PixArt Imaging Inc Report_101_English...PixArt Imaging Inc 2012 Annual Report (TRANSLATION) Taiwan...

OTC Code:3227

PixArt Imaging Inc

2012 Annual Report (TRANSLATION)

Taiwan Stock Exchange Market Observation Post System: http://newmops.twse.com.tw PixArt annual report is available at http://www.pixart.com.tw

Printed on May 07, 2013

Notice to Readers: The reader is advised that the annual report has been prepared originally in Chinese. The English version is directly translated from Chinese version.

I、Spokesperson：

Name：Mei-Wei Lo Title:：Chief Finance Officer TEL：886-3-579-5317 E-mail：[email protected]

II、Deputy Spokesperson： Name：Stella Tsai Title:：Deputy Manager, Finance & Accounting Dept. TEL：886-3-579-5317 E-mail：[email protected]

III、PixArt Imaging Inc. Address & Telephone Number： Headquarters Address：5F, No.5, Innovation Road I, Hsinchu Science Park, Taiwan, R.O.C. 300 TEL：886-3-579-5317

IV、Securities Dealing Institute: Company Name：Horizon Securities Co., LTD. Address：3F, No.236, Sec. 4, Xinyi Rd, Taipei, Taiwan, R.O.C. TEL：886-2-2326-8818 Website：www.honsec.com.tw

V、Names of Independent Auditors for Financial Statements in Recent Years, Their Office Name, Address, Website and Telephone Number： Office：Ernst & Young Names：Jia-Ling Tu、Chin-Lai Wang Address：9F, No.333, Keelung Road, Sec. 1, Taipei, Taiwan, R.O.C. TEL：886-2-2720-4000 Website：www.ey.com/tw

VI、Name of Overseas Securities Dealers and Methods to Inquire about Overseas Securities：Nill

VII、PixArt Website：www.pixart.com.tw

ANNUAL REPORT 2012

TABLE OF CONTENTS

I. Letter to Shareholders ........................................................................................................................ 1

II. Company Profile .................................................................................................................................. 2

1.Date incorporated ............................................................................................................................ 2

2.Milestones ......................................................................................................................................... 2

III. Corporate Governance ...................................................................................................................... 4

1. Organization.................................................................................................................................... 4

2. Directors and Supervisors and Officials ....................................................................................... 6

3.Corporate Governance Report ..................................................................................................... 13

4. Disclosure of Auditing Fees.......................................................................................................... 23

5. Changes in Independent Auditors ............................................................................................... 23

6. PixArt Chairman, President, manager (s) who is responsible for financial or accounting affairs working in the accounting firm of the appointed independent auditors or the accounting firm’s related parties within the past year.................................. 23

7. Changes in shareholding of directors, supervisors, officers and major shareholders holding more than 10% shares for the preceding year to the date of printing of this annual report ............................................................................................................................... 23

8. The relationship between any of the Company’s top ten shareholders ................................. 24

9. Long-Term Investment Ownership............................................................................................. 25

IV、Capital and Shares ......................................................................................................................... 26

1. Capital and Shares ...................................................................................................................... 26

2. Corporate Bonds. ........................................................................................................................ 31

3. Preferred Stocks.......................................................................................................................... 31

4. GDR/ADR.................................................................................................................................... 31

5. Employee Stock Option .............................................................................................................. 31

6. Status of New Shares Issuance in restricted stock of the Company for employees . ............ 32

7. Status of New Shares Issuance in Connection with Mergers and Acquisitions. ................... 33

8. Execution status of FinancingV.Business Activities ................................................................. 34

1. Business Scope............................................................................................................................. 34

2. Market and sales overview......................................................................................................... 38

3. Employees .................................................................................................................................... 42

4. Environmental spending disclosure ............................................................................................ 42

5. Labor relations .............................................................................................................................. 42

6. Important Contract....................................................................................................................... 43

VI、Financial Information .................................................................................................................... 44

1. Condensed Balance Sheet and Income Statement ................................................................... 44

2. Financial Analysis over the Last Five Years ............................................................................ 47

3. Audit Committee’s Report ......................................................................................................... 50

4. Financial Statements..................................................................................................................... 51

5. Consolidated Financial Statements ........................................................................................... 102

6. The Effect of Insolvency of the Company and Affiliates on the Financial Status of the Company.................................................................................................................................... 168

VII. Review on Financial Status & Operating Results and Risk Management .............................. 169

1. Financial Status ......................................................................................................................... 169

2. Operation Results...................................................................................................................... 170

3. Cash Flow Analysis ................................................................................................................... 171

4. The Effect of Material Capital Expenditures on Financial Position and Operation.......... 171

5. Direct Investment Policy, Reasons for Profit or Loss, Correction Plan and Investment Plan for the Coming Year. ....................................................................................................... 171

6. Risk Management ....................................................................................................................... 171

7.Other Important Notices. ............................................................................................................ 173

VIII、Special Notes .............................................................................................................................. 174

1. Summary of Affiliated Enterprises ......................................................................................... 174

2. Status of Private Placement of Securities ............................................................................... 180

3. Acquisition or Disposal of PixArt’s shares by Subsidiaries .................................................. 180

4. Other Necessary Supplements ................................................................................................. 180

5. Events regulated in Article 36-2-2 of the Securities and Exchange Laws that will materially affect shareholders’ equity or the share price ..................................................... 180

- 1 -

I. Letter to Shareholders PixArt Imaging Inc. posted total revenue of NT$3.3 billion in 2012, a 2.7% increase from

2011 (NT$3.22 billion). The net income decreased by 43.6% to NT$280 million from NT$497 million in 2011. Earnings per share was NT$2.2 in 2012 while return on equity was 5.0%.

The personal computer and computer mouse market experienced a decline in 2012 against 2011 as a result of the economic downturn and the increasing popularity of tablet computers and smart phones. In spite of a decline in the overall business, the Company was able to gain additional market share due to the departure of some competitors that were unable to sustain competition. As a result, sales for computer mouse products on the contrary have grown by 25% against the previous year. As for games, the overall revenue experienced a decline against the previous year in spite of the official launch of new-generation products. Due to the launch of new optical touch products which are currently being authenticated for operation under Windows 8, the sales for existing optical touch products showed a slow-down and as a result, revenue from the optical touch business declined against 2011. In general, the Company experienced only a modest growth in the overall revenue against 2011 due to the growth in the computer mouse products business being offset by the decline in the games and optical touch businesses. However, our profit margin has improved from 38.4% to 41.7% as a result of our effort in reducing costs and improving our asset portfolios. In response to the increase in our market share for the computer mouse market and to accelerate the launch of new products, we have expanded the R & D team in Taiwan as well as establishing business presence in Malaysia and the United States. As a result of our business expansion, our operating expenditure saw a significant increase against 2011, resulting in poorer profitability. We have maintained our pace in product and technological developments in spite of the less-than-expected profit performance. Besides launching new computer mouse and optical touch products, we have also launched several new man-machine interface products including touch control, ambient light sensor and capacitive touch and distance sensing devices. We expect these new products to fuel our business growth and hence improve our profitability.

The global economy is on the path of slow recovery based on recent economic statistics. However, we need to act with caution due to instabilities in the overall environment. We do not anticipate a bright outlook for the personal computer market but we trust that the computer mouse market will experience relatively sound growth. The games market is purely dependent on our clients’ sales performance, which we hope are able to pick up the momentum soon. We also expect that the dedication of our entire team in the development of several new products may come to fruition this year with the official launch of the new products, which we hope are able to boost sales and profitability. We are committed to developing several man-machine interface products. We trust that there are abundant business opportunities for the new product market. This year, we will continue to devote our resources to the research and development of products and technology, improving customer satisfaction, reducing costs of production, and seamlessly integrating our resources to benefit the overall business and improve the Company’s management efficiency. We will persist in our business approach and welcome any challenges with a steadfast attitude with the optimal goal of improving our competitiveness and operating performance. We hope our business will resume growth this year and we hope to maximize and returns and wealth of our shareholders.

We would like to thank the shareholders for their continued support and good will. We wish them continued health and happiness!

Chairman Sen-Huang Huang

- 2 -

II. Company Profile

1.Date incorporated Jul 13, 1998

2.Milestones J u l . 1 9 9 8 Company was founded with a registered capital NTD 500 million Apr. 1999 Acquired 100% ownership of Condorvision Technology, Inc. (renamed to PixArt Technology,

Inc. later), an U.S. company specializing in CMOS Sensor design. May. 1999 Obtained the permission to enter into Hsinchu Science Park from the Science-Based Industrial

Park Administration. J u l . 1 9 9 9 Received grant for "Minimized CMOS Image Sensor Product Development" from the Small

Enterprises R&D Project of Industrial Development Bureau of Ministry of Economic Affairs. J u l . 2 0 0 0 Successfully developed 0.35μm color/mono CIF Sensor. J an . 2 00 1 Successfully developed 0.35μm color/mono VGA Sensor. Apr. 2001 Successfully developed ultra-low power color/mono QQVGA Nov. 2001 Received ISO9001:2000 certification with total quality system installation in place. Dec. 2001 Successfully developed color/mono QQVGA with Twin-Turbo 8032 SOC chip. Mar. 2002 Successfully developed the wired and wireless optical mouse chips. Apr. 2002 Successfully developed 0.25μm 1.3 M pixel CMOS Image Sensor. Oc t . 2002 Stocks issued publicly. Apr. 2003 Successfully developed CIF PC-Camera SOC IC. J u l . 2 0 0 3 Elected two Independent Directors and one Independent Supervisor J u l . 2 0 0 3 "QQVGA Sensor with Twin-TURB 08032 Micro Processor" received The Sixth Outstanding

Photonics Award. J u l . 2 0 0 3 Listed as Emerging Stock on Gretai stock market, under the ticker of 3227. Aug. 2003 Successfully developed 0.25μm color/mono CSP VGA Sensor. Sep . 2003 Successfully developed high-performance optical mouse chip. Feb . 2004 Successfully developed 0.25μm 480*640 VGA Sensor Feb . 2004 Successfully developed0.25μm VGA YUV Sensor. Apr. 2004 Successfully developed PS2 optical mouse SOC chip. J u l . 2 0 0 4 Successfully developed 0.18um, 1/3 inch, 1.3M pixel & 0.25um, 1/2 inch, 2.1M pixel CMOS

Image Sensor chips J u l . 2 0 0 4 Successfully developed VGA PC-Camera SOC chip. Sep . 2004 Successfully developed USB optical mouse SOC chip. Sep . 2004 Successfully developed 0.18μm 1/3 inch, 3M pixel CMOS Image Sensor for camera phone

devices. N o v . 2 0 0 4 Awarded "The 2004 R&D Accomplishment Award" by the Science-Based Industrial Park

Administration. J an . 2 00 5 Awarded "The 3rd Annual Golden Root Award" by Taiwan Industrial Technology Association. J an . 2 00 5 Successfully developed multi-objects tracing chip for game platform application. J an . 2 00 5 Successfully developed VGA DSP chip for mobile phone application. F e b . 2 0 0 5 Successfully developed PixArt’s first laser mouse chip. Mar. 2005 Successfully developed 1.3M pixel DSP chip for mobile phone application. Jun . 2005 Awarded "The Eighth Outstanding Photonics Product Award" for 1/3 inch 3M pixel CMOS

Image Sensor for mobile phone application. Jun . 2005 Exclusively licensed for high-technology laser optical mouse and image tracing technology by

OPDI, Denmark.

- 3 -

Dec. 2005 Awarded "The 12th Small & Medium Enterprises Innovation Award" for composite audio and video multimedia PC-Cam SOC IC by Ministry of Economic Affairs, R.O.C.

Mar. 2006 Introduced customized multi-objects tracing chip for Nintendo Wii. May. 2006 Listed on GreTai security market, under the ticker of 3227. Jun . 2006 Introduced 4T 0.3M CMOS Image Sensor. Successfully upgrade to 4T technology. J u l . 2 0 0 6 Shipping over 100 million pieces of optical mouse chip. J u l . 2 0 0 6 Concluded patent license agreement with Avago with respect to optical mouse related patents. Sep . 2006 Awarded "The 14th Industrial Technology Advancement Award-Excellent Enterprise". Dec. 2006 Received Certificate of Green Product Management System. Mar. 2007 Introduced 4T 2M CMOS Image Sensor. Mar. 2007 Introduced 0.18μm VGA PC-Cam SOC with built-in microphone. Aug. 2007 Introduced PC-Cam USB 2.0 Controller. Oc t . 2007 Awarded "R&D Accomplishment Award 2007" by the Science-Based Industrial Park

Administration. Oct . 2007 Introduced 2M pixels DSP chip with Audio/Video codec for mobile phone application. Dec. 2007 Accumulated sold optical mouse chips reached 200 million units. Feb . 2008 Introduced small-form-factor Laser mouse. Mar. 2008 introduced small-form-factor USB/PS2 Laser mouse SOC. Apr. 2008 Introduced optical gaming mouse. J u l . 2 0 0 8 Mass production of NB Camera Sensor IC. Sep . 2008 Introduced LED gaming mouse. Sep . 2008 Introduced Optical Finger Mouse. Jun 2009 Introduced Optical Touch Sensor for Quanta Computer. Jun 2009 Licensed for patented touch technology from SMART Technologies. Jun 2009 Cooperation with customer on developing Distance Measure Sensor technology. Ju l 2009 Introduced IR LED power-saving wireless mouse device Dec 2009 Successfully developed Human Sensing Device. M a r 2 0 1 0 Introduced laser wireless mouse sensor with built-in charge pumper May 2010 Received encouragement grants for MEMS related R&D Project from New Leading

Development Product Funds granted by Industrial Development Bureau Dec. 2010 Achieved 1000 of the accumulated patent filing number Jun . 2011 Introduced integrated mouse senor with micro package technology Aug. 2011 Introduced wireless mouse sensor with low power (<1.5mA) Sep . 2011 Introduced an optical module utilized in gaming console Nov. 2011 Awarded “The 1st Golden Laurel Awards – Best return on equity” by GTSM J an . 2 01 2 Rank 34th for 2011 invention patent filing number among domestic corporations/organizations

Rank 50th for 2011 patent filing number among domestic corporations/organizations Jun . 2012 Introduced compact gesture recognition IC, supporting various gestures. Dec. 2012 Received encouragement grants for Health Care related R&D Project from New Leading

Development Product Funds granted by Industrial Development Bureau. Dec. 2012 Year 2012 sold optical mouse chips reached 200 million units. Dec. 2012 Introduced compact wireless mouse sensor with ultra-low power (<1mA) J an . 2 01 3 Ranking 20th for 2012 invention patent filing number among domestic

corporations/organizations Ranking 29th for 2012 patent filing number among domestic corporations/organizations

- 4 -

Chairman & President

R & D Manufacture Engineering

Finance & Accounting Dept.

Administration Dept.

Audit Commitee

Shareholders’ Meeting

Board of Directors

Sales & Marketing Div.

Internal Auditor

III. Corporate Governance

1. Organization (1)Organization Chart:

- 5 -

(2)Business of Key Departments：

Department Business

Chairman & President

a. Plan the Company’s business operations and all related mattersb. Plan the Company’s product development and all related

matters, such as execution and coordination c. Oversee business operations from all departments and

coordinate resource allocation for each department d. Responsible for legal matters, patent filing and management e. Responsible for IT system maintenance and management

Manufacture Engineering

a. Responsible for problems related to product engineering b. Responsible for matters related to manufacturing outsourcing c. Collect and analyze data on quality d. Handle customer complaints e. Implement and ensure quality control f. Shipment management

R & D

a. Responsible for new product and technology developments b. Responsible for ASIC product design an development for

customers c. Responsible for CAD and layout process for product design

Sales & Marketing Div.

a. Product marketing and market development b. Marketing strategy and planning c. Gather market information d. Handle customer complaints

Finance & Accounting Dept.

a. Accounting and budget management b. Fund management c. Tax-related issues d. Stock-related affairs

Administration Dept.

a. Stipulate policies and procedures for human resources b. General procurement and general affairs. c. Employee training and recruitment d. Employee welfare management

Internal Auditor

a. Responsible for inspecting and evaluating the reliability and effectiveness of the Company’s data on business operations and internal control

b. Make suggestions for improvement for the betterment of business operations

- 6 -

2. Directors and Supervisors and Officials： (1)Profiles of Directors and Supervisors

a. Director and Supervisors’ information table Apr. 26, 2013 / Unit: Share

Shareholding whenelected Current shareholding

Spouse and underage children

shareholding

Shareholding under

the names of other parties

Other executives, directors or

supervisors who are spouse or relative within the second degree of kinship Title Name Date

elected Term Date firstelected

shares

%

shares

%

shares

%

shares

%

Education and experience

Other positions in the Company and in other

companies

Title

Nam

e

Relation

Chairman Sen-Huang Huang 2011.06.15 3 yrs 1998.07.02 1,918,686 1.48% 1,733,777 1.29% - --BS, Electronic Engineering, National Taiwan University

-Director of MFG Div., UMC.

-President, PixArt -Chairman of Yuan Xiang Investment Corp. -Chairman of Yuan-Feng Investment Corp-Chairman of PrimeSensor Technology Inc.-Chairman of Yuan Yao Technology Inc..

- - -

Director Victor Hsu 2011.06.15 3 yrs 2008.06.13 - - - - - - - --MBA, The city University of the New York,USA

- Manager of Finance Div., UMC. -Manager of Finance Div, Unimicron - - -

Company represented by Victor

Hsu

Unimicron Technology Corp.

2011.06.15 3 yrs 2008.06.13 1,550,716 1.19% 1,372,116 1.02% - - - - - - - - -

Independent Director Ming-De Li 2011.06.15 3 yrs 2005.06.27 - - - - 51,508 0.04% - - -BS, Chemical Engineering, Chinese

Culture University

-Chairman of Ying Jiu EnterpriseCorp and YingTong Enterprise Corp. -Director of YingFa Industrial Corp.

- - -

Independent Director Chun Kuan 2011.06.15 3 yrs 2008.06.13 - - - - - - - -

-MBA, Southern New Hampshire University-Director of Finance Div, UMC -Director of Finance Div, AUO

-CFO, KYEC -Independent director of IC Plus Corp. - Independent director of Subtron Technology Corp. -Independent director of ITE Tech Inc. -Chairman of Yung Li Investment Corp. -Director of Silicon Integrated Systems Corp. -Supervisor of Materials Analysis Technology Inc.

- - -

Independent Director

Wen-Chin Cheng (Note1)

2011.06.15 3 yrs 2003.06.19

-BS, Electronic Engineering, National Taiwan University

-MS, Electronic Engineering, National Taiwan University

-CTO and Director of Lumens Digital Optics Inc. - - -

Note1：Wen-Chin Cheng was appointed a director of the Company during June 19, 2003 to June 27, 2005. Note2：Current shareholding % is calculated based on 134,628,504 issued shares. Note3：The Company has set an Audit Committee; therefore, Supervisor is not available.

- 7 -

b. Major shareholders of PixArt’s director or supervisor that is a juristic person shareholder Apr.26, 2013

Director or Supervisor Major Shareholder of the Director or Supervisor Shareholding (%) Fortune Venture Capital Corp. United Microelectronics Corp. 100.00%

United Microelectronics Corp. 12.75% Cathay Life Insurance Co.,Ltd. 8.58% Siliconware Precision Industries Co., Ltd 4.97% Lab Insurance Fund 4.08% Nanshan Life Insurance Co.,Ltd. 2.83% Chunghwa Post Co., Ltd 2.18% Fubon Life Issurance Co., Ltd. 1.96% Labor Pension Fund (New System) 1.86% Public Service Pension Fund 1.82%

Unimicron Technology Corp.

(The shareholdings are as of Aug. 8, 2012)

Investment account of overseas fund A 1.60% Major shareholders of director’s or supervisor’s major shareholder that is a juristic person

Name Major Shareholders Shareholding %

JPMorgan Chase Bank, as representative of holders of the ADRs 8.87% Hsun Chieh Investment Co., Ltd. 3.41% Silicon Integrated Systems Corp. 2.44% Investment account of overseas fund B 2.12% Cathay Life Insurance Co.,Ltd. 1.33% Investment account of overseas fund C 1.14% Nanshan Life Insurance Co.,Ltd. 1.05% Investment account of overseas fund D 0.97% Investment account of overseas fund E 0.96%

United Microelectronics Corp.

(The shareholdings are as of Jul. 15, 2012)

Trustee account of JP Morgan Chase Bank-ABP Pension Fund Investment 0.89%

Citibank in Custody for American Depositary Receipts of Siliconware Precision Industries Co.,Ltd. 11.90% Investment account of overseas fund F 5.58% Cathay Life Insurance Co.,Ltd. 3.94% Shin Kong Life Insurance Co., Ltd 2.33% Bough Lin 2.20% JPMorgan in custody for Capital World Growth and Income Fund Ltd. 2.14%

Chunghwa Post Co.,Ltd. 2.00% Ku Ming Investment Co., Ltd 1.80% Investment account of overseas fund G 1.75%

Siliconware Precision Industries Co.,Ltd.

(The shareholdings are as of Jul. 22, 2012)

Investment account of overseas fund H 1.74%

- 8 -

c.Directors and Supervisors’ Professional Qualifications and Independence Analysis：

With five or more years of experience and the following professional qualifications Independence Status (Note 2)

Qualifications

Name

Lecturer or above of business, law

, finance, accounting or other subject related to com

pany activity in a junior college or above

Qualification of

Justice, Procurator, A

ttorney, CPA,

Specialist or Technician of N

ational Exam

ination in Corporate Business Related Fields

Work experience in

business, law,

finance, accounting or others related to com

pany activity

1 2 3 4 5 6 7 8 9 10

Number ofCompaniesalso Serves

as Independent

Director for

Sen-Huang Huang 0 Victor Hsu （Note 1） 0

Ming-De, Li 0 Chun Kuan 3 Wen-Chin Cheng 0

Note 1：The representative of Unimicron Technology Corp. Note 2：For those directors and supervisors who match the condition listed below during and two years before assuming

period, “ ” is marked in the appropriate space. (1) Not an employee of the Company or any of its affiliates; (2) Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases

where the person is an independent director of the Company, its parent Company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares;

(3) Not a natural-person shareholder who holds shares, together with those held by the person's spouse, underage children, or held by the person under others' names, in an aggregate amount of 1 % or more of the total number of issued shares of the Company or ranking in the top 10 in holdings;

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

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

(6) Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified Company or institution that has a financial or business relationship with the Company;

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

(8) Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company;

(9) Not been a person of any conditions defined in Article 30 of the Company Law, (10)Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.。

- 9 -

(2) Managers’ Information Apr. 26, 2013 / Unit: Share

Shareholding

Spouse and underage children

shareholding

Shareholding under

the title of a third party

Managers who are spouse or second-

degree relative Title Name Date appointed

Shares % Shares % Shares %

Experience & Education Serves concurrently as

Title Name Relation

President Sen-Huang Huang 1998.06.01 1,733,777 1.29% －－－－

-BS, Electronic Engineering, National Taiwan University

-Director of MFG Div., UMC

-Chairman of Yuan Xiang Investment Corp. -Chairman of Yuan-Feng Investment Corp -Chairman of PrimeSensor Technology Inc. -Chairman of Yuan Yao Technology Inc.

－－－

Vice President Wen-Cheng, Yen 2008.02.26 363,904 0.27% －－－－

-Ph,D of ,Electronic Engineering, National Chiao Tung University

-R&D Vice Director, Fitipower Integrated Technology Inc

-Director of PrimeSensor Technology Inc. －－－

Vice President Ming-Tsan Kao 2008.12.16 248,364 0.18% －－－－

-MS, Electronic Engineering, San Clara University，USA

- Manager of R&D, Imagia Technology Co., Ltd. －－－－

Director Wei-Chung, Wang 2011.03.24 105,947 0.08% －－－－

-MS, Mechanical and Nuclear Engineering ,National Sun Yat-sen University

-Senior director of R&D,Advanced Semiconductor Engineering,Inc.

-Director of Yuan Yao Technology Inc. －－－

Chief Finance Officer Mei-Wei Lo 2007.07.27 121,258 0.09% －－－－

-MBA, National Chengchi University

-Administration Dept. Vice Director,Aimtron

Technology Corp.

-Director of Yuan Xiang Investment Corp. -Director of Yuan-Feng Investment Corp -Director of PrimeSensor Technology Inc. -Director of Yuan Yao Technology Inc.

－－－

Note: Shareholding % is calculated based on 134,628,504 issued shares。

- 10 -

(3) Remunerations Paid to Directors, Supervisors, President and Vice President： a. Remunerations Paid to Directors：

Dec.31, 2012；Unit: K Shares / NT$1,000 Remunerations paid to directors Compensations earned as employee of PixArt or affiliates of PixArt

Salary(A) Retirement Pension (B)

(Note 4)

Compensation from profit sharing (C) (Note 5)

Allowance(D) (Note 6)

(A+B+ C+ D) as % of 2009 Net

Income Salary, bonus

and etc. (E) Retirement Pension (F)

(Note 4) Employee profit sharing (G)

(Note 5) Employee

Stock Option (H)

Restricted stock for

employees (I)

(A+B+C+D+E+F+G) as % of 2012 Net Income

PixArt

Consolidated

Entities of

PixArt

Title Name

PixArt

Consolidated Entities of PixAr t

PixArt


PixArt

Consolidated Entities of PixArt

PixArt


PixArt


PixArt


PixArt


Cash Stock Cash Stock

PixArt


PixArt


PixArt


Compen-sation

from Other PixArt Investee Compan-

ies

Chairman / President Sen-Huang Huang Director Tzu-Na Wu (Note1)

Company represented by

Tzu-Na Wu

Fortune Venture Capital Corp.

(Note 1)

Director Sheng-Cheng Chou(Note 2)

Company represented by Sheng-Cheng

Chou

Novatek Microelectronics Corp.(Note 2)

Director Victor Hsu(Note 3) Company

represented by Victor Hsu

Unimicron Technology

Corp.(Note 3) Director Ming-De Li Director Chun Kuan Director Wen-Chin Cheng

0 0 0 0 2,481 2,481 117 117 0.93% 1.05% 4,410 4,410 62 62 1,341 0 1,341 0 227 227 42 42 3.0% 3.4% None

Note 1：The representative of Fortune Venture Capital Corp., director’s remuneration is entitled to Fortune Venture Capital Corp. Note 2：The representative of Novatech Technology Corp., director’s remuneration is entitled to Novatech. The director’s remuneration is calculated based on the period of time being elected within the year from June 15, 2011. Note 3：The representative of Unimicron Technology Corp., director’s remuneration is entitled to Unimicron. Note 4：PixArt didn’t pay pension to any director in 2011. The numbers shown in the table were what PixArt appropriated for retirement in 2012. Note 5：Director’s remuneration has been approved by the Board of Directors but not by Shareholders’ Meeting yet Note 6：Director allowance of NT$117,000 was transportation allowance. Note 7：All the Director remunerations belong to this scale.

Name of Directors Compensations paid to directors (A+B+C+D) Compensations paid to directors (A+B+C+D+E+F+G) Scale of remunerations to directors of

the Company PixArt Consolidated Entities of PixArt PixArt Consolidated Entities of PixArt

Less than NT$ 2,000,000 Note 7 Note7 Fortune Venture Capital Corp.、Novatek Microelectronics

Corp.、Unimicron Technology Corp、Ming-De Li、Chun Kuan、Wen-Chin Cheng

Fortune Venture Capital Corp.、Novatek Microelectronics Corp.、Unimicron Technology Corp、Ming-De Li、

Chun Kuan、Wen-Chin Cheng NT$ 2,000,000～NT$ 5,000,000 - - - - NT$ 5,000,000～NT$ 10,000,000 - - Sen-Huang Huang Sen-Huang Huang NT$ 10,000,000～NT$ 15,000,000 - - - - NT$ 15,000,000～NT$ 30,000,000 - - - - NT$ 30,000,000～NT$ 50,000,000 - - - - NT$ 50,000,000～NT$ 100,000,000 - - - - NT$ 100,000,000 above - - - - Total - - - -

- 11 -

b. Remunerations Paid to Supervisors：

The Company has set an Audit Committee; therefore, Supervisor is not available.

c. Remunerations Paid to President and Vice President： Dec.31.2012；Unit: K Shares / NT$1,000

Salary(A) Retirement Pension (B) （Note 1） Salary, bonus and etc.(C) Employee profit sharing(D)

（Note 2） (A+B+C+D) as % 2008 Net Income

Employee Stock Option

PixArt Consolidated Entities of PixArt Title Name

PixArt Consolidated Entities of

PixArt PixArt


PixArt Consolidated

Entities of PixArt Cash Stock Cash Stock

PixArt Consolidated

Entities of PixArt

PixArt

Consolidated

Entities of

PixArt

Compen-sation from Other PixArt

Investee Compan

-ies

President Sen-Huang Huang

Vice President

Wen-Cheng, Yen

Vice President

Ming-Tsan Kao

9,890 9,890 260 260 1,152 1,152 3,062 0 3,062 0 5.13% 5.81% 382 382 None

Name of president and vice president Scale of remunerations to president and vice president of the Company

PixArt Consolidated Entities of PixArt

Less than NT$ 2,000,000 - -

NT$ 2,000,000～NT$ 5,000,000 Wen-Cheng, Yen、 Ming-Tsan Kao

Wen-Cheng, Yen、 Ming-Tsan Kao

NT$ 5,000,000～NT$ 10,000,000 Sen-Huang Huang Sen-Huang Huang NT$ 10,000,000～NT$ 15,000,000 - - NT$ 15,000,000～NT$ 30,000,000 - - NT$ 30,000,000～NT$ 50,000,000 - - NT$ 50,000,000～NT$ 100,000,000 - - NT$ 100,000,000 above - - Total - -

Note 1：The numbers shown in the table were what PixArt accrued, not paid, for retirement in 2012. Note 2：2012 Earnings distribution proposal has been approved by the Board of Directors but hasn’t been approved by Shareholders’ Meeting as of the date of printing of this annual report. The numbers are

estimated bonuses.

- 12 -

d. Employee Bonus Paid to Officers: (Note)

Dec.31.2012；Unit: K Shares / NT$1,000

Title Name Stock bonuses Cash bonuses Total % of 2008 net income


Vice President Wen-Cheng ,Yen

Vice President Ming-Tsan Kao

Director Wei-Chung, Wang

Chief Finance Officer Mei-Wei Lo

0 4,041 4,041 1.44%

Note ：2012 Earnings distribution proposal has been approved by the Board of Directors but hasn’t been approved by Shareholders’ Meeting as of the date of printing of this annual report.

The numbers shown above are estimated bonuses.

(4). Comparison of compensation for the Company’s directors, supervisors, president, and vice-present in the past two years and details of

the compensation’s policy, standards, components, process, and its relationship to performance

Compensation for the Company’s directors, supervisors, president, and vice-present are paid for by the Company. There is no additional compensation given to them from any of the subsidiaries in the Company’s consolidated financial statements. Total compensation accounted for 4.97% and 6.06% of the Company’s net income in 2011 and 2012, respectively. Compensation to the directors and supervisors include transportation allowance and remunerations from earnings distribution. Transportation allowance given by the Company to its directors and supervisors is in line with the industry average and is paid out according to actual attendance to the Board of Directors meetings. The remunerations from earnings distribution is given in accordance to the Company’s Articles of Incorporation, which is first proposed by the Board of Directors and approved at the Shareholders’ Meeting and takes into account the actual number of days served. Compensation to the president and the vice-president include salary, bonus, employee stock bonuses, employee stock options, etc, and is determined based on the position, responsibility, the Company’s profitability, and industry norms.

- 13 -

3.Corporate Governance Report：

(1) Board of Directors’ Meeting Status： The Board of the Company has held 6 meetings in 2012, the attendance of the directors and supervisors are shown in the following table:

Title Name Attendance in Person

By Proxy Attendance Rate (%) Notes

Chairman Sen-Huang Huang 6 0 100 %

Director Fortune Venture Capital Corp. Representative：Tzu-Na Wu

4 1 67 %

Director Unimicron Technology Corp. Representative：Victor Hsu

6 0 100 %

Director Novatek Microelectronics Corp Representative: Sheng-Cheng Chou

3 0 100% Term expired on Jul 27, 2012 number of attendance with non-


Ming-De Li 6 0 100 %

Independent Director Chun Kuan 6 0 100 %


Wen-Chin Cheng 6 0 75%

Other disclosures： (I). If any Independent Director objects to or expresses reservations about the matters listed in Article 14-3 of the

Securities and Exchange Act,, the following items shall be recorded: date of Board of Directors’ meeting, type of meeting, proposal, board resolution and the company’s response to the opinion(s): no such occurrence.

(II). If a Director recuses himself from a proposal due to conflict of interest, the following items shall be recorded: name of Director, proposal, reason for recusal and voting record: no such occurrence.

(III). Goals for strengthening Board of Director accountability (such as establishing an audit committee, improving transparency, etc): The Company has set up the Audit Committee and Compensation Committee. Both committees are formed by independent directors in order to strengthen the Company’s corporate governance. Details are listed under Corporate Governance Report on page 13-15 of this Annual Report.

(2) Audit Committee Status or Status of Supervisor’s Participation in Board of Directors’ Meeting

Audit Committee has held 5 sessions in 2012, the attendance of independent directors are shown in the following table:

Title Name Attendance in Person Proxy Attendance Rate

(%) Note

Independent Director Ming-de Li 5 0 100% Convenor of Audit

Committee Independent Director Chun Kuan 5 0 100%

Independent Director Wen-Chin Cheng 5 0 100%

Other disclosures: (a) If any matter listed in Article 14-5 and Audit Committee did not approve but more than 2/3 of directors agreed

with, the following items shall be recorded: date of Board of Directors’ meeting, type of meeting, proposal, board resolution and the company’s response to the opinion(s): no such occurrence

(b) If an independent director recuses himself from a proposal due to conflict of interest, the following items shall be recorded: name of Director, proposal, reason for recusal and voting record: no such occurrence.

(c) Communications between independent directors and internal auditor and accountant: The Company’s internal auditor communicates with Audit Committee about results of auditing periodically. Internal auditor also reports to Audit Committee during quarterly meeting of Audit Committee. The Audit Committee is able to communicate with accountants at any time if they find it necessary.

- 14 -

(3) Corporate Governance Status

Items Status

The Reasons for the Differences between the Company’s Governance

and Recognized Corporate Governance

1. Shareholding Structure & Shareholders’ Rights (1) The way of handling shareholders’

suggestions and disputes (2) How the Company regularly

monitors the list of key shareholders who have management control of the Company, or those who have ultimate control of key shareholders:

(3) Risk management mechanism and firewall between the Company and its affiliates

(1) The Company’s Spokesperson

and deputy spokesperson are in charge of the related issues.

(2) Related matters are handled by professional stock agency and the Company’s stock agency contact persons.

(3) Business conducted between the Company and its related parties are regulated by related operating procedures in order to comply with risk management.

No material difference

2. Composition and Responsibilities of the Board of Directors (1) Independent Directors (2) Regular evaluation of external

auditors’ independence

(1) The company has elected three independent directors.

(2) The Company’s auditor is one of four major international auditing firms. The auditor’s independence is evaluated regularly and a policy is in place to change the auditor every five years.


3. Communication channel with stakeholders

The Company has in place designated personnel and e-mail accounts to handle such issues.


4. Information Disclosure (1) Establishment of a corporate website

to disclose information regarding the Company’s financials, business, and corporate governance status

(2) Other information disclosure channels (e.g. maintaining an English-language website, appointing responsible people to handle information collection and disclosure, appointing spokespersons, webcasting investors conference)

(1) The Company makes up-to-date financial disclosures through its bilingual website at www.pixart.com.tw.

(2) The Company has designated personnel for information gathering and disclosure. A professional spokesperson is also in place to conduct presentations to institutional investors and make full disclosures on the Company’s website in a timely manner.


5. Operations of the Company’s Nomination Committee, Compensation Committee, or other committees of the Board of Directors

The Company has set up the Audit Committee and Compensation Committee on June 15, 2011 and December 20, 2011 respectively. Both committees are formed by independent directors in order to strengthen the Company’s corporate governance. Details are listed under Corporate Governance Report on page 13-15 of this Annual Report.


6. If the Company has established corporate governance policies based on TWSE Corporate Governance Best Practice Principles, please describe any discrepancy between the policies and their implementation: The Company has not established specific corporate governance policies but has begun implementation in accordance to principles of corporate governance and related rules and regulations.

7. Other important information to facilitate better understanding of the Company’s corporate governance practices (e.g. employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and the purchase of liability insurance for directors and supervisors):

(1) The Company has established the Employee Welfare Committee and has a retirement system. It also encourages employees to attend various training courses and seminars both domestically and abroad. The Company also provides regular health checks and group insurance to its employees. The Company values labor relations and provides equal employment opportunities

(2) The Company has designated personnel for Investor Relations. The Company’s website provides related information for investor. Quarterly investor conferences are held to disclose the Company’s business operations to investors.

