ALTEK CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2012 AND 2011

---------------------------------------------------------------------------------------------------------------------For the convenience of readers and for information purpose only, 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. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors report and financial statements shall prevail.

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE PWCR12000175 To the Board of Directors and Stockholders of Altek Corporation We have audited the accompanying consolidated balance sheets of Altek Corporation and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, of changes in stockholders' equity and of cash flows for the years then ended. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Examination of Financial Statements by Certified Public Accountants and generally accepted auditing standards 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 accompanying consolidated financial statements present fairly, in all material respects, the financial position of Altek Corporation and its subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for the years then ended, in conformity with the Rules Governing the Preparation of Financial Statements by Securities Issuers and generally accepted accounting principles in the Republic of China.

Altek Corporation expects to adopt International Financial Reporting Standards, International Accounting Standards, and Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee (collectively referred herein as the IFRSs) as recognized by the former Financial Supervisory Commission, Executive Yuan, R.O.C (FSC) and the Rules Governing the Preparation of Financial Statements by Securities Issuers that will be applied in 2013 in the preparation of consolidated financial statements of Altek Corporation and its subsidiaries starting from January 1, 2013. Information relating to the adoption of IFRSs by Altek Corporation is disclosed in Note 13 in accordance with Jin-Guan-Zheng-Shen-Zi Order No.0990004943 of the FSC, dated February 2, 2010. The IFRSs may be subject to changes during the time of transition; therefore, the actual impact of IFRSs adoption on Altek Corporation and its subsidiaries may also change.

PricewaterhouseCoopers, Taiwan Hsinchu, Taiwan Republic of China March 18, 2013 ------------------------------------------------------------------------------------------------------------------The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of the independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.
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ALTEK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Expressed in thousands of NT dollars)
December 31, 2012 Amount ASSETS Current Assets Cash and cash equivalents (Note 4 (1)) Financial assets at fair value through profit or loss current (Note 4 (2)) Notes receivable, net Accounts receivable, net (Note 4 (3)) Other receivables Inventories, net (Note 4 (4)) Prepaid expenses Deferred income tax assets - current (Note 4 (15)) Other current assets $ 4,698,800 428,282 2,883,695 25,176 1,715,321 256,368 277,898 4,391 10,289,931 Funds and Investments Financial assets carried at cost non-current (Note 4 (5)) Long-term equity investments accounted for under the equity method (Note 4 (6)) 235,953 351,419 587,372 Property and Equipment (Note 4 (7)) Cost Buildings Machinery and equipment Test equipment Transportation equipment Furniture and fixtures Leasehold improvements Other equipment 2,989,935 1,727,766 193,969 26,521 170,851 46,074 304,462 5,459,578 Less: Accumulated depreciation Construction in progress and prepayments for equipment ( 1,749,253 ) ( 116,167 3,826,492 Intangible Asset Other intangible assets Other Assets Assets leased to other (Note 4 (8)) Deposits out Deferred income tax assets - non-current (Note 4 (15)) 1,471,400 41,413 45,314 1,558,127 TOTAL ASSETS $ 16,373,458 (Continued) 9 9 100 1,482,695 43,006 47,125 1,572,826 $ 18,998,548 8 8 100 111,536 1 125,802 1 18 11 1 1 2 33 11 ) 1 23 ( 3,036,121 1,506,120 172,683 27,116 166,886 40,201 239,070 5,188,197 1,551,136 ) 177,245 3,814,306 ( 16 8 1 1 1 27 8) 1 20 2 2 4 236,174 417,111 653,285 1 2 3 29 3 18 10 1 2 63 $ 6,303,846 497,652 9 3,415,357 19,195 2,047,877 296,694 235,716 15,983 12,832,329 33 3 18 11 2 1 68 % Amount 2011 %

ALTEK CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) (Expressed in thousands of NT dollars) December 31, 2012 Amount LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities Notes payable Accounts payable Accounts payable related parties (Note 5) Income tax payable (Note 4 (15)) Accrued expenses Other payables Provision for product warranty Other current liabilities Other Liabilities Accrued pension liabilities (Note 4 (9)) Guarantee deposits received Deferred income tax liabilities non-current (Note 4 (15)) Total Liabilities Stockholders Equity Capital (Note 4 (10)) Common stock Capital reserve (Note 4 (13)) Paid-in capital in excess of par value Capital reserve from conversion of convertible bonds Additional paid-in capital - treasury stock transactions Long-term investment Capital reserve from employee stock options (Note 4 (11)) Retained earnings (Note 4 (14)) Legal reserve Special reserve Unappropriated earnings Cumulative translation adjustments Treasury stock (Note 4 (12)) Stockholder s equity of parent company Minority interest Total Stockholders Equity Contingent Liabilities (Note 7) TOTAL LIABILITIES AND STOCKHOLDERS EQUITY ( ( 1,291,466 3,483,973 196,812 ) 768,094 ) 10,159,534 10,063 10,169,597 ( ( 8 21 1) 5) 62 62 ( 1,272,282 488,347 3,308,469 143,987 714,702 ) 10,821,399 10,821,399 ( 7 3 17 1 4) 57 57 1,373,113 894,836 10,544 109,495 8 6 1 1,359,128 894,836 6,841 13,187 93,810 7 5 3,961,013 24 3,955,214 21 2,624 8,362 738,976 749,962 6,203,861 5 5 38 1,632 22,530 839,109 863,271 8,177,149 5 5 43 $ 40 3,144,953 97 81,373 810,789 419,411 294,991 702,245 5,453,899 19 5 3 2 4 33 $ 957 5,186,498 14,826 54,630 767,661 388,135 286,808 614,363 7,313,878 27 4 2 2 3 38 % 2011 Amount %

$ 16,373,458

100

$ 18,998,548

100

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

ALTEK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Expressed in thousands of NT dollars, except for earnings per share amount) For the years ended December 31, 2011 % Amount 100 100 ( 93 ) 7 1) 5) 6) 1 1 1 1 1 After Tax $ $ 0.75 0.74 $ $ ( $ 27,864,609 79 ) 3,041 ) 27,861,489 25,610,812 ) 2,250,677 157,198 904,748 1,328,213 2,390,159 139,482 154,100 40,471 636 40,811 32,564 1,616 270,198 1,004 ) 58 6,225 294 7,581 123,135 68,708 191,843 191,843 191,843 Before Tax 0.24 0.24 ) ) ) ) ) (

2012 Amount Operating revenues Sales Sales returns Sales allowances Net operating revenues Operating cost (Note 5) Cost of sales Gross profit Operating expenses Selling expenses Administrative and general expenses Research and development expenses Operating income (loss) Non-operating revenues and income Interest income Investment income accounted for under the equity method (Note 4 (6)) Dividend income Gain on disposal of property and equipment Foreign currency exchange gain, net Rent revenues Gain on valuation of financial assets (Note 4 (2)) Other income Non-operating expenses and losses Interest expense Investment loss accounted for under the equity method (Note 4 (6)) Loss on disposal of property and equipment Loss on valuation of financial assets (Note 4 (2)) Other expenses Income before income tax Income tax expense (benefit) (Note 4 (15)) Consolidated net income Attributable to: Equity holders of the Company Minority interest Basic and diluted earnings per share (in NT dollars) (Note 4 (16)) Basic earnings per share Net income Diluted earnings per share Net income $ 24,584,139 2,295 ) 6,385 ) 24,575,459 22,808,808 ) 1,766,651 115,194 270,693 1,197,213 1,583,100 183,551 117,661 477 469 21,623 29,171 6,462 7,600 183,463 ( ( 1,762 ) 35,708 184 37,654 329,360 49,257 280,103 280,103 280,103 Before Tax $ $ 0.63 0.63 ) ) ) ) )

% 100 100 92 ) 8 3) 5) 8) 1 1 1 1 1 1 After Tax $ $ 0.51 0.50

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

Balance at January 1, 2011 Distribution of 2010 retained earnings (Note 1): Legal reserve Special reserve Employees bonus - stock Cash dividends Stock dividends Employee stock options exercised Share-based payment transaction - employee stock options Consolidated net income for 2011 Cumulative translation adjustments Transfer of treasury stock to employees Purchase of treasury stock Balance at December 31, 2011 Balance at January 1, 2012 Distribution of 2011 retained earnings (Note 2): Legal reserve Special reserve Cash dividends Employee stock options exercised Share-based payment transaction - employee stock options Adjustment of long-term investment for under the equity method Consolidated net income for 2012 Cumulative translation adjustments Transfer of treasury stock to employees Purchase of treasury stock Minority interest Balance at December 31, 2012

Common stock $ 3,888,721 24,909 37,465 4,119 3,955,214 3,955,214 5,799 3,961,013 (

ALTEK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 (Expressed in thousands of NT dollars) Retained earnings Cumulative Unappropriated translation Capital reserve Legal reserve Special reserve earnings adjustments Treasury stock $ 2,321,763 $ 1,139,515 $ $ 4,524,497 ($ 488,347 ) ( $ 491,032 ) 69,770 6,188 28,826 58,745 ) 2,367,802 2,367,802 7,953 19,904 830 ) 6,841 ) 2,387,988 132,767 1,272,282 1,272,282 19,184 1,291,466 488,347 488,347 488,347 488,347 ) ( ( ( ( ( ( 132,767 ) 488,347 ) 749,292 ) 37,465 ) 191,843 3,308,469 3,308,469 19,184 ) 488,347 564,809 ) 280,103 ( 8,953 ) 3,483,973 ( $ 632,334 143,987 143,987 340,799 ) - ( 196,812 ) ( $ 193,298 416,968 ) 714,702 ) 714,702 ) 32,779 86,171 ) 768,094 )

Minority interest $ 10,063 10,063 ( ( ( $ $

Total 10,895,117 94,679 749,292 ) 10,307 28,826 191,843 632,334 134,553 416,968 ) 10,821,399 10,821,399 564,809 ) 13,752 19,904 830 ) 280,103 340,799 ) 16,985 86,171 ) 10,063 10,169,597

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Note 1: Directors and supervisors remuneration amounting to $14,131 and employees bonus amounting to $141,312 have been deducted from the consolidated statement of income. Note 2: Directors and supervisors remuneration amounting to $13,220 and employees bonus amounting to $99,151 have been deducted from the consolidated statement of income. The accompanying notes are an integral part of these consolidated financial statements.

