ASTT Asat Hldg Ltd American Dep (MM)

ASAT HOLDINGS LIMITED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The condensed consolidated financial statements have been prepared by ASAT Holdings Limited (the “Company” or “ASAT Holdings”) in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The April 30, 2007 balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The financial statements and notes thereto should be read in conjunction with the financial statements and notes included in the annual report of the Company on Form 20-F for the fiscal year ended April 30, 2007. The financial statements for the three months and six months ended October 31, 2007 and 2006 were not audited, but in the opinion of management reflect all adjustments (including normal recurring adjustments) necessary for a fair presentation of the results for the periods presented. All dollar amounts in these condensed financial statements are expressed in United Stated dollars, except where we state otherwise.

The unaudited condensed consolidated financial statements include the accounts of the Company and its principal subsidiaries. All significant intercompany balances and transactions have been eliminated upon consolidation.

Basis of Presentation

The Company has experienced recurring net losses which were $60.4 million, $42.4 million, $35.0 million, $5.2 million and $11.0 million for the years ended April 30, 2005, 2006 and 2007, and for the three months and six months ended October 31, 2007, respectively. As of April 30, 2007 and October 31, 2007, the Company had net liabilities of $82.5 million and $89.9 million, respectively, and an accumulated deficit of $341.2 million and $352.1 million, respectively. In response to current financial conditions, the Company has explored various means of obtaining additional financing while reducing losses and in September 2006, ASAT Semiconductor (Dongguan) Limited (“ASAT China”), a wholly-owned subsidiary of the Company, obtained a revolving credit facility for RMB30 million (approximately $3.9 million) under which drawdowns were permitted for a period of one year, renewable after one year. On October 8, 2006, the Company drew down RMB20 million (approximately $2.5 million) which was due in October 2007. In September 2007, ASAT China renewed $2.5 million of the credit facility for another year. On April 30, 2007, the Company drew down the remaining balance of this revolving credit facility with maturity date on April 30, 2008. As such, the entire borrowing of $3.9 million with regard to this revolving credit facility remains outstanding as of the date of this report. On August 23, 2007, the Company’s purchase money loan facility was amended to extend the maturity due date of the $10.0 million principal amount until April 30, 2009 and to extend the payment due date for interest payments (and interest on such interest) for March 31, 2006, June 30, 2006, September 30, 2006, December 31, 2006, March 31, 2007, June 30, 2007 and September 30, 2007 to become due on October 31, 2007. On October 10, 2007, the Company amended the purchase money loan facility to further extend the payment due date for interest including any penalty interest as required by the agreement. Interest that was due or will be due for payment on or before December 31, 2008 will be due and payable on December 31, 2008. In September 2007, ASAT China obtained a revolving credit facility of RMB150 million (approximately $20 million) with a term of one year. This facility is secured by certain trade receivables of ASAT China. Up to the date of this report, the Company drew down $2 million from this revolving credit facility. The Company’s gross margin has improved in recent quarters as a result of achieving a lower cost structure after the migration of its entire manufacturing operations from Hong Kong to Dongguan, China. Management believes the cost structure will continue to improve during the course of localization of operations into China. With the support of external financing, management believes that there are sufficient financial resources to meet the Company’s cash requirements for the next 12 months and the financial statements have been prepared on a going concern basis.

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Stock-Based Compensation

Prior to May 1, 2006, the Company accounted for share-based compensation awarded to employees and directors in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”), and complied with the disclosure provisions of Statements of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). Under APB No. 25, compensation cost is recognized based on the excess, if any, of the quoted market price of the Company’s stock over the amount an employee is required to pay to acquire the stock, as determined on the date the option is granted. Total compensation cost is recorded in shareholders’ equity as additional paid-in capital and deferred share-based compensation. Deferred share-based compensation is amortized on a straight-line basis and charged to expense over the vesting period of the underlying options.