(3) The Company maintains good communication with its customers and suppliers. (4) Continuing education for Directors and Supervisors: The Company’s Directors and Supervisors all have

professional backgrounds. The Company provides information on continuing education to its Directors and Supervisors for reference.

(5) The Company has purchased liability insurance for its Directors and Supervisors.

- 15 -

Items Status

The Reasons for the Differences between the Company’s Governance

and Recognized Corporate Governance

8. If the Company has a self corporate governance evaluation or has authorized any other professional organization to conduct such an evaluation, the evaluation results, major deficiencies or suggestions, and improvements are stated as follows: Not Applicable.

(4) Operations of the Company’s Compensation Committee：

a.Member of Compensation Committee ： With five or more years of experience and the following professional qualifications Independence Status (Note 2)

Title

Qualifications

Name

Lecturer or above of business, law

, finance, accounting or other subject related to com

pany activity in a junior college or above

Qualification of

Justice, Procurator, A

ttorney, CPA,

Specialist or Technician of N

ational Examination

in Corporate Business RelatedFild

Work experience in

business, law, finance,

accounting or others related to com

pany activity

1 2 3 4 5 6 7 8

Number ofCompaniesalso Serves

as Independen

t Directorfor

Note

Convenor Ming-De, Li 0 Independent Director

Member Chun Kuan 3 Independent Director

Member Wen-Chin Cheng 0 Independent Director

Note：For those directors and supervisors who match the condition listed below during and two years before assuming period, “ ” is marked in the appropriate space.

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

where the person is an independent director of the Company, its parent Company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares;

(3) Not a natural-person shareholder who holds shares, together with those held by the person's spouse, underage children, or held by the person under others' names, in an aggregate amount of 1 % or more of the total number of issued shares of the Company or ranking in the top 10 in holdings;

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

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

(6) Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified Company or institution that has a financial or business relationship with the Company;

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

(8) Not been a person of any conditions defined in Article 30 of the Company Law,

b. Compensation Committee has held 3 sessions in 2012, the attendance of independent directors are shown in the following table:

Title Name Attendance in Person Proxy Attendance Rate

(%) Note

Convenor Ming-de Li 5 0 100% Independent Director

Member Chun Kuan 5 0 100% Independent Director

Member Wen-Chin Cheng 5 0 100% Independent Director

Other disclosures: 1.The Board of Directors shall state clearly the session, time and date of the board meeting, details of the

agenda item, results of board resolutions and handling of the committee recommendations (if the remuneration passed by the Board of Directors is more favorable to the recipient than the recommendation of the committee, the details of and reasons for the differences shall be specified in the Board meeting minutes) to decline or modify a recommendation made by the Remuneration Committee: None.

2.If any member of the remuneration committee has expressed objections to or had reservations about an agenda item that were included in the records or made in writing, the details of the session, time and date of the remuneration committee meeting, details of the agenda item, opinions and handling of opinions of all committee members: None.

- 16 -

(5) Corporate Social Responsibility：

Item Implementation Status

Deviations from “Corporate Social Responsibility Best

Practice Principles for TWSE/GTSM Listed

Companies” and reasons 1. Exercising Corporate

Governance (1)The company declares its

corporate social responsibility policy and examines the results of the implementation.

(2)The company establishes exclusively (or concurrently) dedicated units to be in charge of proposing and enforcing the corporate social responsibility policies.

(3)The company organizes regular training on business ethics and promotion of matters prescribed in the preceding Article for directors, supervisors and employees, and should incorporate the foregoing into its employee performance appraisal system to establish a clear and effective reward and discipline system.

The Company has yet to formulate our own corporate social responsibility standards. However, our corporate governance practices, our actions taken to fulfill our corporate social responsibilities and our consistent efforts in educating our employees of our corporate concept are in fact being carried out in accordance with the best corporate social responsibility practices governing companies listed on the stock exchange and Gre-tai securities exchange.

The corporate social responsibility principles will be established based on the Company’s business needs. No material difference.

2. Fostering a Sustainable Environment

(1)The company endeavors to utilize all resources more efficiently and uses renewable materials which have a low impact on the environment.

(2)The company establishes proper environmental management systems based on the characteristics of their industries

(3)The company establishes dedicated units or assigns dedicated personnel for environment management to maintain the environment.

(4)The company monitors the impact of climate change on its operations and should establish company strategies for energy conservation and carbon and greenhouse gas reduction.

(1) The Company is dedicated to reducing corporate wastes and recycling resources to conserve scarce resources and ensure the hygiene of the environment.

(2) The Company has been certified to the ISO9000:ISO2000 quality assurance standards. Our manufacturing process also meets the EU environmental protection standards, WEEE and ROHS.

(3) General Affairs Dept. is responsible for supervising and managing the Company’s environmental protection affairs to ensure appropriate environmental protection practices.

(4) The Company constantly carries out the various carbon reduction measures as part of our initiative to fulfill our corporate social responsibilities.

No material difference.

- 17 -




Companies” and reasons 3. Preserving Public Welfare (1)The company complies with

relevant labor laws and regulations, protects the legal rights and interests of employees, and has in place appropriate management methods and procedures

(2)The company provides safe and healthy work environments for its employees, and organizes training on safety and health for its employees on a regular basis.

(3) The Company has established a mechanism to regularly communicate with employees and inform employees by appropriate methods of any changes in the company’s operations that may significantly impact the employees.

(4)The company establishes and discloses policies on consumer rights and interests and provides a clear and effective procedure for accepting consumer complaints.

(5)The company cooperates with its suppliers to jointly foster a stronger sense of corporate social responsibility.

(6)The company, through commercial activities, non-cash property endowments, volunteer service or other free professional services, participates in community development and charities events.

(1) The Company implemented the various policies and systems in line with the Labor Standards Law and other relevant regulations to protect the legal rights of our employees.

(2) The Company organizes complimentary health checkup for employees on an annual basis and conducts training on workplace safety and health education.

(3) The Company has established a communication hotline and email account to handle and resolve employee comments and suggestions in order to fully implement the labor management mechanism. The e-Notice Board also serves as an important medium for making important announcements. The objective is to ensure total communications between the Company and our employees.

(4) We maintain sound communications with our clients and offer transparent and effective customer complaint procedures in relation to our products and services.

(5) Raw materials provided by our suppliers must meet the regulatory environmental protection standards. The Company’s inspection personnel carry out strict screening of our supplies to ensure safety of our products and compliance with environmental protection regulations.

(6) The Company offers sponsorship to social welfare organizations from time to time to support community development and related social welfare events.


4. Enhancing Information Disclosure

(1)The measures of disclosing relevant and reliable information relating to their corporate social responsibility.

(2)The company produces corporate social responsibility reports disclosing the status of their implementation of the corporate social responsibility policy.

(1) The Company discloses the relevant information on the website of the Market Observation Post System and our official website.

(2) The Company did not prepare a CSR report but has disclosed the relevant CSR information on our official website and on the website of the Market Observation Post System.


5. If the Company has established corporate social responsibility principles based on “Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies”, please describe any discrepancy between the principles and their implementation:

The Company has yet to formulate our own corporate social responsibility standards. However, our

- 18 -




Companies” and reasons corporate governance practices, our actions taken to fulfill our corporate social responsibilities are in fact being carried out in accordance with the best corporate social responsibility practices.

6. Other important information to facilitate better understanding of the Company’s corporate social responsibility practices (e.g., systems and measures that the company has adopted with respect to environmental protection, community participation, contribution to society, service to society, social and public interests, consumer rights and interests, human rights, safety and health, other corporate social responsibilities and activities, and the status of implementation.）：Please refer to the Implementation Status.

7. If the products or corporate social responsibility reports have received assurance from external institutions, they should state so below: The Company has received ISO9000, ISO2000 certification with total quality system installation in place.

(6)Ethical management and adopted measures:


Departure from the Corporate Governance Best-Practice

Principles for TSEC/GTSM Listed Companies, and the

reason for any such departure1. Formulation of ethical management

policy and measures (1) The company states clearly its

ethical management policy and the promises of the Board of Directors and management to implement the ethical management practices in its internal regulations and external documents.

(2) The company’s formulation of a policy to forestall unethical conduct (“prevention program”) and implementation of the operational procedures, code of conduct and training programs contained in the policy.

(3) When establishing the prevention program, the company’s adoption of preventive measures against the offering and acceptance of bribes and illegal political donations to target business activities within their business scope which may be at a higher risk of being involved in an unethical conduct.

(1) The Company has yet to formulate the “Ethical Management Principles”. However, the Company’s Board of Directors and management ensure that they fulfil their duty of care and adopt a highly prudent approach in performing their duties.

(2) The Company has yet to formulate the “Code of Ethical Conduct”, however, the Company endeavours to prevent ethical conducts in accordance with the spirit of the “Code of Ethical Conduct”.

(3) The Company has designated the Legal Department to review contracts to ensure legality of any agreements entered into with the counterparty. The Audit Department conducts audits from time to time and continually follows up the status of improvements.

The corporate social responsibility principles will be established based on the Company’s business needs. No material difference.

- 19 -




reason for any such departure2. Facilitation of Ethical Management (1) The Company shall avoid having

any business dealings with trading counterparties who have any records of unethical conducts; and stipulate clearly the ethical conduct provisions in the business agreement.

(2) The operation of the Company’s department exclusively or jointly responsible for implementing ethical management practices and supervision by the Board of Directors.

(1) The Company’s Legal Department

reviews business agreements entered into with the Company’s trading counterparties to prevent any business dealings with trading counterparties who have any records of unethical conducts.

(2) The Company has put in place the Audit Department directly reporting to the Board of Directors. The Audit Department is responsible for auditing any violation of ethical conduct within the company. Directors and managerial officers of the Company are held accountable for their own ethical management responsible and report directly to the Shareholders’ Meeting or Board of Directors for fulfilment of such responsibilities.


(3) The company’s formulation of a policy to prevent conflict of interests and offering of appropriate means for explanation of the implantation of such policy.

(4) Implementation of effective accounting systems and internal control systems established for the purpose of carrying out ethical management and the status of audits conducted by internal auditors.

(3) The Company has put in place the principles governing recusal of directors in conflict-of-interest situations in our “Rules for Board of Directors Meetings”. If a director or a juristic person that the director represents is an interested party in relation to an agenda item, the director shall state the important aspects of the interested party relationship at the respective meeting. When the relationship is likely to prejudice the interest of the Company, the director concerned may not participate in discussion or voting on that agenda item and shall recuse himself or herself from the discussion or the voting on the item, and may not exercise voting rights as proxy for another director.

(4) The Company has established effective accounting systems and internal control systems to ensure ethical management practices. Our internal audit personnel conduct periodic audits on the status of implementation.

Functioning of a disciplinary and complaint system to handle violation of the ethical corporate management rules.

The Company places high emphasis on promoting ethical conduct. Employees are encouraged to report any suspected or confirmed violation of the ethical conduct principles to managerial officers, internal audit supervisors, the audit committee or other appropriate personnel.


4. Enhancement of Information Disclosure(1) Disclosure of information relevant

to the company’s ethical management practices on the its website.

(1) The Company discloses information such as the company’s overview, profile and financial information on our corporate website (www.pixart.com.tw) (available in


- 20 -




reason for any such departure(2) Disclosure of information by other

means (such as construction of an English website, appoint designated staff to be responsible for collection of the company’s information and disclosure on the company’s website etc).

Chinese/English) and makes a full, appropriate and timely disclosure of our information to the Competent Authority and the general public through the Market Observation Post System.

(2) The Company has designated personnel for information gathering and disclosure. A professional spokesperson is also in place to conduct presentations to institutional investors and make full disclosures on the Company’s website in a timely manner.

5. Description of any departure from the Corporate Governance Best-Practice Principles for TSEC/GTSM Listed Companies, and the reason for any such departure if the company’s Ethical Management Principles were formulated in accordance with the “Corporate Governance Best-Practice Principles for TSEC/GTSM Listed Companies”: The Company has yet to put in place our own Ethical Management Principles. We shall plan to put in place the relevant policy and systems according to business requirements.

6. Other important information (such as the promotion of the company’s commitment to ethical management and policy to the company’s trading counterparties, invitation to trading counterparties to attend training, and review of and revisions to the company’s Ethical Management Principles) beneficial in helping others understand the status of implementation of the company’s ethical management practices: (1) The Company views compliance with the Company Act, Securities and Exchange Act, and rules and

regulations governing TSEC/GTSM listed companies as fundamental to carrying out ethical management practices, and strictly prohibits unethical conduct with trading counterparties.

(2) The Company’s Internal Controls System contains “Insider-trading Management Procedures”. Directors, managerial officers and employees or anyone who has gained access to significant internal information of the company due to his or her position, job responsibilities or control relationship, shall strictly comply with the relevant securities and exchange regulations to prevent insider-trading. The Company shall adopt the appropriate disciplinary and legal measures against anyone who has unlawfully disclose the company’s significant internal information to a third party thus resulting in the Company’s loss of assets or benefits.

(7) Corporate governance best-practice principles shall be disclosed：

The Company has not established corporate governance best-practice principles but may do so when the need arises.

(8) Other important information to further understand the Company’s corporate governance:

None.

(9) Status of Internal Control System 1. Statement of Internal Control：

- 21 -

PixArt Imaging Inc. Statement of Internal Control

Date：Mar.19, 2013PixArt Imaging Inc. has conducted internal audit in accordance with its Internal Control Regulation covering the period from January 1 to December 31, 2012, and hereby declares as follows: I. The Company acknowledges and understands that the establishment, enforcement and

preservation of internal control system are the responsibility of the Board and the managers. The Company has already established such system. The purpose of the system is to reasonably ensure the effect and efficiency of operation (including profitability, performance and security of assets), the reliability of financial reporting and the compliance with relevant legal rules.

II. Internal control system has its limitation, no matter how perfect the design is. As such, effective internal control system may only reasonably ensure the achievement of the three aforementioned goals. Further, the environment and situation may vary, and hence the effectiveness of the internal controls system. The internal control system of the Company features the self-monitoring mechanism. Once identified, any shortcoming will be corrected immediately.

III. The Company judges the effectiveness of the internal control system in design and enforcement in accordance with the “Criteria for the Establishment of Internal Control System of Public Offering Companies” (hereinafter referred to as “the Criteria”). The Criteria is instituted for judging the effectiveness of the design and enforcement of internal control system. There are five components of effective internal control as specified in the Criteria with which the procedure for effective internal control are composed by five elements, namely, 1.Control environment, 2. Risk Evaluation, 3. Control Operation, 4 Information and Communication, and 5. Monitoring. Each of the elements in turn contains certain audit items, and shall be referred to the Criteria for detail.

IV. The Company has adopted the aforementioned internal control system for internal audit on the effectiveness of the design and enforcement of the internal control system.

V. Based on the aforementioned audit findings, the Company holds that within the aforementioned period its internal control procedures (including the procedures to monitor the subsidiaries), including the effectiveness and efficiency in operation, reliability in financial reporting and compliance with relevant legal rules, and that the design and enforcement of internal control, are effective. The aforementioned goals can be achieved with reasonable assurance.

VI. This statement shall form an integral part of the Company’s annual report and prospectus and will be announced publicly. If there is any fraud, concealment and unlawful practice discovered in the content of the aforementioned information, the Company shall be liable to legal consequences under Article 20, Article 32, Article 171 and Article 174 of the Securities and Exchanges Act.

VII. This statement has been approved by the Board of Directors on Mar 19, 2013 with 5 directors in session under unanimous consent.

PixArt Imaging Inc.

Chairman：Sen-Huang Huang

President：Sen-Huang Huang

2. Disclose the Review Report of Independent Auditors if they are retained for reviewing the

Internal Control System: None.

(10) Description of Violations/Infringement of Regulations and the Company’s Response: None.

- 22 -

(11) Major Resolutions of the Shareholders’ Meeting and Board meeting:

1. Major resolutions of Shareholders’ meeting for the period from year 2011 to the date of printing of this annual report: a. Acknowledged 2011 Business Report, Financial Statements and Earnings

Distribution proposal. b Approved the proposal for 2011 capitalization of retained earnings. c. Approve the proposal for issuing new restricted stock for employees d. Approved the amendments for the Company’s “Procedures Governing the

Acquisition or Disposal of Assets”. 2. Major resolutions of the Board of Director’s Meeting for the period from year 2011 to the

date of printing of this annual report： a. Approved 2011 business report, financial statements, earnings distribution proposal

and capitalization of earnings. b. Approved first half of 2012 Financial Statements. c. Approved 2012 business report, financial statements, earnings distribution proposal. d. Approved the proposal to distribute cash from capital surplus. e. Approved the various exemptions and options upon “Initial Adoption of the

International Financial Reporting Standards” and determination of the accounting policies.

f. Approved the proposal for retroactive handling of public issuance and OTC listing of ordinary shares privately placed in 2009.

g. Approved 2012 issuing new restricted stock for employees h. Approved the Regulation Governing the Issuance of New Restricted Shares for

Employees. i. Approved 2013 issuing new restricted stock for employees j. Approved 2013 issuing Employee stock options of which the exercise price was

lower than the closing price of common shares on the date of issue. k. Approved the amendments made to Articles 5, Articles 14, and Articles 27 of the

Company’s Articles of Incorporation. l. Approved the amendments for the Company’s “Procedures Governing the

Acquisition or Disposal of Assets.”、“Operating Procedures for Endorsements and Guarantees,” 、“Operating Procedure for Loan Made to Others,” and” Rules of Procedure for Board of Directors Meetings”.

m. Approved the amendments for the Company’s “Internal Control Systems” and “Internal audit implementation rules”.

n. Approved the by-election of one seat of the 7th term independent directors. o. Approved the Nomination of one seat of the 7th term independent directors. p. Approved the list of candidates to be elected as one seat of the 7th term independent

directors.

(12) Directors’ or Supervisors’ Objections on the Important Resolution of Board Meetings : None.

(13) Information of Resignation or Dismissal of Persons Related to Financial Reports: None.

- 23 -

4. Disclosure of Auditing Fees：

CPA firm Names of auditors (CPA) Year Remark

Ernst & Young Jia-Ling Tu

Chin-Lai Wang 2012

Starting from fourth quarter of 2012, due to the internal organizational structure change of Ernst and Young, independent auditors were replaced from Shao-Pin Kuo and Chin-Lai Wang to Jia-Ling Tu and Chin-Lai Wang .

Unit：NT$1,000 Item

Scale Auditing

Fee Non-

Auditing Fee Total

1 Less than 2,000 V 2 2,000～4,000 V V 3 4,000～6,000 4 6,000～8,000 5 8,000～10,000 6 10,000 and above (a) The amount of non-auditing relevant fees charged by the appointed independent auditors

and the related parties reaches 25% of the Company’s annual auditing expenses: Not Applicable.

(b) If there is any change in the appointed independent auditor firm and the Company’s annual

auditing expenses decreased simultaneously, information regarding the amount and reasons for the decrease in auditing expenses shall be disclosed: Not Applicable.

(c) Auditing expenses decreased by 15% in comparison to the previous year, information

regarding the amount, percentage and reasons for the decrease in auditing expenses shall be disclosed: Not Applicable.

5. Changes in Independent Auditors：

Starting from fourth quarter of 2012, due to the internal organizational structure change of Ernst and Young, independent auditors were replaced from Shao-Pin Kuo and Chin-Lai Wang to Jia-Ling Tu and Chin-Lai Wang .

6. PixArt Chairman, President, manager (s) who is responsible for financial or accounting affairs working in the accounting firm of the appointed independent auditors or the accounting firm’s related parties within the past year: None.

7. Changes in shareholding of directors, supervisors, officers and major shareholders holding more than 10% shares for the preceding year to the date of printing of this annual report

(1)Changes in Shareholding and Shares Pledged by Directors, Supervisors, Officers and Shareholders with 10% or more Shareholding

- 24 -

Unit：share

2012 Jan 1. to April 26, 2013

Title Name Net change in shareholding

Net change in

shares pledged

Net change in shareholding

Net change in

shares pledged

Chairman / President Sen-Huang Huang 53,432 - - -Director Tzu-Na Wu - - - -

Director represented by Tzu-Na Wu

Fortune Venture Capital Corp. (Note 1) (5,263,166) - (10,000) -

Director / Supervisor Sheng-Cheng Chou - - - -Director / Supervisor represented by Sheng-Cheng Chou

Novatek Microelectronics Corp. (Note 2) -

- - -

Director Victor Hsu - - - -Director represented by Victor Hsu

Unimicron Technology Corp. (194,118) - - -

Independent Director Ming-De Li - - - -Independent Director Chun Kuan - - - -Independent Director Wen-Chin Cheng - - - -Vice President Wen-Cheng ,Yen 133,030 - 11,581 -Vice President Ming-Tsan Kao 90,688 - 11,581 -Division Director Wei-Chung Wang 87,336 - (7,450) -Division Director Cheng-Kuang Sun (Note 3) 66,742 - - -Division Director Chun-Yi Lu (Note 3) 11,300 - - -Chief Finance Officer Mei-Wei Lo 68,506 - (5,037) -Note1：Fortune Venture Capital Corp had been discharged on Feb..18 2013. Information disclosed above only covers

the period of service. Note 2：Novatek Microelectronics Corp. had been resigned on Jul.27 2012. Information disclosed above only covers

the period of service. Note 3：Appointed on Mar. 24 2011, information disclosed above only covers the period of service.

(2). If the counterparty of the share transfer or pledge disclosed above is a related party, disclose the relationship and shares transferred or pledged:

(i) Stock Trade with Related Party：None.

(ii) Stock Pledge with Related Party：None.

8. The relationship between any of the Company’s top ten shareholders： April. 26, 2013; Unit: Share/%

SHAREHOLDING SHAREHOLDING UNDER SPOUSE

AND UNDERAGE CHILDREN

SHAREHOLDING UNDER THE

TITLE OF THIRD PARTY

TOP 10 SHAREHOLDERS

WHO ARE RELATED PARTIES TO EACH OTHER

REMARKNAME

Shares % Shares % Shares % Name Relationship Fortune Venture Capital Corp. Representative： Stan, Hung

5,646,494 4.19% －－－－－－－

Hsun Chieh Investment Co., Ltd. Representative： Ping-Kun, Hung

3,820,000 2.84% －－－－－－－

Novatek Microelectronics Corp. Representative： Tai-Shung ,Ho

1,991,971 1.48%

- 25 -

China Trust in custody of PixArt Imaging Inc. of employee stock trust account

1,983,616 1.47%

Fubon Life Issurance Co., Ltd. Representative： Ben-Yuan, Cheng

1,804,477 1.34%

Sen-Huang Huang 1,733,777 1.29%

Unimicron Technology Corp. Representative： Tzu-Chang, Tseng

1,372,116 1.02%

Ming-Kai Tsai 1,101,525 0.82%

Ruei Meng financial consultant Corp. Representative： Ming-Huei, Lin

961,628 0.71% －－－－－－－

Investment account of overseas fund

858,000 0.64% －－－－－－－

Note 1：Shareholding % is calculated based on the company’s total 134,628,504 issued shares. Note 2：The above table disclosed the information that the company is able to collect.

9. Long-Term Investment Ownership

Dec.31 2012; Unit: Share / %

PixArt Investment Investments from

Directors,Supervisors, Managers, and Directly or Indirectly

Controlled Businesses

Total investments (1) + (2)Investees

share % share % share % PixArt International (BVI) Ltd. 2,825,000 75.35% 924,000 24.65% 3,749,000 100.00%PixArt International (SAMOA) Ltd. 10,330,000 100.00% - - 10,330,000 100.00%Yuan-Xiang Investment Corp 40,000,000 100.00% - - 40,000,000 100.00%Yuan-Feng Investment Corp. 5,000,000 100.00% - - 5,000,000 100.00%PrimeSensor Technology Inc. - - 6,904,033 52.43% 6,904,033 52.43%YuanYao Technology Inc - - 2,000,000 100.00% 2,000,000 100.00%YuanXiang Technology (SAMOA) Ltd. - - 2,824,000 100.00% 2,824,000 100.00%YuanSheng Investment (SAMOA) Ltd. - - 1 100.00% 1 100.00%PrimeSensor Technology (SAMOA) Ltd. - - 460,000 100.00% 460,000 100.00%PixArt Imaging (USA) Inc. - - 10,000 100.00% 10,000 100.00%PixArt Imaging (Penang) Inc. - - 10,000,000 100.00% 10,000,000 100.00%ePlan Technology (SAMOA) Ltd. - - 400,000 100.00% 400,000 100.00%PixArt Japan K.K. - - 1,000 100.00% 1,000 100.00%CMC Capitals Invetments, L.P. - - - 10.30% - 10.30%Hsieh Yung Investment Co., Ltd. 34,686,000 4.55% 127,182,000 16.66% 161,868,000 21.21%

- 26 -

IV、Capital and Shares 1.Capital and Shares

(1) Source of Capital： Unit:1,000 Shares/NTD1,000

Authorized capital Paid-in capital Remarks Year/month Par Value Shares (in

thousand) Amount (in thousand)

Shares (in thousand)

Amount (in thousand) Source of capital Issuing shares for

assets other than cash Others

Jan. 2012 10 150,000 15,000,000 131,220 1,312,200 Exercise of stock

options & retirement of stock

repurchases - Note 1

Sep 2012 10 150,000 15,000,000 132,645 1,326,449 Capitalization of retained earnings - Note 2

Dec 2012 10 150,000 15,000,000 133,624 1,336,243 Issuing new

restricted stock for employees

- Note 3

Apr 2013 10 150,000 15,000,000 134,629 1,346,285 Issuing new

restricted stock for employees

- Note 4

Note 1：Science Park Administration, approval letter No 1010000025. Note 2：Science Park Administration, approval letter No 1010028454. Note 3：Science Park Administration, approval letter No 1010037645. Note 4：Science Park Administration, approval letter No.1020010241

April. 26, 2013; Unit:Share

Authorized Capital Type of stock Outstanding shares un-issued shares Total Remarks

Common shares 134,628,504 15,371,496 150,000,000

Securities under General Application System：Not applicable.

(2) Structure of Shareholders

April 26, 2013; Unit: Share Shareholder

structure Quantity

Government agencies

Financial institutions

Other institutions Individuals

Foreign institions and individuals

Treasury stock Total

Number of shareholders 0 19 91 31,540 99 1 31,750 Shareholding (shares) 0 4,704,615 21,134,754 98,336,530 4,951,605 5,501,000 134,628,504Shareholding % 0.00 3.49 15.70 73.04 3.68 4.09 100.00

(3)Distribution of Shareholding

April 26, 2013, Par value of $10 Class of shareholding (shares) Number of

shareholders Shareholding (shares) Shareholding % 1 to 999 10,971 796,818 0.59

1,000 to 5,000 16,620 30,720,389 22.825,001 to 10,000 2,239 15,281,717 11.35

10,001 to 15,000 807 9,412,167 6.9915,001 to 20,000 320 5,527,019 4.1020,001 to 30,000 342 8,153,560 6.0630,001 to 50,000 207 7,724,857 5.7450,001 to 100,000 136 8,952,593 6.65

100,001 to 200,000 67 8,930,933 6.63200,001 to 400,000 16 4,379,830 3.25400,001 to 600,000 9 4,490,619 3.34600,001 to 800,000 4 2,649,868 1.97800,001 to 1,000,000 3 2,653,158 1.97

More than 1,000,001 9 24,954,976 18.54Total 31,750 134,628,504 100.00

Note: PixArt does not issue preferred stocks.

- 27 -

(4) Major Shareholders: April.26, 2013 Unit: share

ShareholdingName of dominant shareholder Shareholding Shareholding % Fortune Venture Capital Corp. 5,646,494 4.19 %Hsun Chieh Investment Co., Ltd. 3,820,000 2.84 %Novatek Microelectronics Corp. 1,991,971 1.48 %China Trust in custody of PixArt Imaging Inc. employee stock ownership trust account 1,983,616 1.47 %Fubon Life Issurance Co., Ltd. 1,804,477 1.34 %Sen-Huang Huang 1,733,777 1.29 %Unimicron Technology Corp. 1,372,116 1.02 %Ming-Kai Tsai 1,101,525 0.82 %Ruei Meng financial consultant Corp. 961,628 0.71 %Investment account of overseas fund 858,000 0.64 %

(5) Market Price, Net value, Earnings and Dividend per Share and Related Information over the

Last Two Years:： Unit: Share/ NTD1.00

Year Subject

2011 (paid out in 2012)

2012 (paid out in 2013)

Jan 1. to May 7, 2013(Note 6)

High 131.72 96.63 74.50 Low 56.14 58.90 61.70

Market price per share （Note 1） Average 89.30 79.32 68.48

Before distribution 44.81 43.27 43.33 Net value per share After distribution (Note 2） 41.50 * *

Weighed average outstanding shares 130,412,919 127,079,337 127,143,888 Before retroactive adjustment 3.85 2.20 0.11 EPS EPS After retroactive adjustment（Note 2） 3.81 * *

Cash dividend 2.9 * ** Retained earnings 0.1 * ** Stock

dividend Capital surplus － * ** Dividend per share

Accumulated unpaid dividends －－ ** P/E ratio (Note 3) 23.44 36.05 ** P/P ration (Note 4) 30.79 * ** Analysis

of ROI Cash dividend yield (Note 5) 3.25 % * **

* : Pending on decision of Shareholders’ Meeting **: Not Applicable.

Note 1：Market prices have been retroactively adjusted for stock dividend, cash dividend and employee stock bonus. Note 2：This number has been adjusted based on the resolution of shareholders’ meeting held in the following year. Note 3：P/E ratio=Average price per share of the year/Earnings per share Note 4：P/P ratio=Average price per share of the year/Cash dividend per share Note 5：Cash dividend yield=Cash dividend per share/ Average price per share of the year Note 6：Refer to the audited financial statements for the first quarter of 2013 for net worth per share or earnings per share figures for

the current fiscal year up to the date of printing of the annual report.

(6) The Company’s stock dividend policy and status report a. Stock dividend policy regulated in the Company’s Articles of Incorporation：

Where the Company has a profit at the end of each fiscal year, the Company shall allocate the profit in the following order:

1. Income tax obligation;

- 28 -

2. Offsetting accumulated deficits, if any; 3. Legal reserve at 10% of net income after tax 4. Appropriate or reverse special reserve in accordance with applicable rules and

regulations. 5. Remuneration for directors to a maximum of 1% of the remaining current year’s

earnings after deducting for item1 through 4. 6. After deducting for item 1 through 4 above from the current year’s earnings, no

less than 1% of the remaining amount together with the prior years’ unappropriated earnings is to be allocated as employees’ bonus.

7. The remaining, after all the above appropriations and distributions, may be retained or distributed proportionally as shareholders’ bonus. The distribution will be recommended by the board of directors and resolved in the shareholders’ meeting.

The board of directors shall make the distribution proposal in the subsequent year and submit it to the annual shareholders’ meeting for proposal. The proposal should reflect factors such as industry situation, current and future fund requirements, and long-term financial planning. Of the proposal, both dividend and employees’ bonus may be distributed in the form of cash or stock, but cash dividend shall be no less than 10% of the total dividends. Director remuneration shall be distributed in cash.

b. Surplus earnings distribution proposal (approved by Board of Directors and to be discussed in this year’s Shareholders’ Meeting)：

1.The Board of Directors proposes to distribute the Company’s 2012 surplus earnings as follows:

Expressed in NT DollarsDescriptions Amount Remarks

Net profit of 2012 280,108,272 Less: 10% Legal reserve (28,010,827) Special reserve (3,927,279) 2012 Earnings Available for Distribution 248,170,166 Plus: Unappropriated retained earnings of

previous years 1,716,475,278

Less: Adjustment from retained earnings recognized under equity method. (11,364,831)

Earnings Available for Distribution 1,953,280,613 Distribution Items: Cash Dividend to common shareholders 12,912,750 NT$0.1 per share

Total Distribution 12,912,750 Unappropriated Earnings 1,940,367,863

The Board of directors also proposes to distribute employee cash bonus in the amount of NT$45,578,942, and Directors’ remuneration in the amount of NT$2,481,174. The above distribution and employee bonus is consistent with the 2012 financial statements.

2. distribute cash from capital surplus： The Company is proposing to distribute cash in the amount of NT$ 245,342,258 from capital surplus for shares issued at premium in accordance with Article 241 of the Company Act. The total amount of cash distribution per share is NT$ 1.9 (calculated to the nearest dollar) based on the total number of outstanding shares aggregating 129,127,504 shares (total number of shares outstanding totaling

- 29 -

134,628,504 shares less treasury stock 5,501,000 shares) as at April 26, 2013

(7) Impact of the capitalization of earnings to the Company’s business operations and earnings per share.

Not Applicable.

(8) Employee bonus and Director/Supervisor remuneration

a. Employee bonus and Director/Supervisor compensation regulated in the Company’s Articles of Incorporation. The execution of employee bonus and Directors’ & Supervisors’ remuneration complied with Article 24 of the Company’s Articles of Incorporation. Please refer to (6) for details regarding the implementation of the Company’s stock dividend policy.

b. Accounting method for differences between accrued and actual employee bonus and

Director/Supervisor remuneration and the method used to accrue employee bonus and Director/Supervisor remuneration: Estimates for and Director/Supervisor remuneration are accrued based on the percentages stipulated in the Articles of Incorporation. The employee bonus is accrued based on the percentages stipulated in the Articles of Incorporation at 25% of the current net income (excluding the effects of expensing employee bonus) after setting aside the legal reserve and other mandatory reserves. If the Shareholders’ meeting resolves to issue employee bonus in the form of common shares, the number of shares is determined based on the closing stock price one day prior to the Shareholders’ Meeting, ex-right/ex-dividend. Any discrepancies between the actual employee bonus as decided by the Shareholders’ Meeting and the estimates would be recognized as profit/loss in the following year.

c. Employee bonuses and Director/Supervisor remuneration proposal approved by the

Board of Directors. （I） Distribution of cash bonuses or stock bonuses to employees, and compensation

for directors and supervisors. If there is any discrepancy between such an amount and the estimated figure for the year these expenses are recognized, the discrepancy, its cause, and the status of treatment shall be disclosed: The Company will distribute employee cash bonuses in the amount of NT$45,579 thousand, and Director remuneration in the amount of NT$2,481 thousand, as approved by the Board of Directors on May 7th, 2013. The above distribution and employee bonus is consistent with the 2012 financial statements.

（II） The amount of any proposed distribution of employee stock bonuses, and the size of such an amount as a percentage of the sum of the current after-tax net income and total employee bonuses: Not Applicable.

（III） The annual report shall assess the effect upon imputed earnings per share of any proposed distribution of employee bonuses and director/supervisor compensation; The Company has expensed the employee bonus and Director/Supervisor remuneration for fiscal year 2012 since the policy began in 2008. Therefore, the pro forma earnings per share is the same as the earnings per share in its financial statements.

- 30 -

d. The actual distribution of employee bonuses and director/supervisor compensation for the previous fiscal year (with an indication of the number, dollar amount, and stock price of the shares distributed), and if there is any discrepancy between the actual distribution and the recognized employee bonuses and director/supervisor compensation, additionally the discrepancy, cause, and how it was treated: The actual distribution and the differences for fiscal year 2011 are as follows:

Expressed in NT 1,000

Distribution items

Actual distribution

Amount accrued Difference

Reason and treatment for differences

Shares Issued Share Price

Remuneration of directors and supervisors

4,469 4,469 0 None - -

Profit sharing to employees - in

cash

67,820 67,820 0 None - -

Profit sharing to employees - in

stock

13,000 13,000 0 None 167,688 shares 77.5

(9) Status of treasury stocks：

Apr. 26, 2013

Items Fourth Fifth Sixth

Purpose of the buyback Transfer to employee Transfer to employee Transfer to employee

Buyback period 2011.03.30~ 2011.05.20 2011.10.04~ 2011.11.15 2011.12.22~

2012.01.16 Proposed price range of the buyback (Note)

Between NT$84 to NT$170



Number of shares bought back 1,636,000 shares of common stock

2,984,000 share of common stock

881,000 share of common stock

Total cash paid for the buyback (in NTD) NT$ 190,191,431 NT$ 228,436,682 NT$ 59,971,786

Number of shares cancelled or transferred 0 share 0 share 0 share

Accumulated holding of treasury stock 1,636,000 shares 4,620,000 shares 5,501,000 shares

Accumulated number of shares as a percentage of total number of outstanding shares（%）

1.22% 3.43 % 4.09%

Note: It is allowed to buy back shares even though the market price is lower than the lowest price of the price range.

- 31 -

2.Corporate Bonds: Not applicable.

