as financial assets carried at cost-noncurrent, deferred tax assets and other assets.

e. Information about major customers The customers exceeded 10% of the Corporation’s revenue for the years ended December 31, 2011 and 2010 were as follows. 2011 2010 Amount % Amount % Customer A $ 1,076,646 5 $ 2,639,847 13 Customer B 1,791,441 9 2,433,656 12

29. PRE-DISCLOSURE FOR ADOPTION OF INTERNATIONAL FINANCIA L REPORTING STANDARDS

Under Rule No. 0990004943 issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Corporation pre-discloses the following information on the adoption of International Financial Reporting Standards (IFRSs) as follows: a. On May 14, 2009, the FSC announced the roadmap of IFRSs adoption for R.O.C. companies. Starting

from 2013, companies with shares listed on the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare for the consolidated financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the IFRSs, International Accounting Standards (IASs), interpretations and related guidance translated by Accounting Research and Development Foundation (ARDF) and issued by the FSC. Due to aforementioned amendments, the Corporation established a taskforce to monitor and execute the IFRSs adoption plan. The important plan items, responsible divisions and plan progress are listed as follows.

Plan Item Responsible Division Plan Progress

1) Establish the IFRSs taskforce Division of accounting Finished 2) Set up a work plan for IFRSs adoption Division of accounting Finished

(Continued)

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Plan Item Responsible Division Plan Progress

3) Complete the identification of GAAP

differences and impact Division of accounting Finished

4) Complete the identification of

consolidated entities under IFRSs Division of accounting Finished

5) Complete the evaluation of exemption and

options of IFRS 1 Division of accounting Finished

6) Complete evaluation, configuration and

testing of the IT systems Division of accounting and

information technology Finished

7) Complete modification to the relevant

internal controls Division of accounting and

internal auditing In progress according to

the plan 8) Determine IFRSs accounting policies Division of accounting Finished 9) Determine the exemption and options of

IFRS 1 Division of accounting Finished

10) Complete the preparation of opening date

balance sheet under IFRSs Division of accounting In progress according

the plan 11) Prepare comparative financial information

under IFRSs for 2012 Division of accounting In progress according to

the plan 12) Complete the relevant internal controls

(including the financial reporting process and relevant information system

Division of accounting and internal auditing

In progress according to the plan

(Concluded) b. As of December 31, 2011, from the Corporation’s assessment, the significant differences between the

Corporation’s current accounting policies under R.O.C. GAAP and the ones under IFRSs are stated as follows: Classifications of deferred income tax asset/liability and valuation allowance

Under R.O.C. GAAP, a deferred tax asset or liability is classified as current or non-current in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as either current or non-current based on the expected length of time before it is realized or settled. Under IFRSs, a deferred tax asset or liability is classified as non-current asset or liability. In addition, under R.O.C. GAAP, valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. Under IFRSs, deferred tax assets are only recognized to the extent that it is probable that there will be sufficient taxable profits and the valuation allowance account is no longer used. Employee benefits Compensated absences must be accrued based on the liability for employees’ rights to receive compensation for future absences when the benefits can be accumulated or vested over the service periods.

138

Investments accounted for using the equity method

The Corporation’s associates and joint ventures accounted for using the equity method have also assessed the significant differences between their respective present accounting policies and IFRSs. The significant difference is mainly the adjustment to employee benefits. The reclassification of line items in the statement of comprehensive income

In accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers before its amendment due to the adoption of IFRSs, income from operations in the consolidated income statement only includes revenue, cost of sales and operating expenses. Under IFRSs, based on the nature of operating transactions; rental revenue, disposal of property, plant and equipment are reclassified under other operating gains and losses, which are reflected in income from operations.

c. The Corporation has prepared the above assessments in compliance with (a) the 2010 version of the

IFRSs translated by the ARDF and issued by the FSC and (b) the Guidelines Governing the Preparation of Financial Reports by Securities Issuers amended and issued by the FSC on December 22, 2011. These assessments may be changed as the International Accounting Statements Board continues to issue or amend standards, and as the FSC may issue new rules governing the adoption of IFRSs by companies with shares listed on the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market. Actual accounting policies adopted under IFRSs in future may differ from those contemplated during the assessments.