ALTEK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 (Expressed in thousands of NT dollars) For the years ended December 31, 2012 Cash flows from operating activities: Consolidated net income Adjustments to reconcile consolidated net income to net cash (used in) provided by operating activities: Payroll expense - employee stock options Depreciation Amortization (Gain) loss on valuation of financial assets Provision for doubtful accounts Provision for inventory obsolescence Investment loss (income) accounted for under the equity method Cash dividends on long-term equity investments accounted for under the equity method Write-off of property and equipment to expenses Gain (loss) on disposal of property and equipment, net Deferred income tax Changes in assets and liabilities: (Increase) decrease in assets: Financial assets at fair value through profit or loss - current Notes receivable Accounts receivable Other receivables Inventories Prepaid expenses Other current assets Increase (decrease) in liabilities: Notes payable Accounts payable Accounts payable- related parties Income tax payable Accrued expenses Other payables Provision for product warranty Other current liabilities Accrued pension liabilities Net cash (used in) provided by operating activities ( ( ( ( 917 ) ( 2,041,545 ) 14,729 ) ( 26,743 43,128 99,082 8,183 87,882 992 231,986 ) ( ( ( ( ( 2,509 ) 158,977 35,334 ) 79,232 ) 112,382 ) 126,303 ) 301,647 ) 34,267 ) 344 1,869,311 ( 75,832 9 514,601 5,981 ) ( 356,638 41,160 11,592 ( ( 321,233 4,425 858,507 936 ) 50,856 90,282 ) 11,466 ) ( ( ( ( 21,717 285,025 13,611 6,462 ) 17,061 24,082 ) 35,708 13,834 469 ) 70,702 ) ( ( 28,826 346,860 20,133 6,225 635,614 241,742 40,471 ) 5,056 166 58 166,725 ) $ 280,103 $ 191,843 2011

(Continued)

ALTEK CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (Expressed in thousands of NT dollars)

For the years ended December 31, 2012 Cash flows from investing activities: Capital reduction of financial assets carried at cost non-current Acquisition of financial assets carried at cost non-current Acquisition of property and equipment Proceeds from disposal of property and equipment Increase in other intangible assets Decrease in deposits out, net Net cash used in investing activities Cash flows from financing activities: (Decrease) increase in guarantee deposits received Proceeds from employee stock options exercised Payment of cash dividends Proceeds from sales of treasury stock to employees Purchase of treasury stock Proceeds from new common stock issuance Net cash used in financing activities Effect of foreign exchange rate Net (increase) decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Supplemental disclosures of cash flow information Interest paid Income tax paid Investing activities partially paid by cash Acquisition of property and equipment Add: property and equipment and construction billings payable at beginning of year Less: property and equipment and construction billings payable at end of year Cash paid ( $ $ 409,649 151,403 83,597 ) ( 477,455 $ $ 1,049,243 159,053 151,403 ) 1,056,893 $ $ 1,762 93,216 $ $ 1,004 177,250 $ ( ( ( ( ( ( 14,168 ) 13,752 564,809 ) ( 16,985 86,171 ) ( 7,420 626,991 ) ( 274,387 ) 1,605,046 ) 6,303,846 4,698,800 $ 22,530 10,307 749,292 ) 134,553 416,968 ) 998,870 ) 388,992 203,208 6,100,638 6,303,846 ( ( ( $ ( $ 21,120 5,337 ) 1,056,893 ) 1 32,208 ) 17,092 1,056,225 ) 2011

477,455 ) ( 7,989 3,809 ) ( 1,593 471,682 ) (

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

ALTEK CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 (Expressed in thousands of NT dollars, unless stated otherwise) 1. HISTORY AND ORGANIZATION Altek Corporation (the Company) was incorporated on December 24, 1996 under the provisions of the Company Law of the Republic of China (R.O.C.) and commenced its operations on April 1, 1999. The Company engages in the development, manufacturing and sale of digital image technology application, related export and import trade. The Company was listed in the Taiwan Stock Exchange on December 24, 2002, as approved by the Tai-Tz (91) Letter No. 024976 of the former Securities and Futures Commission, Ministry of Finance, R.O.C., dated September 27, 2002. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements of the Company and its subsidiaries (collectively referred herein as the Group) are prepared in accordance with the Rules Governing the Preparation of Financial Statements of Securities Issuers and generally accepted accounting principles in the Republic of China. The Groups significant accounting policies are as follows: (1) BASIS FOR PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS A. Basis For Preparation Of Consolidated Financial Statements: The income (loss) of the subsidiaries is included in the consolidated statement of income effective on the date the Company gains control over the subsidiaries. Consolidated financial statements are prepared quarterly since January 1, 2008. The income (loss) of the subsidiaries is excluded from the consolidated statement of income effective the date on which the Company loses control over the subsidiaries. Significant inter-company transactions and assets and liabilities arising from inter-company transactions are eliminated. B. Names of consolidated subsidiaries, their main operating activities, the percentage owned by the Company and their changes in 2012 were as follows:
Percentage of ownership as of December 31, Name of the investor Altek Corporation Name of subsidiaries Altek International Investment Co., Ltd. Altek Japan Corporation Altek Investment Co., Ltd. Altek Autotronics Corporation Main operating activities Investments and general business operations Sales and design of digital camera and its optical instruments Investments Research design, manufacture and sales of car electronic components 2012 100% 2011 100% Note

"

100%

100%

" "

100% 88.75%

100% 100% Note 2

Percentage of ownership as of December 31, Name of the investor Altek International Investment Co., Ltd. " Name of subsidiaries Altek Lab. Inc. Main operating activities Design and sales of engineering and optical components Investment and general business operations " " 2012 100% 2011 100% Note

Leading Tech. Co., Ltd. Toptek Investment Cayman Co., Ltd. Altek Imaging Technology (Cayman) Co., Ltd. RICH-ALTEK U.S.A., INC. Altek Optical (Cayman) Co., Ltd. Altek Trading (Cayman) Co., Ltd. Altek Semiconductor (Cayman) Co., Ltd. Altek Optical Technology (Cayman) Co., Ltd. Altek (Kunshan) Co., Ltd. Altek EMS (Kunshan) Co., Ltd. Altek Imaging Technology (Shanghai) Limited Altek Precision (Kunshan) Co.,Ltd. Altek Trading (Shanghai) Limited

100%

100%

" "

100% 100%

100% 100%

" "

Delivery and storage Investments and general business operations "

100%

100% 100%

Note 1

"

100%

100%

"

"

100%

100%

"

"

100%

100%

Leading Tech. Co., Ltd. Toptek Investment Cayman Co., Ltd. Altek Imaging Technology (Cayman) Co., Ltd. "

Manufacture and sales of digital still camera and its accessories SMT processing and related engineering services Manufacture and sales of optical components

100%

100%

100%

100%

100%

100%

Design, manufacture and sales of digital camera parts Wholesale, import and export of digital cameras, digital video cameras and their associated accessories Research design and sales of ASIC

100%

100%

Altek Trading (Cayman) Co., Ltd.

100%

100%

Altek Semiconductor (Cayman) Co., Ltd.

Altek Semiconductor Corporation

100%

100%

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Percentage of ownership as of December 31, Name of the investor Altek Trading (Shanghai) Limited Name of subsidiaries Beijing Altek Image Communication Technology Co., Ltd. Altek Optical Technology (Kunshan) Co., Ltd. Main operating activities Sales of digital camera, handheld device and their related accessories Manufacture and sales of digital camera and its accessories and optical components 2012 100% 2011 100% Note

Altek Optical Technology (Cayman) Co., Ltd.

100%

100%

Note 1: RICH-ALTEK U.S.A. INC. was merged by the Company for intergroup consolidation on the base date of September 17, 2012. Note 2: The minority interest was acquired by employee subscriptions of Altek Autotronics Corporation, in which issued new common stock on the date of December 27, 2012. C. Unconsolidated subsidiaries: None. D. Different accounting periods adopted by subsidiaries: None. E. Special operating risks in foreign subsidiaries: None. F. Significant restriction of funds for the subsidiaries financial activities to the Company: None.

G. Contents of subsidiaries securities issued by the parent company: None. H. Information on convertible bonds and new common stock issued by subsidiaries: No subsidiaries issued convertible bonds during the period. Altek Autotronics Corporation, Altek Optical Technology (Cayman) Co., Ltd. and Altek Optical Technology (Kunshan) Co., Ltd. raised additional cash capital of $150,000 (15,000,000 shares), US$9,000 thousand (9,000,000 shares) and US$9,000 thousand respectively by issuing new common stock in 2012. Altek Imaging Technology (Cayman) Co., Ltd., Altek Precision (Kunshan) Co., Ltd., Altek Optical Technology (Cayman) Co., Ltd. and Altek Optical Technology (Kunshan) Co., Ltd. raised additional cash capital of US$5,800 thousand (5,800,000 shares), US$5,800 thousand, US$3,000 thousand (3,000,000 shares) and US$3,000 thousand, respectively, by issuing new common stock in 2011. (2) TRANSLATION OF FINANCIAL STATEMENTS OF SUBSIDIARIES Assets and liabilities of foreign subsidiaries are translated into New Taiwan dollars using the exchange rates at the balance sheet date. Equity accounts are translated at historical rates except for beginning retained earnings, which are carried forward from prior years balance. Dividends are translated at the rates prevailing at the date of declaration. Profit and loss accounts are translated at weighted-average rates of the year. The resulting translation differences are included in cumulative translation adjustments under stockholders equity.

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(3) FOREIGN CURRENCY TRANSACTIONS A. Transactions denominated in foreign currencies are translated into functional currencies at the spot exchange rates prevailing at the transaction dates. Exchange gains or losses due to the difference between the exchange rate on the transaction date and the exchange rate on the date of actual receipt and payment are recognized in current years profit or loss. B. Receivables, other monetary assets and liabilities denominated in foreign currencies are translated at the spot exchange rates prevailing at the balance sheet date. Exchange gains or losses are recognized in profit or loss. C. When a gain or loss on a non-monetary item is recognized directly in equity, any exchange component of that gain or loss shall be recognized directly in equity. Conversely, when a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss shall be recognized in profit or loss. However, non-monetary items that are measured on a historical cost basis are translated using the exchange rate at the date of the transaction. (4) CLASSIFICATION OF CURRENT AND NON-CURRENT ITEMS A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets: a) Assets arising from operating activities that are expected to be realized or consumed, or are intended to be sold within the normal operating cycle; b) Assets held mainly for trading purposes; c) Assets that are expected to be realized within twelve months from the balance sheet date; d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date. B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities: a) Liabilities arising from operating activities that are expected to be paid off within the normal operating cycle; b) Liabilities arising mainly from trading activities; c) Liabilities that are to be paid off within twelve months from the balance sheet date; d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. (5) CASH EQUIVALENTS A. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amount of cash and which are subject to insignificant risk of changes in value resulting from fluctuations in interest rates. B. The Groups statement of cash flows is prepared on the basis of cash and cash equivalents.

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(6) FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH RPOFIT OR LOSS A. Financial assets and financial liabilities at fair value through profit or loss are recognized and derecognized using settlement date accounting and are recognized initially at fair value. B. These financial instruments are subsequently remeasured and stated at fair value, and the gain or loss is recognized in profit or loss. The fair value of open-end and balanced mutual funds is based on the net asset value at the balance sheet date. (7) FINANCIAL ASSETS CARRIED AT COST A. Investment in unquoted equity instruments is recognized or derecognized using trade date and is stated initially at its fair value plus transaction costs that are directly attributable to the acquisition of the financial asset. B. If there is any objective evidence that the financial asset is impaired, the impairment loss is recognized in profit or loss. Such impairment loss shall not be reversed when the fair value of the asset subsequently increases. (8) NOTES RECEIVABLE / ACCOUNTS RECEIVABLE / OTHER RECEIVABLES Notes and accounts receivable are claims resulting from the sale of goods or services. Receivables arising from transactions other than the sale of goods or services are classified as other receivables. Notes, accounts and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. If such evidence exists, a provision for impairment of financial asset is recognized. The amount of impairment loss is determined based on the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. When the fair value of the asset subsequently increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed to the extent of the loss previously recognized in profit or loss. Such recovery of impairment loss shall not result to the assets carrying amount greater than its amortized cost where no impairment loss was recognized. Subsequent recoveries of amounts previously written off are recognized in profit or loss. (9) INVENTORIES The perpetual inventory system is adopted for inventory recognition. Inventories are stated at cost. The cost is determined using the weighted-average method. At the end of period, inventories are evaluated at the lower of aggregate cost or net realizable value, and the individual item approach is used in the comparison of cost and net realizable value. The calculation of net realizable value should be based on the estimated selling price in the normal course of business, net of estimated cost of completion and estimated selling expenses.