Effective May 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), “Share- Based Payment” (“SFAS No. 123(R)”), which revises SFAS No. 123, and supersedes APB No. 25. Under the fair value recognition provisions of SFAS No. 123(R), the Company is required to measure the cost of employee services received in exchange for stock-based compensation measured at the fair value of the award as of the grant date. Beginning May 1, 2006, the Company applied the modified prospective transition method, which requires the application of SFAS No. 123(R) for new grants and nonvested grants that were outstanding as of such date. The Company’s Condensed Consolidated Financial Statements as of and for the three months and six months ended October 31, 2007 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective transition method, the Company’s Condensed Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No.123(R). The valuation provisions of SFAS No. 123(R) apply to new grants and nonvested grants that were outstanding as of the effective date. For new grants, the Company will amortize stock-based compensation expenses on a straight-line basis over the requisite service period. Estimated compensation for nonvested grants that were outstanding as of the effective date is recognized over the remaining service period using the compensation estimated for the SFAS No. 123(R) pro forma disclosures. See Note 9 below for further details.

Provision for taxation

In July 2006, the FASB issued FASB Interpretations 48, Accounting for Uncertainty in Income Taxes—an Interpretation of FASB Statement 109 (“FIN 48”). FIN 48 prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return (including a decision whether to file or not to file a return in a particular jurisdiction). Under FIN 48, the financial statements will reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values. The Company adopted the provision of FIN 48 effective May 1, 2007.

Prior to the adoption of FIN 48, the Company had made provision for the tax uncertainty that was identified under FAS 5. We determined that the adoption of FIN 48 did not result in additional uncertain tax benefits or FIN 48 liabilities that need to be recorded as at May 1, 2007.

Management continuously reviews slow-moving and obsolete inventory and assesses any inventory obsolescence based on inventory levels, material composition and expected usage as of that date. There were non-cash write-offs of specific inventories of $418 thousand and $38 thousand for the three months ended October 31, 2007 and 2006, respectively. There were non-cash write-offs of specific inventories of $646 thousand and $38 thousand for the six months ended October 31, 2007 and 2006, respectively.

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Property, plant and equipment included plant and machinery, leasehold improvements, fixtures and furniture, loose tooling, motor vehicles, office equipment and computer and software. Property, plant and equipment also included equipment and motor vehicles leased under capital leases with a cost, after impairment charges incurred in prior years, of $5.4 million less accumulated depreciation of $3.5 million as of October 31, 2007 and cost, net of impairment charges, of $5.3 million less accumulated depreciation of $2.9 million as of April 30, 2007, respectively. Depreciation is provided on a straight-line basis over the term of the leases.

During the six months ended October 31, 2007, the Company undertook significant transactions with one of its major shareholders, QPL International Holdings Limited and its group companies (collectively known as “QPL”). As described below, QPL owned approximately 42.7% and 42.5% of the Company’s ordinary shares as of October 31, 2007 and April 30, 2007. The Company purchased raw materials from QPL amounting to $2.7 million and $1.9 million for the three months ended October 31, 2007 and 2006, respectively, and $4.8 million and $5.6 million for the six months ended October 31, 2007 and 2006, respectively.

The amounts due to QPL for the purchase of raw materials amounted to $3.2 million and $2.5 million as of October 31, 2007 and April 30, 2007, respectively, and were unsecured and interest-free.

On October 1, 2007, we issued in total of 35,766,900 warrants to Asia Opportunity Fund, L.P., Chase Asia Investment Partners II (Y), LLC, CAIP Co-Investment Fund Parallel Fund (I) C.V. and CAIP Co-Investment Fund Parallel Fund (II) C.V., affiliates of one of our major shareholders, JPMP, in return for amending the purchase money loan facility (see item 2 - “Material financing arrangement” for details). The warrants have an exercise price of $0.01 per ordinary share and will expire on February 1, 2011, subject to adjustment as provided in the warrants and the other terms and conditions contained therein. The fair value of warrants issued is approximately $1.6 million and it is amortized as an adjustment of interest expense over the remaining term of the purchase money loan. As of October 31, 2007, the unamortized fair value of the warrant was approximately $1.5 million and recorded in “Deferred Charges, Net”.