139

TABLE 1 NEO SOLAR POWER CORP. AND SUBSIDIARIES ENDORSEMENTS/GUARANTEES PROVIDED DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars)

Counter-party

No. Financing Company Name Nature of Relationship

Limits on Endorsement/

Guarantee Amount Provided to Each

Counter-party (Note 1)

Maximum Balance for the Period Ending Balance

Amount of Endorsement/

Guarantee Collateralized by

Properties

Ratio of Accumulated Endorsement/

Guarantee to Net Equity per Latest

Financial Statements

Maximum Endorsement/

Guarantee Amount Allowable (Note 1)

0 Neo Solar Power Corp. Sunny Optronics Corporation Subsidiary $2,910,287 $390,000 $380,000 $- 2.34 $7,275,719

Note 1: In accordance with the “Rules of Guarantees by NSP,” the ceiling for total guaranteed amount was 50% of NSP's net asset value, and the limit of guaranteed amount for a single party was 20% of NSP's net asset value. Note 2: As of December 31, 2011, NT$50,000 thousand had been drawn down by Sunny Optronics Corporation.

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TABLE 2 NEO SOLAR POWER CORP. AND SUBSIDIARIES MARKETABLE SECURITIES HELD DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

December 31, 2011

Holding Company Name Marketable Securities Type and Issuer Relationship with the Holding Company Financial Statement Account Shares

(Thousands/ Units)

Carrying Value Percentage of Ownership

(%)

Market Value or Net Asset Value

Note

Neo Solar Power Corp. Stock Sunny Optronics Corporation Subsidiary Equity-method investments 26,087 $ 78,395 86.96 $ 78,395 Note 1 Prime Energy Corp. Subsidiary Equity-method investments 5,000 49,684 100.00 49,684 Note 1 New Ray Investment Corp. Subsidiary Equity-method investments 11,500 114,835 100.00 114,835 Note 1 ThinTech Materials Technology Co., Ltd. Investee Financial assets carried at cost 4,000 142,800 6.09 142,800 Note 2 Prime Energy Corp. Stock ThinTech Materials Technology Co., Ltd. Investee Financial assets carried at cost 1,000 40,040 1.52 40,040 Note 2 New Ray Investment Corp. Stock ThinTech Materials Technology Co., Ltd. Investee Financial assets carried at cost 3,000 107,100 4.57 107,100 Note 2 Note 1: The net asset value is based on audited financial statements as of December 31, 2011. Note 2: The net asset value is based on book value as of December 31, 2011. Note 3: The above marketable securities, except ThinTech Materials Technology Co., Ltd. were restricted under Article 43-8 of the Security and Exchange Act due to private equity placement, had not been pledged or mortgaged as of December

31, 2011.

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TABLE 3

NEO SOLAR POWER CORP. AND SUBSIDIARIES MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT C OSTS OR PRICES OF AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL YEAR ENDED DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars)

Beginning Balance Acquisition Disposal Ending Balance Company Name

Marketable Securities Type and Issuer

Financial Statement Account Counter-party

Nature of Relationship Shares



(Thousands) Amount Carrying

Value Gain (Loss) on Disposal

Shares (Thousands)

Amount (Note)

Neo Solar Power Corp. Stock New Ray Investment Corp. Equity-method investments - - - $ - 11,500 $ 115,000 - $ - $ - $ - 11,500 $ 114,835 ThinTech Materials Technology


cost - - - - 4,000 142,800 - - - - 4,000 142,800

New Ray Investment Corp. Stock ThinTech Materials Technology


cost - - - - 3,000 107,100 - - - - 3,000 107,100

Note: The ending balance included the recognition of the investment loss and the adjustment for changes in investee’s equity.