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(10) LONG-TERM EQUITY INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD A.Long-term equity investments in which the Group holds more than 20% of the investee companys voting shares or has the ability to exercise significant influence on the investees operational decisions are accounted for under the equity method. The excess of the initial investment cost over the acquired net asset value of the investee attributable to goodwill is no longer amortized, effective January 1, 2006. Retrospective adjustment of the amount of goodwill amortized in previous year(s) is not required. B.Exchange differences arising from translation of the financial statements of overseas investee companies accounted for under the equity method are recorded as cumulative translation adjustments under stockholders equity. (11) PROPERTY AND EQUIPMENT A. Property and equipment are stated at cost. B. Depreciation is provided using the straight-line method over the assets' economic service lives. The estimated economic service lives of property, plant and equipment are 2~39 years. C. Significant renewals and improvements are capitalized and depreciated accordingly. Maintenance and repairs are expensed as incurred. D. When an asset is disposed or sold, its original cost and accumulated depreciation are written-off, and the related gain or loss on disposal of property and equipment is recorded as non-operating income or loss. (12) INTANGIBLE ASSETS Intangible assets consist of software costs and cost for land-use rights. The cost of software is amortized over 2-3 years using the straight-line method. The cost of land-use rights is amortized over 50 years (the lease period) using the straight-line method. (13) IMPAIRMENT OF NON-FINANCIAL ASSETS The Group recognizes impairment loss when there is indication that the recoverable amount of an asset is less than its carrying amount. The recoverable amount is the higher of the fair value less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from the sale of the asset in an arms length transaction after deducting any direct incremental disposal costs. The value in use is the present value of estimated future cash flows to be derived from continuing use of the asset and from its disposal at the end of its useful life. When the impairment no longer exists, the impairment loss recognized in prior years shall be recovered. The recoverable amount of goodwill, intangible assets with indefinite useful lives and intangible assets which have not yet been available for use shall be evaluated periodically. Impairment loss will be recognized whenever there is indication that the recoverable amount of these assets is less than their respective carrying amount. Impairment loss of goodwill recognized in prior years is not recoverable in the following years.

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(14) RESERVE FOR PRODUCT WARRANTY Reserve for product warranty is provided based on the sales and an analysis of past warranty, etc. (15) PENSION PLAN Under the defined benefit pension plan, net periodic pension cost, which includes service cost, interest cost, expected return on plan assets, and amortization of unrecognized net transition obligation and gains or losses on plan assets, is recognized based on the actuarial valuation report. Unrecognized net transition obligation is amortized on a straight-line basis over 15 years. Under the defined contribution pension plan, net periodic pension cost is recognized as incurred. (16) TREASURY STOCK A. When common stock is reacquired, a temporary account entitled Treasury Stock is debited for the cost of the shares. The Treasury Stock account is treated as contra-stockholders equity account representing a temporary reduction in stockholders equity. B. Treasury stocks transferred to employees on or after January 1, 2009 are accounted for in accordance with R.O.C. SFAS No. 39, Accounting for Share-Based Payment. C. When a companys treasury stock is retired, the treasury stock account should be credited, and the capital reserve- premium on stock account and capital stock account should be debited proportionately according to the share ratio. An excess of the carrying value of treasury stock over the sum of its par value and premium on stock should first be offset against capital reserve from the same class of treasury stock transactions, and the remainder, if any, debited to retained earnings. An excess of the sum of the par value and premium on stock of treasury stock over its carrying value should be credited to capital reserve from the same class of treasury stock transactions. D. Treasury stock cost is determined using the weighted-average cost method. (17) INCOME TAX A. Provision for income tax includes deferred income tax resulting from temporary differences, investment tax credits and loss carryforward. Valuation allowance on deferred tax assets is provided to the extent that it is more likely than not that the tax benefit will not be realized. Over or under provision of prior years income tax liabilities is included in current years income tax. B. Investment tax credits arising from expenditures incurred on acquisitions of equipment or technology, research and development, employees training, and equity investments are recognized in the year the related expenditures are incurred. C. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

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D. When a change in the tax laws is enacted, the deferred tax liability or asset should be recomputed accordingly in the period of change. The difference between the new amount and the original amount, that is, the effect of changes in the deferred tax liability or asset, should be recognized as an adjustment to income tax expense (benefit) for income from continuing operations currently. (18) SHARE-BASED PAYMENT EMPLOYEE COMPENSATION PLAN For the grant date of the share-based payment agreements set on or after January 1, 2008, the Company shall measure the services received during the vesting period by reference to the fair value of the equity instruments granted and account for those amounts as payroll expenses during that period. (19) EMPLOYEES BONUSES AND DIRECTORS AND SUPERVISORS REMUNERATION Effective January 1, 2008, pursuant to EITF 96-052 of the Accounting Research and Development Foundation, R.O.C., dated March 16, 2007, Accounting for Employees Bonuses and Directors and Supervisors Remuneration, the costs of employees bonuses and directors and supervisors remuneration are accounted for as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and the amounts can be estimated reasonably. However, if the accrued amounts for employees bonuses and directors and supervisors remuneration are significantly different from the actual distributed amounts resolved by the stockholders at their annual stockholders meeting subsequently, the differences shall be recognized as gain or loss in the following year. In addition, according to EITF 97-127 of the Accounting Research and Development Foundation, R.O.C., dated March 31, 2008, Criteria for Listed Companies in Calculating the Number of Shares of Employees Stock Bonus, the Company calculates the number of shares of employees stock bonus based on the closing price of the Company's common stock at the previous day of the stockholders meeting held in the year following the financial reporting year, after taking into account the effects of ex-rights and ex-dividends. (20) REVENUES, COSTS AND EXPENSES Revenues are recognized when the earning process is substantially completed and are realized or realizable. Costs and expenses are recognized as incurred. (21) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those assumptions and estimates. (22) SETTLEMENT DATE ACCOUNTING If an entity recognizes financial assets using settlement date accounting, any change in the fair value of the asset to be received during the period between the trade date and the settlement date / balance sheet date is not recognized for assets carried at cost or amortized cost. For financial asset or financial liability classified as at fair value through profit or loss, the change in fair value is recognized in profit or loss. For available-for-sale financial asset, the change in fair value is recognized directly in equity.

16

(23) OPERATING SEGMENTS Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. The Group discloses the segment information on the consolidated financial statements in accordance with R.O.C SFAS No. 41 Operating Segments. 3. CHANGES IN ACCOUNTING PRINCIPLES (1) NOTES RECEIVABLE / ACCOUNTS RECEIVABLE / OTHER RECEIVABLES Effective January 1, 2011, the Group adopted the amended R.O.C. SFAS No. 34, Financial Instruments: Recognition and Measurement. This change in accounting principle had no effect on the Groups consolidated net income and earnings per share for the year ended December 31, 2011. (2) OPERATING SEGMENTS Effective January 1, 2011, the Group adopted R.O.C. SFAS No. 41, Operating Segments in place of R.O.C. SFAS No. 20, Segment Reporting. Segment information for prior years shall be restated when the Group applies this standard for the first time. This change in accounting principle had no effect on the Groups consolidated net income and earnings per share for the year ended December 31, 2011. 4. DETAILS OF SIGNIFICANT ACCOUNTS (1) CASH AND CASH EQUIVALENTS December 31, 2012 2011 Cash: Petty cash Savings accounts Checking accounts Time deposits $ 1,007 302,324 1 4,395,468 4,698,800 $ 948 400,690 51 5,902,157 6,303,846

(2) FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS December 31, 2012 2011 Current items: Financial assets held for trading Adjustment of financial assets held for trading $ $ 423,073 5,209 428,282 $ $ 497,634 18 497,652

The Group recognized net gain (loss) on valuation of financial assets of $6,462 and ($6,225) for the years ended December 31, 2012 and 2011, respectively.

17

(3) ACCOUNTS RECEIVABLE, NET December 31, 2012 2011 3,536,370 $ 4,050,971 652,675 ) ( 635,614 ) 2,883,695 $ 3,415,357

Accounts receivable Less: Allowance for doubtful accounts (4) INVENTORIES

$ ( $

December 31, 2012 Cost 753,204 333,103 838,484 1,924,791 Allowance Net Book Value ($ 140,392 ) $ 612,812 ( 26,961 ) 306,142 ( 42,117 ) 796,367 ($ 209,470 ) $ 1,715,321 December 31, 2011 Allowance ($ 175,214 ) ( 83,551 ) ( 63,496 ) ($ 322,261 ) Net Book Value $ 1,005,515 445,046 597,316 $ 2,047,877

Raw materials Work in process Finished goods Total

Raw materials Work in process Finished goods Total

Cost 1,180,729 528,597 660,812 2,370,138

Cost and losses incurred related to inventories: For the years ended December 31, 2012 2011 Cost of inventories sold Loss for market price decline and obsolescence of inventories Other (5) FINANCIAL ASSETS CARRIED AT COST December 31, 2012 2011 Non-current items: Unlisted stocks Less: Accumulated impairment loss $ ( $ 300,736 $ 64,783 ) ( 235,953 $ 300,957 64,783 ) 236,174 $ 22,832,943 ( ( 24,082 ) $ 25,369,661 241,742

53 ) ( 591 ) $ 22,808,808 $ 25,610,812

18

A. The investments were measured at cost since their fair value cannot be measured reliably. B. The Group received proceeds from the capital reduction of Pac-line Opportunity Fund amounting to $21,120 as of July 1, 2011. (6) LONG-TERM EQUITY INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD A. Details of long-term equity investments accounted for under the equity method are set forth below:
December 31, 2012 Investee company JinJing Optical Technology Co., Ltd. Phoenix Optical (Shanghai) Co., Ltd. Accumulated impairment loss ( $ $ Amount 54,332 320,674 375,006 23,587 ) 351,419 ( $ Percentage of ownership 23.33% 40% $ December 31, 2011 Amount 57,295 383,403 440,698 23,587 ) 417,111 Percentage of ownership 23.33% 40%

B. Investment loss accounted for under the equity method for the years ended December 31, 2012 and 2011 which were based on the investees audited financial statements are set forth below:
For the years ended December 31, 2012 2011 JinJing Optical Technology Co., Ltd. Phoenix Optical (Shanghai) Co., Ltd. ($ ( ($ 1,277 ) ( $ 34,431 ) 35,708 ) $ 11,304 ) 51,775 40,471

(7) PROPERTY AND EQUIPMENT

December 31, 2012 Cost Buildings Machinery and equipment Test equipment Transportation equipment Furniture and fixtures Leasehold improvements Other equipment Construction in progress and prepayments for equipment $ $ 2,989,935 1,727,766 193,969 26,521 170,851 46,074 304,462 116,167 5,575,745 ($ ($ ( ( ( ( ( ( Accumulated Depreciation 258,397 ) 1,053,271 ) 118,059 ) 18,323 ) 111,947 ) 35,043 ) 154,213 ) 1,749,253 ) $ $ Net Book Value 2,731,538 674,495 75,910 8,198 58,904 11,031 150,249 116,167 3,826,492

19

December 31, 2011 Cost Buildings Machinery and equipment Test equipment Transportation equipment Furniture and fixtures Leasehold improvements Other equipment Construction in progress and prepayments for equipment $ $ 3,036,121 1,506,120 172,683 27,116 166,886 40,201 239,070 177,245 5,365,442 ($ ($ ( ( ( ( ( ( Accumulated Depreciation 187,731 ) 1,004,668 ) 99,925 ) 17,023 ) 94,780 ) 20,289 ) 126,720 ) 1,551,136 ) $ $ Net Book Value 2,848,390 501,452 72,758 10,093 72,106 19,912 112,350 177,245 3,814,306

No interest expense was capitalized for the years ended December 31, 2012 and 2011. (8) ASSETS LEASED TO OTHER
Cost 1,493,989 December 31, 2012 Allowance ($ 22,589 ) December 31, 2011 Allowance ($ 11,294 ) Net Book Value $ 1,471,400

Buildings (including leased land)

Buildings (including leased land)

Cost 1,493,989

Net Book Value $ 1,482,695

The Company acquired the Taipei building for operating use at the end of 2010. However, since this building is still under a certain unexpired lease agreement, the Company continuously leases the building to the lessee until the lease agreement is expired, and is currently recognized as Assets leased to other. (9) PENSION PLAN A. The Company has set up a defined benefit pension plan in accordance with the Labor Standards Law, which applies to all regular employees before the enforcement of the Labor Pension Act (the Act) on July 1, 2005 and the employees who elect to be covered under the pension scheme of the Labor Standards Law after the enforcement of the Act. Under the defined benefit plan, two units are accrued for each year of service for the first 15 years and one unit is accrued for each additional year of service thereafter, subject to a maximum of 45 units. Pensions paid upon retirement are based on the number of units accrued and the average monthly salaries and wages of the last current month prior to retirement. The Company contributes monthly an amount equal to 2% of the employees' monthly salaries and wages to the retirement fund deposited with Bank of Taiwan under the name of the independent retirement fund committee. The pension costs under defined benefit pension plan for the years ended December 31, 2012 and 2011 were $1,000 and $344, respectively. The fund balance with Bank of Taiwan was $45,967 and $45,554 as of December 31, 2012 and 2011, respectively.