For the three months and six months ended October 31, 2007, the Company incurred approximately $92 thousand and $224 thousand in reorganization expenses, mostly as a result of the lay-off of 9 and 29 employees, respectively, primarily in the Company’s Hong Kong operations, as part of the Company’s transition of all of its manufacturing operations to Dongguan, China. For the three months and six months ended October 31, 2006, the Company also terminated the services of 48 and 148 employees, respectively, primarily in the Hong Kong manufacturing operations. The aggregate amount of the reorganization expenses charged to the statements of operations amounted to $607 thousand and $1 million, respectively, for the three months and six months ended October 31, 2006.

For the three months and six months ended October 31, 2006, the Company incurred approximately $1 million and $2.6 million, respectively, in facilities and relocation charges in connection with the transfer of its assembly and test operations from Hong Kong to Dongguan, China. No such expense was incurred for the three months and six months ended October 31, 2007.

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Equipment

During the fiscal year ended April 30, 2005, the Company sold certain equipment for $6.5 million. The equipment was leased back from the purchaser (the “purchaser-lessor”) under leases pursuant to which the Company is required to pay to the purchaser-lessor on a quarterly basis the greater of (i) a lease payment based on the reported usage of the equipment or (ii) a minimum commitment. The initial terms of the leases expire upon the earlier of the date that the committed usage has been achieved under the leases or 14 quarters after the lease commencement date. In connection with the sale-leaseback, the Company recognized a gain of approximately $115 thousand on disposal of fixed assets, which is being deferred and amortized in the consolidated statement of operations against depreciation expenses over the term of the leases.

At the inception of the lease, the Company paid to the purchaser-lessor a deposit and prepaid rent amount of $1.6 million. As of October 31, 2007 and April 30, 2007, the amount of this deposit classified as other non-current assets in the consolidated balance sheets was approximately $0.1 million and $0.8 million, respectively.

At the end of each of the initial lease terms, the Company has an option to (i) return all the equipment to the purchaser-lessor; (ii) purchase all the equipment at a price based on the then fair market values of the equipment; or (iii) extend the lease terms by two additional quarters and purchase the equipment at the price of $1,000 for each piece of equipment.

Pursuant to these sale-leaseback arrangements, the purchaser-lessor entered into a separate term loan facility agreement for up to $5.0 million with a bank in Hong Kong (the “Lender”). Upon demand by the Lender, the Company and one of its subsidiaries fully and unconditionally guaranteed the obligations of the purchaser-lessor under the $5.0 million term loan facility. The Company believes that this guarantee (the “Guarantee”) has the characteristics set forth in Financial Accounting Standards Board (“FASB”) Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”, which requires initial recognition of the guarantee at fair value upon its inception. Nonetheless, the fair value of the Guarantee is considered to be insignificant given the risk of loss on such Guarantee at the date of its inception and, therefore, no amount was recognized in the consolidated financial statements on the inception date.

On March 31, 2006, the Company deposited $3.3 million in cash with the Lender as collateral for the Guarantee obligations. In consideration thereof, the Lender released the Company and one of its subsidiaries from the Guarantee. The Lender will return the deposit to the Company upon repayment of the term loan facility by the purchaser-lessor. The deposit is classified as restricted cash in the Condensed Consolidated Balance Sheets as of October 31, 2007 and April 30, 2007. On February 12, 2007, $1.5 million of the deposit was returned to the Company and on August 7, 2007, the Lender had further returned $0.9 million of the remaining deposit to the Company. The Company is negotiating with the Lender for the return of the remaining deposit and expects to receive the $0.9 million in February 2008. Therefore, the restricted cash balance as of October 31, 2007 has been classified from non-current asset to current asset.