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TABLE 4

NEO SOLAR POWER CORP. AND SUBSIDIARIES ACQUISITION OF LONG TERM EQUITY INVESTMENT AND INDIVIDUAL REA L ESTATE AT COSTS OF AT LEAST $100 MILLION OR 20% OF THE PAID-IN C APITAL YEAR ENDED DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars)

Prior Transaction of Related Counter-party Company Name Property Transaction Date Transaction Amount Payment Status Counter-party Nature of

Relationship Owner Relationship Transfer Date Amount Price Reference Purpose of

Acquisition Other Terms

Neo Solar Power

Corp. Equity-method

investments (New Ray Investment Corp.)

October 4, 2011 $ 115,000 $ 115,000 Note 1 Subsidiary - - - $ - Note 1 Equity-method investment

-

Financial assets carried at cost (ThinTech Materials Technology Co., Ltd.)


-

Construction in progress April 8, 2011 532,000 151,246 Chang Ji Construction Co., Ltd.

- - - - - As purchase order Construction of new factory

-

New Ray Investment

Corp. Financial assets carried

at cost (ThinTech Materials Technology Co., Ltd.)


-

Note 1: Issuance of capital stock. Note 2: Private-placement common stock.

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TABLE 5 NEO SOLAR POWER CORP. AND SUBSIDIARIES TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING T O AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL YEAR ENDED DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars)

Transaction Details Non-arm’s Length Transaction

Notes/Accounts Payable or Receivable Company Name Related Party Nature of Relationship

Purchase/ Sale Amount % to

Total Payment Terms Unit Price Payment Term Ending Balance % to

Total

Note

Neo Solar Power Corp. Sunny Optronics Corporation Subsidiary Subcontract $313,773 11% Cash on delivery - - $(413) - -

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TABLE 6

NEO SOLAR POWER CORP. AND SUBSIDIARIES NAMES, LOCATIONS, AND OTHER INFORMATION OF INVESTEE S ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUE NCE DECEMBER 31, 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Original Investment Amount Balance as of December 31, 2011 Investor Company Investee Company Location Main Businesses and Products December 31,

2011 December 31,

2010 Shares

(Thousands) % of

Ownership Carrying

Value

Net Loss of the Investee

Investment Loss Note

Neo Solar Power Corp. Sunny Optronics Corporation Hsin-chu, Taiwan Electronic component manufacturing and selling $ 260,926 $ 254,634 26,087 86.96 $ 78,395 $ (114,569) $ (100,294) Note Prime Energy Corp. Hsin-chu, Taiwan Electronic component manufacturing and selling 50,000 10,000 5,000 100.00 49,684 (210) (210) Note New Ray Investment Corp. Hsin-chu, Taiwan Investment company 115,000 - 11,500 100.00 114,835 (165) (165) Note Note: Investment loss is based on audited financial statements as of December 31, 2011.

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TABLE 7 NEO SOLAR POWER CORP. AND SUBSIDIARIES INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars)

Intercompany Transactions

No. Company Name Counter Party Nature of Relationship (Note 1) Financial Statements Items Amount Terms

Percentage of Consolidated Total

Gross Sales or Total Assets

For the year ended December 31, 2011 0 Neo Solar Power Corp. Sunny Optronics Corporation 1 Sales $ 50,105 Note 2 - 1 Manufacturing expenses 313,773 Note 2 2% 1 Notes and accounts payable 413 Note 2 - Prime Energy Corp. 1 Other income 120 Note 2 - New Ray Investment Corp. 1 Other income 30 Note 2 - For the year ended December 31, 2010 0 Neo Solar Power Corp. Sunny Optronics Corporation 1 Sales 6,122 Note 2 - 1 Manufacturing expenses 145,160 Note 2 1% 1 Other income 10 Note 2 - 1 Notes and accounts payable 8 Note 2 - Prime Energy Corp. 1 Other income 90 Note 2 -

Note 1: No. 1 represents the transaction from parent company to subsidiary. Note 2: At normal commercial prices and terms.