20

B. In accordance with the Labor Pension Act (the Act), since July 1, 2005, the Company has in place a defined contribution pension plan, applicable to all employees who are Taiwan nationals. For employees who have chosen to join the Act pension scheme, the Company makes a monthly pension contribution of not less than 6% of salary to the employees special personal accounts with the Bureau of Labor Insurance. Upon retirement, employees may choose to receive their employee personal retirement account and accumulated earnings, in one lump-sum payment or in monthly payments. As of December 31, 2012 and 2011, the Company had recognized pension costs of $40,334 and $39,349, respectively, under the above pension scheme. C. The subsidiaries provided defined contribution for its employees. Pursuant to local regulations, such employees and the subsidiaries each make contributions based on a certain percentage based of the salaries and wages to the pension funds. The subsidiaries had recognized pension costs of $72,559 and $71,905 for the years ended December 31, 2012 and 2011, respectively. (10) COMMON STOCK A.As of December 31, 2012, the Companys authorized capital was $5,000,000 at $10 (in NT dollars) par value per share. As of December 31, 2012, the total issued and outstanding capital was $3,961,013. B. The stockholders at their meeting on June 15, 2011 adopted a resolution to capitalize retained earnings of 37,465 and employees bonus of $94,679 by issuing 6,237,361 shares of new common stocks (including 2,490,900 shares for employees stock bonus). In accordance with the resolution adopted by the Board of Directors on August 31, 2011, the Company set November 6, 2011 as the base date for this capital increase. The registration of this capital increase had been completed. C. As of December 31, 2012, the Companys employees had exercised 7,642 units of employee stock options in accordance with the Option Plan, representing 7,642,000 shares of common stock. The exercise price was $10~$29.5 (in NT dollars) per share. The registration of this capital increase had been completed. (11) SHARE-BASED PAYMENTEMPLOYEE COMPENSATION PLAN A. As of December 31, 2012, the Companys share-based payment transactions are set forth below:
Type of arrangement Grant date Employee stock June 13, 2008 options October 31, 2008 March 23, 2009 October 28, 2011 and March 21, 2012 Treasury stock transferred to employees March 15, 2011 September 9, 2011 and December 28, 2012 Quantity granted (in thousand Contract shares) period 18,000 8.8 years~ 9.6 years Vesting conditions Note Actual resignation rate in the current period 6.7% Estimated future resignation rate 1020%

3,250

Vest immediately

Note : 2 years service vest 40%, 3 years service vest 70%, 4 years service vest 100%.

21

B. Details of the employee stock options are set forth below:

For the year ended December 31, 2012 In thousands of shares Outstanding at the beginning of the period Options granted Distribution of stock dividends or adjustments for number of options Options waived Options exercised Options forfeited Outstanding at the end of the period Exercisable options at the end of the period Approved and not yet issued options at the end of the period ( ( 13,788 3,000 Weighted average exercise price (in NT dollars) $ 25.80 25.40 For the year ended December 31, 2011 In thousands of shares 11,530 3,000 Weighted average exercise price (in NT dollars) $ 27.5 28.0

200 ) 580 ) 16,008 9,344

23.71 24.00 23.50 ( (

330 ) 412 ) 13,788 6,498

25.0 25.8 25.9

3,000

C.The weighted-average stock price of stock options at exercise date of the year ended December 31, 2012 was $20.47 (in dollars). D.The exercise price and weighted-average remaining vesting periods of the employee stock options outstanding as of December 31, 2012 and 2011 are set forth below:
December 31, 2012 Exercise price (in NT dollars) Employee stock option $24.6$20.6 $19.4$25.6 and $25.4 Weighted-average remaining vesting 6.09 years December 31, 2011 Exercise price (in NT dollars) $26.9$22.6 $21.2 and $28 Weighted-average remaining vesting 6.65 years

E. For the stock options granted for the year ended December 31, 2012 with the compensation cost accounted for using the fair value method, their fair value on the grant date is estimated using the Black-Scholes option-pricing model. The parameters used in the estimation of the fair value are as follows:
Type of arrangement Exercise price Expected Stock price (in NT dollars) price (in NT dollars) (Note) volatility $ 27.85 $ 27.85 33.54% Expected vesting period 4.9 years Expected dividend yield rate 1.4% Risk-free interest rate 1.08% Fair value per unit (in NT dollars) $ 7.35

Grant date

Employee March 21, 2012 stock options

Note: The exercise price of stock options was adjusted based on the cash dividends and stock dividends per share distributed.

22

F. Liabilities arising from share-based payment transactions are shown below:

For the years ended December 31, 2012 2011 Equity - settled Cash - settled $ $ 21,717 21,717 $ $ 28,826 28,826

(12) TREASURY STOCK A.

2012 (in thousands of shares) Reason of reacquiring Transfer to employees Beginning shares 19,086 Additions 5,000 ( Disposals 986 ) Ending shares 23,100

2011 (in thousands of shares) Reason of reacquiring Transfer to employees Beginning shares 12,460 Additions 11,390 ( Disposals 4,764 ) Ending shares 19,086

As of December 31, 2012, the shares bought back as treasury stock amounted to $768,094. B. Pursuant to the R.O.C. Securities and Exchange Law, the number of shares bought back as treasury stock should not exceed 10% of the number of the Companys issued and outstanding shares and the amount bought back should not exceed the sum of retained earnings, paid-in capital in excess of par value and realized capital reserve. C. Pursuant to the R.O.C. Securities and Exchange Law, treasury stock should not be pledged as collateral and is not entitled to dividends before it is reissued to the employees. D.The transfer price of treasury stock to employees was initially set at $47.51 (in NT dollars)$44.05 (in NT dollars)$31.75 (in NT dollars) and $17.23 (in NT dollars) in 2010 for the first timethe second time2011 and 2012, respectively, and the transfer price was adjusted to $45.04 (in NT dollars)$43.32 (in NT dollars) and $31.22 (in NT dollars) per share in accordance with the earnings distribution for the fiscal years of 2010 for the first timethe second time and 2011, respectively. (13) CAPITAL RESERVE A. Pursuant to the R.O.C. Company Law, capital reserve arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital reserve to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Capital reserve should not be used to cover accumulated deficit unless the legal reserve is insufficient. B. Please see Note 4 (11) for capital reserve from stock warrants.

23

(14) RETAINED EARNINGS A. According to the Companys Articles of Incorporation, the annual earnings, if any, shall first be used to pay all taxes and offset prior years operating losses and then 10% of the remaining amount shall be set aside as legal reserve. Special reserve shall be set aside in accordance with the rules set forth in the Securities and Exchange Law, and remaining amount shall be distributed in the following order: (a) allocating 10% to 20% as employees bonus; (b) allocating 2% as directors and supervisors remuneration; and (c) distributing the remaining amount as common stockholders dividends in accordance with the resolution adopted by the Board of Directors and approved at the stockholders meeting. B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the balance of the reserve exceeds 25% of the Companys paid-in capital. C. In accordance with relevant laws or regulations of the Securities and Futures Bureau, the Company shall set aside special reserve at the same amount as the reduction in stockholders equity, and is not entitled to dividends. D. The amount of dividends appropriated is based on the Companys current years net income and prior years retained earnings, taking into account the Companys financial structure and future operating plans. The distribution ratio of cash dividends to stock dividends is based on the Companys funding status, diluted earnings per share and other factors. According to the dividend policy adopted by the Board of Directors, cash dividends shall account for at least 20% of the total dividends distributed. Dividends appropriation shall be resolved by the stockholders at the stockholders meeting. E. The appropriation of 2011 earnings had been resolved at the stockholders meeting on June 13, 2012 and the appropriation of 2010 earnings had been resolved at the stockholders meeting on June 15, 2011. Details are summarized below:
2011 earnings Amount Legal reserve Special reserve Stock dividends Cash dividends $ ( $ 19,184 488,347 ) 564,809 95,646 Dividends per share (in NT dollars) Around $1.5 $ $ Amount 132,767 488,347 37,465 749,292 1,407,871 2010 earnings Dividends per share (in NT dollars) Around $ 0.1 Around $ 2.0

The appropriation of 2011 earnings was the same as that approved by the Board of Directors on March 21, 2012; the 2011 directors and supervisors remuneration and employees cash bonus as appropriated during the stockholders meeting on June 13, 2012 were $13,220 and $99,151, respectively. The 2010 directors and supervisors remuneration, employees stock bonus and cash bonus as appropriated during the stockholders meeting on June 15, 2011 were $14,131, $94,679 and $46,633, respectively. The appropriation of 2012 earnings had been resolved at Board of the Directors
24

meeting on March 18, 2013. Details are summarized below:

2012 earnings Amount Legal reserve Special reserve Stock dividends Cash dividends $ $ 28,010 196,812 37,300 262,122 Dividends per share (in NT dollars) Around $0.1

On March 18, 2013, the Companys Board of Directors also proposed to distribute $1,106 as directors and supervisors remunerations, $8,292 as employees cash bonues and proposed to appropriate $335,701 of the additional paid-in capital for cash dividends. As of March 18, 2013, the above distribution proposal was not yet been approved by our shareholders. Any information in relation to the Company s earnings of distribution after the shareholders approval will be posted in the Market Observation Post System at the website of the Taiwan Stock Exchange. F. The estimated amounts of employees bonus were $8,292 and $99,151 and the estimated amounts of directors and supervisors remuneration were $1,106 and $13,220 for the years ended December 31, 2012 and 2011, respectively, and were recognized as operating costs or operating expenses for 2012 and 2011, respectively. While, if the estimated amounts are different from the amounts approved by the stockholders subsequently, the difference is recognized as gain or loss in the next year. Information on the appropriation of the Companys earnings as resolved by the Board of Directors and approved by the stockholders will be posted in the Market Observation Post System at the website of the Taiwan Stock Exchange. (15) INCOME TAX A. Income tax expense (benefit) and payable are reconciled as follows:
For the years ended December 31, 2012 2011 Tax on pretax income at statutory tax rate Permanent differences Temporary differences Tax effect of tax-exempt income Tax effect of minimum tax Estimated 10% corporate income tax on unappropriated earnings Increase in investment tax credit Adjustment of income tax expense in prior years Tax effect of valuation allowance Income tax expense (benefit) Adjustment of income tax expense in prior years Net effect of deferred income tax assets Prepaid income tax Income tax payable ( ( $ ( ( ( $ 133,654 8,668 ) 823 ) 5,100 ) 473 11,820 30,471 ) 20,885 72,513 ) 49,257 5,395 ) 72,513 35,002 ) 81,373 ( $ ( $ 81,711 4,365 ) 65,126
-