3. Preferred Stocks: Not applicable.

4. GDR/ADR: Not applicable.。

5. Employee Stock Option： (1) The Status of Employee Stock Options:

Apr. 26, 2013 ESOP Granted Fourth Round

Approved Date by the Securities & Futures Bureau 12/24/2007 Issuing Date 12/27/2007 issued 5,000 units Option Duration 6 years Number of Options Granted 5,000 units Percentage of Shares Exercisable to Outstanding Common Shares (%) 4.27%

Source of Option Shares Issuing new shares Vesting Schedule 2nd Year: up to 50%, 3rd Year: up to 75%, 4th Year: up to 100%Shares exercised 832,500 shares Value of Shares Exercised (NT$1,000) 161,422 Shares Unexercised (Note) 2,306,000 shares

Exercise Price Per Share(NT$) (Note) NT$ 168.28

Percentage of Shares Unexercised to Outstanding Common Shares (%) 1.71 %

Impact to Shareholders’ Equity

The exercise price was equal to the closing stock price on the date when the ESOP was granted. The exercise price was actually the same as market price. And employees can exercisethe options two years or more after the issuing date. If all unexercised options are exercised, the outstanding shares will be increased by 1.71%. The exercise price equals to NT$168.28, which is higher than net value per share, the exercise of options will increase the net value per share.

Note：Numbers expressed in this table are prices after adjustments in accordance with their respective rules

governing stock option issuance and exercise.

(2) List of Managers and Top 10 Employees (whose exercise amount is higher than NT$ 30,000 thousand) Participating in Employee Stock Option Plan

Apr.26, 2013 Options exercised Options unexercised

Title Name

Number of

options granted (shares)

% of shares exercisable

to outstanding Common

Shares

Shares exercised

Price of shares

exercised($)

Total value of shares

exercised ($K)

% of exercised shares to

outstanding common shares

Shares unexercised

(shares)

Exercise price ($)

Total exercise

amount of shares

unexercised ($K)

% of unexercised

shares to outstanding

common shares


Vice President

Wen-Cheng ,Yen

Vice President

Ming-Tsan Kao

Division Director

Wei-Chung Wang

Managers

Chief Finance Officer

Mei-Wei Lo

497,000 0.4% 0 0 0 0% 497,000 168.28 83,635 0.4%

- 32 -

Manager Ching –Lin Chung

Employee Manager Wei-Hsiang

Wang

126,000 0.1% 0 0 0 0% 126,000 168.28 21,203 0.1%

Note：The information is disclosed to optionees who were employees of the Company as at April 26, 2013.

6. Restricted stock for employees：

(1) The Status of Restricted stock for employees： Apr. 26, 2013

Restricted Granted 2012 First Round Restricted stock for employees

Approved Date by the Securities & Futures Bureau 09/05/2012

Issuing Date 11/22/2012 issued 979,436 shares 04/03/2013 issued 1,020,564 shares

Total Number of New Shares 2,000,000 shares Issuing Price NT$ 0 Percentage of Shares Exercisable to Outstanding Common Shares (%) 1.49 %

Vesting Conditions

For those employees who was awarded the new restricted shares for employee still at service after the expiration of the following terms and achieve the performance criteria set by the Company (performance requirement is set by the Chairman of the Board with the authorization from the Board of Directors), the proportion of shares reaching the vesting conditions is as follows: Serving the expiration of one year: 25%、Serving the expiration of two year: 25%、Serving the expiration of three year: 25%、Serving the expiration of four year: 25%

Restricted rights

a. After employees are allocated with new shares and before the vesting conditions are reached, in addition to inheritance, the employees shall not sale, mortgage, transfer, gift, pledge or do anything on those new restricted shares for employee.

b. The attendance, motion, making speeches, voting rights is all entrusted to custodian organization to execute according to the contract.

Custody condition

The new restricted shares for employee issued under this regulation will be handed over to stock trust custody under the employees’ names, after the employees are allocated with new shares and before the vesting conditions are reached

The restricted rights on the newly issued shares before reaching the vesting condition

Except the limits due to trust agreement in previous section, the new restricted shares for employee allocated under this regulation, before reaching vesting conditions, other rights, include but not limited to: dividends, bonus and allocation rights of capital surplus, stock options on cash capital increase and voting rights are all the same as the common stocks issued by the Company.

Shares Retracted 16,384 shares Shares Released None Shares Ureleased 1,983,616 shares Percentage of Shares Unreleased to Outstanding Common Shares (%) 1.47 %

Impact to Shareholders’ Equity

Shall the vesting conditions all new restricted shares issued to employees in this round be met, the Company’s capitalwill increase by 1.47% based on the number of currently outstanding shares of the Company. The effects of dilution are limited due to vesting conditions be met across several fiscal periods.

- 33 -

(二) List of Managers and Top 10 Employees Participating in Restricted stock for employees

Apr. 26, 2013 Released restriction rights Unreleased restriction rights

Title Name

Number of

restricted stock

granted (shares)

% of shares to

outstanding Common

Shares Shares

releasedIssuing Price

Issuing Amount

% of shares released to outstanding Common

Shares

Shares unreleased

Issuing Price

Issuing Amount

% of shares unreleased

to outstanding Common

Shares


Vice President Wen-

Cheng ,Yen

Vice President Ming-Tsan Kao

Division Director

Wei-Chung Wang

Managers

、Employee Chief Finance

Officer Mei-Wei

Lo

249,032 0.18 % 0 0 0 0% 249,032 0 0 0.18 %

Note：For materiality considerations, parties to which the information will be disclosed include managerial officers (irrespectively of the number of shares obtained) and employees who have received more than 50,000 shares of the new restricted shares.

7. Status of New Shares Issuance in Connection with Mergers and Acquisitions：None.

8. Execution status of Financing：Not applicable.

.

- 34 -

V.Business Activities

1. Business Scope (1) Business Scope：

a.The main business activities of PixArt include：

Research, develope, design, produce and sell the following products: (I). CMOS Image Sensor

(II). Image processor

(III). Image sensor in single chip Any trade business associated with the aforementioned products

b.Revenue Mix： Unit：NT$ 1,000

2011 2012 YearProduct Amount % Amount % CMOS Image Sensor 3,165,709 98.38 3,283,100 99.39Others 52,130 1.62 20,087 0.61

Total 3,217,839 100.00 3,303,187 100.00

c. Major products and services ： Category Description

CMOS Image Sensor and Application IC

A.CMOS Image Sensor B.Optical and laser mouse chip C.PC and NB Camera SOC Solution D.Multi-Object–Tracking (MOT) sensor E.DSP Chip for NB and PC Camera F.Optical and capacitive touch solutions G.Gesture sensors

d. New Products Planned for Development： (a)Sensors for wireless, energy-efficient and integrated optical/laser/touch mice (b)TOG (Tracking On Glass) and gaming mouse (c)OFM (Optical Finger Mouse) sensor (d)MOT sensor for Smart TV or Set Top Box remote controller (e)Optical touch solutions for Windows 8 and other applications (f)Capacitive touch solutions (g)Gesture sensors (h)HSD (Human Sensing Device)/Face recognition sensor (i) Various Human-machine interface(HMI, Human Machine Interface) products

(2) Industry summary：

a. Industry overview and outlook

CMOS image sensor has a wide range of application. The main markets include functional/ smart mobile phone, PC/ NB camera, mouse, digital camera, household

- 35 -

electrical appliances, video conference, security system, automobile parking sensor, driving recorder, game console, toy, medical usage, and etc. For the standard CMOS image sensor market, companies within this industry are mainly from United States, Japan, and Korea. In the recent years, Chinese companies are also focusing on getting market shares. In addition to the product being standard, DRAM companies and Chinese companies are joining this industry. This contributes to the fierce comepetition in standard CMOS image sensor market. As for the applied CMOS image sensor market, it has higher barrier of entrance due to the charateristics of this product. Therefore, companies in this industry will be able to maintain better product revenue. With improving technology of CMOS image sensor, the range of application has become wider. Despite the skills used in mouse, game console, and toy, applied CMOS image sensor has been developed to use in touch, face recognition, gesture control, and etc. This technology has been utilized in mobile phones, computers, cars, televisions, and various products. Since there are a variety of usages available for applied CMOS image sensor, this market provides companies many opportunities to establish different products.

b. Relationship between downstream, midstream, and upstream

The relationship between the downstream, midstream, and upstream players in Taiwan’s IC industry is shown in the following table. The players are upstream IC design companies, midstream IC wafer fabrication companies, and downstream IC packaging and testing companies. Unlike foreign IC companies that undertake the entire process (design, fabrication, packaging, and testing) and IC companies in Southeast Asia that only undertake downstream packaging and testing, Taiwanese IC companies tend to specialize in a specific area of expertise. Each of the three market segments are made up of several competitors and a clear division of labor can be seen as a result.

Breakdown of Taiwan’s IC industry by upstream, midstream, downstream

Structure Function Manufacturing Process Upstream Design Logic design, circuit design, layout

Midstream Mask and

Wafer fabrication

Oxidation, mask house, etching, ion diffusion, ion implant, CVD (chemical vapor deposition), metal sputtering, wafer inspection

Downstream Packing and testing Die saw, pick and place, wire bonder, tray, test

c. Product development trend

(I). Low-power

Given the increasing popularity of portable devices and the demand for energy efficiency, the Company will engage in the R & D of products that consume lower energy.

(II). Miniaturization and integration with wiring

Portable imaging products need to be light, thin, short, and small. The miniaturization of CMOS is a major development trends.

d. Overview of market competition

- 36 -

Competition in CMOS Image Sensor varies according to the charateristics of products. For standard CMOS Image Sensor, companies are from United States, Korea, Japan, Taiwan, and China. These companies include Aptina, Samsung, Omnivision, Hynix, Pixelplus, Galaxycore, and etc. This is a fierce market due to the large number of competitors. On the other hand, the competition in applied CMOS Image Sensor differs with application of products. Since this market has higher barrier of entrance and characteristics of applied CMOS Image Sensor is distinctively different from the standard product, the competition is relatively fair.

(3) Technology and R&D：

a. Summary of R&D expenses: Unit：NT$ 1,000

Year Item 2011 2012 Jan.1, to Mar. 31

2013

R&D expenses 480,849 441,368 199,259

b. R&D accomplishments (1) Power-saving/ high performance wireless mouse device. (2) TOG and Gaming mouse device. (3) OFM (Optical Finger Mouse) Sensor (4)MOT Sensor or game console (5) MOT Sensor for Smart TV remote controller (6) QVGA/VGA/HD sensors (7) VGA SOC for PC/NB camera (8) Optical touch solutions (9) DMS(Distance Measure Sensor related technologies and products (10) Human Sensing Device/Face recognition (11) Microminiaturization Gesture Recognition IC (12) Wireless mouse sensor with ultra-low power (<1mA) (13) Capacitive Touch IC

(4) Short-term and long-term business development plans:

a. Short-term development plan

(I) Marketing strategy

I-1. Expanding the current marketing channels and exploit potential markets. I-2. Aggressively developing relationships with overseas and domestic customers on

optical mice, PC/NB cameras, and other application products to increase market share.

I-3. Strengthen customer service to current customers in order to maintain long-term relationships.

(II) Manufacturing strategy

II-1. Strengthen relationships with wafer foundries, packaging and testing companies, and other partners both domestically and abroad to secure

- 37 -

sufficient capacity. II-2. Establish information systems connected to downstream packaging and testing

plants in order to monitor and control production quantity and progress.

(III) Product strategy

III-1. Continue to develop high potential products, such as small, high-resolution, and low-power image sensor components and products with human-machine interfaces that utilize CMOS image sensors as the input device.

III-2. Continue to integrate circuit and interface in order to improve the added value of image sensor IC and its application.

(IV) Business strategy

IV-1. Aggressively expand the product line and maintain competitive advantage through superior technology and cost control.

IV-2. Aggressively implement advanced manufacturing process and expand research and development in advanced products with high technology.

IV-3. Aggressively develop channels abroad.

b Long-term development plan

(I) Marketing strategy

I-1. Expand sales channels and strengthen market research (consumption, manufacturing, product trends). Develop strategies that meet international trends in order to raise awareness and market share.

I-2. Aggressively develop professional sales personnel, improve ability for international marketing, and develop sales partnerships with world-class international companies.

I-3. The ultimate goal is to become a globally recognized brand with a strong global sales network.

(II). Manufacturing strategy

II-1. Provide a timely, precise, and complete virtual manufacturing environment through stable outsourcing partnerships with manufacturers.

II-2. Continue to maintain cost competitive advantage through adopting advanced manufacturing process and cost reduction.

II-3. Maintain strong working relationships with outsourcing partnerships to ensure that we maintain a stable level of production capacity.

(III) Product strategy

III-1. Maintain technological advantages through continual investment in research and development of next-generation products.

III-2.Maintain market-leading positions for the existing product lines through advancing technology capabilities.

III-3.Increase the density of IC components, increase the development ratio of mixed-signal ICs, and realize system-on-a-chip technology in order to maintain product line’s competitive advantage. Maintain high levels of growth through continual product innovation.

- 38 -

(IV) Business strategy

Integrate marketing, manufacturing, and product strategy to improve overall business operations to expand business scale. We aim to become an internationally recognized IC design company.

2. Market and sales overview

(1) Market analysis a. Main products by area:

Unit：NT$ 1,000 2011 2012 Year

Region Amount % Amount % Domestic Sales 334,913 10.41 264,103 8.00Export Sales 2,882,926 89.59 3,039,084 92.00合計 3,217,839 100.00 3,303,187 100.00Note: expressed in net sales.

b. Main competitors and market share:

PixArt’s main competitors for its various products, For CMOS Sensor product, include OmniVision, Aptina, Hynix, Samsung, SETi, Galaxycore, Pixelplus etc. For mouse product, include EMC, Sunplusit, Apexone, Atlab etc. For Optical touch product, include Nextwindow etc. For DSP controller, include Sonix, Vimicro etc. PixArt is considered one of the leaders in CMOS image sensor market in terms of CMOS-related products, such as mice, games, and optical touch.

c. Supply and demand outlook and growth

The Company’s primary products are mouse products, game consoles and optical touch devices. The personal computer market saw a decline in 2012 against the 2011 as a result of the increasing popularity of tablet computers and smart phones. The mouse product market was also impacted by the unfavorable factors and declined against the previous year. It was fortunate that due to the continuous improvement in the Company’s market share in the mouse product market, we enjoyed shipment of over 200 million computer mice despite the unfavourable conditions, representing a growth of 9.5% against the previous year. We trust that the market will sustain growth in 2013. The games production line experienced declining operating revenue in 2012 as a result of our clients’ poorer sales performance. Improvements on the games sector of our business this year will be dependent on our client’s sales performance. The Company’s optical touch business expects to benefit from the boosts in the demand for PC touch devices as a result of the successful launch of Windows 8 if we were able to gain successful accreditation.

d. Competitive advantages

(I). Stable material supply

The Company maintains an excellent working relationship with United Microelectronics Corp. (UMC). The Company and UMC have forged a strong partnership after years of working together. The Company also benefits from stable supplies through the support of other packaging and testing companies.

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(II). Professional and experienced

The Company has a professional and experienced management team and focuses on our core business. The team is well versed in industry changes, product development, research and manufacturing processes, marketing, among other areas.

(III). Diverse product lines

The Company’s products lines include optical mouse, PC/NB cameras, mobile handset cameras, gaming and toys, etc. and we can provide a lot of products for our customers.

(IV) Patent Deployment The Company is actively pursuing the filing for the various patents. In 2012, we were ranked the 20th and 29th among other domestic companies in patent invention and patent filing, respectively. Our goal is to establish the barriers for entry by competitors through patent deployment.

e. Positive and negative factors in our long-term development and coping strategies：

(I). Positive factors

I-1. CMOS technology applications range from information, communication, to consumer products which will help diversify the Company’s exposure to specific industries.

I-2. Electronic product manufacturing is centered in the Greater China area, thus Taiwan has a natural competitive advantage over European and American companies in this industry.

I-3. The Company maintains an excellent working relationship with UMC. The Company benefits from stable supplies through the support of UMC and packaging and testing companies.

(II). Negative factors and our coping strategy

II-1. The negative factors facing the industry are: over-competition, threats from DRAM companies, and pricing pressure. We aim to counter these factors by aggressively investing in research and development, shortening the product cycle, establishing technological entry-barriers, strengthening customer service, maintaining the current customer base, and actively lowering our cost.

II-2. The quality of the CMOS image sensor still very much depends on the wafer foundry’s manufacturing technology and capability. Image sensor quality will be limited if wafer foundries can not make a breakthrough. The Company has an excellent working relationship with UMC and will continue to work closely with UMC’s engineers in product development to enhance products’ competitiveness.

II-3. Patent litigation has become a basic strategy for international high-tech companies. There is a certain level of uncertainty with patent “warfare” due to the lack of transparency in the patent application process. The Company has taken an aggressive stance in this arena. When appropriate, the Company will engage in patent authorization or patent licensing in order to protect the

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IC design Simulation Layout CAD Tape out

Company’s portfolio of patents.。

(2) Applications of main products and manufacturing processes：

a. Main products’ applications:

Product line Applications

CMOS image sensor components

Optical mouse, game consoles, Optical touch solutions, PC/NB Camera, mobile handset camera, consumer imaging toys

b. Manufacturing process of main products:

(I) Flowchart of the product’s manufacturing process:

The Company is an IC design house. Wafer fabrication is outsourced to wafer foundries. After preliminary testing in foundries, wafers are sent to be packaging companies to package the chip. The packaged ICs will be then sent to testing companies for thoroughly functional testing. The manufacturing process is as follows:

(II) Flowchart of design process

IC products originate from IC design. With tools such as CAD, IC design companies can design ICs by circuit design to meet customers’ or their own specifications.

(III) Mask process

Completed IC design is sent to mask companies in the form of database to product masks. The process requires four steps: exposure, etching, inspection, and shipping. The completed masks are sent to wafer foundries for manufacturing.

(IV) Wafer manufacturing process

Wafer manufacturing is a sophisticated process that involves thin film deposition, etching, ion implanting and diffusion etc. The product is ready for shipment after it passes the wafer acceptance test (WAT).

Raw material

Quartz glass

Raw material

Wafer

Raw material

Lead Frame/PCB

Mask CAD Wafer

Foundry Water Testing

Packaging

Package Testing Finished

Goods

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(3) Supply of raw materials：

a. Main raw material: wafers. b. Main supplier: United Microelectronics Corporation (UMC). c. Current market status: At present, UMC, TSMC and Global Foundry are world leading

foundries. UMC is the Company’s major supplier and the supply has been stable. (4) Major Suppliers and Customers：

a. Major Suppliers Unit：NT$ 1,000

2011 2012 2013 Q1

Ranking Supplier Name

Amount Purchase

d

Proportion of Total

Purchases for the

Year (%)

Relations Supplier Name

Amount Purchased

Proportion of Total

Purchasesfor the

Year (%)

Relations Supplier Name

Amount Purchase

d

Proportion of Total

Purchasesfor the

Year (%)

Relations

1 UMC 388,339 51.47%

Related party in

substance UMC 229,690 23.12%

Related party in

substanceUMC 54,491 25.33% Note

2 Supplier A 287,182 38.06% - Supplier A 317,640 31.97% - Supplier A 91,091 42.35% - 3 Supplier B - - - Supplier B 153,290 15.43% - Supplier B - - -

Others 79,006 10.47% Others 292,796 29.48% Others 69,518 32.32%

Total 754,527 100.00% Total 993,416 100.00% Total 215,100 100.00%

Note: The subsidiary of the related party resigned from the position as the Company’s institutional

director in February 2013 and was thus no longer a related party. The Company’s main raw material is wafer. Due to scattered purchasing sources being affected by product demand changes, the weighted stock also changes.

b. Major Customers over the Last Two Years:

Unit：NT$ 1,000 2011 2012 2013 Q1

Ranking Customer Name Amount

Proportion of Total Sales for the Year (%)

Relations Customer Name Amount


Relations Customer Name Amount


Relations

1 Customer A 1,005,279 31.24 － Customer A 1,347,556 40.80 － Customer A 377,546 41.47 － 2 Customer B 391,035 12.15 － Customer B - - － Customer B - - － 3 Customer C - - － Customer C - - － Customer C 104,108 11.43 － 4 Customer D - - － Customer D - - － Customer D 92,463 10.16 －

Others 1,821,525 56.61 Others 1,955,631 59.20 Others 336,359 36.94

Total 3,217,839 100.00 Total 3,303,187 100.00 Total 910,476 100.00

The Company’s product lines changed due to alternation in market demand. Therefore, sales to customers change as well. Yet, there is no significant change to the Company’s major customers.

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(5) Production Volume and Value over the Last Two Years： Unit: 1,000pcs/NTD1,000

2011 2012 Year Main Product

ProductionCapacity

ProductionVolume

ProductionValue

Production Capacity

Production Volume

ProductionValue

CMOS Image Sensor - 248,172 1,921,215 - 274,329 1,930,337

Note: As a result of outsourcing wafer manufacturing and IC packaging and testing, the production capacity is not applicable.

(6) Sales Volume and Value over the Last Two Years：(Expressed in net sales)

Unit: 1,000pcs/NTD1,000 2011 2012

Domestic Sales Export Sales Domestic Sales Export Sales

Year Main Product Volume Value Volume Value Volume Value Volume Value

CMOS Image Sensor 29,696 306,698 205,304 2,859,011 23,887 251,990 215,802 3,031,110

Others ─ 28,215 77 23,915 ─ 12,113 ─ 7,974

Total 29,696 334,913 205,381 2,882,926 23,887 264,103 215,802 3,039,084

3. Employees Year 2011 2012 As of Mar. 31, 2013

R&D 129 162 163 Managerial, marketing & sales 62 67 63 Manufacturing 7 10 10

Number of Employees

Total 198 239 236 Average age 35 35 35 Average years of service 3.89 4.07 4.23

Doctoral 8% 6% 6% Master 62% 64% 64% University & College 29% 29% 29%

Education

High school 1% 1% 1%

4. Environmental spending disclosure

Since the Company is a IC design house that does not engage in any in-house manufacturing, there is no possibility of pollution. The Company has not had any losses as a direct result of pollution for the recent year and this year till the date of the printing of this annual report.

5. Labor relations

(1)Employee welfare, continuing education, training, retirement schemes

a. Employee welfare

(I) PixArt has established an employee welfare committee, which is responsible for supervising and implementing employee welfare related issues.

(II) PixArt has in place group insurance to supplement the labor insurance. The employees, as well as their spouses, parents, and children are eligible for group insurance coverage.

(III) The Company offers health checks for new employees and annual health checks

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for all current employees. All employees participate in labor insurance and national health insurance. These benefits are implemented in accordance with related policies and procedures.

b. Continuing education and training The Company has established procedures governing education and training with the goal of elevating its human resources and competitive advantage. Employees are encouraged to attend various training sessions and seminars both domestically and abroad. The Company firmly believes that continuing education and training is an important part of sustainable development.

c. Retirement scheme and implementation The Company’s retirement scheme was established in accordance with the Labor Law. The Company established its Supervisory Committee on Labor Retirement Funds in 2000. The committee is responsible for setting aside the labor’s retirement reserve fund each month and depositing the funds in its name to a designated account at the Bank of Taiwan. The management and spending of the funds shall be in compliance with regulations for the Labor Pension Fund. Starting from July 1st, 2005, the Company is required to set aside the labor’s retirement reserve into the individual labor pension accounts for employees who chose the New System.

d. Labor relations The Company has strived for harmonious labor relations. In order to accomplish that, the Company values employee welfare and a comfortable working environment. Furthermore, the Company has kept the channel of communication open and employees can air their opinions freely with communication mechanisms in place. Thus far, there have been no disputes between the company and labors

(2) Losses for disputes between company and labor from the past year till the date of printing of this annual report: Former employees filed a civil action against trusted bank and Company for trusted bonus stock and cash. Taiwan High Court has ruled in favor of Company and the trusted bank. The case is pending in Supreme Court. The Company performed based on the Bonus Stock Holding Agreement signed by the parties. Plaintiff’s claim should be no merits. The case has no material impact on Company’s financial status.

6.Important Contract Nature of

the Agreement

Counter Party Contract Period Description Restrictive term

Development Nintendo Co., Ltd., Since 2006.5.17 Jointly develop pointing device Terms compliance required.

Development Nintendo Co., Ltd., Since 2007.4.7 Jointly develop pointing device Terms compliance required.

Patent and technology Licensing

SMART Technologies ULC According to the contract

Procure technology and patent license for the optical touch system integrator

Within the scope of usage according to the term

Patent and Technology Licensing

Avago Technologies General IP(Singapore Pte. Ltd., Avago Technologies ECBU IP (Singapore) Pte. Ltd.

According to the contract Cross license Within the scope of usage according to the term

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VI、Financial Information

1. Condensed Balance Sheet and Income Statement (1) Condensed balance sheet

Condensed balance sheet-IFRS(Consolidated Financial Statements) Currency: NTD 1,000

Financial Information for the last five years Year Account Title 2008 2009 2010 2011 2012

As of Mar. 31, 2013

Current Assets －－－－－ 5,241,196 Property , plant, and equipment

－－－－－ 280,295

Intangible assets －－－－－ 543,511 Other assets －－－－－ 448,345 Total assets －－－－－ 6,513,347

before distribution

－－－－－ 898,833 Current liabilities after distribution －－－－－－ Non-current liabilities －－－－－ 20,258

before distribution

－－－－－ 919,091 Total liabilities after distribution －－－－－－ Equity attributable to owners of the parent

－－－－－ 5,551,710

Capital －－－－－ 1,336,243 Capital surplus －－－－－ 1,952,264

before distribution

－－－－－ 2,795,167 Retained earnings after distribution －－－－－－

Other equity －－－－－ (53,364) Treasury shares －－－－－ (478,600) Non-controlling interest －－－－－ 42,546

before distribution

－－－－－ 5,594,256 Total equity

after distribution －－－－－－ Financial data of 2013Q1 audited by CPA. Note1：The Company did not adopt the International Financial Reporting Standards during the period between 2008

and 2012.

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Condensed balance sheet-ROC GAAP Currency: NTD 1,000

Financial Information for the last five years Year Account Title 2008 2009 2010 2011 2012 Current assets 5,386,431 5,612,533 6,182,543 5,339,918 4,973,698 Funds and investments 558,968 1,029,006 767,976 937,475 665,685 Fixed assets 247,740 274,534 258,649 247,237 248,011 Intangible assets 41,297 47,273 70,946 374,647 578,251 Other assets 47,584 31,822 33,691 63,082 34,622 Total assets 6,282,020 6,995,168 7,313,805 6,962,359 6,500,267

before distribution

1,249,816 1,140,174 1,207,807 1,298,444 949,962 Current liabilities after

distribution 1,986,914 1,784,284 1,810,213 1,663,029 (Note 2)

Long-term liabilities - - - - - Other liabilities 6,906 6,310 6,145 6,330 6,550

before distribution

1,256,722 1,146,484 1,213,952 1,304,774 956,512 Total Liabilities

after distribution

1,993,820 1,790,594 1,816,358 1,669,359 (Note 2)

Capital(Note 1) 1,247,355 1,298,639 1,308,224 1,312,200 1,336,243 Capital collected in advance

100 79,117 - - -

Capital surplus 1,117,066 1,711,640 1,866,369 1,880,513 1,950,207 before distribution

2,941,539 3,040,360 3,206,951 2,903,736 2,795,322 Retained earnings after

distribution 2,192,156 2,396,250 2,591,728 2,526,579 (Note 2)

Treasury stock (280,834) (280,834) (280,834) (441,180) (478,600) Unrealized gain (loss) from financial instruments

- - - - (55,490)

Accumulated translation Adjustment

- - - - -

Loss on unrecognized pension cost

72 (238) (857) 2,316 (3,927)

- 5,025,298 5,848,684 6,099,853 5,657,585 5,543,755 Total shareholders’ equity

after distribution

4,699,645 5,204,574 5,521,447 5,306,000 (Note 2)

Financial data of 2008~2012 are audited by CPA. Note 1：The capital includes the capital stock to be registered. Note 2：The distribution of 2012 retained earnings is not yet resolved.

- 46 -

(2) Condensed Income Statement Condensed Income Statement-IFRS(Consolidated Financial Statements)

Currency: NTD 1,000 Financial Information for the last five years Year

Account Title

2008 2009 2010 2011 2012 As of Mar. 31,

2013

Revenue －－－－－ 910,476 Gross profit －－－－－ 369,871 Incomes from operation －－－－－ (9,528) Non-operating incomes(expenses) －－－－－ 25,889 EBT from continuing operations －－－－－ 16,361 Earnings from continuing operations －－－－－ 13,447 Profit or loss of discontinued operations －－－－－－ Net income －－－－－ 13,447 Other comprehensive income －－－－－ 1,110 Total comprehensive income －－－－－ 14,557 Net income attributable to owners of the parent －－－－－ 13,591 Net income attributable to non-controlling interest

－－－－－ (144)

Total comprehensive income attributable to owners of the parent

－－－－－ 14,701

Total comprehensive income attributable to non-controlling interest

－－－－－ (144)

EPS ($) －－－－－ 0.11 Financial data of 2013Q1 audited by CPA. Note1：The Company did not adopt the International Financial Reporting Standards during the period between

2008 and 2012. Condensed Income Statement-ROC GAAP

Currency: NTD 1,000 Financial information over the last five years Year

Subject 2008 2009 2010 2011 2012 Revenue 4,804,871 3,754,432 3,979,388 3,217,839 3,303,187Gross profit 2,333,864 1,747,455 1,760,881 1,235,575 1,376,539Incomes from operation 1,306,758 907,545 882,328 446,112 610,388Non-operating incomes 109,266 20,039 29,988 159,961 75,474Non-operating expenses (9,491) (27,149) (59,615) (65,619) (359,850)EBT from continuing operations 1,406,533 900,435 852,701 540,454 326,012

Earnings from continuing operations 1,359,697 848,204 810,701 496,616 280,108

Accumulated adjustment for change in accounting principle

- - - - -

Net income 1,359,697 848,204 810,701 496,616 280,108Before retroactive adjustment 11.01 6.72 6.29 3.85 2.20 EPS ($)

(Note 1) After retroactive adjustment 10.68 6.58 6.16 3.81 2.20

Financial data of 2008~2012 are audited by CPA. Note 1：Primary earning per share.

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(3) Information on CPAs and Auditors’ Opinions:

Year CPA firm Names of auditors (CPA) Auditors’ opinion

2008 Ernst & Young Yi-Hui Huang、Hsin-Ming Hsu Modified unqualified opinions

2009 Ernst & Young Yi-Hui Huang、Hsin-Ming Hsu Modified unqualified opinions

2010 Ernst & Young Yi-Hui Huang、Chin-Lai Wang Unqualified opinions

2011 Ernst & Young Shao-Pin Kuo、Chin-Lai Wang Unqualified opinions

2012 Ernst & Young Jia-Ling Tu、Chin-Lai Wang Unqualified opinions

2. Financial Analysis over the Last Five Years：

Financial Analysis over the Last Five Years - IFRS(Consolidated Financial Statements) Financial information from 2008 to 2012 Year

Subject of analysis 2008 2009 2010 2011 2012

As of Mar. 31, 2013

Debt ratio －－－－－ 14.11 Capital

Structure (%)

Long-term capital to Property , plant, and equipment ratio

－－－－－ 2,003.07

Current ratio % －－－－－ 583.11 Quick ratio % －－－－－ 540.38

Ability to

repay debts

Times Interest Earned(Times)

－－－－－ 2,046.13

A/R turnover (times) －－－－－ 5.71 A/R collection days －－－－－ 64 Inventory turnover (times) －－－－－ 5.45 A/P turnover (times) －－－－－ 7.43 Inventory turnover days －－－－－ 67 Property , plant, and equipmentratio turnover（times）

－－－－－ 12.90

Operation

ability

Total assets turnover (times)

－－－－－ 0.56

Return on assets (%) －－－－－ 0.21 Return to shareholders’ equity (%)

－－－－－ 0.24

Income fromoperation

－－－－－ (0.71) Proportion to paid-in capital(%) EBT －－－－－ 1.22 Net profit margin (%) －－－－－ 1.48

Profi

tabil

ity

EPS ($) －－－－－ 0.11 Cash flow ratio (%) －－－－－ 17.03 Cash flow adequacy ratio (%)

－－－－－ 89.91 Cash flow

Cash reinvestment ratio (%) －－－－－ 2.67 Operation leverage －－－－－ (註 2) Lever

age Financial leverage －－－－－ (註 2) Changes in financial ratios that exceed 20% in the past two years: Not Applicable.

Financial data of 2013Q1 audited by CPA. Note1：The Company did not adopt the International Financial Reporting Standards during the period between 2008

and 2012. Note2：The operating income for the current quarter was negative, Not Applicable.

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The equations for financial ratios are stated as follows: 1. Capital Structure (1) Debt ratio= Total liabilities/ total assets (2) Long-term capital to Property , plant, and equipment ratio= (Shareholders’ equity + long-term liabilities)/ net fixed assets 2. Ability to repay debts (1) Current ratio = current assets/current liabilities (2) Quick ratio= (current assets – inventory-prepayments)/ current liabilities (3) Times interest earned (times) = EBIT/interest expense for the current period 3. Operation ability (1) A/R (including account receivable and business notes receivable) turnover times= net sales / average balance of receivables (including account receivable and business notes receivable) (2) Average A/R turnover days = 365 / A/R turnover times (3) Inventory turnover = cost of goods sold/ average inventory balance (4) A/P turnover (including account payable and business notes payable) = cost of goods sold/average balance of payables (including account payable and business notes payable) (5) Inventory turnover days = 365/ inventory turnover times (6) Property , plant, and equipment ratio turnover = net sales/ net fixed assets (7) Total assets turnover = net sales/ total assets 4. Profitability (1) Return on assets = [Earnings + interest expenses x (1 – tax rate)]/average total assets (2) Return on shareholders’ equity = Earnings/ net average shareholders’ equity (3) Net profit margin= Earnings /net sales (4) Earning per share = (earning –preferred stock dividend)/weighed average outstanding shares 5. Cash Flow (1) Cash ratio = net cash flow from operation/ current liabilities (2) Cash flow adequacy ratio = net cash flow from operation over the last five years/ (capital spending + increase in inventory+ cash dividend) in the last five years (3) Cash reinvestment ratio = (net cash flow from operation – cash dividend)/ (gross fixed assets + long-term investment+ other assets + working capital) 6. Leverage: (1) Operation leverage = (net income from operation – variable operating cost and expenses)/ income from operation (2) Financial leverage = income from operation/ (income from operation – interest expenses)

Financial Analysis over the Last Five Years - ROC GAAP Financial information from 2008 to 2012 Year

Subject of analysis 2008 2009 2010 2011 2012Debt ratio 20.01 16.39 16.60 18.74 14.71Capital

Structure (%) Long-term capital to fixed assets ratio 2,028.46 2,130.40 2,358.35 2,288.32 2,235.29

Current ratio % 430.98 492.25 511.88 411.26 523.57Quick ratio % 404.32 464.32 486.72 396.78 485.80Ability to

repay debts Times Interest Earned(Times) - - - - -A/R turnover (times) 12.51 9.83 9.87 7.40 5.70A/R collection days 29 37 37 49 64Inventory turnover (times) 4.90 5.54 7.03 7.45 6.44A/P turnover (times) 5.36 6.07 8.93 8.54 6.83Inventory turnover days 75 66 52 49 57Fixed assets turnover (times) 19.36 14.38 14.93 12.72 13.34

Operation ability

Total assets turnover (times) 0.79 0.57 0.56 0.45 0.49Return on assets (%) 22.40 12.78 11.33 6.96 4.16Return to shareholders’ equity (%) 27.22 15.60 13.57 8.45 5.00

Income from operation 111.38 69.89 67.44 34.00 45.68Proportion to paid-in capital(%) EBT 112.90 69.34 65.18 41.19 24.40Net profit margin (%) 28.30 22.59 20.37 15.43 8.48

Before retroactive adjustment 11.01 6.72 6.29 3.85 2.20

Profitability

EPS ($)(Note 2) After retroactive adjustment 10.68 6.58 6.16 3.81 2.20

Cash flow ratio (%) 162.45 103.51 82.92 47.21 14.99Cash flow adequacy ratio (%) 195.95 200.18 180.63 145.19 112.45Cash flow Cash reinvestment ratio (%) 19.95 7.47 5.77 0.18 -Operation leverage 1.04 1.06 1.07 1.19 1.24Leverage Financial leverage 1.00 1.00 1.00 1.00 1.00

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Changes in financial ratios that exceed 20% in the past two years: (1)Financial structure, repayment abilities: The Company’s accrued expenses decrease in 2012, thus

resulting in a decrease in the liabilities-to-assets ratio against 2011. Meanwhile, both the liquidity ratio and quick ratio improved against 2011.

(2)Operating capabilities & profitability: The Company’s accounts receivable turnover was lower in 2012 as compared to 2011 primarily due to the increase in revenue from clients who are granted longer credit terms. As a result of the increase in loss on investments accounted for under the equity method for 2012, the Company’s profitability also declined.