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<VI> If the company or its affiliates have experienced financial difficulties in the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report, the annual report shall explain how said difficulties will affect the company's financial situation: N/A

VII. Review, Analysis, and Risk Management of Financial Status and Operating Results

 Financial Status : Unit: NT$ Thousand

Difference Year Item

2010 2011 Amount %

Current Assets 11,168,535 8,345,024 (2,823,511) (25.28%) Fixed Assets 7,317,591 10,949,627 3,632,036 49.63% Other Assets 1,926,637 2,263,816 337,179 17.50% Total Assets 20,596,428 21,944,181 1,347,753 6.54% Current Liabilities 5,638,369 5,186,470 (451,899) (8.01%) Other Liabilities 45 474 429 953.33% Total Liabilities 6,542,414 7,392,744 850,330 13.00% Capital Stock 2,971,830 4,289,048 1,317,218 44.32% Capital Surplus 8,343,689 12,023,580 3,679,891 44.10% Retained Earnings 2,738,495 (1,761,191) (4,499,686) (164.31%) Total Shareholders’ Equity 14,054,014 14,551,437 497,423 3.54% Analysis on variation plus/minus over 20%: 1. Current assets: As net cash flow from operations this year increased and the Company endeavored to dispose of inventory,

current assets decreased as a result. 2. Fixed assets: Because the Company continued to expand capacity this year. 3. Other debts: Because cash deposit increased this year. 4. Capital: As common shares issued this year were in the form of GDR, listing at the Luxembourg Stock Exchange caused

the capital to increase. 5. Capital reserve: As common shares issued this year were in the form of GDR, listing at the Luxembourg Stock Exchange

caused the capital reserve to increase. 6. Retained earnings: Operating loss this year caused the retained earnings to be in the negative.

<II> Operating Results

(I) Analysis of Operating Results Unit: NT$ Thousand Difference Year

Item 2010 2011

Amount % Net Sales 20,146,194 20,576,838 430,644 2.14% Cost of Goods Sold 16,374,223 22,631,083 6,256,860 38.21% Gross Profit（Loss） 3,771,971 (2,054,245) (5,826,216) (154.46%) Operating Expenses 786,734 584,930 (201,804) (25.65%) Operating Profit (Loss) 2,985,237 (2,639,175) (5,624,412) (188.41%) Non-operating Income and Gains 309,110 112,117 (196,993) (63.73%) Non-operating Expenses and Losses 340,235 318,626 (21,609) (6.35%) Income (Loss) before Income Tax 2,954,112 (2,845,684) (5,799,796) (196.33%) Income Tax Expenses (215,617) (51,983) (163,634) (75.89%) Net Income (Loss) 2,738,495 (2,897,667) (5,636,162) (205.81%) Description of variations: 1. Sales revenue, sales cost, gross profit (loss) on sales, operating profit (loss), pre-tax profit (loss) and after-tax income (loss): This year due to subsidy policy in the main solar energy markets like Germany and Italy, demand growth went slow and product prices continued to go down. This caused operations to be in the negative.

2. Operating cost: Due to operating loss this year, no employee bonuses and director remuneration were offered. 3. non-operating revenue & profit: this was due to Euro-convertible Bonds (ECB) recognizing gain on valuation of financial

liability. 4. Income tax benefit (expense): mainly due to loss from operations this year.