( (

( ( ( (

33,147 ) 14,233 ) 163,800 ) 68,708 ) 26,022 163,800 66,484 ) 54,630

25

B. As of December 31, 2012 and 2011, the balance of deferred income tax assets and liabilities were as follows:
December 31, 2012 2011 277,898 $ 235,716 -

Deferred income tax assets - current Deferred income tax liabilities - current Valuation allowance Deferred income tax assets - non current Deferred income tax liabilities - non current Valuation allowance

( ( ($

277,898 45,314 738,976 ) (

-

235,716 47,125 839,109 )

-

693,662 ) ( 415,764 ) ( $

791,984 ) 556,268 )

C. As of December 31, 2012 and 2011, the tax effects of temporary differences and investment tax credits resulting in deferred income tax assets and liabilities were as follows:
December 31, 2012 2011 Current items: Temporary differences Provision for product warranty Estimation of expenses and losses on obsolescence of inventories, etc. Investment tax credits Valuation allowance Non-current items: Temporary differences Investment loss under the equity method Cumulative translation adjustments Others Investment tax credits Valuation allowance

47,210 199,834 30,854

-

34,684 201,032
-

277,898

235,716

779,287 ) ( 40,311 ( 45,314

-

899,644 ) 29,491 ) 47,125 90,026

-

( ($

693,662 ) ( 415,764 ) ( $

791,984 ) 556,268 )

D. As of December 31, 2012, the Companys income tax returns through 2010 have been assessed and approved by the Tax Authority. E. The Company is eligible for investment tax credits under the Statute for Upgrading Industry. Details as of December 31, 2012 are as follows: Qualifying item Research and development Total tax credits
$ 298,875 $

Unused tax credits

30,854

Final year tax credits are due

2013

26

F. The Taiwan imputation tax system requires that any undistributed current earnings, on tax basis, of a company derived on or after January 1, 1998 be subject to an additional 10% corporate income tax if the earnings are not distributed in the following year. This 10% additional tax on undistributed earnings paid by the company may be used as tax credit by stockholders, including foreign stockholders, against the withholding tax on dividends. In addition, the domestic stockholders can claim a proportionate share in the companys corporate income tax credit against its individual income tax liability effective 1998. The Companys related information was as follows: December 31, 2012 2011 224,628 $ 192,062

Imputation credit account (ICA)

For the years ended December 31, 2012 Estimated creditable ratio for the appropriation of earnings: Unappropriated earnings In and after 1998 $ 6.45% December 31, 2012 3,483,973 $ 2011 3,308,469 2011 6.96%

G. Altek (Kunshan) Co., Ltd. and Altek EMS (Kunshan) Co., Ltd. pursuant to the tax laws in the Peoples Republic of China, will be levied corporate income taxes at a tax rate of 24% and 25% for the years 2011 and 2012, respectively. (16) EARNINGS PER SHARE
For the year ended December 31, 2012 Weighted-average outstanding Amount common shares Earnings per share (in NT dollars) Before tax After tax (Note) Before tax After tax $ 329,360 $ 280,103 $ 238,402 $ 280,103 375,691 $ 0.63 $ 0.75

Consolidated net income Basic earnings per share: Net income attributable to common stockholders of parent company Effects of potential diluted earnings per share: Employees bonus Diluted earnings per share: Net income attributable to common stockholders of parent company plus effect of dilutive share equivalent

2,737

238,402

280,103

378,428

0.63

0.74

Note: In thousands of shares.

27

For the year ended December 31, 2011 Weighted-average outstanding Amount Before tax Consolidated net income Basic earnings per share: Net income attributable to common stockholders of parent company Effects of potential diluted earnings per share: Employee stock options Employees bonus Diluted earnings per share: Net income attributable to common stockholders of parent company plus effect of dilutive share equivalent 1,410 7,615 $ 92,472 $ 191,843 378,208 $ 0.24 $ 0.51 $ 123,135 $ After tax 191,843 common shares (Note) Earnings per share (in NT dollars) Before tax After tax

92,472

191,843

387,233

0.24

0.50

Note: In thousands of shares. (17) PERSONNEL EXPENSES, DEPRECIATION AND AMORTIZATION The personnel expenses, depreciation and amortization for 2012 and 2011 are as follows:
For the years ended December 31 2012 Operating expenses $1,070,782 945,278 67,069 40,844 17,591 50,430 10,938 2011 Operating expenses $1,153,985 1,032,077 64,660 39,765 17,483 50,427 17,962

Personnel expenses Salary Insurance Pension Others Depreciation Amortization

Cost of sales $1,171,163 990,017 30,258 73,049 77,839 223,300 2,673

Total $2,241,945 1,935,295 97,327 113,893 95,430 273,730 13,611

Cost of sales $1,150,861 995,626 31,371 71,833 52,031 285,139 2,171

Total $2,304,846 2,027,703 96,031 111,598 69,514 335,566 20,133

Note : The depreciation of leased buildings $11,295 and $11,294 are excluded for 2012 and 2011, respectively. 5. RELATED PARTY TRANSACTIONS (1)Names of the related parties and their relationship with the Company
Names of related parties JinJing Optical Technology Co., Ltd. Gianta Co., Ltd. Pac-link Opportunity Fund Co., Ltd. Phoenix Optical (Shanghai) Co., Ltd. Relationship with the Company An investee company accounted for under the equity method by the Companys subsidiary A corporate director of Gianta Co., Ltd. A corporate supervisor of Pac-link Opportunity Fund Co., Ltd. An investee company accounted for under the equity method by the Companys subsidiary

28

(2)Significant related party transactions and balances A. Purchases For the years ended December 31, 2012 and 2011, the net purchases from the related parties were $12,701 and $146,272, respectively, which were less than 10% of the total amount of net purchases. Purchase price and payment terms from related parties are comparable with those from other suppliers. The payment term was approximately net 30~120 days. B. Accounts payable As of December 31, 2012 and 2011, the total accounts payable from related parties were $97 and $14,826, respectively, which were less than 10% of the total amount of accounts payable. C. The following sets forth the salaries/rewards information of key management, such as directors, supervisors, general manager, vice general manager, etc.: For the years ended December 31, 2012 2011 $ 20,508 $ 28,206 3,473 5,016 2,818 2,675 2,971 36,520 $ 29,770 $ 72,417

Salaries Bonuses Service execution fees Earnings distribution Total

(a) Salaries include regular wages, special responsibility allowances, pensions, severance pay, etc. (b) Bonuses include various bonuses and rewards. (c) Service execution fees include travel allowances, special expenditures, various allowances, housing and vehicle benefits, etc. (d) Earnings distribution means directors and supervisors remuneration and employees bonus accrued in current year. Note: The salaries/rewards of key management-directors, supervisors, general manager, vice general manager, etc. for the year ended December 31, 2011 were actual distributed amounts. 6. ASSETS PLEDGED AS COLLATERAL None. 7. CONTINGENT LIABILITIES Kodak US has filed a civil lawsuit against the Company in the New York District Court on January 12, 2012 (herein referred to as the Lawsuit) due to a dispute in the calculation of royalty payment. The Lawsuit is not a patent infringement litigation. The Company is currently trying to negotiate with Kodak US to settle the Lawsuit out-of-court. The financial effect to the Company cannot be reasonably determined as of the signing date of the report of independent accountants as the court proceeding is still ongoing without any specific damage claim.

29

8. SIGNIFICANT CASUALTY LOSS None. 9. SIGNIFICANT SUBSEQUENT EVENTS None. 10. OTHERS (1) FAIR VALUE OF FINANCIAL INSTRUMENTS
2012 Fair vale Quotations in an active market Estimated using a valuation technique 2011 Fair vale Quotations in an active market Estimated using a valuation technique

Book value Non-derivative financial instruments Assets Financial assets with fair value equal to book value Financial assets at fair value through profit or loss Financial assets carried at cost Liabilities Financial liabilities with fair value equal to book value Derivative financial instruments: None. 4,383,652 $ 7,649,084 428,282 235,953

Book value

428,282 -

$ 7,649,084 4,383,652

$ 9,781,413 497,652 236,174 6,380,607

497,652 -

$ 9,781,413 6,380,607

The methods and assumptions used to estimate the fair values of the above financial instruments are summarized below: A. For short-term instruments, the fair values were determined based on their carrying values because of the short maturities of the instruments. This method was applied to cash and cash equivalents, notes receivable, accounts receivable, other receivable, notes payable, accounts payable, accrued expenses and other payable. B. For deposits out and guarantee deposits received, the fair values were determined based on their carrying values because of cash received and paid in the future will almost equal todays carrying values. (2) INFORMATION ON INTEREST RATE RISK POSITIONS A. As of December 31, 2012 and 2011, the financial assets with fair value risk due to the change of interest amounted to $4,395,468 and $5,902,157, respectively. There were no financial liabilities with fair value risk; the financial assets with cash flow risk due to the change of interest amounted to $302,324 and $400,690, respectively. There were no financial liabilities with cash flow risk due to the change of interest as of December 31, 2012 and 2011. B. For the years ended December 31, 2012 and 2011, the interest income on financial assets or financial liabilities that are not at fair value through profit or loss amounted to $117,661 and $154,100, respectively, and the interest expense amounted to $1,762 and $1,004, respectively.

30

(3) PROCEDURE OF FINANCIAL RISK CONTROL AND HEDGE The Groups activities expose the Group to a variety of financial risks: market risk, credit risk, liquidity risk and cash flow interest rate risk. The Groups overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Groups financial performance. The Group uses derivative financial instruments to hedge certain risk exposures. Risk management is carried out by a central treasury department (Group Treasury) in accordance with the policies approved by the Board of Directors. Group Treasury identifies, evaluates and hedges financial risks in close cooperation with the Groups operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and the investment of excess liquidity. (4) INFORMATION OF MATERIAL FINANCIAL RISK A. Market risk (A) Foreign exchange risk The Group adopts the forward contract to hedge the currency exchange risk. As the amounts and period of the Groups foreign currency exposure and forward contracts are similar, the Group estimates no material risk would arise. The foreign exchange risk largely arises from the Groups business that are not denominated in the functional currency (the Companys and some subsidiaries functional currency is NTD, some subsidiaries functional currency is RMB). Financial assets and financial liabilities which are significantly affected by foreign exchange rate fluctuations were as follows:
2012 Foreign Currency Financial Assets Monetary item USD:NTD USD:RMB Long-term equity investment accounted for under the equity method USD:NTD Financial Liabilities Monetary item USD:NTD USD:RMB For the years ended December 31, 2011 Exchange Foreign rate Currency

Exchange rate

USD USD

142,382 64,252

1:29.040 1:6.2854

USD USD

169,555 46,946

1:30.275 1:6.3009

USD

12,101

1:29.040

USD

13,777

1:30.275

USD USD

4,786 107,633

1:29.040 1:6.2854

USD USD

3,784 134,130

1:30.275 1:6.3009

(B) Price risk The Group is exposed to equity securities price risk because of investments held by the Group. The Group sets limits to control the transaction volume and stop-loss amount to reduce its market risk. B. Credit risk The Group has lower significant concentrations of credit risk. It has policies in place to ensure that wholesale sales of products are made to customers with an appropriate credit history. The maximum loss to the Group is the book value of accounts receivable.
31

C. Liquidity risk The Group invests in financial assets which are traded in active market and can be readily converted into certain amount of cash approximate to their fair values. The liquidity risk exposure is low. D.Interest risk: None.