(3)Cash Flows: Due to the decrease in accrued expenses and increase in inventories and supplies for year 2012, cash flows from operating activities decreased against the previous year. Consequently, the related cash flow ratios declined against 2011.

Financial data of 2008~2012 are audited by CPA. Note 1：Before(Including) year 2008 financial analysis has not adopted the amendment of R.O.C. Statement of Financial Accounting Standards

No. 10, “Accounting for Inventories” Note 2：Primary earning per share.

The equations for financial ratios are stated as follows: 1. Capital Structure (1) Debt ratio= Total liabilities/ total assets (2) Long-term capital to fixed assets ratio= (Shareholders’ equity + long-term liabilities)/ net fixed assets 2. Ability to repay debts (1) Current ratio = current assets/current liabilities (2) Quick ratio= (current assets – inventory-prepayments)/ current liabilities (3) Times interest earned (times) = EBIT/interest expense for the current period 3. Operation ability (1) A/R (including account receivable and business notes receivable) turnover times= net sales / average balance of receivables (including account receivable and business notes receivable) (2) Average A/R turnover days = 365 / A/R turnover times (3) Inventory turnover = cost of goods sold/ average inventory balance (4) A/P turnover (including account payable and business notes payable) = cost of goods sold/average balance of payables (including account payable and business notes payable) (5) Inventory turnover days = 365/ inventory turnover times (6) Fixed assets turnover = net sales/ net fixed assets (7) Total assets turnover = net sales/ total assets 4. Profitability (1) Return on assets = [Earnings + interest expenses x (1 – tax rate)]/average total assets (2) Return on shareholders’ equity = Earnings/ net average shareholders’ equity (3) Net profit margin= Earnings /net sales (4) Earning per share = (earning –preferred stock dividend)/weighed average outstanding shares 5. Cash Flow (1) Cash ratio = net cash flow from operation/ current liabilities (2) Cash flow adequacy ratio = net cash flow from operation over the last five years/ (capital spending + increase in inventory+ cash dividend) in the last five years (3) Cash reinvestment ratio = (net cash flow from operation – cash dividend)/ (gross fixed assets + long-term investment+ other assets + working capital) 6. Leverage: (1) Operation leverage = (net income from operation – variable operating cost and expenses)/ income from operation (2) Financial leverage = income from operation/ (income from operation – interest expenses)

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3. Audit Committee’s Report

Audit Committee’s Report

The Board of Directors has prepared the Company’s 2012 Business Report, Financial Statements(including Consolidated Financial Statements), and proposal for allocation of profits. The CPA firm of Ernst & Young was retained to audit PixArt’s Financial Statements(including Consolidated Financial Statements) and has issued an audit report relating to the Financial Statements. The Business Report, Financial Statements, and profit allocation proposal have been reviewed and determined to be correct and accurate by the Audit Committee members of PixArt Imaging Inc. According to Article 14-4 of the Securities and Exchange Act and Article 219 of the Company Law, we hereby submit this report.

To PixArt Imaging Inc. 2013 Annual General Shareholders’ Meeting

PixArt Imaging Inc.

Member of the Audit Committee： Li Ming-De

Member of the Audit Committee： Kuan Chun

Member of the Audit Committee： Chang Wen-Chin

May 8, 2013

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4.、Financial Statements English Translation of a Report Originally Issued in Chinese

Independent Auditors’ Report

To the Board of Directors and Shareholders of PixArt Imaging Inc. We have audited the accompanying balance sheets of PixArt Imaging Inc. as of December 31, 2012 and 2011, and the related statements of income, changes in shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Republic of China and “Guidelines for Certified Public Accountants’ Examination and Reports on Financial Statements”, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PixArt Imaging Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity with requirements of the Business Entity Accounting Act and Regulation on Business Entity Accounting Handling with respect to financial accounting standards, Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China. The Company has prepared consolidated financial statements as of December 31, 2012 and 2011 and for the years then ended. We have expressed an unqualified opinion on those consolidated financial statements. Ernst & Young CERTIFIED PUBLIC ACCOUNTANTS March 19, 2013 Taipei, Taiwan Republic of China

Notice to Readers The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail. The accompanying financial statements are intended only to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in the R.O.C. and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the R.O.C.

2012 2011 2012 2011Current assets Current liabilities Cash and cash equivalents 2, 4(1) 3,664,453$ 4,665,221 Accounts payable 266,199$ 235,396$ Held-for-trading financial assets-current 2, 4(2) 15,074 - Accounts payable-related parties 5 28,182 34,751 Accounts receivable, net 2, 4(3) 664,082 458,931 Income tax payable 2, 4(23) 100,241 77,167 Receivable from related parties, net 5 - 1,103 Accrued expenses 2, 4(17) 534,714 902,580 Other receivables 4(4), 5 15,025 17,593 Other payable 150 7,866 Inventories, net 2, 4(5) 348,430 177,627 Other current liabilities 5 20,476 40,684 Prepayments 10,377 10,363 Total current liabilities 949,962 1,298,444 Other current assets 260 78 Deferred income tax assets-current 2, 4(23) 55,937 9,002 Held-to-maturity financial assets-current 2, 4(6) 200,060 - Other liabilities Total current assets 4,973,698 5,339,918 Accrued pension liabilities 2, 4(12) 6,195 5,975

Deposits received 5 185 185 Funds and investments Deferred credits 2 170 170 Investments accounted for under the equity method 2, 4(7) 365,685 437,218 Total other liabilities 6,550 6,330 Held-to-maturity financial assets-noncurrent 2, 4(8) - 200,257 Total liabilities 956,512 1,304,774 Financial assets measured at cost-noncurrent 2, 4(9) 300,000 300,000 Total funds and investments 665,685 937,475

Shareholders' equityProperty, plant and equipment 2, 4(10) Capital 4(13) Buildings and facilities 220,160 220,160 Common stock 1,336,243 1,312,200 Research and development equipment 82,066 74,649 Capital reserve Miscellaneous equipment 103,675 87,438 Additional paid-in capital 4(14) 1,877,746 1,866,423 Total cost 405,901 382,247 Treasury stock transaction 4(14), 4(18) 6,606 - Less : Accumulated depreciation (161,485) (142,660) Donated by shareholders 4(14) 3,816 3,816 Add : Prepayments for equipment 3,595 7,650 Long-term investment transaction 4(14) - 1,622 Property, plant and equipment, net 248,011 247,237 Employee stock options 4(14), 4(15), 4(18) 13,025 8,652

Restricted employee stocks 2, 4(14), 4(19) 49,014 - Intangible assets 2, 4(11) Retained earnings Patents 508,247 298,914 Legal reserve 4(16) 810,104 760,442 Software 60,382 61,091 Special reserve - 857 IPs 9,622 14,642 Undistributed earnings 4(17), 4(23) 1,985,218 2,142,437 Total intangible assets 578,251 374,647 Other adjustments

Cumulative translation adjustments 2 (3,927) 2,316 Other assets Treasury stock 2, 4(18) (478,600) (441,180) Leased assets, net 2, 4(10) 8,967 9,167 Unearned employees' compensation 2, 4(19) (55,490) - Refundable deposits 1,571 2,054 Total stockholders' equity 5,543,755 5,657,585 Deferred assets 2 21,048 13,443 Deferred income tax assets-noncurrent 2, 4(23) - 32,140 Restricted deposits 6 3,036 6,278 Total other assets 34,622 63,082

Total assets 6,500,267$ 6,962,359$ Total liabilities and shareholders' equity 6,500,267$ 6,962,359$

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

LIABILITIES AND SHAREHOLDERS' EQUITY Notes

English Translation of Financial Statements Originally Issued in ChinesePixArt Imaging Inc.BALANCE SHEETS

As of December 31, As of December 31,ASSETS Notes

(Expressed in Thousands of New Taiwan Dollars)

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NotesGross salesLess : Sales returns Sales discounts Net sales 2, 4(20), 5Cost of goods sold 4(5), 4(21), 5Gross profitsOperating expenses 4(21), 5 Selling expenses Administrative expenses Research and development expenses　 Total operating expensesOperating incomeNon-operating income and gains Interest income Foreign exchange gain, net 2 - Rental income 5 Valuation gain on financial assets Others 2, 4(24)　 Total non-operating income and gainsNon-operating expenses and losses Loss on equity investments, net 2, 4(7) Foreign exchange loss, net 2 Others 2, 4(21)　 Total non-operating expenses and lossesIncome from continuing operations before income taxIncome tax expense 2, 4(23)Net income

Earnings Per Share 2, 4(22) Before After Before After Basic Earnings Per Share (in New Taiwan Dollars) income tax income tax income tax income tax Net income 2.57$ 2.20$ 4.14$ 3.81$

Diluted Earnings Per Share (in New Taiwan Dollars) Net income 2.54$ 2.18$ 4.07$ 3.74$

(6,247)

(103,975) (220,808) (441,368)

610,388


(353,401)

1,284 1,284

496,616$

34,468

(766,151)

75,474

(789,463) 446,112

(100,081) (208,533) (480,849)

(1,982,264) 1,235,575

English Translation of Financial Statements Originally Issued in Chinese

20123,304,392$

PixArt Imaging Inc.STATEMENTS OF INCOME

Description

(Expressed in Thousands of New Taiwan Dollars, Except for Per Share Data)For the years ended December 31, 2012 and 2011

20113,219,577$

3,217,839 3,303,187 (1,926,648) 1,376,539

(413) (1,680) (792) (58)

(202)

159,961

39,648

(64,957)

39,761

-

4,052

74

540,454 (43,838)

-

(65,619) (662)

114,864

(359,850) 326,012 (45,904) 280,108$

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Balance as of January 1, 2011 1,308,224$ 1,866,369$ 679,372$ 238$ 2,527,341$ -$ (857)$ (280,834)$ 6,099,853$ Appropriation and distribution of 2010 earnings (Note1) : Legal reserve - - 81,070 - (81,070) - - - - Special reserve - - - 619 (619) - - - - Capitalization of stock dividends 12,817 - - - (12,817) - - - - Cash paid for shareholders' dividends - - - - (602,406) - - - (602,406) Bonus to employees - in stock 2,218 21,782 - - - - - - 24,000 Exercise of employee stock options 420 - - - - - - - 420 Treasury stock acquired - - - - - - - (441,180) (441,180) Treasury stock retired (11,479) (16,290) - - (184,608) - - 212,377 - Ttreasury stock sold to employees - 8,652 - - - - - 68,457 77,109 Cumulative translation adjustments - - - - - - 3,173 - 3,173 Net income for 2011 - - - - 496,616 - - - 496,616

Balance as of January 1, 2012 1,312,200 1,880,513 760,442 857 2,142,437 - 2,316 (441,180) 5,657,585 Appropriation and distribution of 2011 earnings (Note2) : Legal reserve - - 49,662 - (49,662) - - - - Special reserve - - - (857) 857 - - - - Capitalization of stock dividends 12,572 - - - (12,572) - - - - Cash paid for shareholders' dividends - - - - (364,585) - - - (364,585) Bonus to employees - in stock 1,677 11,323 - - - - - - 13,000 Adjustment of additional paid-in capital accounted for under the equity method - (1,622) - - - - - - (1,622) Adjustment of retained earnings accounted for under the equity method - - - - (11,365) - - - (11,365) Restricted shares for employee 9,794 49,014 - - - (55,490) - - 3,318 Treasury stock acquired - - - - - - - (37,420) (37,420) Ttreasury stock sold to employees - 10,979 - - - - - - 10,979 Cumulative translation adjustments - - - - - - (6,243) - (6,243) Net income for 2012 - - - - 280,108 - - - 280,108

Balance as of December 31, 2012 1,336,243$ 1,950,207 810,104$ -$ 1,985,218$ (55,490)$ (3,927)$ (478,600)$ 5,543,755$

Capital reserve

For the years ended December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)

Special reserveEmployee do not

earn reward

(Note1) : Directors remuneration and employee bonus amounting to NT$7,289 thousand and NT$272,663 thousand, respectively, were expensed in 2010.

English Translation of Financial Statements Originally Issued in ChinesePixArt Imaging Inc.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

Description Commonstock

Cumulativetranslation

adjustmentsTotal

Retained earnings

Legalreserve

Undistributedearnings

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

Treasury stock

(Note2) : Directors remuneration and employee bonus amounting to NT$4,469 thousand and NT$80,820 thousand, respectively, were expensed in 2011.

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2012 2011Cash flows from operating activities :

Net income 280,108$ 496,616$ Adjustments to reconcile net income to net cash provided by operating activities : Depreciation (including leased assets) 21,668 22,855 Amortization 123,357 59,910 Bad debt reversal (4,000) - Employee bonuses 45,579 80,820 Amortization of financial assets discount or premium 197 3,190 Provision (reversal) of allowance for loss on decline in market value and obsolescence of inventories 7,845 (52) Cost of employee share-based awards 14,297 8,652 Net loss on equity investments 353,401 64,957 Deferred income tax (14,795) - Adjustment of valuation on financial assets (74) - Changes in operating assets and liabilities: Notes receivable - 518 Accounts receivable (201,151) (105,316) Receivable from related parties 1,103 15,319 Other receivables 2,568 8,006 Held-for-trading financial assets (15,000) - Inventories (178,648) 107,565 Prepayments (6,597) 3,688 Other current assets (182) (28) Accounts payable 30,803 82,324 Accounts payable-related parties (6,569) (6,437) Income tax payable 23,074 (13,715) Accrued expenses (306,845) (245,182) Other payable (7,716) 927 Other current liabilities (20,208) 28,377 Accrued pension liabilities 220 -

　 Net cash provided by operating activities 142,435 612,994 Cash flows from investing activities :

Increase in investments accounted for under the equity method (301,098) (231,478) Proceeds from redemption of held-to-maturity financial assets - 325,000 Purchase of property, plant and equipment (22,242) (24,797) Increase in intangible assets (399,219) (163,698) Decrease in refundable deposits 483 93 Decrease (increase) in restricted deposits 3,242 (3,008) Increase in deferred assets (22,364) (13,976)

　 Net cash used in investing activities (741,198) (111,864) Cash flows from financing activities :

Increase in deposits received - 185 Shareholders' dividends (364,585) (602,406) Treasury stock acquired (37,420) (434,377) Treasury stock sold to employees - 68,457 Exercise of employee stock options - 420 　 Net cash used in financing activities (402,005) (967,721)

Net decrease in cash and cash equivalents (1,000,768) (466,591) Cash and cash equivalents at the beginning of the year 4,665,221 5,131,812 Cash and cash equivalents at the end of the year 3,664,453$ 4,665,221$ Supplemental disclosures of cash flow information :

Income tax paid during the year 37,625$ 57,553$ Investing and financing activities partially affecting cash flows :

Acquisition of intangible assets 305,619$ 344,418$ Add : payable at beginning of period 180,720 - Less : payable at end of period (87,120) (180,720) Cash paid 399,219$ 163,698$ Treasury stock acquired 37,420$ 441,180$ Less : payable of treasury stock purchased - (6,803) Cash paid 37,420$ 434,377$

Non-cash activities :Stock dividends and employees' bonuses capitalized (including additional paid-in capital) 14,249$ 15,035$


English Translation of Financial Statements Originally Issued in ChinesePixArt Imaging Inc.

STATEMENTS OF CASH FLOWS

Description

For the years ended December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)

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English Translation of Financial Statements Originally Issued in Chinese PixArt Imaging Inc.

Notes To Financial Statements

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1. HISTORY AND ORGANIZATION PixArt Imaging Inc. (the "Company") was incorporated under the Company Law of the Republic of China on July 13, 1998. The numbers of employees as of December 31, 2012 and 2011 were 240 and 197, respectively. The Company is specializing in CMOS image sensors and related IC design, research, production, and sales. The Company’s shares were previously registered and traded as the “Emerging Stock” on Taiwan’s GreTai Securities Market (formerly known as OTC Market) starting July 2003 and have been listed and publicly traded on Taiwan’s GreTai Securities Market since May 2006.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s financial statements are prepared in accordance with requirements of the Business Entity Accounting Act and Regulation on Business Entity Accounting Handling with respect to financial accounting standards, the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China. Significant accounting policies are summarized as follows: Cash Equivalents Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near their maturity date that they are subject to an insignificant risk of changes in value from fluctuations in interest rates. Commercial papers, negotiable certificates of deposit, and bank acceptances with original maturities of three months or less are considered to be cash equivalents. Foreign Currency Transactions and Translation of Financial Statements denominated in Foreign Currency A. The Company maintains its accounting records in New Taiwan dollars ("NT Dollars" or

"NT$"), the national currency of the R.O.C. Non-derivative transactions denominated in foreign currencies are recorded in NT Dollars using the exchange rates in effect at the dates of the transactions. When a transaction is settled in a subsequent accounting period, the monetary assets and liabilities denominated in foreign currencies are re-measured on the balance sheet date using the exchange rates prevailing as at that date with the resulting exchange gains or losses included in earnings.


Notes To Financial Statements (Continued)

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B. The financial statements of the long-term investments accounted for under equity method are translated into New Taiwan Dollars using the spot rates at the balance sheet date for asset and liability accounts. Shareholders’ equity accounts should be translated at the historical rate except for the beginning balance of the retained earnings, which is the translated amount from the last period carried forward. Revenue and expense accounts are translated into New Taiwan Dollars using the weighted average exchange rates for the relevant period. The accumulated exchange gains or losses resulting from the translation, after adjusting for percentage of ownership, are recorded in the cumulative translation adjustment in stockholders’ equity.

Financial Assets and Financial Liabilities A. Financial asset or liability is recognized on the balance sheet when the Company becomes a

party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets are recognized using either trade date accounting on equity instrument or settlement date accounting on debt security, beneficiary certificate and derivative instrument. As to accounting for de-recognition of financial assets and liabilities, the Company adopted the R.O.C. Statement of Financial Accounting Standard (R.O.C. SFAS) No. 33, “Accounting for Transfers of Financial Assets and Extinguishment of Liability”.

B. Upon initial recognition of financial assets or financial liabilities, they shall be measured at

fair value. In the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial assets or financial liabilities shall be included as well.

C. Financial assets or financial liabilities are classified as follows:

a. Financial assets measured at cost Unlisted stocks, Emerging Market stocks, funds, and other securities with no readily determinable fair values and in which the Company does not exercise significant influence are measured at cost. Derivative assets that are linked to and must be settled by delivery of the abovementioned unquoted equity instruments are also measured at cost. When objective evidence of impairment exists, the Company recognizes an impairment loss, which cannot be reversed in subsequent periods.



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b. Held-to-maturity financial assets Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity financial assets if the Company has both the positive intention and ability to hold the financial assets to maturity. Investments intended to be held to maturity are measured at amortized cost. The Company recognizes an impairment loss if objective evidence of impairment loss exists. However, the impairment loss may be reversed if the value of asset recovers subsequently and the Company concludes the recovery is related to improvements in events or factors that originally caused the impairment loss. The new cost basis as a result of the reversal cannot exceed the amortized cost prior to the impairment.

c. Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as in any of the preceding categories. After initial measurement, available-for-sale financial assets are measured at fair value with unrealized gains or losses being recognized directly in equity. When the investment is derecognized, the cumulative gain or loss previously recorded in equity is recognized in profit or loss. If there is objective evidence which indicates that the investment is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in profit or loss, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized. An available-for-sale financial asset that would have met the definition of loans and receivables may be reclassified as the bond portfolios with no active market if the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. The financial instrument shall be reclassified at its fair value on the date of reclassification. Any gain or loss already recognized as adjustment to stockholder’s equity shall be amortized and charge to current income. The fair value of the financial instrument on the date of reclassification becomes its new cost or amortized cost, as applicable.



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d. Financial assets or liabilities at fair value through profit or loss Financial instruments at fair value through profit or loss include financial assets and liabilities held for trading and financial assets and liabilities designated upon initial recognition as at fair value through profit or loss. Such assets or liabilities are subsequently measured at fair value and changes in fair value are recognized in profit or loss.

Derivative financial instruments not qualified for hedge accounting are classified as financial assets or liabilities held for short-term sale or repurchase purposes. Financial assets were recognized when its fair value is positive and classified as financial liability when fair value is negative.

Evaluation of Impairment of Accounts Receivable The Company first assesses whether objective evidence of impairment exists for notes and accounts receivable that are individually significant. If there is objective evidence that an impairment loss has occurred, the amount of impairment loss is assessed individually. For notes and accounts receivable other than those mentioned above, the Company groups those assets with financial assets with similar credit risk characteristics and collectively assess them for impairment. Inventories Inventories are valued at the lower of cost and net realizable value and inventory write-downs are made on an item-by-item basis. Costs incurred in bringing each product to its present location and condition is accounted for as follows:

Raw materials - purchase cost on weighted average cost method ;

Finished goods and work in progress

- cost of direct materials and labor and a proportion of manufacturingoverheads based on normal operating capacity on weighted averagecost method.

Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.



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Investment Accounted for Under Equity Method A. Investments in which the Company has ownership of at least 20% or exercises significant

influence on operating decisions are accounted for under the equity method. The difference of the acquisition cost and the underlying equity in the investee’s net assets as of acquisition date is amortized and goodwill arising from new acquisitions is analyzed and accounted for under the R.O.C SFAS No.25, “Business Combination – Accounting Treatment under Purchase Method”, in which goodwill is not subject to amortization.

B. When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to capital reserve. If the capital reserve is insufficient, retained earnings are charged. An investor shall stop to use the equity method from the date that it loses the significant influence over an investee and account for the investment in accordance with the R.O.C. SFAS No. 34, “Accounting for Financial Instruments” from that date. The carrying amount of the investment at the date that it ceases to be an associate shall be regarded as its cost on initial measurement as a financial asset.

C. Unrealized gains and losses arising from transactions between the Company and investees

accounted for under equity method or transactions between investees accounted for under equity method are deferred and recognized when realized.

D. The Company’s consolidated financial statements include the accounts of all directly and

indirectly majority owned subsidiaries of the Company and the account of investee in which the Company has a controlling power over but possesses less than 50% ownership.

Property, Plant and Equipment A. Property, plant and equipment are stated at cost. Significant improvements and replacements

are capitalized and depreciated over their estimated useful lives while ordinary repairs and maintenance are expensed as incurred. Interest expenses incurred in the period of such property, plant and equipment in construction or installation will be capitalized. When property, plant and equipment are disposed of, their original cost and accumulated depreciation are written off. Gains or losses on disposal of property, plant and equipment are reported under non-operating income or expenses. Equipments for lease are reclassified as leased assets to others based on its book value. Depreciation derived from leased assets to others at book value is recorded under non-operating expenses.

B. Property, plant and equipment are stated at cost. Depreciation is provided on the straight-line

basis over the following useful lives：



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Buildings and facilities 50 years Research and development equipment 3 to10 years Miscellaneous equipment 2 to11 years Leased Assets 50 years The salvage value of property, plant and equipment that continues to be in use after reaching its originally estimated useful life shall be depreciated over its estimated remaining useful life.

Intangible Assets A. Software, patents, intellectual property (IP) and other separately identifiable intangibles with

finite lives are stated at cost and amortized on a straight-line basis over the following useful lives:

Software, Patents, IPs and Others 3 to 10 Years The Company will reassess the useful lives and the amortization method of its recognized intangible assets at the end of each reporting period. If there is any change to be made, it will be treated as change of accounting estimates.

B. Expenditures related to research activities as well as those expenditures not meeting the

criteria for capitalization are expensed when incurred. Expenditures related to development activities meeting the criteria for capitalization are capitalized.

Deferred Assets Deferred charges, including molds, are stated at cost and amortized on a straight-line basis over their estimated economic lives, normally 2 years.

Asset Impairment Pursuant to R.O.C. SFAS No. 35, “Accounting for Assets Impairment”, the Company is required to perform (1) impairment testing on goodwill annually; (2) impairment testing for intangible assets which have indefinite lives or are not available for use annually; and (3) evaluating whether indicators of impairment exist for assets subject to guidelines set forth under the Statement. The Statement requires that such assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable.



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Impairment losses shall be recognized when the carrying amount exceeds the recoverable amount. Impairment losses on goodwill shall not be reversed subsequently. For assets other than goodwill impaired in prior periods, if the amount of the impairment loss decreases and the decreases is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss can be reversed to the extent of the impaired amount. The reversal may not result in a carrying amount that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. Revenue Recognition The Company recognizes revenue when the goods have been delivered, the significant risks and rewards of ownership of the goods have been transferred to the buyer, the price is fixed or determinable, and collectibility is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the period the related revenue is recognized, based on any known factors that would significantly affect the level of provisions.

Capital Expenditures and Operating Expenditures An expenditure is capitalized if it increases the future service potential of the assets and the purchase price exceeds a certain monetary threshold. Otherwise, expenditures are expensed as incurred. Pension Plan A. All regular employees are entitled to a pension plan that is managed by an independently

administered pension fund committee. Fund assets are deposited in the committee’s name in the Taiwan Bank and, hence, are not associated with or controlled by the Company. Therefore, fund assets are not included in the Company’s financial statements.

B. The Labor Pension Act of the R.O.C. (‘the Act’), which is accounted for as a defined

contribution plan, became effective on July 1, 2005. Employees covered by the Labor Standards Law (“the Law”), which is accounted for as a defined benefit plan, were allowed to either elect the pension calculation under the Act or continue to be subject to the pension scheme under the Law. Those employees who elect to be under the Act will retain their seniority achieved under the Labor Standards Law. Under the Act, the Company will make monthly contributions at no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts.



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C. The accounting for the Company’s pension liability is computed in accordance with R.O.C. SFAS No.18, “Accounting for Pension”. Net pension costs of the defined benefit plan are recorded based on actuarial valuations. Pension cost components such as service cost, interest cost, expected return on plan assets, the amortization of net obligation at transition, pension gain or loss, and prior service cost, are all taken into consideration. Net transition obligations from the plan assets are amortized using the straight-line method over the employees’ expected average remaining service period of 15 years. The Company recognizes expenses from the defined contribution pension plan in the period when the contribution becomes due.

Income Taxes A. The Company adopted R.O.C. SFAS No. 22, “Accounting for Income Taxes” for inter-period

and intra-period income tax allocation. Under the Statement, the tax effects of taxable temporary differences are recognized as deferred income tax liabilities while those of deductible temporary differences, loss carry-forward, and investment tax credits are recognized as deferred income tax assets. A valuation allowance on deferred income tax assets is provided to the extent that it is more likely than not that the tax benefits will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, its classification is based on the expected reversal date of the temporary difference.

B. Income tax (10%) on un-appropriated earnings is recorded as an expense in the year

following current fiscal year on the portion that the shareholders resolve the earnings not to be distributed.

C. According to R.O.C. SFAS No. 12, “Accounting for Income Tax Credits”, the Company

recognizes the tax benefit from the purchase of equipment and technology, research and development expenditure, employee training, and certain equity investment using the flow-through method.

D. The Income Basic Tax Act of the R.O.C. (the IBTA) became effective on January 1, 2006.

Set up by the Executive Yuan, the IBTA is a supplemental 10% tax that is payable if the income tax payable determined under the R.O.C. Income Tax Act is below the minimum amount as prescribed by the IBTA. The IBTA is calculated based on taxable income as defined by the IBTA, which includes most income that is exempted from income tax under various legislations. The impact of the IBTA has been considered in the calculation of the Company’s income tax for the current reporting period.



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Earnings Per Share The Company’s EPS is computed according to R.O.C. SFAS No. 24, “Earnings Per Share”. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the current reporting period. Diluted earnings (loss) per share is computed by taking basic earnings (loss) per share into consideration plus additional common shares that would have been outstanding if the dilutive share equivalents had been issued. Net income (loss) is also adjusted for interest and other income or expenses derived from any underlying dilutive share equivalents. The weighted-average of outstanding shares is adjusted retroactively for stock dividends. According to Accounting Research and Development Foundation (ARDF) interpretation No. 97-169, shares issued from the capitalization of employee bonuses shall not be retroactively adjusted since the Company had accounted it for as a charge to the current earnings.

Contingently issuable shares shall be considered outstanding from the date when all necessary conditions have been satisfied and shall be included in the calculation of weighted-average number of common shares outstanding in computing be basic EPS.

Treasury Stock In accordance with R.O.C. SFAS No. 30, “Accounting for Treasury Stock”, treasury stock held by the Company is accounted for under the cost method. When treasury stock is retired, the treasury stock account is credited and all capital account balances related to the treasury shares, including capital reserve-treasury stock transactions, are reduced on a proportionate basis. Any difference, if on credit side, is recorded in capital reserve-treasury stock transactions; if on debit side, it is recorded against retained earnings. An excess of the carrying value of treasury share over the sum of its par value and premium on share is first to be offset against capital reserve from the same class of treasury share transactions, and the remainder, if any, debited to retained earnings. An excess of the sum of the par value and premium on share of treasury share over its carrying value should be credited to capital reserve from the same class of treasury share transactions. For treasury stock sold to employees, the Company recognizes compensation cost in accordance with R.O.C. SFAS No. 39, “Accounting for Share-Based Payment”, ARDF Interpretation No. 96-266, “Accounting for Treasury Stock Purchased by Employees” and ARDF interpretation No. 98-111, “Determining the Grant Date of Share-Based Payment”.



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Employee Stock Option The Company used intrinsic value method to recognize compensation cost for its employee stock options issued between January 1, 2004 and December 31, 2007, in accordance with ARDF Interpretation No. 2003-070~072. Under the method, the excess of the market price over exercise price at the grant date is adjusted under shareholders’ equity and expensed over vesting periods. Disclosure of pro forma information for net income and earnings per share using fair value method is required.

For stock options granted on or after January 1, 2008, the Company recognizes compensation cost using the fair value method in accordance with R.O.C. SFAS 39. In accordance with R.O.C. SFAS 39, share-based payment transaction shall be measured by reference to the fair value of the equity instruments at the date when they are granted. The fair value is determined by an external appraisal using an appropriate pricing model. The Company enters into equity-settled share-based payment transactions only with its employees. Pursuant to R.O.C. SFAS 39, the goods or services received under such transactions, and the corresponding increase in equity, shall be measured by reference to the fair value of the equity instruments granted. If there is no limitation or condition to the vesting of equity instrument, the equity instrument is deemed to vest at the grant date. The employee compensation costs and a correspondent equity are recognized then. If the equity instrument is vested over a certain period of time, the employee compensation costs shall be recognized over that period with a corresponding increase in equity. In valuing the fair value of the equity instrument granted, no account is taken of any vesting conditions other than market conditions. Instead, non-market vesting conditions shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount. Ultimately, the amount recognized for goods or services received as consideration for the equity instruments granted shall be based on actual number of equity instruments that eventually vest. For grants of equity instruments with market conditions, the Company shall recognize the goods or services received from a counterparty that satisfies all other vesting conditions, irrespective of whether the market condition is satisfied.

Employee Bonuses and Remunerations Paid to Directors In accordance with ARDF Interpretation No. 2007-052 effective January 1, 2008, employee bonuses and remunerations paid to directors and supervisors are charged to income statements at fair value and are no longer accounted for as an appropriation of retained earnings.



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Restricted Shares for Employee In accordance with the requirements of R.O.C. SFAS No. 39, the cost of the restricted stocks for employees issued by the Company is recognized as salary expense over the vesting period, based on the fair value of the equity instruments granted on the grant date. The Company recognizes salary expense for the dividends distributed to employees expected to terminate employment during the vesting period based on its fair value at dividends declaration date, if the restricted stocks for employees do not restrict employee's right to participate in the distribution of dividends and if the employee terminates employment during the vesting period, the employee is not required to return the dividends received. If the employee is required to return the dividends received upon termination of employment during the vesting period, then the Company makes a credit entry against retained earnings to offset the debit entry made on the dividends declaration date. Operating Segment Information An operating segment is a component of an entity that has the following characteristics: a. engaging in business activities from which it may earn revenues and incur expenses; b. whose operating results are regularly reviewed by the entity’s chief operating decision maker

to make decisions about resources to be allocated to the segment and assess its performance; and

c. for which discrete financial information is available.

The Company discloses its operating segment information in the Company’s consolidated financial statements. Government Grants Income Government grants for research and development expenditures of the Company are recognized as non-operating income according to the contract terms and the progress of the research and development project.

3. REASONS AND EFFECTS FOR ACCOUNTING CHANGES (1) Effective January 1, 2011, the Company adopted the third revised R.O.C. SFAS No. 34. This

change in accounting principles had no significant effect on net income and earnings per share for the year ended December 31, 2011.

(2) Effective January 1, 2011, the Company adopted R.O.C. SFAS No. 41, “Operating Segments” (R.O.C. SFAS 41), to present operating segment information. The newly issued R.O.C. SFAS No. 41 replaced R.O.C. SFAS No. 20, “Segment Reporting”.



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4. CONTENTS OF SIGNIFICANT ACCOUNTS (1) Cash and Cash Equivalents

As of December 31, 2012 2011 NT$’000 NT$’000 Cash 70 70 Savings and checking 207,674 240,689 Time deposits 3,341,930 4,204,770 Cash equivalents-CP-Repo 114,779 219,692 Total 3,664,453 4,665,221

(2) Held-for-trading financial assets-current As of December 31, 2012 2011 NT$’000 NT$’000 Funds 15,000 - Add: Adjustments for Held-for-trading

financial assets

74

- Net 15,074 -

(3) Accounts Receivable As of December 31, 2012 2011 NT$’000 NT$’000 Accounts receivable 685,471 484,325 Less: Allowance for doubtful accounts (15,565) (19,570)

Allowance for sales discounts (5,824) (5,824) Net 664,082 458,931

(4) Other Receivables

As of December 31, 2012 2011 NT$’000 NT$’000 VAT refundable 8,175 6,825 Interest receivable 3,728 5,210 Other receivables 3,122 5,558 Total 15,025 17,593



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(5) Inventories As of December 31, 2012 2011 NT$’000 NT$’000 Raw materials 96,469 5,606 Supplies 52,611 7,289 Work-in-process 143,486 125,203 Finished goods 95,579 72,126 Total 388,145 210,224 Less: Allowance for loss on decline in market

value and obsolescence

(39,715)

(32,597) Net 348,430 177,627

For the years ended December 31, 2012 and 2011, the provision (reversal gain) of allowance for loss on declines in net realizable value and obsolescence of inventories which was included in cost of goods sold amounted to NT$7,845 thousand and (NT$52 thousand), respectively.

(6) Held-to-maturity financial assets-current

As of December 31 2012 2011

Investment items Shares/units

Amounts (NT$’000)

Shares/units

Amounts(NT$’000)

99 Taiwan Power 1A Corporate Bond 200 200,060 - -

(7) Long-term investments accounted for under the equity method

Investee Company Shares/unitsAmounts

(NT$’000) Percentage of ownership (%)

As of December 31, 2012 PixArt International (BVI) Ltd. 2,825,000 28,032 73.35 PixArt International (SAMOA) Ltd. 10,330,000 60,441 100.00 Yuan-Xiang Investment Corp. 40,000,000 241,720 100.00 Yuan-Feng Investment Corp. 5,000,000 35,492 100.00 Total 365,685 As of December 31, 2011 PixArt International(BVI) Ltd. 1,925,000 24,048 67.57 PixArt International (SAMOA) Ltd. 1,080,000 1,811 100.00 Yuan-Xiang Investment Corp. 40,000,000 369,690 100.00 Yuan-Feng Investment Corp. 5,000,000 41,669 100.00 Total 437,218



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a. The Company recognized investment loss accounted for under the equity method in the amount of NT$353,401 thousand and NT$64,957 thousand in 2012 and 2011, respectively.

b. The Company and its subsidiary, Yuan-Xiang Investment Corp. acquired PixArt

International (BVI) Ltd.’s new shares in 2012 and 2011 in the amounts of NT$42,850 thousand and NT$26,736 thousand, respectively. Ownership of PixArt International (BVI) Ltd. has become 75.35% and 24.65%, respectively. In 2012, balance of investment on PixArt International (BVI) Ltd. decreased in the amount of NT$ 4,627 thousand, while balance of investment on Yuan-Xiang Investment Corp. increased in the amount of NT$4,627 thousand. In 2011, balance of investment on PixArt International (BVI) Ltd. increased in the amount of NT$ 10,127 thousand, while balance of investment on Yuan-Xiang Investment Corp. decreased in the amount of NT$ 10,127 thousand.

c. The change of investees’ equity was charged to the Company’s equity. For the year

ended December 31, 2012, the changes decreased additional paid-in capital in the amount of NT$1,622 thousand, and decreased retained earnings in the amount of NT$11,365 thousand.

d. For the years ended December 31, 2012 and 2011, the Company increased its investment

in PixArt International (BVI) Ltd. in the amount of NT$26,848 thousand and NT$26,177 thousand, respectively.

e. For the years ended December 31, 2012 and 2011, the Company increased its investment in PixArt International (SAMOA) Ltd. in the amount of NT$274,250 thousand and NT$5,301 thousand, respectively.

f. In April, 2011, the Company increased its investment in Yuan-Xiang Investment Corp. in the amount of NT$200,000 thousand.

g. Cumulative translation adjustments resulting from the translation of the Company’s

foreign operations decreased NT$6,243 thousand and increased NT$3,173 thousand for the years ended December 31, 2012 and 2011, respectively.

h. All of the Company’s subsidiaries have been included in the consolidated financial statements.