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(II) Analysis on variation in gross profit In NT$ Thousand

Cause of difference: favorable/unfavorable Change bt. previous and latter periods

Selling price difference

Cost price difference

Sales mix difference

Quantity difference

Other

Solar cells (5,826,216) (9,928,792) 2,329,047 453,329 1,320,200 -

<III> Cash flow (I) Analysis on liquidity of the recent 2 years

Year Item 2010 2011 plus/minus %

Cash flow ratio 46.66% (9.98%) (121.39%)

Cash flow adequacy ratio 14.13% 7.87% (44.29%)

Cash re-investment ratio 15.90% (9.94%) (162.48%)

Shipments grew this year, but selling price continued to fall, and a loss emerged in operations. Therefore, cash flow from operations was net cash outflow, causing the cash flow ratio and the cash re-investment ratio to be in the negative. 1. The cash flow ratio was lower against the previous year: This was because though operating revenue slightly

increased compared to the previous year, the selling price continued to fall. And a loss was rendered in operations. As a result, cash flow from operations was net cash outflow, causing the cash flow ratio to be in the negative.

2. Cash flow adequacy ratio lower against the previous year: This was because net cash outflow from operations this year caused the cash flow adequacy ratio to be lower than the previous year.

3. Cash re-investment ratio lower than the previous year: This was because though operations made a loss this

year, the Company’s capacity still continued to expand – purchasing fixed assets and long-term investment

increase. Hence, the cash re-investment ratio was lower than the previous year.

(II) Analysis on cash liquidity for the next year

In NT$ Thousand

Remedial measures against cash

inadequacy

Cash

balance at

beginning

Net cash flow

from operation for

the year

Cash flow from

investment for

the year

Cash balance

(inadequate)

amount Investment plan Financial

plan

5,439,989 1,617,271 (1,840,409) 5,216,851 - -

1. Analysis on estimated cash flow 2012

(1) Estimated cash inflow from operations $1,617,271,000. (2) Estimated net cash outflow from investment $1,840,409,000, which was due to purchasing fixed assets.

2. Analysis on remedial measures and liquidity against estimated cash inadequacy: N/A.

<IV> Effect of major capital expenditure on business for the recent year

(I) Use and fund source of major capital expenditure In NT$ Thousand

Required Actual or expected fund use Plan item

Actual or expected fund

source total fund 2009 2010 2011 2012 2013

Equipment expansion

Bank loan and cash capital increase

7,338,676 340,345 3,462,621 2,352,423 1,183,287 -

Plant construction

Bank loan and cash capital increase

1,914,583 - 14,360 1,259,360 472,909 167,954

(II) Estimated benefit: Capacity expected to effectively rise and output to increase.

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<V> Re-investment policy in the last year, main reasons to its profit or loss, improvement plan, and investment plan for the coming year: The Company’s re-investment policy was mainly based on current basic business related investment objects. It

is executed by related execution departments under internal control systems such as “investment cycle” and

“procedure for acquisition or disposal of assets”, which have been discussed and passed by a Board of

Directors meeting or a shareholders’ meeting.

General Energy Solutions Inc. (formerly Sunny Optronics Corp.), in which this Company has an investment,

mainly engages in solar module manufacturing. It began to mass-produce in mid-2010. However, due to

economic change in 2011, the company was in a loss as of end 2011. General Energy expects to aggressively

make inroads into the solar power system business starting with Q2 of 2012 by a layout in power plant

business. Moreover, General Energy invited other solar power industry giants to act as strategic partners,

solidify shareholder lineup, while improving its financial structure. The firm plans to have a capital reduction

to offset its loss. Then, a capital increase will be undertaken to enrich its funds to meet the firm’s needs for

future development. In order to support General Energy’s sustainable development, NSP will participate in the

capital increase.

This Company will continue to monitor and manage existing re-invested firms to solidify its overall

investment performance.

<VI> Risk Analysis and assessment (I) Interest rate, fluctuation in exchange , effect of inflation on the company’s profit and loss, and future

countermeasures:

1. Interest rate: regarding this Company’s capital expenses and fund needed for operations, apart from the

capital market, bank loans are also a main fund source. Hence, an interest rise will affect this

Company’s profit. The Company’s interest expenditure 2011 was $34,496,000, or 0.17% of the net

operating income of the year. This would not have any significant impact on the firm. In the future,

NSP will assess bank loan interest rates on a regular basis and maintain a good relationship with

banks to obtain a better rate.