Motor vehicle

The Company is leasing two motor vehicles. These leases are classified as finance leases and had remaining lease terms ranging from 2.8 years to 3.4 years as of October 31, 2007.

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Capital expenditures

As of October 31, 2007 and April 30, 2007, the Company had contracted for capital expenditures on property, plant and equipment of $0.3 million and $1.2 million, respectively.

Operating leases

The Company leases certain land, buildings, equipment and machinery under operating lease agreements expiring at various times through July 2020. The Company negotiated an early termination of the lease of its Hong Kong office and manufacturing facility, with the expiration date changed from March 2007 to August 2006. A new lease for the Hong Kong office space was entered into in August 2006 and effective on September 1, 2006 under a one-year term which expired on August 31, 2007, which further extended to August 31, 2008. Subsequently, the Company surrendered a portion of its Hong Kong office premises and entered a new lease agreement with a one-year term expiring on August 31, 2008, with an option to extend for an additional year.

The Company entered into a lease of a factory facility (the “Phase I facility”) in Dongguan, China in August 2002, under which the lessor was responsible for the design and construction of the interior finish and fixtures of the factory buildings. The Company is obligated to pay a monthly rental payment and management service fee for a period of 15 years from September 2003.

On May 7, 2004, the Company entered into a lease agreement of another factory facility (the “Phase II facility”) in Dongguan, China, under which the lessor was responsible for the design and construction of the factory building. The Company is obligated to pay a monthly lease payment for a term of 15 years starting from August 1, 2005. Under the terms of the Phase II facility lease, the Company is obligated to pay $179 thousand per month for the first six years of the lease term and $90 thousand per month starting from the seventh year of the lease term.

Future minimum lease payments under operating leases as of October 31, 2007 are as follows:

Uncertain tax position

Hong Kong tax exposure. On December 8, 2006, ASAT Limited, a subsidiary of the Company, received an additional tax assessment from the Hong Kong Inland Revenue Department (“HKIRD”) with respect to the deductibility of certain expenses for Hong Kong Profits Tax purposes for fiscal year 2000/2001. Queries were raised by the HKIRD concerning the deductibility of interest expenses related to certain borrowings of ASAT Limited for Profits Tax purposes in order to assess whether the related borrowings were used towards revenue-generating activities. The assessment requires ASAT Limited to pay HK$18.8 million (approximately $2.4 million) by January 12, 2007. On December 29, 2006, ASAT Limited filed an objection to the HKIRD for the full amount. On January 30, 2007, the HKIRD had offered ASAT Limited an unconditional holdover, i.e. an agreement to defer payment, of 50% of the total tax in dispute (approximately HK$9.4 million or $1.2 million) until the final tax position is determined. Although the case is not yet concluded and ASAT Limited is still required to provide further evidence to the HKIRD showing that the borrowings were used towards revenue-generating activities, HKIRD had requested ASAT Limited to make prepayment for the remaining 50% of the total tax in dispute. On January 31, 2007, ASAT Limited filed a proposal to HKIRD for installment payments for the remaining HK$9.4 million (approximately $1.2 million) tax in dispute and the proposal was accepted on March 27, 2007. As at April 30, 2007, ASAT Limited has recorded a provision of $1.2 million for the amount of tax in dispute under the provision of FAS 5. Effective May 1, 2007, the Company adopted FIN 48 and determined that no additional uncertain tax benefits or FIN 48 liabilities will need to be recorded. As of the date of this report, ASAT Limited has made installment payments of HK$5.1 million (approximately $0.7 million) to the HKIRD. ASAT Limited is still in the process of gathering information to address the queries. The final tax liability, if any, will depend upon the quality of the evidence that ASAT Limited can provide. If the HKIRD accepts the evidence provided, the installment payments made of approximately HK$5.1 million (approximately $0.7 million) shall be refunded.