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(8) Held-to-maturity financial assets-noncurrent As of December 31, 2012 2011

Investment items Shares /units

Amounts (NT$’000)

Shares /units

Amounts (NT$’000)

99 Taiwan Power 1A Corporate Bond - - 200 200,257

(9) Financial assets measured at cost-noncurrent As of December 31,

Investee Company 2012 Percentage of

Ownership 2011 Percentage of

Ownership NT$’000 % NT$’000 % Shieh Yong Investment Co., Ltd. 300,000 4.55 300,000 4.55

(10) Property, Plant and Equipment

a. No interest expense was capitalized for the years ended December 31, 2012 and 2011.

b. The Company had leased part of its buildings since May, 2011. For the years ended December 31, 2012 and 2011, related details were shown as follows： 2012 2011 NT$’000 NT$’000 Buildings 10,256 10,256 Less-Accumulated depreciation (1,289) (1,089)

Leased assets to other, net 8,967 9,167

(11) Intangible Assets For the year ended December 31, 2012

Patents Software IPs Total Original cost NT$’000 NT$’000 NT$’000 NT$’000 Balance at beginning of period 314,141 157,872 15,060 487,073 Increase - separately acquired 263,419 42,200 - 305,619

Balance at end of period 577,560 200,072 15,060 792,692 Accumulated amortization Balance at beginning of period 15,227 96,781 418 112,426 Increase - amortization 54,086 42,909 5,020 102,015

Balance at end of period 69,313 139,690 5,438 214,441 Net 508,247 60,382 9,622 578,251



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For the year ended December 31, 2011 Patents Software IPs Total

Original cost NT$’000 NT$’000 NT$’000 NT$’000 Balance at beginning of period 12,941 125,527 - $138,468 Increase - separately acquired 301,200 28,158 15,060 344,418 Reclassification - 4,187 - 4,187

Balance at end of period 314,141 157,872 15,060 487,073 Accumulated amortization Balance at beginning of period 9,654 57,868 - 67,522 Increase - amortization 5,573 38,913 418 44,904

Balance at end of period 15,227 96,781 418 112,426 Net 298,914 61,091 14,642 374,647

(12) Pension Fund

A. The information of the company's defined benefit pension plan as follows： a. The Company periodically made contributions to a fiduciary account in Bank of

Taiwan for its defined benefit pension plan. The fund balances were NT$13,356 thousand and NT$12,357 thousand as of December 31, 2012 and 2011, respectively. The pension expenses amounted to NT$1,114 thousand and NT$875 thousand for the years ended December 31, 2012 and 2011, respectively.

b. The components of net pension cost under were shown as follows: For the year ended December 31, 2012 2011

NT$’000 NT$’000 Service cost 682 548 Interest cost 478 312 Expected return on plan assets (247) (227) Amortization 266 120 Net periodic pension cost 1,179 753

Under (over)-accrual (65) 122 Net periodic pension cost 1,114 875



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c. The funding status of the defined pension plan was summarized as follows: As of December 31, 2012 2011

Benefit obligation NT$’000 NT$’000 Vested benefit obligation (7,567) - Non-vested benefit obligation (7,647) (9,261) Accumulated benefit obligation (15,214) (9,261) Effect on projected salary increase (16,492) (14,625) Projected benefit obligation (31,706) (23,886) Fair value of plan assets 13,356 12,357 Funding status (18,350) (11,529) Unrecognized net transitional benefit obligation 482 602 Unrecognized loss 11,673 6,294 Accrued pension liabilities (6,195) (4,633) Over-accrual - (1,342) Accrued pension liabilities (6,195) (5,975)

d. The vested benefit was NT$9,000 thousand and nil as of December 31, 2012 and 2011, respectively.

e. The actuarial assumptions are as follows:

For the year ended December 31, 2012 2011 Discount rate 1.75% 2.00% Rate of salary increase 5.00% 5.00% Expected return on plan assets 1.75% 2.00%

B. The pension expenses under the defined contribution plan were NT$14,959 thousand and NT$11,098 thousand for the years ended December 31, 2012 and 2011, respectively.

(13) Common Stock

As of January 1, 2011, the Company’s authorized common stock amounted to NT$1,500,000 thousand, divided into 150,000,000 shares (including 10,000,000 shares reserved for exercise of employee stock options), each share at par value of NT$10. The Company’s issued common stock amounted to NT$1,308,224 thousand. On March 20, 2011 and December 20, 2011, the board of the directors of the Company resolved to retire 1,000,000 shares and 147,900 shares of treasury stock. The capital reduction date was set on March 23, 2011 and December 21, 2011, respectively, and the government approval has been successfully obtained.



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Based on the resolution of shareholders’ general meeting on June 15, 2011, the Company resolved to issue 1,503,496 new shares, each share at par value of NT$10, for the capitalization of shareholders’ dividend of NT$12,817 thousand (representing 1,281,714 shares) and employees’ bonus of NT$24,000 thousand (representing 221,782 shares). The capitalization date was set on August 23, 2011 and the government approval has been obtained. Due to the exercise of employees’ stock options, 42,000 common shares were issued at par value of NT$10 during the year of 2011. The governmental approval has been obtained. Based on the resolution of shareholders’ general meeting on June 13, 2012, the Company resolved to issue 1,424,878 new shares, each share at par value of NT$10, for the capitalization of shareholders’ dividend of NT$12,572 thousand (representing 1,257,190 shares) and employees’ bonus of NT$13,000 thousand (representing 167,688 shares). The capitalization date was set on August 31, 2012 and the government approval has been obtained. In November 2012, the Company issued 979,436 restricted shares for employees, each share at par value of NT$10. As of December 31, 2012, the Company’s authorized common stock amounted to NT$1,500,000 thousand, divided into 150,000 thousand shares (including 10,000 thousand shares reserved for exercise of employee stock options), each share at par value of NT$10. The Company’s issued common stock amounted to NT$1,336,243 thousand.

(14) Capital Reserve As of December 31,

2012 2011

NT$’000 NT$’000 Additional paid-in capital $1,877,746 1,866,423 Treasury stock transaction 6,606 - Donated by shareholders 3,816 3,816 Long-term equity investment - 1,622 Employee stock options 13,025 8,652 Restricted shares for employee 49,014 -

Total 1,950,207 1,880,513



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According to the R.O.C. Company Act, capital reserve can be used for making up losses or reclassifying to paid-in capital. The Company shall not use its capital reserve to make up its loss unless legal reserve is insufficient for making up such losses. If the Company incurs no loss, it may, pursuant to the resolution approved through the shareholders’ meeting, distribute the following capital reserve, in whole or in part, by issuing new dividend shares to its original shareholders in proportion to their ownership percentage or by cash: A. surplus derived from the issuance of new shares at a premium; B. income from endowments received by the company.

(15) Employee Stock Options The options are valid for six years and exercisable at certain percentage subsequent to the second anniversary from the grant date. Detail information as of December 31, 2012 is disclosed as follows:

Date of grant Total number of

options granted Total number of

options outstanding

Total number of Shares available for

option holders

Exercise price (NTD)

(Remark)

2007.12.27 5,000 2,349 2,349,000 $168.28 Remark: The shares available for option holders are subject to adjustments in accordance with the plan in the

event that changes to the capital structure might occur. The Company used the intrinsic value method to recognize compensation cost of its employee stock options issued between 2004 and 2007 in accordance with ARDF Interpretation Nos. 2003-070~072. Under the intrinsic value method, the value of underlying shares the period before 2007 was determined based on an independent valuer’s opinion or the public offering price. Compensation costs recognized for employee stock options for the years ended December 31, 2012 and 2011 were nil. In addition, as the exercise price was equal to the market price of the underlying shares at the grant day, the compensation cost for options issued in 2007 was nil. Information of the units and weighted average exercise prices for stock option plans of the Company is disclosed as follows:



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For the year ended December 31, 2012

Unit of Options Weighted-average Exercise

Price per share (NTD) Outstanding at beginning of period 2,467.00 176.00 Granted - -

Exercised - - Expired (118.00) 173.48 Outstanding at end of period 2,349.00 168.28 Exercisable at end of period 2,331.00 Weighted-average fair value of options granted during the period (in NTD)

-


Unit of Options Weighted-average Exercise

Price per share (NTD) Outstanding at beginning of period 2,970.50 186.10 Granted - -

Exercised (42.00) 10.00 Expired (461.50) 181.30 Outstanding at end of period 2,467.00 176.00 Exercisable at end of period 2,299.50 Weighted-average fair value of options granted during the period (in NTD)

-

Information for outstanding options which were granted after January 1, 2004 is as follows:

Outstanding Stock Options Exercisable Stock Options

Year

Range of Exercise

Price (NTD)

Unit of Options

Weighted- average

Expected Remaining

Years

Weighted- average Exercise Price per

share (NTD)

Unit of Options

Weighted- average Exercise Price per

share (NTD)

Stock option plan of 2007

168.28

2,349.00 - 168.28

2,331.00 168.28



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Assuming the Company adopted the fair value method, the Company’s pro-forma information is set forth as follows (Black-Scholes model was used):

For the year ended December 31,

2012 2011

Net income-as reported (NT$’000) 280,108 496,616

Basic earnings per share-as reported (NT$) 2.20 3.81

Diluted earnings per share-as reported (NT$) 2.18 3.74

Net income-pro forma (NT$’000) 280,108 476,716

Basic earnings per share-pro forma (NT$) 2.20 3.66

Diluted earnings per share-pro forma (NT$) 2.18 3.59

Assumptions used under the Black-Scholes Option Pricing Model are as follows:

(16) Legal Reserve According to the R.O.C. Company Law, 10% of the Company’s net income after tax shall be appropriated to legal reserve prior to any distribution until such reserve is equal to the Company’s paid-in capital. According to the amendment of R.O.C. Company Law, effective on January 4, 2012, where a company incurs no loss, it may distribute its legal reserve in whole or in part, by issuing new shares to its original shareholders’ in proportion to the number of shares being held by each of them or by cash. The reserve may be distributed as dividends in cash or stocks for the portion in excess of 25% of the Company’s paid-in capital.

(17) Earnings Distribution and Dividends Distribution Policy According to the Company's Articles of Incorporation, current year's earnings, if any, shall be distributed in the following order: (a) Income tax obligation; (b) Offsetting accumulated deficits, if any; (c) Legal reserve at 10% of net income after tax; (d) Special reserve in compliance with the Company Law or the Securities and Exchange

Law;

2007 plan

Expected dividend yield 3.09%

Expected volatility 48.40%

Risk free interest rate 2.625%

Expected life 4.25 years



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(e) Remuneration for directors to a maximum of 1% of the remaining after deducting for item (a) through to (d).

(f) After deducting for item (a) through to (d) above from the current year’s earnings, no less than 1% of the remaining amount together with the prior years’ unappropriated earnings is to be allocated as employees’ bonus.

(g) The remaining, after all the above appropriations and distributions, may be retained or distributed proportionally as shareholder’s bonus. The distribution will be proposed by the board of directors and resolved in the shareholders’ meeting.

The policy for dividend distribution should reflect factors such as the current and future fund requirements and long-term financial planning. The board of directors shall make the distribution proposal in the subsequent year and submit it to the annual shareholders’ meeting for approval. Shareholders’ dividends may be distributed in the form of shares, cash, or a combination of both. Cash dividends may not be less than 10% of total dividends to be distributed. Remuneration for directors and supervisors’ services is limited to cash only. For the years ended December 31, 2012 and 2011, the amounts of the employee bonuses were NT$45,579 thousand and NT$80,820 thousand, respectively, and the amounts of remunerations to directors and supervisors were NT$2,481 thousand and NT$4,469 thousand, respectively. The employee bonuses and remunerations to directors were accrued in accordance with the Company’s Articles of Incorporation and the accruals were recorded as operating cost or operating expenses for the current year. If share bonuses are resolved to be distributed to employees, the number of shares to be distributed is determined by dividing the amount of bonuses by the closing price (ex-rights and ex-dividends) on the date immediately preceding the shareholders’ meeting. When there is a difference between the actual amount distributed and estimated amount of dividends that has been approved by directors and shareholders, the difference will be recorded through profit and loss in next year, if the amount is not significant.

The amounts of earnings distribution of 2011 and 2010 as approved by the shareholders' meeting were the same as those approved by the board of directors meetings on April 24, 2012 and April 26, 2011. Detail information is shown below:



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The appropriations of earnings for 2011


As approved in the shareholders’ meeting held on June 13, 2012

As approved in the shareholders’ meeting

on June 15, 2011 NT$’000 except

otherwise stated NT$’000 except

otherwise stated Remuneration of directors and supervisors 4,469 7,289 Profit sharing to employees - in cash 67,820 248,663 Profit sharing to employees - in stock

Amount 13,000 24,000 Number of shares (at par value of NT$10) 167,688 shares 221,782 shares Market price per share (NT dollar) 77.5 (Remark) 108.2 (Remark)

Shareholders’ cash dividends 364,585 602,406 Shareholders’ stock dividends

Amount 12,572 12,817 Number of shares (at par value of NT$10) 1,257,190 shares 1,281,714 shares

Remark: The number of shares to be distributed was determined by dividing the amount of

bonuses by the closing price of the Company’s common shares (after considering the effect of dividends) of the day immediately preceding the shareholders’ meeting.

The resolved amounts of the directors and supervisors remuneration and employees’ cash bonus for 2012 were consistent with the amounts charged against earnings in 2011. The information about the appropriations of earnings which were resolved by the board of directors’ meeting and the shareholders’ meeting is available at the Market Observation Post System website.

(18) Treasury Stock The movement of treasury stock for the years ended December 31, 2012 and 2011 is as follows:

January 1, 2012 Addition Transfer or retire December 31, 2012

Reason Shares Amount

(NT$’000)Shares

Amount(NT$’000)

Shares Amount

(NT$’000) Shares

Amount(NT$’000)

Transferring shares to employees 4,950,000 441,180 551,000 37,420 -

- 5,501,000 478,600



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Reason Shares Amount

(NT$’000)Shares

Amount

(NT$’000)Shares

Amount

(NT$’000) Shares

Amount

(NT$’000)

Transferring shares

to employees 1,965,000 280,834 4,950,000 441,180 (1,965,000)

(280,834) 4,950,000 441,180

a. According to the Securities and Exchange Law of the R.O.C., total shares of treasury

stock shall not exceed 10% of the Company’s issued stock and the total purchase amount shall not exceed the sum of the retained earnings, additional paid-in capital - premiums, and realized additional paid-in capital. The ceiling of number of shares and the dollar amount of treasury stock that the Company could hold as of December 31, 2012 was 7,681,432 shares and NT$4,672,957 thousand, respectively.

b. Pursuant to the Securities and Exchange Law, treasury stock shall not be pledged, nor does it possess voting rights or the rights to receive dividends. Treasury stock shall be transferred to employees within three years from the repurchased date or should be retired. The Company retired 1,000,000 shares and 147,900 shares of treasury stock in March 2011 and December 2011, respectively. Relevant government approval has been obtained.

c. In April 2011, the Company transferred 817,100 shares of treasury stock to employees. For the years ended December 31, 2012 and 2011, compensation costs recognized were NT$10,979 thousand and NT$8,652 thousand, respectively. As of December 31, 2012, total compensation cost was accumulated to NT$19,631 thousand. The compensation cost was recognized under the fair value method and the Black-Scholes Option Pricing model was used to estimate the fair value. Assumptions used in calculating the fair value are disclosed as follows:

Employee stock purchase plan Expected dividend yield 4.29% Expected volatility 44.00% Risk free interest rate 0.80% Expected life 0.75years Expected fair value NT$28

(19) Restricted Shares for Employee’ Plan



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Base on resolution of shareholders’ general meeting on June 13, 2012, the Company resolved to issue restricted shares for employee, and the exercise price was set at zero. The maximum restricted shares to be issued are 3,000,000 shares. The shares should be issued in whole or in part within one year from the date of the resolution reached in the shareholder’s meeting. For those employees who achieve both service years and performance criteria set by the Company, the restricted shares will be vested at certain percentage and time frame. On August 7, 2012, the board of the directors of the Company issued 2,000,000 restricted shares to employee. Relevant government approval has been successfully obtained.

The restricted rights on the restricted shares before reaching the vesting condition are as follow： a. Prior to vesting conditions are reached, the employees shall not sell, mortgage, transfer,

donate, pledge or dispose the restricted shares in any other ways. b. The attendance, motion, making speeches and voting rights of the restricted share holders

shall be executed by the custodian organization according to the trust contract. c. Prior to vesting conditions are reached, the restricted share holders are entitled to

dividends with no limitation.

In cases of any voluntary leave, retirement and severance happens prior to vesting condition, it is treated as failing to meet vesting conditions from the effective date. The Company should take back the shares without additional compensation to the employees and retire those shares. Information of the restricted shares for employee as of December 31, 2012 as follows:

Type Grant date Exercise price Par fair value Issued sharesThe new restricted shares

for employee at 2012 101.10.30 $- $61.9 979,436

The restricted shares granted to employees were measured at fair value in accordance with R.O.C. SFAS 39, which resulted a compensation expense amounted to NT$3,318 thousand in 2012. As of December 31, 2012, balances of Capital Reserve-Employee Restricted Shares and Capital Reserve- Unearned Employees' Compensation were NT$49,014 thousand and NT$55,490 thousand, respectively.

(20) Net Operating Revenue



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2012 2011

NT$’000 NT$’000 Sales of goods 3,284,305 3,167,447 Other operating revenue 20,087 52,130 Total 3,304,392 3,219,577 Less: Sales returns (413) (1,680) Less: Sales discounts (792) (58) Net Operating Revenue 3,303,187 3,217,839

(21) Operating Cost and Expenses

For the year ended December 31, 2012 2011

Operating costs

Operating expenses

Total Operating

costs

Operating expenses

Total

NT$’000 NT$’000 NT$’000 NT$’000 NT$’000NT$’00

0Personnel

Salary & wage 12,769 339,74

1 352,51

0 13,696 417,51

4 431,2

10 Insurance - 20,824 20,824 - 16,223 16,22 Pension 506 15,567 16,073 407 11,566 11,97 Other 253 7,871 8,124 229 6,879 7,108

Total 13,528 384,00

3 397,53

1 14,332 452,18

2 466,5

14 Depreciation (Remark)

1,993 19,475 21,468 436 22,218 22,654

Amortization 6,497 116,86

0 123,35

7 6,655 53,255 59,91

0

Remark: Total depreciation expense for the years ended December 31, 2012 and 2011 were NT$21,668 thousand and NT$22,855 thousand, respectively, among which NT$200 thousand and NT$201 thousand were the depreciation of leased assets that were recorded in non-operating expenses, respectively.



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(22) Earnings Per Share Basic earnings per share and dilutive earnings per share were disclosed as follows：

(23) Income Taxes

a. Income tax returns of the Company through the year ended December 31, 2009 have been finalized by the tax authority.

b. Pursuant to the “Statute for Upgrading Industries”, the Company is qualified as a technical service industry and is therefore entitled to an income tax exemption period for five consecutive years on the income generated from qualifying high technology activities.

c. The Company’s available investment tax credits as of December 31, 2012 were as follows :

Year incurred

Total credit amount

(NT$’000) Unused amount

(NT$’000) Expired after

2009 224,568 197,637 2013

Amount (Numerator) Earnings per share Before tax After tax Shares Before tax After tax

For the year ended December 31, 2012 (NT$’000) (NT$’000) (Denominator) Tax(NT$) Tax(NT$)Basic EPS

Net income 326,012 280,108 127,079,337 2.57 2.20 Effect of dilutive potential common

shares:

Bonus to employees - - 1,126,743 Restricted shares for new

employees

- - 12,457 Diluted EPS 326,102 280,108 128,218,537 2.54 2.18

For the year ended December 31, 2011 Basic EPS


shares:

Bonus to employees - - 2,315,447 Stock option to employees - - 8,597 Diluted EPS 540,454 496,616 132,736,963 4.07 3.74



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Investment tax credits have been included in calculation of deferred income tax assets.

d. Deferred income tax assets and liabilities are as follows: As of December 31,

2012 2011 NT$’000 NT$’000

(a) Total deferred income tax liabilities 513 181 (b) Total deferred income tax assets 293,545 275,631 (c) Valuation allowance against deferred tax assets 237,095 234,308

(d)Temporary differences that generated deferred income tax assets or liabilities: As of December 31, 2012 2011 Amount Tax Effect Amount Tax Effect NT$’000 NT$’000 NT$’000 NT$’000

Unrealized estimated expense 195,243 33,191 174,766 29,710 Unrealized pension expense 6,195 1,053 5,975 1,016 Unrealized inventory provision 39,715 6,752 32,597 5,542 Unrealized bad debt expense 8,774 1,491 14,774 2,511 Allowance on sales returns and

discounts 5,824 990

5,824 990 Unrealized investment loss under

the equity method 307,258 52,234

79,596 13,531 Others 170 29 170 29 Unrealized exchange loss 986 168 656 111 Unrealized exchange gain (3,017) (513) (1,067) (181)Investment tax credits 197,637 222,191

e. As of December 31, 2012 2011

NT$’000 NT$’000Deferred income tax assets-current 240,258 63,447Valuation allowance-deferred income tax assets-current (183,808) (54,264)Net deferred income tax assets-current 56,450 9,183Deferred income tax liabilities-current (513) (181)Net deferred income tax assets and liabilities-current 55,937 9,002



- 84 -

f. As of December 31, 2012 2011 NT$’000 NT$’000 Deferred income tax assets-noncurrent 53,287 212,184 Valuation allowance-deferred income tax

assets-noncurrent (53,287) (180,044)Net deferred income tax assets-noncurrent - 32,140 Deferred income tax liabilities-noncurrent - - Net deferred income tax assets and liabilities- noncurrent - 32,140

g. Income tax payable and income tax expense are reconciled as follows:


2012 2011

NT$’000 NT$’000 Tax on pre-tax income at statutory tax rate 55,422 91,877 10% income tax on undistributed earnings 7,066 11,379 Tax exemption (112,642) (68,920)Permanent difference 21,392 6,182 Investment tax credits 17,488 62,741 Change in valuation allowance 2,787 (96,822)Corporate alternative minimum tax 54,391 23,020 Change in estimates - 14,381

Income tax expense 45,904 43,838

h. Integrated income tax information: As of December 31,

2012 2011

NT$’000 NT$’000 Balance of the imputation credit account (ICA) 93,498 79,101


2012 2011



- 85 -

Expected (Actual) creditable ratio 7.56% (Remark) 5.24%

Remark：The ratio was computed based on the amount of actual available shareholders’ tax credits plus estimated income tax payable as of December 31, 2012.

i. Information related to undistributed retained earnings As of December 31, 2012 2011 NT$’000 NT$’000

After 1998 1,985,218 2,142,437 (23) Government grants income

The Company entered into a research and development project agreement with Ministry of Economic Affairs, R.O.C, and recognized government grant income of NT$13,282 thousand and NT$7,807 thousand for the years ended 2012 and 2011, respectively, as non-operating income.

5. RELATED PARTY TRANSACTIONS

(1) Related Parties and Relations with the Company Related parties Relations

United Microelectronics Corporation (“UMC”) Related party in substance PrimeSensor Technology Inc. (“PrimeSensor”) Subsidiary’s equity investee PixArt Japan K.K. (“PixArt Japan”) Subsidiary’s equity investee Directors and key managers The Company’s major managers

(2) Major transactions with related parties a. Sales:


Name of related parties Amount

(NT$’000) Percentage

(%) Amount


(%) PrimeSensor 4,206 0.13% 8,454 0.26% Sales prices to the above related parties were similar to those to third-party customers. Payment terms with related parties were similar to those with third-party customers which were 30 to 90 days. The Company's sales revenue (including royalty income) to PrimeSensor amounted to NT$4,206 thousand and NT$6,846 thousand for the years ended December 31, 2012 and 2011, respectively. Royalties are charged based on a predetermined percentage of PrimeSensor's net sales.



- 86 -

b. Purchases: For the year ended December 31, 2012 2011



(%) Amount


(%) UMC 229,690 23.12 388,339 51.47

There is no comparable price available from other suppliers due to unique product specification and customization. Payment terms for above purchase are 45 days from the date of monthly closing. In addition, the Company purchased wafer from UMC for R&D purposes in the amount of NT$19,467 thousand and NT$15,664 thousand for the years ended December 31, 2012 and 2011, respectively.

(3) A technology patent and license agreement was entered into in November 2009 by and between the Company and PrimeSensor. The Company has received NT$5,004 thousand and NT$5,531 thousand from PrimeSensor and recorded as other current liabilities as of December 31, 2012 and 2011, respectively.

(4) The Company leased parts of its buildings to PrimeSensor, recognized rental income in the amount of NT$1,112 thousand for both years ended December 31, 2012 and 2011, and NT$185 thousand was received from PrimeSensor, which was accounted for as deposits received due to a lease of office space.

(5) In 2012, the Company purchased equipments from PixArt Japan and the acquisition cost was NT$319 thousand.

(6) Accounts resulted from the above transactions: Receivables from related parties As of December 31,

2012 2011

Name of related party Amount


(%) Amount


(%) PrimeSensor - - 1,103 0.24 Payables to related parties As of December 31,

2012 2011



- 87 -

Name of related party

Amount (NT$’000)

Percentage (%)

Amount (NT$’000)

Percentage (%)

UMC 28,182 9.57 34,751 12.86

Other receivables from related parties As of December 31,

2012 2011



(%) Amount


(%) PrimeSensor 1,179 7.85 - -

(7) Remunerations paid to directors, supervisors and key managers：


Amount (NT$’000)

Amount (NT$’000) Salaries, rewards, compensations, special

allowance and bonus 17,687(estimated) 20,341

Please refer to the annual report of the Company for more detail information of key management personnel compensations.

6. ASSETS PLEDGED AS COLLATERAL

As of December 31,

Account 2012

(NT$’000)2011

(NT$’000)

Secured financial

institutions Contents Restricted deposits-non current 3,036 6,278 Customs Customs duty guarantee

7. COMMITMENTS AND CONTINGENCIES

Significant commitments and contingencies of the Company as of December 31, 2012 were as follows: a. The Company entered into several royalty agreements under which royalties are paid based on

certain percentages of related product sales.

b. The Company has entered into certain lease agreements for land with the Administrative Bureau of HSIP for its need of operations. Related minimum rental to be incurred in the future



- 88 -

is as follows:

Lease Period Amount (NT$’000) 2013.01.01~2013.12.31 2,449 2014.01.01~2014.12.31 2,449 2015.01.01~2015.12.31 1,651 2016.01.01~2016.12.31 1,080 2017.01.01~2024.12.31 8,200

Total 15,829

The Company pledged a check of NT$ 15,000 thousand to the Ministry of Economic Affairs, R.O.C. as a performance guarantee.

8. SIGNIFICANT DISASTER LOSS None.

9. SIGNIFICANT SUBSEQUENT EVENT

None. 10. OTHER DISCLOSURES

(1) Financial Instruments a. Fair value of financial instruments:

The Company didn’t engage in any derivative instrument transactions in 2012 and 2011. Fair value of non-derivative financial instruments is shown as follows:

As of December 31,

2012 2011

Non-derivative instruments Book value Fair value Book value Fair value

Assets NT$’000 NT$’000 NT$’000 NT$’000

Cash and cash equivalents 3,664,453 3,664,453 4,665,221 4,665,221

Held-for-trading financial assets-current 15,074 15,074 - -

Receivables (including receivables from related parties)

664,082 664,082 460,034 460,034

Other receivables 15,025 15,025 17,593 17,593

Investments accounted for under the equity method 365,685 - 437,218 -

Held-to-maturity financial assets 200,060 200,421 200,257 201,574



- 89 -

Financial assets measured at cost-noncurrent 300,000 - 300,000 -

Refundable deposits 1,571 1,571 2,054 2,054

Restricted deposits 3,036 3,036 6,278 6,278

(To be Continued)

(Continued) As of December 31,

2012 2011


Liabilities

Payables (including payables to related parties) 294,381 294,381 270,147 270,147

Accrued expenses 534,714 534,714 902,580 902,580

Other payable 150 150 7,866 7,866

Deposits received 185 185 185 185

(a) The following methods and assumptions were used by the Company in estimating the

fair value of financial instruments: (i) The fair values of the Company’s short-term financial instruments approximate

their carrying values at the reporting date due to their short maturities. This method was applied to cash and cash equivalents, receivables (including receivables from related parties), other receivables, payables (including payables to related parties), accrued expenses, and other payables.

(ii) The fair values of the Company’s refundable deposits, deposits received and restricted deposits approximate their carrying value because the Company predicts the future cash inflows or outflows will be of similar amounts to the carrying values.

(iii) The Company’s investments accounted for under the equity method are equity

securities of non-public companies. The fair values of these investments are not readily available.

(iv) The fair values of held-to-maturity financial assets were based on their quoted

market prices, if available, at the reporting date. If market prices were not available, fair values are determined using valuation techniques. Such techniques use rates of returns from similar financial instruments as discount rates.

(v) The fair value of financial assets measured at cost is unable to be estimated since there is no active market in trading those unlisted investments.

(vi) The fair values of held-for-trading financial assets were based on their quoted



- 90 -

market prices, if available, at the reporting date. If market prices were impractical and not available, fair values are determined using valuation techniques.

(b) The fair value of financial assets and liabilities held by the Company based on quoted price from active market and on valuation techniques is shown, respectively, as follows:

Quoted market Valuation method

As of December 31 As of December 31 2012 2011 2012 2011 Non-derivative instruments NT$’000 NT$’000 NT$’000 NT$’000

Financial Assets Cash and cash equivalents 3,549,674 4,445,529 114,779 219,692 Held-for-trading financial

assets-current 15,074 - - -

Held-to-maturity financial assets 200,421 201,574 - - Receivables (including receivables from related parties)

- - 664,082 460,034

Other receivables - - 15,025 17,593 Refundable deposits - - 1,571 2,054 Restricted deposits 3,036 6,278 - -

Non-derivative instruments Financial Liabilities

Payables (including payables to related parties)

- - 294,381 270,147

Accrued expenses - - 534,714 902,580 Other payable - - 150 7,866 Deposits received - - 185 185

(c) Gain (loss) recognized for the changes in fair value of financial assets estimated using

valuation techniques were nil for the years ended December 31, 2012 and 2011, respectively.

b. As of December 31, 2012 and 2011, financial assets exposed to fair value fluctuation risk due to fixed interest rates were NT$3,656,769 thousand and NT$4,594,720 thousand, respectively, while financial liabilities exposed to interest rate risk were nil.

c. Total interest income incurred from financial assets or liabilities that are not at fair



- 91 -

value through profit or loss amounted to NT$39,648 thousand and NT$39,761 thousand for the years ended December 31, 2012 and 2011, respectively.

d. Information of financial risks The Company held certain non-derivative financial instruments, including cash and cash equivalents. The Company held the financial instruments to meet the need in operating cash. The Company also held other financial instruments such as receivables, payables and financial assets measured at cost. Major risks of financial instruments were summarized as follows:

(a) Market risk

Market risk includes currency rate risk. It comes from the purchase or sale activities which are not denominated in the functional currency.

(b) Credit risk

The Company’s exposure to credit risk arises from potential default of the counter-party or other third-party. The level of exposure depends on several factors including concentrations of credit risk, components of credit risk, price of contract and other receivables of financial instruments. The Company’s credit risk mainly comes from the collectibility of accounts receivable while receivable balances are monitored on an ongoing basis and an allowance for doubtful receivables is provided. Thus, the net book value of accounts receivable are properly evaluated and reflect the credit risk the Company exposes to. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk, which arises when counter-party or third-party to a financial instrument fails to discharge an obligation and the Company suffers a financial loss as a result. Since the Company engages in transactions only with reputable parties, credit risks have been minimized.

(c) Liquidity risk The Company has sufficient operating capital to meet the need in cash upon the settlement of financial instruments. Therefore, the liquidity risk is nil.

(d) Cash flow risk from fluctuations in interest rate

Since the duration of the financial assets exposed to cash flow interest rate risk is short, the cash flow risk from fluctuation in interest rate is minimized.



- 92 -

(2) Other

(a) The information of significant foreign financial assets and liabilities is as follows：

As of December 31, 2012 As of December 31, 2011 Foreign

Currency (thousand)

Exchange Rate

NTD (thousand)

Foreign Currency

(thousand)

Exchange

Rate NTD

(thousand)

Financial Assets Monetary items USD $30,216 29.04 $877,476 $16,966 30.275 $513,637 Long-term investments

accounted for under the equity method

USD $3,047 29.04 $88,473 $854 30.275 $25,859 Financial Liabilities Monetary items USD $13,578 29.04 $394,312 $7,663 30.275 $232,002

(b) For comparative purpose, the financial statements of 2011 have been reclassified in

compliance with 2012 financial statements presentation. 11. ADDITIONAL DISCLOSURES

(1) The following are the additional disclosures for the Company's financing and endorsement： A. Financing provided: None.

B. Endorsement/guarantee provided: None.



- 93 -

C. MARKETABLE SECURITIES HELD AS OF DECEMBER 31, 2012

December 31, 2012

Holding

Company Name

Marketable

Securities Type

Marketable Securities Type

and Name

Relationship

with the

Company

Financial Statement

Account Shares/UnitsCarrying Value

(NT$’000)

Percentage of

Ownership

(%)

Net Asset

Value

(NT$’000)

Note

PixArt International (BVI) Ltd. SubsidiaryInvestments accounted for

under the equity method2,825,000 28,032 75.35 28,032 (Remark)

PixArt International (SAMOA) Ltd. SubsidiaryInvestments accounted for


Yuan-Xiang Investment Corp. SubsidiaryInvestments accounted for


Yuan-Feng Investment Corp. SubsidiaryInvestments accounted for


Stocks

Shieh Yong Investment Co., Ltd. - Financial assets measured

at cost-noncurrent 34,686,000 300,000 4.55 216,802 (Remark)

Fund Cathay Taiwan Money Market - Held-for-trading financial

assets-current 1,243,080 15,074 - 15,074 -

The Company

Bonds 99 Taiwan Power 1A - Held-to-maturity financial

assets-current 200 200,060 - 200,421 -

(Remark)：The marktable securities are disclosed base on net equity value due to no fair vaule.



- 94 -

D. MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2012

E. Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: None.

F. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None.

Beginning Balance Acquisition Disposal Ending Balance

Holding

Company

Name

Marketable

Securities Type and

Name

Counter-

party

Nature of

Relationship

Financial

Statement Account

Units

/Shares

(thousand)

Amount

(NT$’000)

Units

/Shares

(thousand)

Amount

(NT$’000)

Units

/Shares

(thousand)

Amount

(NT$’000)

Carrying

Value

(NT$’000)

Gain (Loss)

of Disposal

(NT$’000)

Units

/Shares

(thousand)

Amonut

(NT$’000)

The

Company

PixArt International

(SAMOA) Ltd. (Remark1) -

Investments

accounted for

under the equity

method

1,080 1,811 9,250 274,250 - - -(251,620)

(Remark2) 10,330 60,441

(Remark1) Purchase of newly issued shares

(Remark2) The ending balance includes long-term investment loss of NT$(210,845) thousand, translation adjustment of NT$(4,775) thousand.



- 95 -

G. TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2012

Transaction Details Abnormal Transaction Notes/Accounts Payable or

Receivable Company Name

Counter

-party Related Party

Purchases/

Sales

Amount

(NT$’000)

% to

Total

Payment

TermsUnit Price

Payment

Terms

Ending Balance

(NT$’000)

% to

Total

The Company UMC Related party

in substance purchase

229,690

(Remark) 23.12 45 days - - (28,182) (9.57)

Remark: The total cost of wafer purchased from UMC amounted to NT$249,157 thousand, of which NT$229,690 thousand were recorded

under raw materials and NT$19,467 thousand under R&D expenses.

H. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: None.

I. Information about derivatives of investees over which the Company has a controlling interest: None.

(2) The following are additional disclosures for the Company’s affiliates:



- 96 -

A. NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE AS OF DECEMBER 31, 2012 Monetary unit: US dollars/NT thousand dollars/MYR dollars

Original Investment Amount (NT$’000) Balance as of December 31, 2012

December 31, Investor Company Investee Company Location Main Businesses and Products

2012 2011 Shares Percentage of

Ownership (%)

CarryingValue

(NT$’000)

Net Income (Losses) of the Investee (NT$’000)

Equity in the Earnings (NT$’000)

PixArt International (BVI) Ltd. BVI Investment

activities 86,905 60,057 2,825,000 75.35 28,032 (22,912) (16,817)

PixArt International (SAMOA) Ltd. SAMOA Investment

activities 308,134 33,884 10,330,000 100.00 60,441 (210,845) (210,845)

Yuan-Xiang Investment Corp. Taiwan Investment

activities 400,000 400,000 40,000,000 100.00 241,720 (122,609) (122,609) The Company

Yuan-Feng Investment Corp. Taiwan Investment

activities 50,000 50,000 5,000,000 100.00 35,492 (3,130) (3,130)

PixArt International (BVI) Ltd. BVI Investment

activities 26,736 26,736 924,000 24.65 9,168 (22,912) (Remark 1)

PrimeSensor Technology Inc. Taiwan IC design 65,865 30,000 4,904,033 37.24 33,417 (42,564) (Remark 1)

Yuan-Xiang Investment Corp.