32

11. ADDITIONAL DISCLOSURES REQUIRED BY THE SECURITIES AND FUTURES BUREAU (1) RELATED INFORMATION OF SIGNIFICANT TRANSACTIONS
The details are as follows: A. Loans granted to others: None. B. Endorsements and guarantees for others: None. C. Details of marketable securities as of December 31, 2012 (Expressed in thousands of NT dollars, thousands of US dollars and thousands of RMB dollars) December 31, 2012 Name of the company Altek Corporation Type and name of marketable securities Money Market Fund Relationship of the investee with the Company None General ledger account Financial assets at fair value through profit or loss-current
Long-term equity investments accounted for under the equity method Financial assets carried at cost-non-current Financial assets at fair value through profit or loss-current Long-term equity investments accounted for under the equity method

Number of shares
510,848 $

Book value
6,553

Ownership Percentage
N/A

Market value
$ 6,553

Altek International Investment Co., Ltd. Common stock Altek Japan Corporation Common stock Altek Investment Co., Ltd. Common stock Altek Autotronics Corporation Common stock Gianta Co., Ltd. Common stock Pac-line Opportunity Fund Common stock Yung Li Investments Inc. Common stock Hua-chuang Automobile Information Technical Center Co., Ltd. Common stock Money Market Fund

Subsidiary accounted for under the equity method Director Supervisor None None

94,333,839

10,166,094

100%

10,166,094

Altek International Investment Co., Ltd.

1,000 5,000,000 17,750,000 317,865 15,488,000 30 10,000,000 3,124 US$

6,505 23,135 246,087 10,311 102,693 23,954 93,450 3,117

100% 100% 88.75% 14.98% 7.06% 4.84% 2% N/A US$

6,505 23,135 246,087 10,311 102,693 23,954 93,450 3,117

Altek Lab Inc. Common stock and preferred stock JinJing Optical Technology Co., Ltd. Common stock Altek (Kunshan) Co., Ltd. Altek EMS (Kunshan) Co., Ltd. Altek Imaging Technology (Shanghai) Limited Altek Precision (Kunshan) Co., Ltd. Altek Trading (Shanghai) Co., Ltd. Phoenix Optical (Shanghai) Co., Ltd.

Subsidiary accounted for under the equity method

11,311,875 (Note ) 3,500,000 N/A

US$

1,699

100%

US$

1,699

Leading Tech Co., Ltd. Toptek Investment Cayman Co., Ltd. Altek Imaging Technology (Cayman) Co., Ltd. Altek Trading (Cayman) Co., Ltd. Altek Optical (Cayman) Co., Ltd.

US$ US$ US$ US$ US$ US$ US$

1,059 130,683 27,870 1,681 8,627 10,061 11,042

23.33% 100% 100% 100% 100% 100% 40%

US$ US$ US$ US$ US$ US$ US$

1,059 130,683 27,870 1,681 8,627 10,061 11,042

33

December 31, 2012

Name of the company Altek Semiconductor (Cayman) Co., Ltd. Altek Optical Technology (Cayman) Co., Ltd. Altek (Kunshan) Co., Ltd. Altek Trading (Shanghai) Co., Ltd. Type and name of marketable securities Altek Semiconductor Corporation Relationship of the investee with the Company Subsidiary accounted for under the equity method None Subsidiary accounted for under the equity method None General ledger account Long-term equity investments accounted for under the equity method Financial assets carried at cost-non-current Long-term equity investments accounted for under the equity method Financial assets at fair value through profit or loss-current Financial assets carried at cost-non-current Financial assets at fair value through profit or loss-current Number of shares 20,000,000 Book value US$ 6,275 Ownership Percentage 100% Market value US$ 6,275

Altek Optical Technology (Kunshan) Co., Ltd. Guangdong Kingding Optical Machine Co., Ltd. Beijing Altek Image Communication Technology Co., Ltd. Money Market Fund

N/A

US$ US$ ( US$

10,512 190 99 )

100% N/A 100%

US$ US$ ( US$

10,512 190 99 )

Altek Investment Co., Ltd.

795,532

12,460

N/A

12,460

Altek Investment Co., Ltd. Altek Autotronics Corporation

Altek Autotronics Corporation Money Market Fund

Affiliated company None

1,508,000 16,220,347

15,080 203,821

7.54% N/A

15,080 203,821

Altek Semiconductor Corporation

Money Market Fund

4,930,447

114,919

N/A

114,919

NoteIncluding common stock of 9,311,875 shares and preferred stock of 2,000,000 shares.

34

D. Acquisition or sale of the same security with the accumulated cost exceeding $100 million or 20% of the Companys paid-in capital during the year ended December 31, 2012: Relationship Beginning balance of the investee with the Number of Company shares Amount N/A 9,486,045 $ 120,323 Additions (Expressed in thousands of NT dollars and thousands of US dollars) Disposals Ending balance

Name of the Type and name of Company marketable securities Altek Corporation

General ledger account

Name of the counterparty N/A

Number of shares 6,561,986 $

Amount 197,800

Number of shares 15,537,183 $

Selling price 312,579

Book Value $

Disposal gain Number of shares 991 510,848 $

Amount 6,535

Note -

Money Market Fund Financial assets at fair value through profit or loss-current Altek Autotronics Long-term equity Corporation investment accounted for under the equity method Altek Money Market Fund Financial assets Autotronics at fair value Corporation through profit or loss-current Altek Altek Optical Long-term equity international Technology Investments investment (Cayman) Co., Ltd. accounted for Co., Ltd. under the equity method Altek Optical Altek Optical Technology Technology (Cayman) (Kunshan) Co., Ltd. Co., Ltd. Note 1: Proceeds from new issuance.

311,588 $

Note 1

Note 1

5,000,000

50,000

12,750,000

127,500

17,750,000

246,087

Note 2

N/A

N/A

4,854,267

58,520

26,075,962

323,000

14,709,882

178,300

177,784

516

16,220,347

203,736

Note 1

Note 1

3,000,000

US$2,969

9,000,000

US$9,000

12,000,000 US$10,512

Note 2

Note 1

Note 1

N/A

US$2,969

N/A

US$9,000

N/A

US$10,512

Note 2

Note 2: The ending balance amount includes cumulative translation adjustment and investment gain (loss) accounted for under the equity method. E. Acquisition of real estate properties exceeding $100 million or 20% of the Company s paid -in capital during the year ended December 31, 2012: None. F. Disposal of real estate properties exceeding $100 million or 20% of the Companys paid-in capital during the year ended December 31, 2012: None. G. Purchases and sales transactions with related parties for the year ended December 31, 2012 over $100 million or 20% of the Companys capital stock: Transactions Purchases (sales) Purchases Percentages of purchases (sales) 99% 94% 100% 100% Difference in transaction terms compared with general transactions Accounts (payable) receivable Percentage of accounts (payable) receivable Amount ($ 5,198,778 ) 98% 5,198,778 ( 1,178,399 ) 1,178,399 100% 100% 100%

Company Altek Corporation

Altek International Parent company Sales ( 20,275,563 ) Investment Co., Ltd. Altek International Altek (Kunshan) Co., Ltd. Affiliated enterprise Purchases 21,103,580 Investment Co., Ltd. Altek (Kunshan) Co., Altek International Parent company Sales ( 21,103,580 ) Ltd. Investment Co., Ltd. NoteThe payment term with third parties was net 30~120 days, the collection term with third parties was net 30~90 days. H. Receivables from related parties exceeding $100 million or 20% of the Companys paid-in capital stock as of December 31, 2012: Relationship with the counterparty Parent company Balance of receivable from related party $ 5,198,778

Counterparty Altek International Investment Co., Ltd. Altek Corporation

Relationship with the counterparty Affiliated enterprise

Amount $ 20,275,563

Term Net 75 days

Unit price Approximately the same price with third parties

Term Note

Company as a creditor Altek International Investment Co., Ltd.

Name of the counterparty Altek Corporation

Turnover rate 3.98%

Amount $ -

Overdue receivable Action adopted for overdue accounts N/A

Subsequent collection $ 3,861,829

Balance of allowance for bad debts $ -

I. Derivative financial instrument transactions: None.

35

(2) INFORMATION OF INVESTEE COMPANIES Original amount December 31, January 1, 2012 2012 $ 3,086,363 $ 3,086,363 Shares held by the Company Shares 94,333,839 Percentage 100% (Expressed in thousands of NT dollars and thousands of US dollars) Net income (loss) of Investment income the investee (loss) recorded by the Book value Company Company Note $ 10,166,094 ($ 12,557 ) ($ 5,786 ) Note1

Investor Altek Corporation

Investee Company Altek International Investment Co., Ltd. Altek Japan Corporation

Location British Virgin Islands Japan

Main business scope Investment and general business operations Sale and design of digital cameras and its optical instruments Investment Research design, manufacture and sales of car electronic components Design and sale of engineering and optical components Investment and general business operations Manufacture and sale of digital cameras and its accessories. SMT processing and related engineering services Manufacture and sale of digital still cameras or related optical components Design, manufacture and sales of digital camera parts Wholesale, import and export of digital cameras, digital video cameras and their associated accessories Manufacturing and marketing of digital cameras and its key components photo sensor and optoelectronic equipment Manufacture and sale of optical components Research design and sales of ASIC

2,869

2,869

1,000

100%

6,505

1,541

1,541

Altek Investment Co., Republic of Ltd. China Altek Autotronics Corporation Altek Lab Inc. Republic of China U.S.A.

50,000 177,500

50,000 50,000

5,000,000 17,750,000

100% 88.75%

23,135 246,087

60 46,100

60 46,100

Altek International Investment Co., Ltd.

US$

3,680

US$

3,680

11,311,875

100%

US$

1,699

US$

103

US$

103

Note 2 Note 3

JinJing Optical Technology Co., Ltd.

Samoa

US$

3,500

US$

3,500

3,500,000

23.33%

US$

1,059

( US$

173 )

( US$

43 ) Note 3

Leading Tech. Co., Ltd. Toptek Investment Cayman Co., Ltd.

Altek (Kunshan) Co., Mainland China Ltd. Altek EMS (Kunshan) Mainland China Co., Ltd. Mainland China

US$ US$ US$

45,000 8,983 2,900

US$ US$ US$

45,000 8,983 2,900

N/A N/A

100% 100% 100%

US$ 130,683 US$ US$ 27,870 1,681

US$ US$ US$

4,263 3,888 18

US$ US$ US$

4,263 3,888 18

Note 3 Note 3 Note 3

Altek Imaging Altek Imaging Technology Technology (Cayman) Co., Ltd. (Shanghai) Limited

Altek Precision Mainland China (Kunshan) Co., Ltd. Mainland China

US$ US$

13,800 8,500

US$ US$

13,800 8,500

100% 100%

US$ US$

8,627 10,061

( US$ ( US$

3,296 ) 292 )

( US$ ( US$

3,296 ) Note 3 292 ) Note 3

Altek Trading Altek Trading (Cayman) Co. Ltd. (Shanghai) Limited

Altek Optical Phoenix Optical Mainland China (Cayman) Co., Ltd. (Shanghai) Co., Ltd.

US$

8,864

US$

8,864

40%

US$

11,042

( US$

2,910 )

( US$

1,164 ) Note 3

JinJing Optical Technology Co., Ltd.

Kinko Optical (Suzhou) Co., Ltd.