2. Exchange rate: The Company’s main income is US dollars. Raw materials are purchased in US$, whereas

equipment is procured in euro. As a result, fluctuation in exchange rate will have a certain effect on

the Company’s profit and loss. The Company’s net foreign exchange gain for 2011 was $46,123,000,

or 0.22% of the net operating income. In order to effectively reduce change in exchange fluctuation,

apart from adopting revenue and cost related natural hedge policy, dedicated personnel at the

financial department gather correspondent bank information and pay close attention to change in

exchange rate. The foreign currency position is adjusted timely and derivative commodities are

operated under the Procedure for Acquisition or Disposal of Assets for hedging to effectively reduce

exchange rate risk.

3. Inflation: due to characteristics of the industry, inflation has no significant impact on this Company’s

operations. But we will still pay attention to inflation timely.

(II) High-risk, high-leverage investment in the last year, fund loaned to other parties, endorsement guarantee,

derivative commodity trading policy, and main cause of profit or loss, and countermeasures in the future.

1. Engaging in high risk, high-leverage investment policy, main cause of profit and future countermeasures:

The Company mainly focuses on development of its business and has not been involved in other high-risk

industry investment. Moreover, the Company has been valuing stable operations and financial health and

not made any high-leverage investment.

2. Engage in fund loans to other policy, main cause of profit or loss, and future countermeasures:

Currently this Company has no fund loans to other parties. In case there is a need in the future, it will

proceed under the “Operating Procedures of Fund Lending and Endorsement”.

3. Engage in endorsement policy, main cause of profit or loss, and future countermeasures:

In response to needs for operations in subsidiary General Energy Solutions (formerly Sunny Optronics), the

Company proceeded under the “Operating Procedures of Fund Lending and Endorsement”, and the Board

of Directors had approved to provide an endorsement of NT$400,000,000.

149

4. Policy for Financial Derivates Transactions, main cause of profit or loss, and future countermeasures: The Company engages in financial derivates in a purpose to hedge market risks caused by exchange rate and

interest rate, not for arbitrage or speculation purposes. Moreover, the Company proceeds under related laws

and regulations promulgated by competent authorities, generally accepted accounting standards, as well as

the “Procedure for Acquisition or Disposal of Assets” stipulated by the Company.

(III) R&D plan

1. Future R&D plan:

The Company’s short-term R&D items principally will be consolidating and optimizing processes including

screen printing, pastes, metal wires, emitters, etc. In mid- and long-term, it will develop new processes, and

advanced structure multi-crystalline, mono-crystalline, cast-mono crystalline silicon solar cells, such as

back contact, dual-junction solar power, n-type solar cells, etc. The Company’s excellent technical team is

equipped with 20~30 years solar cell experience, covering solar cell related upstream and downstream

silicon material and wafer making, cell elements, module packaging, system applications, etc. They plan to

raise the conversion efficiency of solar cells to over 19.5% by 2012, and to over 20.0% by 2013. Moreover,

the team have built good cooperative relations with academic research institutions at home and abroad.

They assess and develop all kinds of novel techniques and equipment, constitute a close contact network

with material suppliers, and offer technical service and support to clients.

2. Estimated invested R&D expense: R&D is key to a company’s competitiveness, obtaining new techniques

and new products and new materials and maintaining its sustainable development. An estimated fund for

R&D for 2012 will be higher than that in 2011.

(IV) Effects of changes in domestic important policies and laws in the last year on the Company’s finance and

countermeasures:

In the last year and as of the printing date of the annual report, this Company has not had any major events

in which changes in domestic and foreign important policies and laws affected its finance. The Company

has a legal affairs department attending to changes in important policies and laws at home and abroad

anytime and offering countermeasures timely.