Yuan-Yau

Technology Inc. Taiwan Manufacture 20,000 20,000 2,000,000 100.00 19,753 (143) (Remark 1)

Yuan-Feng Investment Corp.

PrimeSensor Technology Inc. Taiwan IC design 28,412 15,000 2,000,000 15.19 13,628 (42,564) (Remark 1)

YuanSheng Investment

(SAMOA) Ltd. SAMOA Investment

activities -

(Remark 2) 6,077 1 100.00 - 27 (Remark 1) PrimeSensor

Technology Inc. PrimeSensor

Technology (SAMOA) Ltd.

SAMOA Investment activities 14,155 11,163 460,000 100.00 422 (3,622) (Remark 1)

(To be Continued)



- 97 -

(Continued)



2012 2011 Shares

Percentage ofOwnership

(%)

Carrying Value

(NT$’000)

Net Income (Losses) of the

Investee (NT$’000)

Equity in the Earnings

(NT$’000)

PixArt Imaging (USA) Inc.

USA Technical Support activities

USD 1,000,000

- 10,000 100.00 31,288 2,289 (Remark 1)

PixArt Imaging (Penang)

SDN. BHD.

MALAYSIA Technical Support activities

MYR 10,000,000

- 10,000,000 100.00 59,551 (31,765) (Remark 1, Remark 4)

PixArt International (SAMOA) Ltd.

ePlan Technology (SAMOA) Ltd.

SAMOA Technical Support activities

USD 400,000

- 400,000 100.00 79 (11,802) (Remark 1)

YuanXiang Technology

(SAMOA) Ltd.

SAMOA Investment activities

USD 2,824,000

USD 1,924,000

2,824,000 100.00 11,890 (20,219) (Remark 1) PixArt International (BVI) Ltd.

CMC Capital Investments , L.P.

CAYMAN Investment activities

USD

924,000

USD 924,000

- 10.30 25,283 (1,667) (Remark 1)


(SAMOA) Ltd.

PixArt Japan K.K. Japan Technical Support activities

USD 518,039

USD 358,864

1,000 100.00 14,708 805 (Remark 1, Remark 3)

YuanSheng Investment

(SAMOA) Ltd. PixArt Japan K.K. Japan

Technical Support activities

- USD 153,799 - - - - (Remark 3)

Remark 1: Equity pick-up has been included in holding companies. Remark 2: In May 2012, YuanSheng Investment (SAMOA) Ltd. reduced its capital and returned cash to PrimeSensor Technology Inc. Remark 3: In February 2012, YuanSheng Investment (SAMOA) Ltd. sold PixArt Japan K.K.’s shares to YuanXiang Technology (SAMOA) Ltd. PrimeSensor Japan K.K.

has been renamed PixArt Japan K.K. since Febuary 2012. Remark 4: YuanXing Technology (Penang) SDN. BHD. has been renamed PixArt Imaging (Penang) SDN. BHD. since November 2012.



- 98 -

B. The following are the additional disclosures for the investees’ financing and endorsement: a. Financing provided: None.

b. Endorsement/guarantee provided: None.

c. MARKETABLE SECURITIES HELD

AS OF DECEMBER 31, 2012

December 31, 2012 Holding Company Name

Marketable Securities

Type


and Name

Relationship with the Company

Financial Statement Account Shares/Units

Carrying Value(NT$’000)

Percentage of Ownership (%)

Net Asset Value(NT$)

Note

Stocks PixArt

International (BVI) Ltd.

Affiliates Investments accounted forunder the equity method

924,000 9,168 24.65 9,168 (Remark 1)

Stocks

EPI MOBILE HEALTH

SOLUTIONS (S) PTE. LTD.

- Financial assets measured

at cost-noncurrent 15,360,190(Remark 2) 36,358 12.80 8,742 -

Stocks PrimeSenor

Technology Inc.Affiliates

Investments accounted forunder the equity method

4,904,033 33,417 37.24 33,417 (Remark 1)

Stocks Yuan-Yau



2,000,000 19,753 100.00 19,753 (Remark 1)


Fund Cathay Taiwan Money Market

- Held-for-trading financial

assets-current 497,236 6,030 - 6,030 -

(To be Continued)



- 99 -

(Continued)

December 31, 2012

Holding Company Name Marketable Securities

Type


and Name



Carrying Value

(NT$’000)


Net Asset

Value(NT$) Note

Yuan-Feng Investment Corp. Stocks PrimeSenor



2,000,000 13,628 15.19 13,628 (Remark 1)

Stocks YuanSheng Investment

(SAMOA) Ltd.

Subsidiary of PrimeSensor Technology

Inc.


1 - 100.00 - (Remark 1) PrimeSensor Technology Inc.

Stocks PrimeSensor Technology

(SAMOA) Ltd.

Subsidiary of PrimeSensor Technology

Inc.


460,000 422 100.00 422 (Remark 1)

Yuan-Yau Technology Inc. Fund Cathay Taiwan Money Market

- Held-for-trading financial

assets-current 248,618 3,015 - 3,015 -

Stocks PixArt Imaging

(USA) Inc.

Subsidiary of PixArt International (SAMOA)

Ltd


10,000 31,288 100.00 31,288 (Remark 1)

Stocks PixArt Imaging

(Penang) SDN. BHD.


Ltd


10,000,000 59,551 100.00 59,551 (Remark 1) PixArt International

(SAMOA) Ltd.

Stocks ePlan

Technology (SAMOA) Ltd.


Ltd


400,000 79 100.00 79 (Remark 1)

(To be Continued)



- 100 -

(Continued)

December 31, 2012

Holding Company Name Marketable Securities

Type


and Name



Carrying Value

(NT$’000)


Net Asset

Value(NT$) Note

Stocks YuanXiang Technology

(SAMOA) Ltd.

Subsidiary of PixArt International (BVI) Ltd.


2,824,000 11,890 100.0 11,890 (Remark 1) PixArt International (BVI)

Ltd.

Stocks CMC Capital

Investments , L.P.Equite investee


- 25,283 10.30 23,551 (Remark 1)

YuanXiang Technology (SAMOA) Ltd.

Stocks PixArt Japan

K.K.

Subsidiary of YuanXiang Technology

(SAMOA) Ltd


1,000 14,708 100.00 14,708 (Remark 1)

(Remark 1) Non-listed securities with no readily market price, therefore net equities were disclosed hereby. (Remark 2) Stock split in the fourth quarter in 2012.

d. Marketable securities acquired or disposed of at costs or prices of at least NT$100 million or 20% of the paid-in capital: None.

e. Aquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: None.

f. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None.

g. Total Purchases from or sales to related parties of at least NT$100million or 20% of the paid-in capital: None.

h. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: None.

i. Information about derivatives of investees over which the Company has a controlling interest: None.



- 101 -

(3) INFORMATION OF INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2012： None.

12. SEGMENT FINANCIAL INFORMATION The Company has provided the operating segments disclosure in the consolidated financial statements.

13. IFRSs Adoption Information

The Company has provided the IFRSs adoption disclosure in the consolidated financial statements.

- 102 -

5. Consolidated Financial Statements English Translation of a Report Originally Issued in Chinese

Independent Auditors’ Report

To the Board of Directors and Shareholders of PixArt Imaging Inc. We have audited the accompanying consolidated balance sheets of PixArt Imaging Inc. and subsidiaries (the “Company”) as of December 31, 2012 and 2011, the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the years ended December 31, 2012 and 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Republic of China and “Guidelines for Certified Public Accountants’ Examination and Reports on Financial Statements”, which require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of PixArt Imaging Inc. and subsidiaries as of December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for the years ended December 31, 2012 and 2011, in conformity with requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China. Ernst & Young CERTIFIED PUBLIC ACCOUNTANTS March 19, 2013 Taipei, Taiwan Republic of China

Notice to Readers The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail.

The accompanying financial statements are intended only to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in the R.O.C. and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the R.O.C.

2012 2011 2012 2011Current assets Current liabilities Cash and cash equivalents 2, 4(1) 3,974,266$ 4,938,813$ Short-term loans 4(12) 10,000$ 142,500$ Held-for-trading financial assets-current 2, 4(2) 24,119 - Accounts payable 269,361 237,237 Accounts receivable, net 2, 4(3) 669,353 473,400 Accounts payable-related parties 5 31,431 34,753 Other receivables 4(4) 15,637 18,996 Income tax payable 2, 4(24) 100,891 77,921 Inventories, net 2, 4(5) 354,217 307,183 Accrued expenses 2, 4(18) 558,942 905,875 Prepayments 37,070 33,447 Other payable 396 8,474 Other current assets 205 127 Other current liabilities 26,618 35,257 Deferred income tax assets-current 2, 4(24) 55,933 8,996 Total current liabilities 997,639 1,442,017 Held-to-maturity financial assets-current 2, 4(6) 200,060 - Total current assets 5,330,860 5,780,962 Other liabilities

Accrued pension liabilities 2, 4(13) 6,195 5,975 Funds and investments Deposits received 322 448 Investments accounted for under the equity method 2, 4(7) 25,283 27,974 Total other liabilities 6,517 6,423 Held-to-maturity financial assets-noncurrent 2, 4(8) - 200,257 Total liabilities 1,004,156 1,448,440 Financial assets measured at cost-noncurrent 2, 4(9) 336,358 447,616 Total funds and investments 361,641 675,847

Shareholders' equityProperty, plant and equipment 2, 4(10) Shareholders' equity attributable to parent company's shareholders Buildings and facilities 230,416 230,416 Capital 4(14) Research and development equipment 82,066 74,649 Common stock 1,336,243 1,312,200 Miscellaneous equipment 149,063 104,977 Capital reserve Total cost 461,545 410,042 Additional paid-in capital 4(15) 1,877,746 1,866,423 Less : Accumulated depreciation (177,259) (150,234) Treasury stock transactions 4(15), 4(19) 6,606 - Add : Prepayments for equipment 3,595 7,650 Donated by shareholders 4(15) 3,816 3,816 Property, plant and equipment, net 287,881 267,458 Long-term investment transaction 4(15) - 1,622

Employee stock options 4(15), 4(16), 4(19) 13,025 8,652 Intangible assets 2, 4(11) Restricted employee stocks 2, 4(15), 4(20) 49,014 - Patents 508,247 298,914 Retained earnings Software 62,127 61,714 Legal reserve 4(17) 810,104 760,442 IPs 9,622 14,642 Special reserve - 857 Total intangible assets 579,996 375,270 Undistributed earnings 4(18), 4(24) 1,985,218 2,142,437

Other adjustmentsOther assets Cumulative translation adjustments 2 (3,927) 2,316 Refundable deposits 6,139 5,516 Treasury stock 2, 4(19) (478,600) (441,180) Deferred assets 2 21,048 13,443 Unearned employees' compensation 2, 4(20) (55,490) - Deferred income tax assets-noncurrent 2, 4(24) - 32,140 Total stockholders' equity of parent company 5,543,755 5,657,585 Restricted deposits 6 3,036 17,278 Minority interests 42,690 61,889 Total other assets 30,223 68,377 　　Total shareholders' equity 5,586,445 5,719,474

Total assets 6,590,601$ 7,167,914$ Total liabilities and shareholders' equity 6,590,601$ 7,167,914$


LIABILITIES AND SHAREHOLDERS' EQUITY As of December 31,

English Translation of Financial Statements Originally Issued in ChinesePixArt Imaging Inc. And SubsidiariesCONSOLIDATED BALANCE SHEETS

As of December 31,ASSETS Notes Notes


- 103 -

NotesGross salesLess: Sales returns

Sales discounts Net sales 2, 4(21)Cost of goods sold 4(5), 4(22), 5Gross profitsOperating expenses 4(22), 5 Selling expenses Administrative expenses Research and development expenses　 Total operating expensesOperating incomeNon-operating income and gains Interest income Gain on disposal of property, plant and equipment 43 - Foreign exchange gain, net 2 Rental income Valuation gain on financial assets 150 - Others 2, 4(25)　 Total non-operating income and gainsNon-operating expenses and losses Interest expense Loss on equity investments, net 2, 4(7) (2,691) - Foreign exchange loss, net 2 (10,165) - Impairment loss 2, 4(9) Others　 Total non-operating expenses and lossesIncome from continuing operations before income taxIncome tax expense 2, 4(24)Consolidated net incomeAttributable to: Shareholders of the parent Minority interests Consolidated net income

Earnings Per Share 2, 4(23)Basic Earnings Per Share (in New Taiwan Dollars) Before tax After tax Before tax After tax Consolidated net income 2.32$ 1.94$ 3.44$ 3.08$ Net (income) loss attributable to minority interests 0.26 0.26 0.72 0.73 Net income attributable to shareholders of the parent 2.58$ 2.20$ 4.16$ 3.81$

2, 4(23)

Diluted Earnings Per Share (in New Taiwan Dollars) Before tax After tax Before tax After tax Consolidated net income 2.29$ 1.92$ 3.37$ 3.02$ Net (income) loss attributable to minority interests 0.26 0.26 0.71 0.72 Net income attributable to shareholders of the parent 2.55$ 2.18$ 4.08$ 3.74$

447,569 294,612

(111,258) (446)

171

34,561

Description 2012

(5,166) (6,962)


(126,415)

344,287

(224,082)

41,815

(525,774) (1,009,212)

(2,156,438)

(582,777)

(2,299,910)

(104,432) (288,337)

1,353,499 1,149,459

(138,098)

3,449,3693,509,937

3,451,107$

(58)

English Translation of Financial Statements Originally Issued in Chinese

3,511,142$

(792) (413) (1,680)

For the years ended December 31, 2012 and 2011

PixArt Imaging Inc. And SubsidiariesCONSOLIDATED STATEMENTS OF INCOME

2011

(Expressed in Thousands of New Taiwan Dollars, Except for Per Share Data)

- 3,110

(1,855) (1,796)

76,740 114,868

-

171

159,360

(854,288) 295,171

41,211

247,399$

(32,709) 247,399$ 401,038$

280,108$

(46,531) (47,213) 401,038$

496,616$ (95,578)

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Treasurystock

Balance as of January 1, 2011 1,308,224$ 1,866,369$ 679,372$ 238$ 2,527,341$ -$ (857)$ (280,834)$ 6,099,853$ 156,858$ 6,256,711$ Appropriation and distribution of 2010 earnings (Note1) : Legal reserve - - 81,070 - (81,070) - - - - - - Special reserve - - - 619 (619) - - - - - - Capitalization of stock dividends 12,817 - - - (12817) - - - - - - Cash paid for shareholders' dividends - - - - (602,406) - - - (602,406) - (602,406) Bouns to employees - in stock 2,218 21,782 - - - - - - 24,000 - 24,000 Exercise of employee stock options 420 - - - - - - - 420 - 420 Treasury stock acquired - - - - - - - (441,180) (441,180) - (441,180) Treasury stock retired (11,479) (16,290) - - (184,608) - - 212,377 - - - Treasury stock sold to employees - 8,652 - - - - - 68,457 77,109 - 77,109 Cumulative translation adjustments - - - - - - 3,173 - 3,173 - 3,173 Net income attributable to parent company for 2011 - - - - 496,616 - - - 496,616 - 496,616 Decrease in minority interest - - - - - - - - - (94,969) (94,969)

Balance as of January 1, 2012 1,312,200 1,880,513 760,442 857 2,142,437 - 2,316 (441,180) 5,657,585 61,889 5,719,474 Appropriation and distribution of 2011 earnings (Note2) : Legal reserve - - 49,662 - (49,662) - - - - - - Special reserve - - - (857) 857 - - - - - - Capitalization of stock dividends 12,572 - - - (12,572) - - - - - - Cash paid for shareholders' dividends - - - - (364,585) - - - (364,585) - (364,585) Bouns to employees - in stock 1,677 11,323 - - - - - - 13,000 - 13,000 Adjustment of additional paid-in capital accounted for under the equity method - (1,622) - - - - - - (1,622) - (1,622) Adjustment of retained earnings accounted for under the equity method - - - - (11,365) - - - (11,365) - (11,365) Restricted shares for employee 9,794 49,014 - - - (55,490) - - 3,318 - 3,318 Treasury stock acquired - - - - - - - (37,420) (37,420) - (37,420) Treasury stock sold to employees - 10,979 - - - - - - 10,979 - 10,979 Cumulative translation adjustments - - - - - - (6,243) - (6,243) - (6,243) Net income attributable to parent company for 2012 - - - - 280,108 - - - 280,108 - 280,108 Decrease in minority interest - - - - - - - - - (19,199) (19,199)

Balance as of December 31, 2012 1,336,243$ 1,950,207$ 810,104$ -$ 1,985,218$ (55,490)$ (3,927)$ (478,600)$ 5,543,755$ 42,690$ 5,586,445$

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

Totalstockholders'

equity ofparent

company

MinorityinterestsCapital reserve

(Note2) : Directors remuneration and employee bonus amounting to NT$4,469 thousand and NT$80,826 thousand, respectively, were expensed in 2011.(Note1) : Directors remuneration and employee bonus amounting to NT$7,289 thousand and NT$272,663 thousand, respectively, were expensed in 2010.

Special reserve

Cumulativetranslation

adjustments

Totalshareholders'

equity

Employee do notearn reward Undistributed

earnings


Retained earnings

CommonstockDescription Legal

reserve

English Translation of Financial Statements Originally Issued in ChinesePixArt Imaging Inc. And Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITYFor the years ended December 31, 2012 and 2011

- 105 -

2012 2011Cash flows from operating activities :

Consolidated net income 247,399$ 401,038$ Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 30,026 27,396 Amortization 124,264 69,129 Bad debt reversal (4,000) - Employee bonuses 45,579 80,820 Amortization of financial assets discount or premium 197 3,190 Provision (reversal) of allowance for loss on decline in market value and obsolescence of inventories (50,832) 63,201 Impairment loss on non-financial asset - 4,706 Net gain on disposal of property, plant and equipment (43) - Cost of employee share-based awards 14,297 8,652 Net loss on equity investments 2,691 - Deferred income tax (14,797) (252) Adjustment of valuation on financial assets (119) - Impairment loss 111,258 - Changes in operating assets and liabilities: Notes receivable - 518 Accounts receivable (191,953) (36,079) Other receivables 3,359 6,652 Held-for-trading financial assets (24,000) - Inventories 3,798 82,364 Prepayments (10,206) 6,265 Other current assets (78) (17) Accounts payable 32,124 63,609 Accounts payable-related parties (3,322) (116,199) Income tax payable 22,970 (16,551) Accrued expenses (285,912) (253,677) Other payable (8,078) (1,611) Other current liabilities (8,639) 28,442 Accrued pension liabilities 220 -

　 Net cash provided by operating activities 36,203 421,596

Cash flows from investing activities :Increase in investments accounted for under the equity method - (27,974) Proceeds from redemption of held-to-maturity financial assets - 325,000 Increase in financial assets measured at cost - (147,616) Purchase of property, plant and equipment (50,406) (25,009) Increase in intangible assets (401,248) (163,698) Increase in refundable deposits (623) (1,769) Decrease restricted deposits 14,242 12,992 Increase in deferred assets (22,364) (15,256)

　 Net cash used in investing activities (460,399) (43,330)

Cash flows from financing activities :(Decrease) Issuance of short-term loans (132,500) 142,500 Decrease in deposits received (126) (20) Shareholders' dividends (364,585) (602,406) Exercise of employee stock options - 420 Treasury stock acquired (37,420) (434,377) Treasury stock sold to employees - 68,457 Increase in minority interest 523 609

　 Net cash used in financing activities (534,108) (824,817)

Effect of exchange rate changes (6,243) 3,173

Net decrease in cash and cash equivalents (964,547) (443,378) Cash and cash equivalents at the beginning of the year 4,938,813 5,382,191

Cash and cash equivalents at the end of the year 3,974,266$ 4,938,813$

Supplemental disclosures of cash flow information :Interest paid during the year 1,923$ 1,720$

Income tax paid during the year 39,040$ 63,311$

Investing and financing activities partially affecting cash flows :Acquisition of intangible assets 307,648$ 344,418$ Add : payable at beginning of period 180,720$ -$ Less : payable at end of period (87,120) (180,720)

Cash paid 401,248$ 163,698$

Treasury stock acquired 37,420$ 441,180$ Less : payable of treasury stock purchased - (6,803)

Cash paid 37,420$ 434,377$

Non-cash activities :Stock dividends and employees' bonuses capitalized (including additional paid-in capital) 14,249$ 15,035$


English Translation of Financial Statements Originally Issued in ChinesePixArt Imaging Inc. And Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended December 31, 2012 and 2011(Expressed in Thousands of New Taiwan Dollars)

Description

- 106 -

English Translation of Financial Statements Originally Issued in Chinese PixArt Imaging Inc. And Subsidiaries


- 107 -

1. HISTORY AND ORGANIZATION

PixArt Imaging Inc. (the "Company") was incorporated under the Company Law of the Republic of China on July 13, 1998. The numbers of employees as of December 31, 2012 and 2011 were 348 and 202, respectively. The Company is specializing in CMOS image sensors and related IC design, research, production, and sales. The Company’s shares were previously registered and traded as the “Emerging Stock” on Taiwan’s GreTai Securities Market (formerly known as OTC Market) starting July 2003 and have been listed and publicly traded on Taiwan’s GreTai Securities Market since May 2006.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements were prepared in conformity with requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China (R.O.C.). Summary of significant accounting policies is as follows:

General Descriptions of Reporting Entities (1) Overview of Consolidation

Investees in which the Company, directly or indirectly, holds more than 50% of voting rights or less than 50% of voting rights but has de facto control, are accounted for under the equity method and consolidated into the Company’s financial statements. The consolidated entities are as follows: A. The parent company: PixArt Imaging Inc. (the “Company”)

B. The consolidated subsidiaries are listed as follows:



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As of December 31, 2012

Investor Subsidiary Nature of business Percentage of ownership (%) Note

The Company PixArt International (BVI) Ltd.

Investment activities

75.35 2

The Company PixArt International (SAMOA) Ltd.


100 -

The Company Yuan-Xiang Investment Corp.


100 -

The Company Yuan-Feng Investment Corp.


100 -




100 3


PixArt Imaging (USA), Inc.


100 4


PixArt Imaging (Penang) SDN. BHD.


100 5


PrimeSensor Technology Inc.

IC design

37.24 1


PixArt International (BVI) Ltd.


24.65 2


Yuan-Yau Technology Inc.

Manufacture

100 -



IC design

15.19 1




100 -


YuanSheng Investment (SAMOA) Ltd.


100 -


PrimeSensor Technology (SAMOA) Ltd.


100 -

YuanXiang Investment (SAMOA) Ltd.

PixArt Japan K.K. Technical Support activities

100 6



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As of December 31, 2011

Investor Subsidiary Nature of business Percentage of ownership (%) Note

The Company PixArt International (BVI) Ltd.


67.57 2

The Company PixArt International (SAMOA) Ltd.


100 -

The Company Yuan-Xiang Investment Corp.


100 -

The Company Yuan-Feng Investment Corp.


100 -



IC design

16.13 1




32.43 2


Yuan-Yau Technology Inc.

Manufacture

100 -



IC design

8.06 1




100 -




100 -




100 -



70 6



30 6



- 110 -

Note1： Although the Company held less than 50% of voting rights of PrimeSensor Technology Inc in 2011, the Company held all seats of the board of PrimeSensor Technology Inc. And the Company held more than 50% of voting rights of PrimeSensor Technology Inc. in 2012. Accordingly, PrimeSensor Technology Inc. was included as a subsidiary in the Company’s consolidated financial statements for the years ended December 31, 2011 and 2012.

Note2： The Company and its subsidiary, Yuan-Xiang Investment Corp. acquired PixArt

International (BVI) Ltd. ’s new shares in 2012 and 2011 in the amounts of NT$42,850 thousand and NT$26,736 thousand, respectively. The company and Yuan-Xiang Investment Corp. ownership of PixArt International (BVI) Ltd. has become 75.35% and 24.65%, respectively, after the share acquisition.

Note3： PixArt International (SAMOA) Ltd. established ePlan Technology (SAMOA) Ltd.

in February 2012. Note4： PixArt International (SAMOA) Ltd. established PixArt Imaging (USA), Inc. in

January 2012. Note5： PixArt International (SAMOA) Ltd. established Yuang Xiang Technology

(Penang) SDN. BHD. in June 2012, and the Company has been renamed PixArt Imaging (Penang) SDN. BHD. since November 2012.

Note6： On February, 2012, YuanSheng Investment (SAMOA) Ltd. disposed PixArt

Japan K.K.’s shares to YuanXiang Technology (SAMOA) Ltd.; PrimeSensor Japan K.K. has been renamed PixArt Japan K.K. since February 2012.

C. All subsidiaries of the Company have been included as consolidated entities in the

consolidated financial statements.

(2) Principles of Consolidation A. The consolidated financial statements were prepared in accordance with SFAS No. 7.

The transactions between the consolidated entities were appropriately eliminated in the consolidated financial statements.



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B. Investees in which the Company and subsidiaries hold more than 50% of voting rights, including those that are exercisable or convertible, are accounted for under the equity method and shall be consolidated, since the Company and subsidiaries are considered to possess control. An entity shall also be consolidated if the Company owns any of the following : a. power over more than half of the voting rights by virtue of an agreement with other

investors; b. power to govern the financial, operating and human resources policies of the entity

under a statute or an agreement; c. power to appoint or remove the majority of the members of the board of directors or

equivalent governing body and control of the entity is by that board or body; or d. power to cast the majority of votes at meetings of the board of directors or equivalent

governing body and control of the entity is by that board or body; e. other indications of control possession.

(3) Cash Equivalents

Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash, and so near their maturity date that they are subject to an insignificant risk of changes in value from fluctuations in interest rates. Commercial papers, negotiable certificates of deposit, and bank acceptances with original maturities of three months or less are considered to be cash equivalents.

(4) Foreign Currency Transactions and Translation of Financial Statements denominated in Foreign Currency A. The Company maintains its accounting records in New Taiwan dollars ("NT Dollars" or

"NT$"), the national currency of the R.O.C. Transactions denominated in foreign currencies are recorded in NT Dollars using the exchange rates in effect at the dates of the transactions. Non-derivative transactions denominated in foreign currencies are recorded in NT Dollars using the exchange rates in effect at the dates of the transactions. When a transaction is settled in a subsequent accounting period, the monetary assets and liabilities denominated in foreign currencies are remeasured on the balance sheet date using the exchange rates prevailing as at that date, with the resulting exchange gains or losses included in earnings.



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B. The financial statements of the long-term investments accounted for under equity method are translated into New Taiwan Dollars using the spot rates at the balance sheet date for asset and liability accounts. Shareholders’ equity accounts should be translated at the historical rate except for the beginning balance of the retained earnings, which is the translated amount from the last period carried forward. Revenue and expense accounts are translated into New Taiwan Dollars using the weighted average exchange rates for the relevant period. The accumulated exchange gains or losses resulting from the translation, after adjusting for percentage of ownership, are recorded in the cumulative translation adjustment in stockholders’ equity.

(5) Financial Assets and Financial Liabilities

A. Financial asset or liability is recognized on the balance sheet when the Company becomes a party to the contractual provisions of the instrument. A regular way purchase or sale of financial assets are recognized using either trade date accounting on equity instrument or settlement date accounting on debt security, beneficiary certificate and derivative instrument. As to accounting for de-recognition of financial assets and liabilities, the Company adopted the R.O.C. Statement of Financial Accounting Standard (R.O.C. SFAS) No. 33, “Accounting for Transfers of Financial Assets and Extinguishment of Liability”.

B. Upon initial recognition of financial assets or financial liabilities, they shall be measured at fair value. In the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial assets or financial liabilities shall be included as well.

C. Financial assets or financial liabilities are classified as follows:

a. Financial assets measured at cost Unlisted stocks, Emerging Market stocks, funds, and other securities with no readily determinable fair values and in which the Company does not exercise significant influence are measured at cost. Derivative assets that are linked to and must be settled by delivery of the abovementioned unquoted equity instruments are also measured at cost. When objective evidence of impairment exists, the Company recognizes an impairment loss, which cannot be reversed in subsequent periods.



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b. Held-to-maturity financial assets Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity financial assets if the Company has both the positive intention and ability to hold the financial assets to maturity. Investments intended to be held to maturity are measured at amortized cost. The Company recognizes an impairment loss if objective evidence of impairment loss exists. However, the impairment loss may be reversed if the value of asset recovers subsequently and the Company concludes the recovery is related to improvements in events or factors that originally caused the impairment loss. The new cost basis as a result of the reversal cannot exceed the amortized cost prior to the impairment.

c. Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available for sale or are not classified as in any of the preceding categories. After initial measurement, available-for-sale financial assets are measured at fair value with unrealized gains or losses being recognized directly in equity. When the investment is derecognized, the cumulative gain or loss previously recorded in equity is recognized in profit or loss.

If there is objective evidence which indicates that the investment is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity; for debt securities, the amount of the decrease is recognized in profit or loss, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized. An available-for-sale financial asset that would have met the definition of loans and receivables may be reclassified as the bond portfolios with no active market if the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. The financial instrument shall be reclassified at its fair value on the date of reclassification. Any gain or loss already recognized as adjustment to stockholder’s equity shall be amortized and charge to current income. The fair value of the financial instrument on the date of reclassification becomes its new cost or amortized cost, as applicable.



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d. Financial assets or liabilities at fair value through profit or loss Financial instruments at fair value through profit or loss include financial assets and liabilities held for trading and financial assets and liabilities designated upon initial recognition as at fair value through profit or loss. Such assets or liabilities are subsequently measured at fair value and changes in fair value are recognized in profit or loss.

Derivative financial instruments not qualified for hedge accounting are classified as financial assets or liabilities held for short-term sale or repurchase purposes. Financial assets were recognized when its fair value is positive and classified as financial liability when fair value is negative.

(6) Evaluation of Impairment of Accounts Receivable The Company first assesses whether objective evidence of impairment exists for notes and accounts receivable that are individually significant. If there is objective evidence that an impairment loss has occurred, the amount of impairment loss is assessed individually. For notes and accounts receivable other than those mentioned above, the Company groups those assets with financial assets with similar credit risk characteristics and collectively assess them for impairment.

(7) Inventories Inventories are valued at the lower of cost and net realizable value and inventory write-downs are made on an item-by-item basis. Costs incurred in bringing each product to its present location and condition is accounted for as follows: Raw materials - purchase cost on weighted average cost method ;

Finished goods and work in progress

- cost of direct materials and labor and a proportion ofmanufacturing overheads based on normal operating capacity onweighted average cost method.

Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling costs.

(8) Investment Accounted for Under the Equity Method

A. Investments in which the Company has ownership of at least 20% or exercises significant influence on operating decisions are accounted for under the equity method. The difference of the acquisition cost and the underlying equity in the investee’s net assets as of acquisition date is amortized and goodwill arising from new acquisitions is analyzed and accounted for under the R.O.C SFAS No.25, “Business Combination – Accounting Treatment under Purchase Method”, in which goodwill is not subject to amortization.



- 115 -

B. When the Company subscribes for additional investee’s shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Company’s share of the investee’s equity. The Company records such a difference as an adjustment to capital reserve. If the capital reserve is insufficient, retained earnings are charged. An investor shall stop to use the equity method from the date that it loses the significant influence over an investee and account for the investment in accordance with the R.O.C. SFAS No. 34, “Accounting for Financial Instruments” from that date. The carrying amount of the investment at the date that it ceases to be an associate shall be regarded as its cost on initial measurement as a financial asset.

C. Unrealized gains and losses arising from transactions between the Company and investees accounted for under equity method or transactions between investees accounted for under equity method are deferred and recognized when realized.

(9) Property, Plant and Equipment A. Property, plant and equipment are stated at cost. Significant improvements and

replacements are capitalized and depreciated over their estimated useful lives while ordinary repairs and maintenance are expensed as incurred. Interest expenses incurred in the period of such property, plant and equipment in construction or installation will be capitalized. When property, plant and equipment are disposed of, their original cost and accumulated depreciation are written off. Gains or losses on disposal of property, plant and equipment are reported under non-operating income or expenses.

B. Property, plant and equipment are stated at cost. Depreciation is provided on the straight-line basis over the following useful lives： Buildings and facilities 50 years Research and development equipment 3 to10 years Miscellaneous equipment 2 to11 years

The salvage value of property, plant and equipment that continues to be in use after reaching its originally estimated useful life shall be depreciated over its estimated remaining useful life.



- 116 -

(10) Intangible Assets A. Software, patents, intellectual property (IP) and other separately identifiable intangibles

with finite lives are stated at cost and amortized on a straight-line basis over the following useful lives: Software, Patents, IPs and Others 3 to 10 Years

The Company will reassess the useful lives and the amortization method of its recognized intangible assets at the end of each reporting period. If there is any change to be made, it will be treated as change of accounting estimates.

B. Expenditures related to research activities as well as those expenditures not meeting the

criteria for capitalization are expensed when incurred. Expenditures related to development activities meeting the criteria for capitalization are capitalized.

(11) Deferred Assets Deferred charges, including molds, are stated at cost and amortized on a straight-line basis over their estimated economic lives, normally 2 years.

(12) Asset Impairment

Pursuant to R.O.C. SFAS No. 35, “Accounting for Assets Impairment”, the Company is required to perform (1) impairment testing on goodwill annually; (2) impairment testing for intangible assets which have indefinite lives or are not available for use annually; and (3) evaluating whether indicators of impairment exist for assets subject to guidelines set forth under the Statement. The Statement requires that such assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable.

Impairment losses shall be recognized when the carrying amount exceeds the recoverable amount. Impairment losses on goodwill shall not be reversed subsequently. For assets other than goodwill impaired in prior periods, if the amount of the impairment loss decreases and the decreases is clearly attributable to an event which occurred after the impairment loss was recognized, the previously recognized impairment loss can be reversed to the extent of the impaired amount. The reversal may not result in a carrying amount that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.



- 117 -

(13) Revenue Recognition The Company recognizes revenue when the goods have been delivered, the significant risks and rewards of ownership of the goods have been transferred to the buyer, the price is fixed or determinable, and collect liability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the period the related revenue is recognized, based on any known factors that would significantly affect the level of provisions.

(14) Capital Expenditures and Operating Expenditures

An expenditure is capitalized if it increases the future service potential of the assets and the purchase price exceeds a certain monetary threshold. Otherwise, expenditures are expensed as incurred.

(15) Pension Plan A. All regular employees are entitled to a pension plan that is managed by an independently

administered pension fund committee. Fund assets are deposited in the committee’s name in the Taiwan Bank and, hence, are not associated with or controlled by the Company. Therefore, fund assets are not included in the Company’s financial statements. Pension benefits for employees of the subsidiaries are provided in accordance with relevant local regulations.

B. The Labor Pension Act of the R.O.C. (‘the Act’), which is accounted for as a defined contribution plan, became effective on July 1, 2005. Employees covered by the Labor Standards Law (“the Law”), which is accounted for as a defined benefit plan, were allowed to either elect the pension calculation under the Act or continue to be subject to the pension scheme under the Law. Those employees who elect to be under the Act will retain their seniority achieved under the Labor Standards Law. Under the Act, the Company will make monthly contributions at no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts.

C. The accounting for the Company’s pension liability is computed in accordance with

R.O.C. SFAS No.18, “Accounting for Pension”. Net pension costs of the defined benefit plan are recorded based on actuarial valuations. Pension cost components such as service cost, interest cost, expected return on plan assets, the amortization of net obligation at transition, pension gain or loss, and prior service cost, are all taken into consideration. Net transition obligations from the plan assets are amortized using the straight-line method over the employees’ expected average remaining service period of 15 years. The Company recognizes expenses from the defined contribution pension plan in the period when the contribution becomes due.



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(16) Income Taxes A. The Company adopted R.O.C. SFAS No. 22, “Accounting for Income Taxes” for

inter-period and intra-period income tax allocation. Under the Statement, the tax effects of taxable temporary differences are recognized as deferred income tax liabilities while those of deductible temporary differences, loss carry-forward, and investment tax credits are recognized as deferred income tax assets. A valuation allowance on deferred income tax assets is provided to the extent that it is more likely than not that the tax benefits will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, its classification is based on the expected reversal date of the temporary difference.