Mainland China

US$

15,000

US$

15,000

100%

US$

11,135

( US$

655 )

( US$

655 ) Note 3

Altek Semiconductor Altek Semiconductor Republic of (Cayman) Co., Ltd. Corporation China

US$

6,147

US$

6,147

20,000,000

100%

US$

6,275

( US$

656 )

( US$

656 ) Note 3

36

Investor

Investee Company

Location

Main business scope Sales of digital camera, cell phone and related accessories and supporting products

Original amount December 31, January 1, 2012 2012 US$ 1,025 US$ 1,025

Shares held by the Company Shares N/A Percentage 100%

(Expressed in thousands of NT dollars and thousands of US dollars) Net income (loss) of Investment income the investee (loss) recorded by the Book value Company Company Note (US$ 99 ) ( US$ 42 ) ( US$ 42 ) Note 3

Altek Trading Beijing Altek Image Mainland China (Shanghai) Limited Communication Technology Co., Ltd. Altek Optical Altek Optical Mainland China Technology Technology (Cayman) Co., Ltd. (Kunshan) Co., Ltd.

Manufacturing and sales of US$ 12,000 US$ 3,000 100% US$ 10,512 ( US$ digital camera and its accessories and optical components Note 1: The difference is the adjustment of unrealized gain or loss from the upstream inter-company transactions between subsidiaries and the effect on intergroup consolidation of RICH-ALTEK U.S.A. INC.. Note 2: Common stock of 9,311,875 shares and preferred stock of 2,000,000 shares. Note 3: In thousands of dollars.

1,492 )

( US$

1,492 ) Note 3

37

(3) RELEVANT INFORMATION REGARDING INVESTMENT IN MAINLAND CHINA A. The related information of investments in Mainland China are as follows: (Expressed in thousands of NT dollars and thousands of US dollars) Amount of remittance out in 2012 Beginning balance of remittance in 2012 $ 1,306,800 Ending balance of remittance from Taiwan on December 31, 2012 $ 1,306,800 Shares held by the Company (direct and indirect) 100% Profit/loss recognized during the period $ 126,099 Ending balance of book value on December 31, 2012 $ 3,795,034 Ending balance of profit remitted into Taiwan $ -

Name of investee in Mainland China Altek (Kunshan) Co., Ltd. (Note 1)

Main activities of investee Manufacture and sale of digital still cameras and its accessories

Capital $ 1,440,384

Altek EMS (Kunshan) Co., Ltd. (Note 2)

Altek Imaging Technology (Shanghai) Limited Altek Trading (Shanghai) Limited

SMT processing and related engineering services Manufacture and sale of optical components Wholesale, import and export of digital cameras, digital video cameras and their associated accessories Manufacture and sale of optical components Manufacturing and marketing of digital cameras and its key components, photo sensor and optoelectronic equipment Sales of digital camera, cell phone and related accessories and supporting products Design, manufacture and sales of digital camera parts

145,200

Method of investment Indirect investment in PRC through existing companies located in the third area.

Remittance out $ -

Remittance in $ -

263,770

263,770

100%

115,006

809,345

84,216

84,216

--

84,216

100%

532

48,816

- -

246,840

246,840

--

246,840

100%

8,637 )

292,171

- -

Kinko Optical (Suzhou) Co., Ltd. Phoenix Optical (Shanghai) Co., Ltd.

435,600

101,640

101,640

23.33%

4,519 )

54,707

459,500

257,411

257,411

40%

34,431 )

320,674

Beijing Altek Image Communication Technology Co., Ltd.

29,766

100%

1,242 )

2,875 )

Altek Precision (Kunshan) Co., Ltd.

400,752

400,752

400,752

100%

97,495 )

250,528

38

Amount of remittance out in 2012 Beginning balance of remittance in 2012 $ 87,120 Ending balance of remittance from Taiwan on December 31, 2012 $ 348,480 Shares held by the Company (direct and indirect) 100% Profit/loss recognized during the period ($ 44,133 ) Ending balance of book value on December 31, 2012 $ 305,268 Ending balance of profit remitted into Taiwan -

Name of investee in Mainland China Altek Optical Technology (Kunshan) Co., Ltd.

Main activities of investee Manufacture and sales of digital camera and its accessories and optical components

Capital $ 348,480

Method of investment Indirect investment in PRC through existing companies located in the third area.

Remittance out $ 261,360

Remittance in $ -

Note 1: Including retained earnings capitalized of US$4,600. Note 2: Including retained earnings capitalized of US$3,600. Name of the company Altek Corporation Accumulated investment balance from Taiwan to China $ 3,009,909 Approved investment amount by Ministry of Economic Affairs R.O.C. $ 4,151,384 Ceiling amount of investment in Mainland China by Ministry of Economic Affairs R.O.C. Note

Note: According to REGULATIONS GOVERNING THE APPROVAL OF INVESTMENT OR TECHNICAL COOPERATION IN MAINLAND CHINA on August 29, 2008, Altek Corporation obtained the demonstration offered by the Industrial Development Bureau of Ministry of Economics Affairs issue to Headquarters, so there is no need to compute the ceiling amount of the Company .

39

B. Significant transactions with the direct and indirect investments in Mainland China (the amount are the figures prior to eliminating the purchase and sales transactions between the Company and the investee companies in China through its subsidiaries (the middlemen) in other countries). (a) Purchases: (i) The Companys net purchases from Altek International Investment Co., Ltd. (AII), which indirectly invested in a Mainland China Company.
For the years ended December 31, 2012 Amount Altek International Investment Co., Ltd. Percentage of net purchases Amount 2011 Percentage of net purchases

21,167,586

99%

23,869,885

100%

(ii) AIIs net purchases from Altek (Kunshan) Co., Ltd., which was AIIs indirect investee in Mainland China.
For the years ended December 31, 2012 Amount Altek (Kunshan) Co., Ltd. $
21,077,433

2011 Percentage of net purchases

96%

Amount $ 24,074,714

Percentage of net purchases 95%

(b) Accounts payable: (i) The Companys accounts payable to AII (Note)
December 31, 2012 Amount Altek International Investment Co., Ltd. Percentage of accounts payable Amount 2011 Percentage of accounts payable

5,198,778

98%

6,210,888

98%

(ii) AIIs accounts payable to Altek (Kunshan) Co., Ltd. (Note)

December 31, 2012 Amount Altek (Kunshan) Co., Ltd. $
1,156,627

2011 Percentage of accounts payable

100%

Amount $ 1,812,532

Percentage of accounts payable 100%

40

(c) Sales: (i) The Companys net sales to the consolidated subsidiaries in third countries For the years ended December 31, 2012 and 2011, the net sales to the consolidated subsidiaries in third countries were $879,996 and $1,183,734, respectively, which were less than 10% of the total amount of net sales. (ii) The consolidated subsidiaries in third countries net sales to investee in Mainland China For the years ended December 31, 2012 and 2011, the consolidated subsidiaries in third countries net sales to investee in Mainland China were $853,701 and $1,155,022, respectively, which were less than 10% of the total amount of net sales. (d) Accounts receivable (Note) : As of December 31, 2012 and 2011, the consolidated subsidiaries in third countries accounts receivable from investee in Mainland China were both $0, which were less than 10% of the total amount of accounts receivable. Note: The balance was offset by accounts receivable or accounts payable.

41

(4) THE RELATIONSHIP AND SIGNIFICANT TRANSACTIONS BETWEEN THE COMPANY AND ITS SUBSIDIARIES For the year ended December 31, 2012: General transactions Company Altek Corporation Altek International Investment Co., Ltd. Altek (Kunshan) Co., Ltd. Counterparty Altek International Investment Co., Ltd. Altek Corporation Altek (Kunshan) Co., Ltd. Altek International Investment Co., Ltd. Relationship with the Company (Note 1) (1) (1) (2) (2) (3) (3) General ledger account Purchases Accounts payable Sales Accounts receivable Purchases Sales $ Amount 20,275,563 5,198,778 20,275,563 5,198,778 21,103,580 21,103,580 Terms Net 75 days Percentage of revenue or assets (Note 2) 83% 32% 83% 32% 86% 86%

For the year ended December 31, 2011: General transactions Company Altek Corporation Altek International Investment Co., Ltd. Altek (Kunshan) Co., Ltd. Counterparty Altek International Investment Co., Ltd. Altek Corporation Altek (Kunshan) Co., Ltd. Altek International Investment Co., Ltd. Relationship with the Company (Note 1) (1) (1) (2) (2) (3) (3) General ledger account Purchases Accounts payable Sales Accounts receivable Purchases Sales $ Amount 22,685,156 6,287,191 22,685,156 6,287,191 23,949,227 23,949,227 Terms Net 75 days Percentage of revenue or assets (Note 2) 81% 32% 81% 32% 86% 86%

Note 1: The relationship with the transaction parties are as follows: (1) The Company to the consolidated subsidiary. (2) The consolidated subsidiary to the Company. (3) The consolidated subsidiary to the consolidated subsidiary. Note 2: Ratio of asset/liability accounts is divided by consolidated total assets, and ratio of profit/loss accounts is divided by consolidated sales revenue.

42

12. OPERATINGS SEGMENTS (1) General information The Group mainly operates in one segment. The chief operating decision-maker reviews the Groups reporting to assess performance and allocate resources. The Group mainly has a single reportable segment. (2) Measurement of segment information The chief operating decision-maker assesses the segment performance through the consolidated financial statements which are prepared in accordance with the generally accepted accounting principles in the Republic of China. (3) Information on segment profit (loss), assets and liabilities
For the years ended December 31, 2012 Revenue from external customers Inter-segment revenue Total segment operating profit Total segment assets $ $ $ $ 24,575,459 280,103 16,373,458 $ $ $ $ 2011 27,861,489 191,843 18,998,548

(4) Reconciliation for segment profit (loss), assets and liabilities None. (5) Revenue information by category Revenues from external customers are derived from the sale of digital cameras and related export and import trade. (6) Revenue information by geographic area
For the years ended December 31, 2012 Revenue Taiwan America Asia Europe $ $ 480,968 1,190,634 22,097,360 806,497 24,575,459 $ $ Non-current assets 2,316,850 3,092,578 5,409,428 $ $ Revenue 307,029 5,294,133 20,705,382 1,554,945 27,861,489 $ $ 2011 Non-current assets 2,379,211 3,043,592 5,422,803

43

13. DISCLOSURES RELATING TO THE ADOPTION OF IFRSs Pursuant to the regulations of the former Financial Supervisory Commission, Executive Yuan, R.O.C., effective January 1, 2013, a public company whose stock is listed on the Taiwan Stock Exchange Corporation or traded in the GreTai Securities Market should prepare financial statements in accordance with the International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), and relevant interpretations and interpretative bulletins that are ratified by the Financial Supervisory Commission. The Group discloses the following information in advance prior to the adoption of IFRSs under the requirements of Jin-Guan-Zheng-Shen-Zi Order No. 0990004943 of the Financial Supervisory Commission, dated February 2, 2010: Major contents and status of execution of the Companys plan for IFRSs adoption: A. The Company has formed an IFRSs group, which is responsible for setting up a plan relative to the Companys transition to IFRSs. The major contents and status of execution of this plan are outlined below: Working Items for IFRSs Adoption a. Formation of an IFRSs group b. Setting up a plan relative to the Companys transition to IFRSs c. Identification of the differences between current accounting policies and IFRSs d. Identification of consolidated entities under the IFRSs framework e. Evaluation of the impact of each exemption and option of the Company under IFRS 1 First-time Adoption of International Financial Reporting Standards f. Evaluation of needed information system adjustments g. Evaluation of needed internal control adjustments h. Establish IFRSs accounting policies i. Selection of exemptions and options available under IFRS 1 First-time Adoption of International Financial Reporting Standards j. Preparation of statement of financial position on the date of transition to IFRSs k. Preparation of IFRSs comparative financial information for 2012 l. Completion of relevant internal control (including financial reporting process and relevant information system) adjustments Status of Execution Completed Completed Completed Completed Completed