(V) Technological and industry change on the Company’s finance and countermeasures in the last year:

In response to the development of new-generation solar cells, the Company continued to improve through

process, raise product conversion efficiency, and make patent layout. Moreover, it developed

high-efficiency solar cells of high-level silicon structure and responded to needs and variations brought

about by technological changes. The purpose was to reduce market risks and pursue development of

long-term financial stability.

(VI) Effect of change in corporate image on corporate crisis management and countermeasures in the last year:

The Company has been operating on its business philosophy of steadiness and firmness. No corporate image

change has caused a crisis management event.

(VII) Anticipated benefits from merges and likely risks:

In the last year as of the printing date of this annual report, there had been no concrete merge plans.

(VIII) Anticipated benefits and likely risks from plant expansion:

This Company’s expansion plans have always been deliberated for market supply and demand and future

orders before any decision is made. As a result, though in 2011 the solar industry was confronted by a

market freeze, it also helped to solidify the Company’s market status, increase order receiving ability,

meet clients’ needs, expand market share, and enjoy an economy of scale. The Company has been valuing

a balance in production and marketing. In the future, it still will continue to tie in with growth of the solar

industry and clients’ expansion development with a long-term strategic partnership pattern, and rigorously

150

assess anticipated benefits and risks of plant expansion, in order to continue a flourishing development

trend.

(IX) Risks due to stocking or sale concentration and countermeasures:

1. Stocking concentration risk assessment and countermeasures:

The solar industry’s upstream multi-crystalline material producers are led by suppliers in Europe, America,

and Japan, etc., and they account for over 90% of the globe’s production. As a result, a stocking

concentration phenomenon is common throughout the solar industry. Nevertheless, in recent years, a

flourishing development in the industry has drawn a number of makers to it and has made a great

improvement on this phenomenon. NSP is still aggressively developing sources. By building a long-term

supply relationship with a number of internationally renowned suppliers, this concentration risk will be

reduced significantly.

2. Assessment on sales concentration risk and countermeasures:

NSP has been aggressively expanding its market size and new clients, and its orders are diverse and

scattered to reduce the risk of concentrating sales on single clients.

(X) Effect and risk of mass equities transfer on the Company, by directors, supervisors, or major shareholders

who hold over 10%:

In the last year and as of the printing date of this annual report, no such events had taken place.

(XI) Effect and risk of change in management rights on the Company:

In the last year and as of the printing date of this annual report, no change in management rights had taken

place.

(XII) Lawsuit and non lawsuit events which have been sentenced shall specify the Company, directors,

supervisors, general managers, responsible person in fact, major shareholders who hold over 10%;

alternatively, pending major lawsuit, non-lawsuit or administrative dispute events whose results may

have a significant impact on shareholders’ equities or securities price, the fact, target amount, lawsuit

starting date, main parties involved, and progress as of the printing date of the annual report:

In respect of the civil lawsuit case of NSP against American firm SilRay Inc., the Taiwan High Court’s

second trial ruled against NSP, who should compensate the company at an amount of US$1,269,000, at

an interest rate of 5% per annum from October 9, 2008 till payoff day.

(XIII) Other important risks: none.

<VII> Other important matters: none

151

VIII. Special Notes

 Information on Affiliated Companies:

1. Organization of affiliated companies (as of Dec. 31, 2011)

Note: Pursuant to the shareholders’ meeting on March 6, 2012, “Sunny Optronics Corp.” was renamed “General Energy

Solutions Inc.”.

2. Relations between the Company and affiliated firms, cross-holding ratios, shares and actually invested amount

Dec. 31, 2011 In 1,000 shares; $1,000

Affiliated firm Relation Shares

held

Holding

ratio

Actually

invested

amount

Holds shares in the

Company

Sunny Optronics Corp.

(note) Subsidiary 26,087 86.96% 260,925 －

Prime Energy Corp. Subsidiary 5,000 100.00% 50,000 －

New Ray Investment

Corp. Subsidiary 11,500 100.00% 115,000 －


Solutions Inc.”.