B. Income tax (10%) on un-appropriated earnings is recorded as an expense in the year following current fiscal year on the portion that the shareholders resolve the earnings not to be distributed.

C. According to R.O.C. SFAS No. 12, “Accounting for Income Tax Credits”, the Company

recognizes the tax benefit from the purchase of equipment and technology, research and development expenditure, employee training, and certain equity investment using the flow-through method.

D. The Income Basic Tax Act of the R.O.C. (the IBTA) became effective on January 1,

2006. Set up by the Executive Yuan, the IBTA is a supplemental 10% tax that is payable if the income tax payable determined under the R.O.C. Income Tax Act is below the minimum amount as prescribed by the IBTA. The IBTA is calculated based on taxable income as defined by the IBTA, which includes most income that is exempted from income tax under various legislations. The impact of the IBTA has been considered in the calculation of the Company’s income tax for the current reporting period.

(17) Earnings Per Share

The Company’s EPS is computed according to R.O.C. SFAS No. 24, “Earnings Per Share”. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding during the current reporting period. Diluted earnings (loss) per share is computed by taking basic earnings (loss) per share into consideration plus additional common shares that would have been outstanding if the dilutive share equivalents had been issued. Net income (loss) is also adjusted for interest and other income or expenses derived from any underlying dilutive share equivalents. The weighted-average of outstanding shares is adjusted retroactively for stock dividends. According to Accounting Research and Development Foundation (ARDF) interpretation No. 97-169, shares issued from the capitalization of employee bonuses shall not be retroactively adjusted since the Company had accounted it for as a charge to the current earnings.



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Contingently issuable shares shall be considered outstanding from the date when all necessary conditions have been satisfied and shall be included in the calculation of weighted-average number of common shares outstanding in computing be basic EPS.

(18) Treasury Stock In accordance with R.O.C. SFAS No. 30, “Accounting for Treasury Stock”, treasury stock held by the Company is accounted for under the cost method. When treasury stock is retired, the treasury stock account is credited and all capital account balances related to the treasury shares, including capital reserve-treasury stock transactions, are reduced on a proportionate basis. Any difference, if on credit side, is recorded in capital reserve-treasury stock transactions; if on debit side, it is recorded against retained earnings. An excess of the carrying value of treasury share over the sum of its par value and premium on share is first to be offset against capital reserve from the same class of treasury share transactions, and the remainder, if any, debited to retained earnings. An excess of the sum of the par value and premium on share of treasury share over its carrying value should be credited to capital reserve from the same class of treasury share transactions. For treasury stock sold to employees, the Company recognizes compensation cost in accordance with R.O.C. SFAS No. 39, “Accounting for Share-Based Payment”, ARDF Interpretation No. 96-266, “Accounting for Treasury Stock Purchased by Employees” and ARDF interpretation No. 98-111, “Determining the Grant Date of Share-Based Payment”.

(19) Employee Stock Option The Company used intrinsic value method to recognize compensation cost for its employee stock options issued between January 1, 2004 and December 31, 2007, in accordance with ARDF Interpretation No. 2003-070~072. Under the method, the excess of the market price over exercise price at the grant date is adjusted under shareholders’ equity and expensed over vesting periods. Disclosure of pro forma information for net income and earnings per share using fair value method is required. For stock options granted on or after January 1, 2008, the Company recognizes compensation cost using the fair value method in accordance with R.O.C. SFAS 39. In accordance with R.O.C. SFAS 39, share-based payment transaction shall be measured by reference to the fair value of the equity instruments at the date when they are granted. The fair value is determined by an external appraisal using an appropriate pricing model.



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The Company enters into equity-settled share-based payment transactions only with its employees. Pursuant to R.O.C. SFAS 39, the goods or services received under such transactions, and the corresponding increase in equity, shall be measured by reference to the fair value of the equity instruments granted. If there is no limitation or condition to the vesting of equity instrument, the equity instrument is deemed to vest at the grant date. The employee compensation costs and a correspondent equity are recognized then. If the equity instrument is vested over a certain period of time, the employee compensation costs shall be recognized over that period with a corresponding increase in equity. In valuing the fair value of the equity instrument granted, no account is taken of any vesting conditions other than market conditions. Instead, non-market vesting conditions shall be taken into account by adjusting the number of equity instruments included in the measurement of the transaction amount. Ultimately, the amount recognized for goods or services received as consideration for the equity instruments granted shall be based on actual number of equity instruments that eventually vest. For grants of equity instruments with market conditions, the Company shall recognize the goods or services received from a counterparty that satisfies all other vesting conditions, irrespective of whether the market condition is satisfied.

(20) Employee Bonuses and Remunerations Paid to Directors and Supervisors

In accordance with ARDF Interpretation No. 2007-052 effective January 1, 2008, employee bonuses and remunerations paid to directors and supervisors are charged to income statements at fair value and are no longer accounted for as an appropriation of retained earnings.

(21) Restricted Shares for Employee In accordance with the requirements of R.O.C. SFAS No. 39, the cost of the restricted stocks for employees issued by the Company is recognized as salary expense over the vesting period, based on the fair value of the equity instruments granted on the grant date. The Company recognizes salary expense for the dividends distributed to employees expected to terminate employment during the vesting period based on its fair value at dividends declaration date, if the restricted stocks for employees do not restrict employee's right to participate in the distribution of dividends and if the employee terminates employment during the vesting period, the employee is not required to return the dividends received. If the employee is required to return the dividends received upon termination of employment during the vesting period, then the Company makes a credit entry against retained earnings to offset the debit entry made on the dividends declaration date.



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(22) Operating Segments Information An operating segment is a component of an entity that has the following characteristics: a. engaging in business activities from which it may earn revenues and incur expenses; b. whose operating results are regularly reviewed by the entity’s chief operating decision

maker to make decisions about resources to be allocated to the segment and assess its performance; and

c. for which discrete financial information is available.

(23) Government Grants Income Government grants for research and development expenditures of the Company are recognized as non-operating income according to the contract terms and the progress of the research and development project.

3. REASONS AND EFFECTS FOR ACCOUNTING CHANGES

(1) Effective January 1, 2011, the Company adopted the third revised R.O.C. SFAS 34. This change in accounting principles had no significant effect on net income and earnings per share for the year ended December 31, 2011.

(2) Effective January 1, 2011, the Company adopted R.O.C. SFAS No. 41, “Operating Segments”

(R.O.C. SFAS 41), to present operating segment information. The newly issued R.O.C. SFAS 41 replaced R.O.C. SFAS No. 20, “Segment Reporting”.

4. CONTENTS OF SIGNIFICANT ACCOUNTS

(1) Cash and Cash Equivalents As of December 31,

2012 2011

NT$’000 NT$’000 Cash 203 126 Savings and checking 274,357 301,825 Time deposits 3,550,005 4,417,170 Cash equivalents-CP-Repo 149,701 219,692

Total 3,974,266 4,938,813



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(2) Held-for-trading financial assets-current As of December 31, 2012 2011 NT$’000 NT$’000 Funds 24,000 - Add: Adjustments for Held-for-trading

financial assets

119 -

Net 24,119 -

(3) Accounts Receivable As of December 31, 2012 2011 NT$’000 NT$’000 Accounts receivable 690,742 498,794 Less: Allowance for doubtful accounts (15,565) (19,570)

Allowance for sales discounts (5,824) (5,824) Net 669,353 473,400

(4) Other Receivables

As of December 31, 2012 2011 NT$’000 NT$’000 VAT refundable 8,962 7,336 Interest receivable 3,732 5,210 Other receivables 2,943 6,450 Total 15,637 18,996

(5) Inventories

As of December 31, 2012 2011 NT$’000 NT$’000 Raw materials 96,469 15,379 Supplies 52,611 7,289 Work-in-process 146,769 297,419 Finished goods 102,801 83,117 Total 398,650 403,204 Less: Allowance for loss on decline in market

value and obsolescence

(44,433)

(96,021) Net 354,217 307,183



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For the years ended December 31, 2012 and 2011, the provision (reversal gain) of allowance for loss on declines in net realizable value and obsolescence of inventories which was included in cost of goods sold amounted to (NT$50,832 thousand) and NT$63,201 thousand, respectively.

(6) Held-to-maturity financial assets-current As of December 31,

2012 2011

Investment items

Shares/units

Amounts (NT$’000)

Shares/units

Amounts(NT$’000)

99Taiwan Power 1A corporate bond 200 200,060 - -

(7) Investments accounted for under the equity method

As of December 31,

2012 2011

Investment item

Marketable

Securities

Type

Carrying

Value (NT$’000)

Percentage of

Ownership

(%)

Marketable

Securities

Type

Carrying

Value

(NT$’000)

Percentage of

Ownership

(%)

CMC Capital Investments, L.P.

Capital 25,283 10.30 Capital

27,974 12.50

a. For the years ended December 31, 2012 and 2011 , the investment loss recognized by the

Company were NT$2,691 thousand and nil, respectively. b. In April 2011, the Company invested in CMC Capital Investments, L.P. in the amount of

US$924,000. c. Funds and investments mentioned above were not pledged.

(8) Held-to-maturity financial assets-noncurrent

As of December 31,

2012 2011

Investment items

Shares/units

Amounts (NT$’000)

Shares/units

Amounts(NT$’000)

99 Taiwan Power 1A corporate bond - - 200 200,257



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(9) Financial assets measured at cost-noncurrent As of December 31,

Investee Company 2012 Ownership 2011 Ownership NT$’000 % NT$’000 % Shieh Yong Investment Co., Ltd. 300,000 4.55 300,000 4.55 EPI MOBILE HEALTH SOLUTIONS (S) PTE. LTD. 36,358 12.80 147,616 12.80

Total 336,358 447,616

EPI MOBILE HEALTH had been continuously incurring losses with a remote opportunity of value recovery. As a result, the company recognized an impairment loss in EPI MOBILE HEALTH in the amount NT$111,258 thousand for the year ended December 31, 2012.

(10) Property, Plant and Equipment No interest expense was capitalized for the years ended December 31, 2012 and 2011.

(11) Intangible Assets

For the year ended December 31, 2012 Patents Software IPs Total

Original cost NT$’000 NT$’000 NT$’000 NT$’000 Balance at beginning of period 314,141 160,115 23,088 $497,344 Increase - separately acquired 263,419 44,229 - 307,648

Balance at end of period 577,560 204,344 23,088 804,992 Accumulated amortization Balance at beginning of period 15,227 98,401 8,446 122,074 Increase - amortization 54,086 43,816 5,020 102,922

Balance at end of period 69,313 142,217 13,466 224,996 Net 508,247 62,127 9,622 579,996 For the year ended December 31, 2011 Patents Software IPs Total Original cost Balance at beginning of period 12,941 128,278 - $141,219 Increase – separately acquired 301,200 28,158 15,060 344,418 Reclassification - 3,679 8,028 11,707

Balance at end of period 314,141 160,115 23,088 497,344 Accumulated amortization Balance at beginning of period 9,654 58,740 - 68,394 Increase - amortization 5,573 39,661 6,085 51,319 Impairment of assets - - 2,361 2,361

Balance at end of period 15,227 98,401 8,446 122,074 Net 298,914 61,714 14,642 375,270



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(12) Short-term loans As of December 31,

2012 2011

NT$’000 NT$’000 Credit loans 10,000 142,500

a. Interest rates ranged from 1.70%~1.71% and 1.70% to1.72% as of December 31, 2012 and

2011. b. The Company’s unused short-term lines of credits amounted to NT$270,000 thousand and

NT$137,500 thousand as of December 31, 2012 and 2011.

(13) Pension Fund A. The information of the company’s defined benefit pension plan as follows：

a. The Company periodically made contributions to a fiduciary account in Bank of Taiwan

for its defined benefit pension plan. The fund balances were NT$13,356 thousand and NT$12,357 thousand as of December 31, 2012 and 2011, respectively. The pension expenses amounted to NT$1,114 thousand and NT$875 thousand for the years ended December 31, 2012 and 2011, respectively.

b. Pension cost:


2012 2011

NT$’000 NT$’000 Service cost 682 548 Interest cost 478 312 Expected return on plan assets (247) (227) Amortization 266 120

Net periodic pension cost 1,179 753 Under (over)-accrual (65) 122

Net periodic pension cost 1,114 875



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c. The funding status of the defined pension plan was summarized as follows: As of December 31, 2012 2011

Benefit obligation NT$’000 NT$’000 Vested benefit obligation (7,567) - Non-vested benefit obligation (7,647) (9,261) Accumulated benefit obligation (15,214) (9,261) Effect on projected salary increase (16,492) (14,625) Projected benefit obligation (31,706) (23,886) Fair value of plan assets 13,356 12,357 Funded status (18,350) (11,529) Unrecognized net transitional benefit obligation 482 602 Unrecognized loss 11,673 6,294 Accrued pension liabilities (6,195) (4,633) Over-accrual - (1,342) Accrued pension liabilities (6,195) (5,975)

d. The vested benefit was NT$9,000 thousand and nil as of December 31, 2012 and 2011, respectively.

e. The actuarial assumptions are as follows: For the year ended December 31, 2012 2011 Discount rate 1.75% 2.00% Rate of salary increase 5.00% 5.00% Expected return on plan assets 1.75% 2.00%

B. The Company adopted defined contribution pension plans and made periodical contributions

to pension funds in accordance with related local statutory regulations and laws. Pension expenses aggregately amounted to NT$15,815 thousand and NT$11,633 thousand for the years ended December 31, 2012 and 2011, respectively.

(14) Common Stock

As of January 1, 2011, the Company’s authorized common stock amounted to NT$1,500,000 thousand, divided into 150,000,000 shares (including 10,000,000 shares reserved for exercise of employee stock options), each share at par value of NT$10. The Company’s issued common stock amounted to NT$1,308,224 thousand.



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On March 20, 2011 and December 20, 2011, the board of the directors of the Company resolved to retire 1,000,000 shares and 147,900 shares of treasury stock. The capital reduction date was set on March 23, 2011 and December 21, 2011, respectively, and the government approval has been successfully obtained. Based on the resolution of shareholders’ general meeting on June 15, 2011, the Company resolved to issue 1,503,496 new shares, each share at par value of NT$10, for the capitalization of shareholders’ dividend of NT$12,817 thousand (representing 1,281,714 shares) and employees’ bonus of NT$24,000 thousand (representing 221,782 shares). The capitalization date was set on August 23, 2011 and the government approval has been obtained. Due to the exercise of employees’ stock options, 42,000 common shares were issued at par value of NT$10 during the year of 2011. The governmental approval has been obtained. Based on the resolution of shareholders’ general meeting on June 13, 2012, the Company resolved to issue 1,424,878 new shares, each share at par value of NT$10, for the capitalization of shareholders’ dividend of NT$12,572 thousand (representing 1,257,190 shares) and employees’ bonus of NT$13,000 thousand (representing 167,688 shares). The capitalization date was set on August 31, 2012 and the government approval has been obtained. In November 2012, the Company issued 979,436 restricted shares for employees, each share at par value of NT$10. As of December 31, 2012, the Company’s authorized common stock amounted to NT$1,500,000 thousand, divided into 150,000thousand shares (including 10,000 thousand shares reserved for exercise of employee stock options), each share at par value of NT$10. The Company’s issued common stock amounted to NT$1,336,243 thousand.

(15) Capital Reserve As of December 31, 2012 2011 NT$’000 NT$’000

Additional paid-in capital 1,877,746 1,866,423 Treasury stock transaction 6,606 - Donated by shareholders 3,816 3,816 Long-term equity investment - 1,622 Employee stock options 13,025 8,652 Restricted shares for employee 49,014 - Total 1,950,207 1,880,513



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According to the R.O.C. Company Act, capital reserve can be used for making up losses or reclassifying to paid-in capital. The Company shall not use its capital reserve to make up its loss unless legal reserve is insufficient for making up such losses. If the Company incurs no loss, it may, pursuant to the resolution approved through the shareholders’ meeting, distribute the following capital reserve, in whole or in part, by issuing new dividend shares to its original shareholders in proportion to their ownership percentage or by cash: A. surplus derived from the issuance of new shares at a premium; B. income from endowments received by the company.

(16) Employee Stock Options The options are valid for six years and exercisable at certain percentage subsequent to the second anniversary from the grant date. Detail information as of December 31, 2012 is disclosed as follows:

Date of grant

Total number of options granted

Total number of options outstanding

Shares available for option holders

Exercise price(NTD)

(Remark)

2007.12.27 5,000 2,349 2,349,000 168.28 Remark: The shares available for option holders are subject to adjustments in accordance with the plan

in the event that changes to the capital structure might occur.

The Company used the intrinsic value method to recognize compensation cost of its employee stock options issued between 2004 and 2007, in accordance with Accounting Research and Development Foundation interpretation Nos. 2003-070~072. Under the intrinsic value method, the value of underlying shares during the period before 2007 was determined based on an independent valuer’s opinion or the public offering price. Compensation costs recognized for employee stock options for the years ended December 31, 2012 and 2011 were nil, respectively. In addition, as the exercise price was equal to the market price of the underlying shares at the grant day, the compensation cost for options issued in 2007 was nil. Information of the units and weighted average exercise prices for stock option plans of the Company is disclosed as follows:



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Unit of options Weighted-average exercise

price per share (NTD) Outstanding at beginning of period 2,467.00 176.00 Granted - - Exercised - - Expired (118.00) 173.48 Outstanding at end of period 2,349.00 168.28

Exercisable at end of period 2,331.00

Weighted-average fair value of options granted during the period (in NTD)

-


Unit of options

Weighted-average exercise price per share (NTD)

Outstanding at beginning of period 2,970.50 186.10 Granted - - Exercised (42.00) 10.00 Expired (461.50) 181.30 Outstanding at end of period 2,467.00 176.00

Exercisable at end of period 2,299.50

Weighted-average fair value of options granted during the period (in NTD)

-

Information for outstanding options which were granted after January 1, 2004 is as follows:

Outstanding Stock Options Exercisable Stock Options

Year

Range of exercise

price (NTD)

Unit of options

Weighted- average expected remaining

Years

Weighted- average exercise price per

share (NTD)

Unit of options

Weighted- average exercise price per

share (NTD)

Stock option plan of 2007

168.28 2,349.00 - 168.28 2,331.00 168.28



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Assuming the Company adopted the fair value method, the Company’s pro-forma information is set forth as follows (Black-Scholes model was used) : For the year ended December 31, 2012 2011 Net income-as reported (NT$’000) 280,108 496,616 Net income-pro forma (NT$’000) 280,108 476,716 Basic earnings per share-as reported (NT$) 2.20 3.81 Basic earnings per share-pro forma (NT$) 2.20 3.66 Diluted earnings per share-as reported (NT$) 2.18 3.74 Diluted earnings per share-pro forma (NT$) 2.18 3.59

Assumptions used under the Black-Scholes Option Pricing Model are as follows:

(17) Legal Reserve According to the R.O.C. Company Law, 10% of the Company’s net income after tax shall be appropriated to legal reserve prior to any distribution until such reserve is equal to the Company’s paid-in capital. According to the amendment of R.O.C. Company Law, effective on January 4, 2012, where a company incurs no loss, it may distribute its legal reserve in whole or in part, by issuing new shares to its original shareholders’ in proportion to the number of shares being held by each of them or by cash. The reserve may be distributed as dividends in cash or stocks for the portion in excess of 25% of the Company’s paid-in capital.

(18) Earnings Distribution and Dividends Distribution Policy According to the Company's Articles of Incorporation, current year's earnings, if any, shall be distributed in the following order: (a) Income tax obligation; (b) Offsetting accumulated deficits, if any; (c) Legal reserve at 10% of net income after tax; (d) Special reserve in compliance with the Company Law or the Securities and Exchange

Law;

2007 plan Expected dividend yield 3.09% Expected volatility 48.40% Risk free interest rate 2.625% Expected life 4.25 years



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(e) Remuneration for directors to a maximum of 1% of the remaining after deducting for item (a) through to (d).

(f) After deducting for item (a) through to (d) above from the current year’s earnings, no less than 1% of the remaining amount together with the prior years’ unappropriated earnings is to be allocated as employees’ bonus.

(g) The remaining, after all the above appropriations and distributions, may be retained or distributed proportionally as shareholder’s bonus. The distribution will be proposed by the board of directors and resolved in the shareholders’ meeting.

The policy for dividend distribution should reflect factors such as the current and future fund requirements and long-term financial planning. The board of directors shall make the distribution proposal in the subsequent year and submit it to the annual shareholders’ meeting for approval. Shareholders’ dividends may be distributed in the form of shares, cash, or a combination of both. Cash dividends may not be less than 10% of total dividends to be distributed. Remuneration for directors and supervisors’ services is limited to cash only. For the years ended December 31, 2012 and 2011, the amounts of the employee bonuses were NT$45,579 thousand and NT$80,820 thousand, respectively, and the amounts of remunerations to directors and supervisors were NT$2,481 thousand and NT$4,469 thousand, respectively. The employee bonuses and remunerations to directors were accrued in accordance with the Company’s Articles of Incorporation and the accruals were recorded as operating cost or operating expenses for the current year. If share bonuses are resolved to be distributed to employees, the number of shares to be distributed is determined by dividing the amount of bonuses by the closing price (ex-rights and ex-dividends) on the date immediately preceding the shareholders’ meeting. When there is a difference between the actual amount distributed and estimated amount of dividends that has been approved by directors and shareholders, the difference will be recorded through profit and loss in next year, if the amount is not significant.

The amounts of earnings distribution of 2011 and 2010 as approved by the shareholders’ meeting were the same as those approved by the board of directors meetings on April 24, 2012 and April 26, 2011. Detail information is shown below:



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As approved in the shareholders’ meeting held on June 13, 2012

As approved in the shareholders’ meeting

on June 15, 2011 NT$’000 except

otherwise stated NT$’000 except

otherwise stated Remuneration of directors and supervisors 4,469 7,289 Profit sharing to employees - in cash 67,820 248,663 Profit sharing to employees - in stock

Amount 13,000 24,000 Number of shares (at par value of NT$10) 167,688 shares 221,782 sharesMarket price per share (NT dollar) 77.5(Remark) 108.2 (Remark)

Shareholders’ cash dividends 364,585 602,406 Shareholders’ stock dividends

Amount 12,572 12,817 Number of shares (at par value of NT$10) 1,257,190 shares 1,281,714 shares

Remark: The number of shares to be distributed was determined by dividing the amount of

bonuses by the closing price of the Company’s common shares (after considering the effect of dividends) of the day immediately preceding the shareholders’ meeting.

The resolved amounts of the directors and supervisors remuneration and employees’ cash bonus for 2012 were consistent with the amounts charged against earnings in 2011. The information about the appropriations of earnings which were resolved by the board of directors’ meeting and the shareholders’ meeting is available at the Market Observation Post System website.

(19) Treasury Stock

The movement of treasury stock for the years ended December 31, 2012 and 2011 is as follows:


Reason

Shares Amount

(NT$’000)Shares

Amount

(NT$’000)Shares

Amount

(NT$’000) Shares

Amount

(NT$’000)

Transferring

shares to

employees

4,950,000 441,180 551,000 37,420 -

- 5,501,000 478,600



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Reason

Shares Amount

(NT$’000)Shares

Amount

(NT$’000)Shares

Amount

(NT$’000) Shares

Amount

(NT$’000)

Transferring

shares to

employees

1,965,000 280,834 4,950,000 441,180 (1,965,000)

(280,834) 4,950,000 441,180

a. According to the Securities and Exchange Law of the R.O.C., total shares of treasury

stock shall not exceed 10% of the Company’s issued stock and the total purchase amount shall not exceed the sum of the retained earnings, additional paid-in capital – premiums, and realized additional paid-in capital. The ceiling of number of shares and the dollar amount of treasury stock that the Company could hold as of December 31, 2012 was 7,681,432 shares and NT$4,672,957 thousand, respectively.

b. Pursuant to the Securities and Exchange Law, treasury stock shall not be pledged, nor does it possess voting rights or the rights to receive dividends. Treasury stock shall be transferred to employees within three years from the repurchased date or should be retired. The Company retired 1,000,000 shares and 147,900 shares of treasury stock in March 2011 and December 2011, respectively. Relevant government approval has been obtained.

c. In April 2011, the Company transferred 817,100 shares of treasury stock to employees.

For the years ended December 31, 2012 and 2011, compensation costs recognized were NT$10,979 thousand and NT$8,652 thousand, respectively. As of December 31, 2012, total compensation cost was accumulated to NT$19,631 thousand. The compensation cost was recognized under the fair value method and the Black-Scholes Option Pricing model was used to estimate the fair value. Assumptions used in calculating the fair value are disclosed as follows: Employee stock purchase plan Expected dividend yield 4.29% Expected volatility 44.00% Risk free interest rate 0.80% Expected life 0.75years Expected fair value NT$28



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(20) Restricted Shares for Employee’ Plan Base on resolution of shareholders’ general meeting on June 13, 2012, the Company resolved to issue restricted shares for employee, and the exercise price was set at zero. The maximum restricted shares to be issued are 3,000,000 shares. The shares should be issued in whole or in part within one year from the date of the resolution reached in the shareholder’s meeting. For those employees who achieve both service years and performance criteria set by the Company, the restricted shares will be vested at certain percentage and time frame. On August 7, 2012, the board of the directors of the Company issued 2,000,000 restricted shares to employee. Relevant government approval has been successfully obtained.

The restricted rights on the restricted shares before reaching the vesting condition are as follow： a. Prior to vesting conditions are reached, the employees shall not sell, mortgage, transfer,

donate, pledge or dispose the restricted shares in any other ways. b. The attendance, motion, making speeches and voting rights of the restricted share holders

shall be executed by the custodian organization according to the trust contract. c. Prior to vesting conditions are reached, the restricted share holders are entitled to

dividends with no limitation.

In cases of any voluntary leave, retirement and severance happens prior to vesting condition, it is treated as failing to meet vesting conditions from the effective date. The Company should take back the shares without additional compensation to the employees and retire those shares. Information of the restricted shares for employee as of December 31, 2012 as follows:

Type Grant date Exercise price Par fair value Issued shares The new restricted

shares for employee at 2012

101.10.30 $- $61.9 979,436

The restricted shares granted to employees were measured at fair value in accordance with R.O.C. SFAS 39, which resulted a compensation expense amounted to NT$3,318 thousand in 2012. As of December 31, 2012, balances of Capital Reserve-Employee Restricted Shares and Capital Reserve- Unearned Employees' Compensation were NT$49,014 thousand and NT$55,490 thousand, respectively.



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(21) Net Operating Revenue


2012 2011

NT$’000 NT$’000

Sales of goods 3,495,261 3,405,868

Other operating revenue 15,881 45,239

Total 3,511,142 3,451,107

Less: Sales returns (413) (1,680)

Less: Sales discounts (792) (58)

Net Operating Revenue 3,509,937 3,449,369

(22) Operating Cost and Expenses


2012 2011

Operating

costs

Operating

expenses Total

Operating

costs

Operating

expenses Total

NT$’000 NT$’000 NT$’000 NT$’000 NT$’000 NT$’000

Personnel Expense

Salary & wage 12,769 495,408 508,177 14,889 450,657 465,546

Insurance - 21,035 21,035 - 17,054 17,054

Pension 506 16,423 16,929 407 12,101 12,508

Other expenses 253 7,916 8,169 229 7,090 7,319

Total 13,528 540,782 554,310 15,525 486,902 502,427

Depreciation 4,040 25,986 30,026 776 26,620 27,396

Amortization 6,497 117,767 124,264 7,679 61,450 69,129



- 136 -

(23) Earnings Per Share Basic earnings per share and dilutive earnings per share were disclosed as follows：

Amount (Numerator) Earnings per share Before tax After tax Before tax After tax

For the year ended December 31, 2012 (NT$000) (NT$000)Shares

(Denominator) Tax(NT$) Tax(NT$)Consolidated net income attributable

to the parent Basic EPS


shares: Bonus to employees - - 1,126,743 Restricted shares for new

employees - - 12,457 Diluted EPS 327,322 280,108 128,218,537 2.55 2.18 Consolidated net loss attributable to

minority interests Basic EPS

Net loss (32,710) (32,709) 127,079,337 (0.26) (0.26)Effect of dilutive potential common

shares: Bonus to employees - - 1,126,743 Restricted shares for new

employees - - 12,457 Diluted EPS (32,710) (32,709) 128,218,537 (0.26) (0.26) Amount (Numerator) Earnings per share

Before tax After tax Before tax After taxFor the year ended December 31, 2011 (NT$000) (NT$000)

Shares (Denominator) Tax(NT$) Tax(NT$)

Consolidated net income attributable to the parent

Basic EPS Net income 542,076 496,616 130,412,919 4.16 3.81

Effect of dilutive potential commonshares: Bonus to employees - - 2,315,447 Stock option to employees - - 8,597

Diluted EPS 542,076 496,616 132,736,963 4.08 3.74

(To be continued)



- 137 -

(Continued) Amount (Numerator) Earnings per share

Before tax After tax Before tax After taxFor the year ended December 31, 2011 (NT$000) (NT$000)

Shares (Denominator) (NTD) (NTD)

Consolidated net gain attributable to minority interests

Basic EPS Net loss (94,507) (95,578) 130,412,919 (0.72) (0.73)

Effect of dilutive potential commonshares: Bonus to employees - - 2,315,447 Stock option to employees - - 8,597

Diluted EPS (94,507) (95,578) 132,736,963 (0.71) (0.72)

(24) Income Taxes a. Income tax returns of the Company through the year ended December 31, 2008 have

been finalized by the tax authority.

b. Pursuant to the “Statute for Upgrading Industries”, the Company is qualified as a technical service industry and is therefore entitled to an income tax exemption period for five consecutive years on the income generated from qualifying high technology activities.

c. The Company and subsidiaries have filed individual business income tax returns separately. It is not allowed for the Company to file a consolidated tax return.

d. The Company’s available investment tax credits as of December 31, 2012 were as

follows :

Year incurred Total credit amount(NT$’000)

Unused amount (NT$’000)

Expired after

2009 224,568 197,637 2013

Investment tax credits have been included in calculation of deferred income tax assets.

e. Under the Income Tax Law of the R.O.C., if a company’s tax return is certified by a certified public accountant, its net operating loss on tax basis (“NOL”) can be carried forward for the next 10 years. As of December 31, 2012, the Company’s NOL information was as follows:



- 138 -

Year incurred Total credit

amount Unused amount Year expired

2011 $49,603 $49,603 2021 2012(expected) 125,950 125,950 2022

175,553 175,553

f. Deferred income tax assets and liabilities are as follows: As of December 31,

2012 2011 NT$’000 NT$’000

(a) Total deferred income tax liabilities 519 189

(b) Total deferred income tax assets 347,630 298,476

(c) Valuation allowance against deferred tax assets 291,178 257,151

(d)Temporary differences that generated deferred income tax assets or liabilities: As of December 31, 2012 2011 Amount Tax Effect Amount Tax Effect NT$’000 NT$’000 NT$’000 NT$’000

Unrealized estimated expense 195,243 33,191 174,766 29,710

Unrealized pension expense 6,195 1,053 5,975 1,016

Unrealized inventory provision 44,433 7,554 96,021 16,324

Impairment loss 111,537 18,962 4,706 800

Unrealized bad debt expense 8,774 1,491 14,774 2,511

Allowance on sales returns and discounts

5,824

990

5,824 990

Unrealized investment loss under the equity method

333,583

56,709

96,230 16,359

Others 170 29 170 29

Unrealized exchange loss 999 170 666 113

Unrealized exchange gain (3,050) (519) (1,111) (189)

Loss carry-forward 175,553 29,844 49,603 8,433

Investment tax credits 197,637 222,191



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g. As of December 31, 2012 2011

NT$’000 NT$’000Deferred income tax assets-current 241,062 74,231Valuation allowance-deferred income tax assets-current (184,610) (65,046)Net deferred income tax assets-current 56,452 9,185Deferred income tax liabilities-current (519) (189)Net deferred income tax assets and liabilities-current 55,933 8,996

h. As of December 31, 2012 2011 NT$’000 NT$’000 Deferred income tax assets-noncurrent 106,568 224,245 Valuation allowance-deferred income tax

assets-noncurrent (106,568) (192,105)Net deferred income tax assets-noncurrent - 32,140 Deferred income tax liabilities-noncurrent - - Net deferred income tax assets and liabilities-noncurrent - 32,140

i. Income tax payable and income tax expense are reconciled as follows: For the year ended December 31, 2012 2011 NT$’000 NT$’000Tax on pre-tax income at statutory tax rate 28,113 65,53910% income tax on undistributed earnings 7,066 13,095 Tax exemption (112,642) (68,920)Permanent difference 18,789 11,385Investment tax credits 17,488 62,741Change in valuation allowance 34,027 (74,726)Corporate alternative minimum tax 54,391 23,020Change in estimate (19) 14,397 Income tax expense 47,213 46,531



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j. Integrated income tax information: As of December 31, 2012 2011 NT$’000 NT$’000

Balance of the imputation credit account (ICA) 93,498 79,101 For the year ended December 31, 2012 2011 Expected (Actual) creditable ratio 7.56% (Remark) 5.24%

Remark：The ratio was computed based on the amount of actual available shareholders’ tax

credits plus estimated income tax payable as of December 31, 2012. k. Information related to undistributed retained earnings As of December 31, 2012 2011 NT$’000 NT$’000

After 1998 1,985,218 2,142,437

(25) Government grants income

The Company entered into a research and development project agreement with Ministry of Economic Affairs, R.O.C, and recognized government grant income of NT$13,282 thousand and NT$7,807 thousand for the years ended 2012 and 2011, respectively, as non-operating income.

5. RELATED PARTY TRANSACTIONS (1) Related Parties and Relations with the Company

Related parties Relations United Microelectronics Corporation (“UMC”) Related party in substance Directors and key managers The Company’s major managers

(2) Major transactions with related parties

a. Purchases: For the year ended December 31, 2012 2011



(%) Amount


(%) UMC 237,266 23.70 559,104 60.43



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There is no comparable price available from other suppliers due to unique product specification and customization. Payment terms for above purchases are 45 days from the date of monthly closing. In addition, the Company purchased wafer from UMC for R&D purposes in the amount of NT$19,468 thousand and NT$16,449 thousand for the years ended December 31, 2012 and 2011, respectively. Subsidiary of the Company pledged its certificates of deposits in the amount of NT$11,000 thousand to UMC as production guarantee in 2011.

(3) Payables resulted from the above transactions:

Payables to related parties As of December 31, 2012 2011



(%) Amount


(%) UMC 31,431 10.45 34,753 12.78

(4) Remunerations paid to directors, supervisors and key managers:


Amount (NT$’000)

Amount (NT$’000) Salaries, rewards, compensations, special

allowance and bonus 17,687(estimated) 20,341

Please refer to the annual report of the Company for more detail information of key management personnel compensations.

6. ASSETS PLEDGED AS COLLATERAL As of December 31,

Account 2012

(NT$’000)2011

(NT$’000)

Secured financial

institutions Contents Restricted deposits-non current 3,036 6,278 Customs Customs duty guaranteeRestricted deposits-non current - 11,000 UMC Capacity guarntee 3,036 17,278



- 142 -

7. COMMITMENTS AND CONTINGENCIES Significant commitments and contingencies of the Company as of December 31, 2012 were as follows:

(1) The Company entered into several royalty agreements under which royalties are paid based on

certain percentages of related product sales.

(2) a. The Company has entered into certain lease agreements for land with the Administrative Bureau of HSIP for its need of operations. Related minimum rental to be incurred in the future is as follows:

Lease Period Amount (NT$’000) 2013.01.01~2013.12.31 2,449 2014.01.01~2014.12.31 2,449 2015.01.01~2015.12.31 1,651 2016.01.01~2016.12.31 1,080 2017.01.01~2024.12.31 8,200

Total 15,829 b. The subsidiaries have entered into several office lease agreements for operations. Related

rent to be incurred in the future would be as follows: Lease Period Amount (NT$’000)

2013.01.01~2013.12.31 12,122 2014.01.01~2014.12.31 10,319 2015.01.01~2015.07.31 5,268

Total 27,709

(3) The Company pledged a check of NT$15,000 thousand to the Ministry of Economic Affairs, R.O.C. as a performance guarantee.

8. SIGNIFICANT DISASTER LOSS

None.

9. SIGNIFICANT SUBSEQUENT EVENT

None.