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On July 6, 2000, the Company adopted a Stock Option Plan (“2000 Stock Option Plan”) under which the Board of Directors may, at its discretion, invite any key officers, employees, consultants and non-employee directors of the Company to subscribe for its ordinary shares, up to a maximum of 110,000,000 ordinary shares of the Company. The Board of Directors determines which individuals will be granted options, the number of ordinary shares subject to the options, the exercise price for the options, the vesting periods and any other terms that will apply as the Board deems appropriate.

Prior to May 1, 2006, the Company provided the disclosures required under APB No. 25 and SFAS No. 123. APB No. 25 accounted for stock-based compensation awarded to employees using the intrinsic value method supplemented by pro forma disclosures in accordance with APB 25 and SFAS No. 123.

Effective May 1, 2006, the Company adopted SFAS No. 123(R). Under the fair value recognition provisions of SFAS No. 123(R), the Company is required to measure the cost of employee services received in exchange for stock-based compensation measured at the fair value of the award as of the grant date. Beginning May 1, 2006, the Company applied the modified prospective transition method, which requires the application of SFAS No. 123(R) for new grants and nonvested grants that were outstanding as of such date. The Company’s Condensed Consolidated Financial Statements as of and for the three months and six months ended October 31, 2007 reflect the impact of SFAS No. 123(R). In accordance with the modified prospective transition method, the Company’s Condensed Consolidated Financial Statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS No. 123(R). The valuation provisions of SFAS No. 123(R) apply to new grants and nonvested grants that were outstanding as of the effective date. For new grants, the Company will amortize stock-based compensation expenses on a straight-line basis over the requisite service period. Estimated compensation for nonvested grants that were outstanding as of the effective date is recognized over the remaining service period using the compensation estimated for SFAS No. 123(R) pro forma disclosures.

SFAS No. 123(R) requires that the deferred stock-based compensation on the Condensed Consolidated Balance Sheet on the date of adoption be netted against additional paid-in capital. As of April 30, 2006, there was a balance of $63 thousand of deferred stock-based compensation that was netted against additional paid-in capital on May 1, 2006.

The fair value of stock-based compensation awards is determined using the Black-Scholes option pricing model, which is consistent with the valuation techniques previously utilized for options in footnote disclosures required under SFAS No. 123. The determination of the fair value of stock-based compensation awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables, including the expected volatility of the Company’s stock price over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends. The assumptions used to value stock-based compensation awards for the six months ended October 31, 2007 and 2006 are as follows:

Expected life represents the weighted average period of time that stock-based awards granted are expected to be outstanding giving consideration to historical exercise patterns. Expected stock volatilities are based on historical volatilities of the Company’s stock price. Risk-free rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the stock-based awards. The Company does not anticipate paying any cash dividends in the foreseeable future.

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Changes in subjective input assumptions can materially affect the fair value estimate. In the opinion of the Company’s management, the existing model may not necessarily provide a reliable single measure of the fair value of the stock options. Total stock-based compensation recognized in cost of sales, selling, general and administrative expenses on the Company’s Condensed Consolidated Statements of Operations for the three months and six months ended October 31, 2007 was $89 thousand and $371 thousand, respectively.

Stock option activity related to the Company’s stock options for the three months and six months ended October 31, 2007 is summarized as follows (stated in American Depositary Share, or ADS, equivalents based on fifteen ordinary shares per ADS):

The aggregate intrinsic value was calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company’s ADSs for options whose exercise prices were less than such quoted price at October 31, 2007. During the three months and six months ended October 31, 2007, the aggregate intrinsic value of options exercised was $nil, determined as of the date of option exercise. During the three months and six months ended October 31, 2006, the aggregate intrinsic value of options exercised was $nil and $325 thousand, respectively, determined as of the date of option exercise.

The weighted average grant-date fair value of options granted in the three months and six months ended October 31, 2007 was $nil and $0.75, respectively. The weighted average grant-date fair value of options granted in the three months and six months ended October 31, 2006 was $0.76 and $0.85, respectively.