3. Companies having controlling and subordinate relation between them deduced under the Company Act, Article

369-3: Sunny Optronics Corp., Prime Energy Corp., and New Ray Investment Corp.

4. Information about cause and personnel of controlling and subordinate relation deduced between them: please

refer to point 2.

5. Industry covered by the business operated by all the affiliated firms: mainly engage in solar cell module

manufacturing and general investment.

86.96% 100%

NSP

Sunny Optronics Prime Energy New Ray Investment

100%

152

6. Directors, supervisors, general managers of each affiliated firm, and their holdings:

Dec. 31, 2011 In shares; %

Shareholding Company Name Title Company Name

Shares Holding (%)

Chairman Neo Solar Power Corp

(Rep.: Kun-Si Lin) 26,086,610 86.96

Director Neo Solar Power Corp

(Rep.: Sam Chum-Sam Hong) 26,086,610 86.96


(Rep.: David Su) 26,086,610 86.96

Supervisor Neo Solar Power Corp (Rep.: Andy Shen)

26,086,610 86.96

Sunny Optronics Corp. (note)

General Manage

David Su 493,475 1.64


(Rep.: Kun-Si Lin) 5,000,000 100


(Rep.: Sam Chum-Sam Hong) 5,000,000 100

Director Neo Solar Power Corp (Rep.: Thomas Hsu)

5,000,000 100

Prime Energy

Corp.

Supervisor Neo Solar Power Corp

(Rep.: Marco Hu) 5,000,000 100


(Rep.: Kun-Si Lin) 11,500,000 100


(Rep.: Sam Chum-Sam Hong) 11,500,000 100

Director Neo Solar Power Corp (Rep.: Albert Wang)

11,500,000 100


Supervisor Neo Solar Power Corp (Rep.: Thomas Hsu)

11,500,000 100


Solutions Inc.”.

7. Overview of affiliated companies:

Dec. 31, 2011 In NT$1,000

Company

name Capital

Total assets

Total debts Net value Operating income

Operating profit (loss)

After-tax profit

(loss) for current period

Sunny

Optronics

Corp. (note)

300,000 274,565 184,409 90,156 375,136 (116,104) (114,569)

Prime

Energy

Corp.

50,000 49,738 54 49,684 0 (231) (210)

New Ray

Investment

Corp..

115,000 114,886 51 114,835 0 (173) (165)


Solutions Inc.”.

153

8. Consolidated financial statement of affiliates and presentation letter:

PRESENTATION LETTER

The Enti t ies that are required to be included in the combined f inancial statements of Neo

Solar Power Corporat ion as of and for the year ended December 31, 2011, under the

“Cri ter ia Governing the Preparat ion of Aff i l iat ion Reports, Consol idated Business Reports

and Consol idated Financial Statements of Aff i l iated Enterprises” are the same as those

included in the consol idated f inancial statements prepared in conformity with the revised

Statement of Financial Accounting Standards No.7, “Consol idated Financial Statements.”

In addit ion, the information required to be disclosed in the combined f inancial statements

is included in the consol idated f inancial statements. Consequently, Neo Solar Power

Corporat ion and Subsidiaries do not prepare a separate set of combined f inancial

statements.

Very truly yours

NEO SOLAR POWER COPORATION

By

Kun-Si Lin

Chairman

<II> Private placement of securities in the last fiscal year and as of the printing date of this annual report: None

<III> The Company’s stock held and disposed by subsidiaries in the last fiscal year and as of the printing this annual

report: None

<IV> Other Supplementary Disclosure: None

< V> Events which have taken place in the last year and as of the printing date of this annual report that have significant

effect on shareholders’ equities or securities price under Article 36, Provision 2, Item 2: None

Documents

Neo Solar Power Corporation Contents of Annual Report 2011 · Neo Solar Power Corporation Contents of Annual Report 2011 I. Letter to Shareholders