Completed Completed Completed Completed Completed Completed Completed

B. Material differences that may arise between current accounting policies used in the preparation of financial statements and IFRSs and Rules Governing the Preparation of Financial Statements by Securities Issuers that will be used in the preparation of financial statements in the future: The Group uses the IFRSs already ratified currently by the Financial Supervisory Commission and the Rules Governing the Preparation of Financial Statements by Securities Issuers that will be applied in 2013 as the basis for evaluation of material differences in accounting policies as mentioned above. However, the Groups current evaluation results may be different from the actual differences that may arise when new issuances of or amendments to IFRSs are subsequently ratified by the Financial
44

Supervisory Commission or relevant interpretations or amendments to the Rules Governing the Preparation of Financial Statements by Securities Issuers come in the future. Material differences identified by the Group that may arise between current accounting policies used in the preparation of financial statements and IFRSs and Rules Governing the Preparation of Financial Statements by Securities Issuers that will be used in the preparation of financial statements in the future. The Group has also elected to use certain exemptions under rules in IFRS 1, First-time Adoption of International Financial Reporting Standards, please refer to Note 13(c). The effects are outlined below: 1. Material differences of adjustments on assets and liabilities on January 1, 2012. R.O.C. SFAS Adjustments IFRSs Explanation
Deferred income tax assets - current Deferred income tax assets - non-current Others Total assets Accrued pension liabilities Deferred income tax liabilities - non-current Others Total liabilities Capital reserve long-term investments Retained earnings Cumulated translation adjustments Others Total stockholders equity
$ 235,716 47,125 18,715,707 $ 18,998,548 $ 1,632 839,109 7,336,408 $ $ 8,177,149 13,187 5,069,098 $ $ ( $ 235,716 ) 325,742 90,026 14,718 90,026 $ 104,744 ($ 13,187 ) 142,456 $ $ $ 372,867 18,715,707 $ 19,088,574 $ 16,350 929,135 7,336,408 8,281,893

(i) (i)

( ii ) (i)

( iii ) ( ii )( iii ) 5,211,554 ( iv )( v )

5,595,127

143,987 5,595,127 $ 10,821,399

143,987 ) -

( iv )

($

14,718 )

$ 10,806,681

Explanation for adjustments: (i) In accordance with current accounting standards in the R.O.C., a deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or noncurrent. However, a deferred tax asset or liability that is not related to an asset or liability for financial reporting should be classified as current or noncurrent according to the expected time period to realize or settle a deferred tax asset or liability. However, under IAS 1, Presentation of Financial Statements, an entity should not classify a deferred tax asset or liability as current. Accordingly, the Company should reclassify the account deferred income tax assets from current to non-current on transition date.

45

(ii) The discount rate used to calculate pensions shall be determined with reference to the factors specified in R.O.C. SFAS 18, paragraph 23. However, IAS 19, Employee Benefits, requires an entity to determine the rate used to discount employee benefits with reference to market yields on high quality corporate bonds that match the currency at the end day of the reporting period and duration of its pension plan; when there is no deep market in corporate bonds, an entity is required to use market yields on government bonds (at the end day of the reporting period) instead. Besides, in accordance with current accounting standards in the R.O.C., the unrecognized transitional net benefit obligation should be amortized on a straight-line basis over the average remaining service period of employees still in service and expected to receive benefits. However, in accordance with IAS 19, Employee Benefits, the unrecognized transitional net benefit obligation should be recognized as an expense immediately at the date of adoption. Due to the above differences and in order to eliminate the difference in employee benefits upon adoption of IFRS, the Company increased the accrued pension liabilities by $14,718 and simultaneously reduced retained earnings by $14,718 on transition date. (iii) In accordance with current accounting standards in the R.O.C., if an investee company issues new shares and original shareholders do not purchase or acquire new shares proportionately, but the investor company does not lose its significant influence over the investee company, the investment percentage, and therefore the equity in net assets for the investment that an investor company has invested, will be changed. Such difference shall be used to adjust the Additional paid-in capital and the Long-term equity investments accounts. However, in accordance with IAS 28, Investments in Associates, increases in investment percentage is accounted for as an acquisition of investment; conversely, decreases in investment percentage is accounted for as a disposal of investment and any related disposal gain or loss is recognized. Accordingly, the Company reduced the additional paid-in capital from investee under equity method by $13,187 and simultaneously increased the retained earnings by $13,187 on transition date. (iv) The Group elected to use the exemption of the cumulative translation differences relating to the investment in a foreign operation. The subsequent changes in foreign exchange rate are treated in accordance with IAS 21, Effects of Changes in Foreign Exchange Rates. Therefore, the Group decreased the cumulative translation differences and increased retained earnings by $143,987, respectively. (v) In accordance with Jin-Guan-Zheng-Fa-Zi Order No. 1010012865 of the FSC, dated April 6, 2012, the Group shall set aside special reserve by $142,456 for the net increases of retained earnings upon adoption of IFRS.

46

2. Material differences of adjustments on assets and liabilities on December 31, 2012. R.O.C. SFAS Adjustments IFRSs Explanation
Deferred income tax assets - current Deferred income tax assets - non-current Others Total assets Accrued pension liabilities Deferred income tax liabilities - non-current Others Total liabilities Capital reserve long-term investments Retained earnings Cumulated translation adjustments Others Total stockholders equity
( $ 277,898 45,314 16,050,246 $ 16,373,458 $ 2,624 738,976 5,462,261 $ 6,203,861 $ 10,544 4,775,439 $ ($ $ $ ( $ 277,898 ) 322,159 44,261 17,202 44,261 61,463 10,544 ) 137,329 $ 367,473 16,050,246 $ 16,417,719 $ 19,826 783,237 5,462,261 $ 6,265,324 $ 4,912,768

(i) (i)

( ii )

( iii ) ( ii )( iii ) ( iv )( v ) ( iv )

196,812 ) 5,580,426 $ 10,169,597

143,987 ) -

340,799 ) 5,580,426

($

17,202 )

$ 10,152,395

Explanation for adjustments: (i) In accordance with current accounting standards in the R.O.C., a deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or noncurrent. However, a deferred tax asset or liability that is not related to an asset or liability for financial reporting should be classified as current or noncurrent according to the expected time period to realize or settle a deferred tax asset or liability. However, under IAS 1, Presentation of Financial Statements, an entity should not classify a deferred tax asset or liability as current. Accordingly, the Company should reclassify the account deferred income tax assets from current to non-current on transition date. (ii) The discount rate used to calculate pensions shall be determined with reference to the factors specified in R.O.C. SFAS 18, paragraph 23. However, IAS 19, Employee Benefits, requires an entity to determine the rate used to discount employee benefits with reference to market yields on high quality corporate bonds that match the currency at the end day of the reporting period and duration of its pension plan; when there is no deep market in corporate bonds, an entity is required to use market yields on government bonds (at the end day of the reporting period) instead. Besides, in accordance with current accounting standards in the R.O.C., the unrecognized transitional net benefit obligation should be amortized on a straight-line basis over the average remaining service period of employees still in service and expected to receive benefits. However, in accordance with IAS 19, Employee Benefits, the unrecognized transitional net benefit obligation should be recognized as an expense immediately at the date of adoption. Due to the above differences and in order to eliminate the difference in employee benefits upon adoption of IFRS, the Company
47

increased the accrued pension liabilities by $14,718 and simultaneously reduced retained earnings by $14,718 on transition date. In accordance with current accounting standards in R.O.C., actuarial pension gain or loss of the Group is recognized in net pension cost of current period using the corridor method. However, IAS 19, Employee Benefits, requires that actuarial pension gain or loss should be recognized immediately in other comprehensive income. Accordingly, the actuarial pension gain or loss of the Group was recognized in other comprehensive income. Accordingly, the Group reduced the retained earnings by $2,484 and simultaneously increased the accrued pension liabilities by $2,484. (iii) In accordance with current accounting standards in the R.O.C., if an investee company issues new shares and original shareholders do not purchase or acquire new shares proportionately, but the investor company does not lose its significant influence over the investee company, the investment percentage, and therefore the equity in net assets for the investment that an investor company has invested, will be changed. Such difference shall be used to adjust the Additional paid-in capital and the Long-term equity investments accounts. However, in accordance with IAS 28, Investments in Associates, increases in investment percentage is accounted for as an acquisition of investment; conversely, decreases in investment percentage is accounted for as a disposal of investment and any related disposal gain or loss is recognized. Accordingly, the Company reduced the additional paid-in capital from investee under equity method by $13,187 and simultaneously increased the retained earnings by $13,187 on transition date. In accordance with IAS 27, Consolidated and Separate Financial Statements, if an investee company issues new shares and original shareholders do not purchase or acquire new shares proportionately, in which an investor company does not lose control over the subsidiary, and therefore the equity in net assets for the investment that an investor company has invested, will be changed. Such difference shall be used to adjust the Additional paid-in capital and the Long-term equity investments accounts. The Companys subsidiary issued new shares this period and therefore the equity in net assets for the investment that an investor company has invested decreased. Accordingly, the Company reduced the retained earnings by $2,643, and simultaneously increased the additional paid-in capital from investee under equity method by 2,643. (iv) The Group elected to use the exemption of the cumulative translation differences relating to the investment in a foreign operation. The subsequent changes in foreign exchange rate are treated in accordance with IAS 21, Effects of Changes in Foreign Exchange Rates. Therefore, the Group decreased the cumulative translation differences and increased retained earnings by $143,987, respectively. (v) In accordance with Jin-Guan-Zheng-Fa-Zi Order No. 1010012865 of the FSC, dated April 6, 2012, the Group shall set aside special reserve by $142,456 for the net increases of retained earnings upon adoption of IFRS.

48

3. Material differences of adjustments on profit and loss for the year ended December 31, 2012. R.O.C. SFAS IFRSs Explanation Adjustments
Operating revenues Operating costs Gross profit Operating expenses Operating income Non-operating revenues and income Non-operating expenses and loss Income before income tax Income tax expense Consolidated net income
$ ( ( 24,575,459 22,808,808 ) 1,766,651 1,583,100 ) 183,551 183,463 ( 37,654 ) 329,360 ( $ 49,257 ) 280,103 $ ( $ $ 329,360 49,257 ) 280,103 ( ( ( $ 24,575,459 22,808,808 ) 1,766,651 1,583,100 ) 183,551 183,463 37,654 )

Explanation for adjustments: No significant differences. C. The Group elected to use the following exemptions in accordance with IFRS 1 First-time adoption of International Financial Reporting Standards and Rules Governing the Preparation of Financial Statements by Securities Issuers effective in 2013. 1. Business Combinations For business combinations before the date of transition to IFRSs (transition date), the Group elects not to apply IFRS 3 Business Combinations retrospectively. 2. Share-based payment transactions For the vested equity instruments of share-based payment transactions before the transition date, the Group elects not to apply IFRS 2 Share-base Payment retrospectively. 3. Employee benefits The Group elects to recognize all actuarial gains or losses up to the transition date into retained earnings. 4. Cumulative translation differences The Group elects to use the exemption of the cumulative translation differences relating to the investment in a foreign operation. The subsequent changes in foreign exchange rate are treated in accordance with IAS 21, Effects of Changes in Foreign Exchange Rates. 5. Compound financial instruments For compound financial instruments which were not outstanding at the transition date, the Group elects the exemptions and does not have to split the financial instruments into separate liability and equity components. Some of the above differences may not have a material effect on the Group in transition to IFRSs due to the exemption rules in IFRS 1, First-time Adoption of International Financial Reporting Standards, adopted by the Group.

49