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The following table presents a summary of the status of the Company’s nonvested stock options as of April 30, 2007, and changes during the six months ended October 31, 2007 (stated in ADS equivalents based on fifteen ordinary shares per ADS):

As of October 31, 2007, there was approximately $1.0 million of unrecognized compensation cost related to nonvested stock options. The cost is expected to be recognized over a weighted average period of 3.16 years.

The options generally vest from one to four years and expire ten years from the date of grant or within three months of termination of employment.

On October 1, 2007, the Company has issued 35,766,900 warrants to the lenders of the Purchase Money Loan for a debt modification to extend the repayment date of interest and principal. Also, the Company has issued another 35,766,900 warrants to the holders of 9.25% Senior Notes for the waiver of certain defaults and events of default that may have occurred or may occur.

All warrants have an exercise price of $0.01 per ordinary share and will expire on February 1, 2011, subject to adjustment as provided in the warrants and the other terms and conditions contained therein. All warrants cannot be redeemed by cash and the maximum number of shares to be issued is 71,533,800 ordinary shares which represents approximately 9.79% of the Company’s total outstanding ordinary shares as of October 31, 2007.

In September 2006, ASAT China obtained a revolving credit facility for RMB30 million (approximately $3.9 million) under which drawdowns were permitted for a period of one year. On October 8, 2006, ASAT China drew down RMB20 million (approximately $2.5 million) which was due in October 2007. In September 2007, ASAT China rolled over the original $2.5 million for another year. On April 30, 2007, ASAT China drew down the remaining balance of this revolving credit facility with maturity date on April 30, 2008. As such, the entire borrowing of $3.9 million with regard to this revolving credit facility remains outstanding as of the date of this report.

In September 2007, ASAT China obtained a revolving credit facility of RMB150 million (approximately $20 million) with a term of one year. The facility is secured by certain trade receivables of ASAT China. As of October 31, 2007, ASAT China had not drawn on this revolving credit facility.

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On January 26, 2004, New ASAT (Finance) Limited, a wholly-owned subsidiary of the Company, issued $150.0 million of its 9.25% senior notes as part of a refinancing transaction. Under the indenture, dated as of January 26, 2004, by and among New ASAT (Finance) Limited, the Company and its subsidiaries referred to therein as Guarantors, and The Bank of New York, as trustee as amended, modified and supplemented (the “Indenture”), governing the 9.25% senior notes, the Company and certain of its wholly-owned subsidiaries that are classified as “restricted subsidiaries” under the Indenture have fully and unconditionally guaranteed the 9.25% senior notes on a joint and several basis. There are no significant restrictions on the ability of the Company or any guarantor to obtain funds from its subsidiaries by dividend or loan, other than the laws of the People’s Republic of China applicable to ASAT China.

The condensed consolidating financial statements are presented below and should be read in connection with the Consolidated Financial Statements of the Company. The subsidiary guarantors for the 9.25% senior notes are ASAT Limited, ASAT Inc., Timerson Limited and ASAT (Cayman) Limited. Separate financial statements and other disclosures concerning the subsidiary guarantors are not included herein because (i) the subsidiary guarantors are wholly-owned and have fully and unconditionally guaranteed the 9.25% senior notes on a joint and several basis, and (ii) the Company’s management has determined that such information is not material to investors.

The following condensed consolidating financial information presents the condensed consolidating balance sheets as of October 31, 2007 and April 30, 2007 and the related condensed consolidating statements of operations and comprehensive loss and cash flows for the three months and six months ended October 31, 2007 and 2006 of (a) ASAT Holdings Limited, the parent company; (b) New ASAT (Finance) Limited, the subsidiary issuer; (c) the guarantor subsidiaries of ASAT Holdings Limited on a combined basis; (d) the non-guarantor subsidiaries of the Company on a combined basis; (e) eliminating entries; and (f) the total consolidated amounts.

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