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10. OTHER DISCLOSURES (1) Financial Instruments

a. Fair value of financial instruments: The Company and subsidiaries didn’t engage in any derivative instrument transactions in 2012 and 2011. Fair value of non-derivative financial instruments is shown as follows:

As of December 31,

2012 2011


Assets NT$’000 NT$’000 NT$’000 NT$’000

Cash and cash equivalents 3,974,266 3,974,266 4,938,813 4,938,813

Held-for-trading financial assets-current 24,119 24,119 - -

Receivables 669,353 669,353 473,400 473,400

Other Receivables 15,637 15,637 18,996 18,996

Investments accounted for under the equity method 25,283 - 27,974 -

Held-to-maturity financial assets-current 200,060 200,421 200,257 201,574

Financial assets measured at cost-noncurrent 336,358 - 447,616 -

Refundable deposits 6,139 6,139 5,516 5,516

Restricted deposits 3,036 3,036 17,278 17,278

Liabilities

Short-term loans 10,000 10,000 142,500 142,500

Payables (including payables to related parties) 300,792 300,792 271,990 271,990

Accrued expenses 558,942 558,942 905,875 905,875

Other payable 396 396 8,474 8,474

Deposits received 322 322 448 448

(a) The following methods and assumptions were used by the Company in estimating the fair value of financial instruments: (i) The fair values of the Company’s short-term financial instruments approximate

their carrying values at the reporting date due to their short maturities. This method was applied to cash and cash equivalents, receivables, other receivables, short-term loans, payables (including payables to related parties), accrued expenses and other payables.

(ii) The fair values of the Company’s refundable deposits, restricted deposits and

deposits received approximate their carrying value because the Company predicts the future cash inflows or outflows will be of similar amounts to the carrying values.



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(iii) The Company’s investments accounted for under the equity method are equity securities of non-public companies. The fair values of these investments are not readily available.

(iv) The fair values of held-to-maturity financial assets were based on their quoted market prices, if available, at the reporting date. If market prices were impractical and not available, fair values are determined using valuation techniques. Such techniques use rates of returns from similar financial instruments as discount rates.

(v) The fair value of financial assets measured at cost is unable to be estimated since

there is no active market in trading those unlisted investments.

(vi) The fair values of held-for-trading financial assets were based on their quoted market prices, if available, at the reporting date. If market prices were impractical and not available, fair values are determined using valuation techniques.

(b) The fair value of financial assets and liabilities held by the Company based on quoted price

from active market and on valuation techniques is shown, respectively, as follows: Quoted market Valuation method As of December 31 As of December 31 2012 2011 2012 2011

Non-derivative instruments NT$’000 NT$’000 NT$’000 NT$’000Financial Assets

Cash and cash equivalents 3,824,565 4,719,121 149,701 219,692Held-for-trading financial assets-current

24,119 - - -

Held-to-maturity financial assets-current

200,421 201,574 - -

Receivables - - 669,353 473,400Other receivables - - 15,637 18,996Refundable deposits - - 6,139 5,516Restricted deposits 3,036 17,278 - -

(To be continued)



- 145 -

(Continued) Quoted market Valuation method As of December 31 As of December 31 2012 2011 2012 2011

Non-derivative instruments Financial Liabilities

Short-term loans - - 10,000 142,500Payables (including payables to related parties) -

-

300,792 271,990

Accrued expenses - - 558,942 905,875Other payable - - 396 8,474Deposits received - - 322 468

(c) Gain (loss) recognized for the changes in fair value of financial assets estimated using

valuation techniques were nil for the years ended December 31, 2012 and 2011 respectively.

b. As of December 31, 2012 and 2011, financial assets exposed to fair value fluctuation

risk due to fixed interest rates were NT$3,899,766 thousand and NT$4,807,119 thousand, respectively, and financial liabilities expensed to interest rate risk were both nil. Financial liabilities exposed to interest rate risk due to variable interest rates were NT$10,000 thousand and NT$142,500thousand, respectively.

c. Total interest income and expense incurred from financial assets or liabilities that are

not at fair value through profit or loss are listed as follows: For the years ended December 31,

2012 2011 NT$’000 NT$’000

Interest income 41,815 41,211 Interest expense 1,855 1,796

d. Information of financial risks The Company held certain non-derivative financial instruments, including cash and cash equivalents. The Company held the financial instruments to meet the need in operating cash. The Company also held other financial instruments such as receivables, payables and financial assets measured at cost. Major risks of financial instruments were summarized as follows:

(a) Market risk

Market risk includes currency rate risk. It comes from the purchase or sale activities which are not denominated in the functional currency.

(b) Credit risk

The Company and subsidiaries’ exposure to credit risk arises from potential default of the counter-party or other third-party. The level of exposure depends on several factors including concentrations of credit risk, components of credit risk, price of contract and other receivables of financial instruments.



- 146 -

The Company and subsidiaries’ credit risk mainly comes from the collectibility of accounts receivable while receivable balances are monitored on an ongoing basis and an allowance for doubtful receivables is provided. Thus, the net book value of accounts receivable are properly evaluated and reflect the credit risk the Company exposes to. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk, which arises when counter-party or third-party to a financial instrument fails to discharge an obligation and the Company and subsidiaries suffer a financial loss as a result. Since the Company engages in transactions only with reputable parties, credit risks have been minimized.

(c) Liquidity risk

The Company and subsidiaries have sufficient operating capital to meet the need in cash upon the settlement of financial instruments. Therefore, the liquidity risk is low.

(d) Cash flow risk from fluctuations in interest rate

Since the duration of the financial assets exposed to cash flow interest rate risk is short, the cash flow risk from fluctuation in interest rate is minimized.

(2) Other

A. The information of significant foreign financial assets and liabilities is as follows： As of December 31, 2012 As of December 31, 2011

Foreign Currency

(thousand)

Exchange Rate

NTD (thousand)

Foreign Currency

(thousand)

Exchange

Rate NTD

(thousand)

Financial Assets Monetary items USD $31,784 29.04 $922,999 $18,201 30.275 $551,050MYR $2,394 9.1010 $21,784 $- - $- Long-term investments accounted for under the

equity method USD $871 29.04 $25,283 $924 30.275 $27,974 Financial Liabilities Monetary items USD $13,954 29.04 $405,210 $7,713 30.275 $233,509MYR $1,578 9.1010 $14,365 $- - $-

B. For comparative purpose, the financial statements of 2011 have been reclassified in

compliance with 2012 financial statements presentation.



- 147 -

C. INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS As of December 31, 2012

December 31, 2012 Transaction

Number

(Remark 1)

Company Name Counter Party

Relationship with

Counter Party

(Remark 2) Financial Statement Account

Carrying Value

(NT$’000)

Terms and

Conditions

Percentage of

Consolidation

(%) (Remark 3)

1 Other receivables 1,179 - 0.02

1 Operating Revenues 4,206 T/T 30-90days 0.12

1 Rental income 1,112 - 0.03

1 Other current liabilities 5,004 By contracts 0.08


1 Deposits received 185 - 0.00

0 The Company

PixArt Japan K.K. 1 Operating expenses 319 - 0.01

3 Payables to related parties 8,863 0.13 PixArt Imaging (USA), Inc.

3 Operating expenses 68,579 By contracts

1.95

3 Prepayments 89 - 0.00

3 Payables to related parties 22,556 0.34

1 PixArt International

(SAMOA) Ltd. PixArt Imaging (Penang)

SDN.BHD. 3 Operating expenses 68,946

By contracts1.96

3 Payables to related parties 4,983 0.08 2


(SAMOA) Ltd. PixArt Japan K.K.


0.57



- 148 -

As of December 31, 2011 December 31, 2011

Transaction

Number

(Remark 1)

Company Name Counter Party

Relationship with

Counter Party

(Remark 2) Financial Statement Account

Carrying Value

(NT$’000)

Terms and

Conditions

Percentage of

Consolidation

(%) (Remark 3)

1 Receivables from related parties 1,103 0.02

1 Operating Revenues 8,454 T/T 30-90days

0.25

1 Rental income 1,112 - 0.03

1 Other current liabilities 5,531 By contracts 0.08

0 The Company PrimeSensor Technology Inc.

1 Deposits received 185 - 0.00

3 Payables to related parties 7,830 0.11 1


(SAMOA) Ltd. PixArt Japan K.K.


0.65

Remark 1: Inter-company relationships’ and significant inter-company transactions’ codes were listed as follows:

A. The Company: 0. B. Subsidiaries were assigned numbers which started from 1.

Remark 2: Relation codes were listed as follows: A. The Company to subsidiaries. B. Subsidiaries to the Company. C. Subsidiaries to subsidiaries.

Remark 3: Calculation of the percentage were listed as follows: A. Ratio of assets or liabilities to consolidated assets. B. Ratio of revenues or expenses to consolidated gross sales.



- 149 -

11. ADDITIONAL DISCLOSURES

(1) The following are the additional disclosures for the Company's financing and endorsement： A. Financing provided: None;

B. Endorsement/guarantee provided: None.



- 150 -

C. MARKETABLE SECURITIES HELD DECEMBER 31, 2012

December 31, 2012

Held

Company Name

Marketable

Securities Type


and Name

Relationship

with the

Company

Financial Statement

Account Shares/UnitsCarrying Value

(NT$’000)

Percentage of

Ownership

(%)

Net Asset

Value

(NT$’000)

Note

CMC Capital Investments, L.P. - Investments accounted for

under the equity method- 25,283 10.30 23,551 (Remark1)

Shieh Yong Investment Co., Ltd. - Financial assets measured

at cost-noncurrent 34,686,000 300,000 4.55 216,802 (Remark1) Stocks

EPI MOBILE HEALTH

SOLUTIONS (S) PTE. LTD. -

Financial assets measured

at cost-noncurrent

15,360,190

(Remark2)36,358 12.80 8,742 (Remark1)

Fund Cathay Taiwan Money Market - Held-for-trading financial

assets-current 1,988,934 24,119 - 24,119

The Company

Bonds 99 Taiwan Power 1A - Held-to-maturity financial

assets-current 200 200,060 - 200,421 -

(Remark1)：The marktable securities are disclosed base on net equity value due to no fair value.

(Remark2)：The stock split at fourth quarter in 2012.



- 151 -

D. MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2012

Beginning

Balance Acquisition Disposal Ending Balance

Company

Name

Marketable Securities

Type and Name

Counter-

party

Nature of

Relationship

Financial

Statement

Account Shares

/Units

Amount

(NT$’000)

Shares

/Units

Amount

(NT$’000

)

Shares

/Units

Amount

(NT$’000)

Carrying

Value

(NT$’000)

Gain (Loss)

of Disposal

(NT$’000)

Shares

/Units

Amonut

(NT$’000)

The

Company

PixArt International

(SAMOA) Ltd. (Remark1) -

Long-term

investment

transaction

1,080 1,811 9,250 274,250 - - - (215,620)

(Remark2)10,330 60,441

(Remark1)：There was capital increase by cash.

(Remark2)：The ending balance includes long-term investment loss of NT$(210,845) thousand, translation adjustment of NT$(4,775) thousand.

E. Acquisition of individual real estate properties at costs of at least NT$100 million or 20% of the paid-in capital: None.

F. Disposal of individual real estate properties at prices of at least NT$100 million or 20% of the paid-in capital: None.



- 152 -

G. TRANSACTIONS WITH RELATED PARTIES AT COST OR PRICE OF AT LEAST NT$100 MILLION OR 20% OF PAID-IN CAPTIAL:

Transactions Terms and conditions

different with third partiesAccounts (notes) receivable and payable

Company

Name Counter Party

Nature of

Relationship Purchases or

Sales

Amount

(NT$’000)

Percentage of

consolidated

purchases or sales

Credit

Period Unit price Credit Period

Carrying Value

(NT$’000)

Percentage of consolidated

accounts (notes) receivable

and payable

The

Company UMC

Related party

in substance Purchases

237,266

(Remark)23.70% 45 days - - (31,431) (10.45)%

Remark: The total cost of wafer purchased from UMC amounted to NT$256,734 thousand, of which NT$237,266 thousand were recorded under raw materials and NT$19,468 thousand under R&D expenses.

H. Receivable from related parties amounting to at least NT$100 million or 20% of the paid-in capital: None.

I. Information about derivatives of investees over which the Company has a controlling interest: None.



- 153 -

(2) The following are additional disclosures for the Company’s affiliates: A.NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE COMPANY EXERCISES

SIGNIFICANT INFLUENCE AS OF DECEMBER 31, 2012



2012 2011 Shares Percentage of

Ownership (%)

CarryingValue

(NT$’000)

Net Income (Losses) of the Investee (NT$’000)

Equity in the Earnings (NT$’000)


CMC Capital Investments, L.P. CAYMAN Investment

activities USD

924,000 USD

924,000 - 10.30 25,283 (1,667) -

(3) INFORMATION OF INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2012

None.



- 154 -

12. SEGMENT FINANCIAL INFORMATION 1. General information：

The Company mainly engages in COMS image sensor and related IC design, research,

production, and sale activities. Its chief operating decision maker reviews the overall

operating results to make decisions about resources to be allocated to and evaluates the

overall performance. Therefore, the Company and subsidiaries are aggregated into a single

segment.

2. Operations in different geographic areas: (1)Revenue from customers：


2012 2011

Country

Amount

(NT$’000)

Amount

(NT$’000)

Taiwan 2,187,293 1,503,774

China (Hong Hong) 1,039,469 1,525,261

Japan 245,448 391,790

American 2,861 10,280

Other 34,866 18,264

Total 3,509,937 3,449,369

(2) Non-current assets

2012.12.31 2011.12.31

Country

Amount

(NT$’000)

Amount

(NT$’000)

Taiwan 865,314 655,667

Japan 85 504

American 8,062 -

Malaysia 15,464 -

Total 888,925 656,171



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3. Major Customer Information Individual customers accounting for at least 10% of net sales for the years ended December 31, 2012 and 2011 are as follows:


Customer Name

Amount (NT$’000)

Amount (NT$’000)

A 1,443,797 1,154,866 B - 391,035

13. Pre-disclosure for adoption of International Financial Reporting Standards

1. The Financial Supervisory Commission (“FSC”) requires companies with shares listed on the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market to prepare their financial statements in accordance with the International Financial Reporting Standards, International Accounting Standards, and Interpretations developed by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee as recognized by the FSC (collectively referred to as “IFRSs”), and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, starting from the year 2013. Under Rule No. 0990004943 issued by the FSC on February 2, 2010, the Company makes the following pre-disclosures on the adoption of IFRSs as follows: (1) The main contents of the plan to adopt IFRSs and the current status:

The Company has set up a project team and made a plan to adopt IFRSs. The Company’s CEO is responsible for the coordination of the project. The main contents of the plan, estimated completion schedule and status of execution as of December 31, 2012 were as follows:

Key Activity Responsible Department Progress to December

31, 2012

1. Establish a project team

2. Make a plan to adopt IFRSs 3. Identify differences between the existing

accounting policies and IFRSs 4. Identify consolidated entities under IFRSs

Financial & Accounting Department Financial & Accounting Department Financial & Accounting Department Financial & Accounting Department

Completed Completed Completed Completed



- 156 -

Key Activity Responsible Department Progress to December

31, 2012

5. Select voluntary exemptions under IFRS 1 “First-time Adoption of International Financial Reporting Standards” and assess the impact of these exemptions

6. Assess the adjustments required for IT system

7. Assess the adjustments required for internal controls

8. Finalize the accounting policies under IFRSs

9. Finalize the selection of voluntary exemptions under IFRS 1 “First-time Adoption of International Financial Reporting Standards

10. Prepare opening IFRS statement of financial

position

11. Prepare IFRSs comparative information for 2012

12. Finalize adjustments to the internal control (including financial statements process and the associated IT system)

Financial & Accounting Department Financial & Accounting Department and IT Department Financial & Accounting Department and Internal control Department Financial & Accounting Department Financial & Accounting Department Financial & Accounting Department Financial & Accounting Department Financial & Accounting Department and Internal control Department

Completed Completed Completed Completed Completed Completed In progress Completed

(2) Material differences between the existing accounting policies and the accounting policies to

be adopted under IFRSs and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers are described in the table below:



- 157 -

The Company assesses the material differences in accounting polices based on the IFRSs as recognized by the FSC and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers expected to become effective in the year 2013. However these assessments may be changed as the FSC may recognize different versions of IFRSs or amend the Guidelines Governing the Preparation of Financial Reports by Securities Issuers in the future. Furthermore, the Company has decided the accounting policies to be adopted under IFRSs based on the current circumstances, should circumstances change in the future, the accounting policies to be adopted may change accordingly. The material differences in accounting policies described in the table below may not result in any adjustment on the date of transition to IFRSs, due to the voluntary exemptions selected under IFRS 1 “First-time Adoption of International Financial Reporting Standards”.

Accounting Issues Description of differences Under the requirements of accounting principles generally accepted in the Republic of China (“ROC GAAP”), the purchase method applies to the acquisition of some or all of the minority interests. For a disposal of equity interests in a subsidiary that does not result in a loss of control, the difference between the proceeds and the carrying amount of the investment disposed is recognized in profit or loss as disposal gains or losses. However under the requirements of IAS 27 “Consolidated and Separate Financial Statements”, changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners).

Consolidated financial statements

Under the requirements of ROC GAAP, if losses applicable to the minority in a subsidiary exceed the minority interest in the subsidiary’s equity, the excess, and any further losses applicable to the minority, are allocated against the majority interest except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses. If the subsidiary subsequently reports profits, such profits are allocated to the majority interest until the minority’s share of losses previously absorbed by the majority has been recovered. However under the requirements of IAS 27, profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.



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Under the requirements of ROC GAAP, if a parent loses control of a subsidiary by disposing the ownership interests in a subsidiary, the difference between the selling price and book value of the investment shall be treated as a gain or loss from the disposal of the subsidiary. If there is a balance on additional paid-in capital or other equity adjustment items from the investment in the subsidiary, then an investor company shall recognize current gains or losses in accordance with the percentage of sale. However under the requirements of IAS 27, if a parent loses control of a subsidiary, it recognizes any investment retained in the former subsidiary at its fair value at the date when control is lost, and accounts for all amounts recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the parent had directly disposed of the related assets or liabilities. The above difference also exists when an investment ceases to be an associate.

Translation of foreign currencies

Under the requirements of ROC GAAP, as the Company is not a foreign operation, the Company does not need to determine its functional currency. However under the requirements of IAS 21 “The Effects of Changes in Foreign Exchange Rates”, all entities (including the parent) included in the reporting entity are required to determine their respective functional currencies.

Financial assets measured at cost

Under the requirements of the existing Guidelines Governing the Preparation of Financial Reports by Securities Issuer, equity investments in unlisted entities or entities traded on Emerging Stock market should be measured at cost. However under the requirements of IAS 39, only investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured could be measured at cost. The fair value of investments in equity instruments that do not have a quoted market price in an active market is reliably measurable if (a) the variability in the range of reasonable fair value estimates is not significant for that instrument or (b) the probabilities of the various estimates within the range can be reasonably assessed and used in estimating fair value.



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Under the requirements of ROC GAAP, the investor company’s share of an investee company’s losses shall be limited to the extent that reduces the book value of such long-term investment and advances to zero. But if the investor company intends to continue its support for the investee company, or expects the investee company to return to profitability in the short run so as not to give up the investee company, then an investor company shall continue to recognize investment losses in proportion to its stock ownership percentage. However under the requirements of IAs 28 “Investments in Associates”, if an investor’s share of losses of an associate equals or exceeds its interest in the associate, the investor discontinues recognizing its share of further losses. After the investor’s interest is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the investor has incurred legal or constructive obligations or made payments on behalf of the associate.

Investments accounted for under the equity method

ROC GAAP does not require an associate’s financial statements to be prepared using accounting policies that conform with those of the investor. Under the requirements of IAS 28, if an associate uses accounting policies other than those of the investor for like transactions and events in similar circumstances, adjustments shall be made to conform the associate’s accounting policies to those of the investor when the associate’s financial statements are used by the investor in applying the equity method.

Property, plant and equipment

For fixed assets acquired prior to the issuance of Accounting Research and Development Foundation Interpretation No 97-340, even if the cost of a component of the asset is significant relative to the total cost of such asset, that component is not depreciated separately. Furthermore, for fixed assets acquired prior to the issuance of Accounting Research and Development Foundation Interpretation No 97-340, the cost of such assets does not include the costs of dismantling and removing the asset and restoring the site on which it is located, and related provision is not recognized. However under the requirements of IAS 16 “Property, Plant and Equipment”, each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item shall be depreciated separately. The cost of an item of property, plant and



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equipment comprises the costs of dismantling and removing the asset and restoring the site on which it is located.

Property, plant and equipment

The cost of regular major inspections is expensed as incurred under ROC GAAP. However under the requirements of IAS 16, when each major inspection is performed, its cost is recognized in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspection is derecognized. There is no guidance under ROC GAAP for short-term compensated absences. The Company recognizes the cost as expense as employees take these absences. However under the requirements of IAS 19 “Employee Benefits”, the Company shall recognize and accrue for the accumulating compensated absences. The Company has selected a rate of return on relatively high-safety fixed-income investment as the discount rate under ROC GAAP. However under the requirements of IAS 19, the rate used to discount post-employment benefits obligations shall be determined by reference to market yields on high quality corporate bonds. In countries where there is no deep market in such bonds, the market yields on government bonds shall be used. Under the requirements of ROC GAAP, minimum pension liability is to be recognized for the excess of the accumulated benefit obligation over the pension plan assets. There is no such requirement under IAS 19.

Employee benefits

Under the requirements of ROC GAAP, the unrecognized transitional net assets (or 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. There is no such requirement under IAS 19.

Share-based payment

The Company’s share-based payment arrangements have applied intrinsic value method in accordance with Accounting Research and Development Foundation Interpretation No 92-070~072. However under IFRS 2 “Share-based Payment”, such arrangements should be measured using the fair value method.



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Under the requirements of ROC GAAP, deferred tax assets are recognized in full, and, if there is over 50% possibility that the economic benefits of a deferred tax asset become unrealizable, a valuation allowance account should be established to reduce the carrying amount of the deferred tax asset. However under the requirements of IAS 12 “Income Taxes”, a deferred tax asset shall be recognized to the extent that it is probable that it would be utilized. Under the requirements of ROC GAAP, a deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or noncurrent. If a deferred tax asset or liability is not related to an asset or liability for financial reporting, it should be classified as current or noncurrent according to the expected reversal date of the temporary difference. However under the requirements of IAS 1 “Presentation of Financial Statements”, deferred tax assets or liabilities are classified as noncurrent. There is no guidance under ROC GAAP that deals with the applicable tax rates for related deferred tax assets or liabilities arising from unrealized intragroup profits and losses. Under the Company’s existing accounting policy, the Company’s tax rate is used to calculate deferred tax assets or liabilities arising from unrealized profits and losses of upstream intragroup transactions. For downstream or side stream intragroup transactions, the Company’s tax rate is also used to recognize deferred tax assets or liabilities by adjusting investment gains or losses. However under the requirements of IAS 12, temporary differences are determined by comparing the carrying amounts of assets and liabilities in the consolidated financial statements with the appropriate tax base. Therefore buyer’s tax rate should be used to calculate the deferred tax assets or liabilities arising from unrealized intragroup profits and losses.

Income taxes Income taxes

Under the requirements of ROC GAAP, the current and noncurrent deferred tax liabilities and assets of the same taxable entity should be offset against each other and presented as a net amount. However under the requirements of IAS 12, an entity shall offset current tax assets and current tax liabilities if, and only if, the entity has a legally enforceable right to offset the recognized amounts; and an entity shall offset deferred tax assets and current tax liabilities if the



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deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity.

(3) The preliminary assessment on the monetary impacts of the material differences between

the existing accounting policies and the accounting policies to be adopted under IFRSs and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers is as follows：

a. Reconciliation of the balance sheet as of January 1, 2012:

ROC GAAP(NT$’000)

Adjustments(NT$’000)

IFRSs (NT$’000)

Note

Deferred income tax assets – noncurrent 32,140 10,877 43,017 (a), (b) & (f)

Deferred income tax assets – current 8,996 (8,996) - (f)

Other assets 7,126,778 - 7,126,778 Total assets 7,167,914 1,881 7,169,795

Accrued expenses 905,875 4,160 910,035 (a) Accrued pension liabilities 5,975 6,902 12,877 (b) Other liabilities 536,590 - 536,590

Total liabilities 1,448,440 11,062 1,459,502 Common stock 1,312,200 - 1,312,200 Capital reserve 1,880,513 (1,622) 1,878,891 (e) Retained earnings 2,903,736 (5,243) 2,898,493 (a), (b), (c), (d) & (e)Cumulative translation

adjustment 2,316 (2,316) - (c) & (d) Treasury stock (441,180) - (441,180) Minority interests 61,889 - 61,889

Shareholders’ equity 5,719,474 (9,181) 5,710,293

(a) Under the requirement of IAS 19 “Employee Benefits”, the Company shall recognize unused accumulating compensated absences. Therefore, accrued expenses, deferred income tax assets and retained earnings were increased (decreased) by NT$4,160 thousand, NT$707 thousand and NT$(3,453) thousand, respectively.



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(b) Under the requirement of ROC GAAP, the Company shall use actuarial assumptions to measure its defined benefit obligations and record relative pension costs and accrued pension liabilities. After the adoption of IFRSs, the Company shall use actuarial assumptions under the requirement of IAS 19 “Employee Benefits”. Under the requirements of IFRS 1, the Company remeasured its defined benefit obligations, adjusted its cumulative actuarial gains and losses to zero, and recognized all unrealized transitional net benefit obligations at the date of transition. After the transitional adjustments, the Company’s accrued pension liabilities, deferred income tax assets-noncurrent and retained earnings were increased (decreased) by NT$6,902 thousand, NT$1,174 thousand, NT$(5,728) thousand, respectively.

(c) The Company elected to reset the cumulative translation differences to zero at the date

of transition to IFRSs, and the reversal has been used to adjust accumulated earnings as of January 1, 2012. The gain or loss on any subsequent disposals of any foreign operations shall exclude cumulative translation differences that arose before the date transition to IFRSs. Therefore, the IFRS adjustment resulted in a decrease of a cumulative translation differences of NT$2,316 thousand and a corresponding increase of retained earnings.

(d) In accordance with the order VI-1010012865 issued by FSC on April 6, 2012, at first-time

adoption of IFRSs, an entity shall appropriate a corresponding amount to special reserve same as the IFRS adjustment, in which case an entity elects to use exemption application specified in IFRS 1 and resets unrealized revaluation increment and cumulative translation differences under stockholders＇ equity to zero, and its retained earnings is being increased accordingly. However, if the retained earnings＇ arising from IFRS adjustment at the first-time adoption is insufficient, special reserve shall be appropriated by the amount that retained earnings increase from the IFRS adjustment. While subsequent usage, disposal or reclassification of the related assets, special reserve shall be reversed in proportion.

The Company elected to reset the cumulative translation differences of NT$2,316 thousand to zero and credited a corresponding amount to retained earnings. However, the Company’s total IFRS adjustments, at the first-time adoption of IFRSs, resulted in a decrease of retain earnings by NT$5,243 thousand. Therefore, no special reserve was appropriated.

(e) Capital reserved-long-term investment transaction of NT$1,622 thousand was

reclassified to retained earnings due to incompliance with IFRSs.



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(f) Under the requirements of IAS 1 “Presentation of Financial Statements”, deferred tax assets or liabilities are classified as non-current. Therefore, deferred tax assets or liabilities, current, are reclassified as non-current. Due to difference discussed above, current assets decreased by NT$8,996 thousand non-current assets increased by NT$8,996 thousand.

b. Reconciliation of the income statement for the years ended December 31, 2012:

ROC GAAP

(NT$’000) Adjustments(NT$’000)

IFRSs (NT$’000)

Note

Deferred income tax assets – noncurrent - 59,224 59,224 (a), (b) & (f)

Deferred income tax assets – current 55,933 (55,933) - (f)

Other assets 6,534,668 - 6,534,668 Total assets 6,590,601 3,291 6,593,892

Accrued expenses 558,942 5,646 564,588 (a) Accrued pension liabilities 6,195 13,707 19,902 (b) Other liabilities 439,019 - 439,019

Total liabilities 1,004,156 19,353 1,023,509 Common stock 1,336,243 - 1,336,243 Capital reserve 1,950,207 - 1,950,207 (e) Retained earnings 2,795,322 (13,746) 2,781,576 (a), (b), (c), (d) & (e)Cumulative translation

adjustment (3,927) (2,316) (6,243) (c) & (d) Treasury stock (478,600) - (478,600) Employee do not earn

reward (55,490) - (55,490) Minority interests 42,690 - 42,690

Shareholders’ equity 5,586,445 (16,062) 5,570,383

(a) Under the requirement of IAS 19 “Employee Benefits”, the Company shall recognize unused accumulating compensated absences. Therefore, accrued expenses, deferred income tax assets and retained earnings were increased (decreased) by NT$5,646 thousand, NT$960 thousand and NT$(4,686) thousand, respectively.



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(b) Under the requirement of ROC GAAP, the Company shall use actuarial assumptions to measure its defined benefit obligations and record relative pension costs and accrued pension liabilities. After the adoption of IFRSs, the Company shall use actuarial assumptions under the requirement of IAS 19 “Employee Benefits”. Under the requirements of IFRS 1, the Company remeasured its defined benefit obligations, adjusted its cumulative actuarial gains and losses to zero, and recognized all unrealized transitional net benefit obligations at the date of transition. After the transitional adjustments, the Company’s accrued pension liabilities, deferred income tax assets-noncurrent and retained earnings were increased (decreased) by NT$6,902 thousand, NT$1,174 thousand, NT$(5,728) thousand, respectively.

At the transition date, the Company performed the actuarial valuation under IAS No. 19, “Employee Benefit,” and recognized the valuation difference. Discussed above, accrued pension liabilities, deferred income tax assets-noncurrent and retained earnings were increased (decreased) by NT$6,805 thousand, NT$1,157 thousand, NT$(5,648) thousand, respectively.

(c) The Company elected to reset the cumulative translation differences to zero at the date of transition to IFRSs, and the reversal has been used to adjust accumulated earnings as of January 1, 2012. The gain or loss on any subsequent disposals of any foreign operations shall exclude cumulative translation differences that arose before the date transition to IFRSs. Therefore, the IFRS adjustment resulted in a decrease of a cumulative translation differences of NT$2,316 thousand and a corresponding increase of retained earnings.

(d) In accordance with the order VI-1010012865 issued by FSC on April 6, 2012, at

first-time adoption of IFRSs, an entity shall appropriate a corresponding amount to special reserve same as the IFRS adjustment, in which case an entity elects to use exemption application specified in IFRS 1 and resets unrealized revaluation increment and cumulative translation differences under stockholders’ equity to zero, and its retained earnings is being increased accordingly. However, if the retained earnings’ arising from IFRS adjustment at the first-time adoption is insufficient, special reserve shall be appropriated by the amount that retained earnings increase from the IFRS adjustment. While subsequent usage, disposal or reclassification of the related assets, special reserve shall be reversed in proportion.



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The Company elected to reset the cumulative translation differences of NT$2,316 thousand to zero and credited a corresponding amount to retained earnings. However, the Company’s total IFRS adjustments, at the first-time adoption of IFRSs, resulted in a decrease of retain earnings by NT$5,243 thousand. Therefore, no special reserve was appropriated.

(e) Capital reserved-long-term investment transaction of NT$1,622 thousand was

reclassified to retained earnings due to incompliance with IFRSs. Under ROC GAAP, if an investee issues new shares and an investor does not purchase new share proportionately, which results in a change in the Company’s holding percentage and its interest in the investee’s net assets, such difference shall be adjusted to capital reserve and long-term equity investment account. Therefore, under ROC GAAP resulted in a decrease of capital reserve - long-term equity investments of NT$1,622 thousand.

(f) Under the requirements of IAS 1 “Presentation of Financial Statements”, deferred tax

assets or liabilities are classified as non-current. Therefore, deferred tax assets or liabilities, current, are reclassified as non-current. Due to difference discussed above, current assets decreased by NT$55,933 thousand non-current assets increased by NT$55,933 thousand.

c. Reconciliation of the income statement for the nine months ended December 31, 2012:

ROC GAAP(NT$’000)

Adjustments(NT$’000)

IFRSs (NT$’000)

Note

Net sales $3,509,937 $- $3,509,937 Cost of goods sold (2,156,438) (50) (2,156,488) (a) Gross profits 1,353,499 (50) 1,353,449 Operating expenses (1,009,212) (1,180) (1,010,392) (a) & (b) Operating income 344,287 (1,230) 343,057 Non-operating income/

gains or expenses/losses (49,675) - (49,675)

Income before income tax 294,612 (1,230) 293,382 Income tax expense (47,213) 209 (47,004) (a) & (b) Net income 247,399 (1,021) 246,378

(a) Under the requirement of IAS 19 “Employee Benefits”, the Company shall recognize

unused accumulating compensated absences. Therefore, cost of goods sold, operating expenses and income tax expense were increased (decreased) by NT$50 thousand, NT$1,436 thousand and NT$(253) thousand, respectively.



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(b) The Company performed the actuarial valuation under IAS No. 19, “Employee Benefit,” and recognized the valuation difference. Discussed above, operating expense and income tax expense were increased (decreased) by NT$(256) thousand, NT$44 thousand, respectively.

d. According to the requirements under IFRS 1, “First-time Adoption of International

Financial Reporting Standards”, the Company prepares its first IFRS financial statements based on the effective IFRS standards and makes adjustments retrospectively, except for the optional exemptions and mandatory exemptions under IFRS 1. The optional exemptions selected by the Company is as follows: (a) The Company has recognized all cumulative actuarial gains and losses directly to

retained earnings as of January 1, 2012.

(b) The Company has elected to disclose amounts required by paragraph 120A (p) of IAS19 prospectively from January 1, 2012.

(c) IFRS 2 has not been applied to equity instruments in share-based payment transactions

that vested before January 1, 2012.

(d) The Company in foreign has elected to reset the cumulative translation differences to zero before January 1, 2012.

(e) Under the requirement of IFRIC 1 “Changes in Existing Decommissioning, Restoration and Similar Liabilities”, changes in the liabilities of existing decommissioning, restoration and similar liabilities shall be added to, or deducted from, the cost of the related asset in the current period. The adjusted depreciable amount of the asset is depreciated over its useful life. The Company does not need to comply with these requirements for changes in such liabilities that occurred before the date of transition to IFRSs.

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6. The Effect of Insolvency of the Company and Affiliates on the Financial Status of the

Company: None. .

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VII. Review on Financial Status & Operating Results and Risk Management

1. Financial Status

Currency: NTD 1,000 Year

Account

2012.12.31 2011.12.31 Change Change (%)

Current assets 4,973,698 5,339,918 (366,220) (6.86) %Funds and investments 665,685 937,475 (271,790) (28.99) %

Fixed assets 248,011 247,237 774 0.31 %

Intangible assets 578,251 374,647 203,604 54.35 %

Other assets 34,622 63,082 (28,460) (45.12) %

Total assets 6,500,267 6,962,359 (462,092) (6.64) %

Current liabilities 949,962 1,298,444 (348,482) (26.84) %

Other liabilities 6,550 6,330 220 3.48 %

Total liabilities 956,512 1,304,774 (348,262) (26.69) %

Capital 1,336,243 1,312,200 24,043 1.83 %

Capital reserve 1,950,207 1,880,513 69,694 3.71 %

Retained earnings 2,795,322 2,903,736 (108,414) (3.73) %Accumulated translation adjustments

(3,927) 2,316 (6,243) (269.56) %

Treasury Stocks (478,600) (441,180) (37,420) 8.48 %Unearned employees' compensation (55,490) - (55,490) -

Total Shareholders’ Equity 5,543,755 5,657,585 (113,830) (2.01) %Reason for major changes and impact analysis:

Funds and investments: The decrease is mainly due to investment lost of long term equity investment using equity method. Intangible assets: The increase is mainly due to patent purchases. Other assets: The decrease is mainly due to decrease in deferred income tax assets- non current. Current liabilities : Primarily due to the decrease in employee bonus and patents payable.

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2. Operation Results Currency: NTD 1,000

Year

Account 2012 2011 Change Change (%)

Revenue 3,304,392 3,219,577 84,815 2.63 %

Less: sales return & allowance 1,205 1,738 (533) (30.67) %

Net sales 3,303,187 3,217,839 85,348 2.65 %

Cost of goods sold 1,926,648 1,982,264 (55,616) (2.81) %

Gross profit 1,376,539 1,235,575 140,964 11.41 %

Operating expenses 766,151 789,463 (23,312) (2.95) %

Income from operation 610,388 446,112 164,276 36.82 %

Non-operating gains/revenues 75,474 159,961 (84,487) (52.82) %

Non-operating expenses/losses 359,850 65,619 294,231 448.39 %

Income before tax 326,012 540,454 (214,442) (39.68) %

Less：Income tax 45,904 43,838 2,066 4.71 %

Net income 280,108 496,616 (216,508) (43.60) %a. Reason for major changes and impact analysis:

The Company’s net income for 2012 declined primarily due to the increase in the number of offshore offices in 2012 and hence increase in loss on investments accounted for under the equity method this year as well as the reversal of accrued expenses in 2011, thus resulting in an increase in non-operating revenue and income for 2011.

b.Sales forecast and rationale; impact on the Company’s financials and coping strategies: In 2012, our sales quantity reached 240,000K pieces. In 2013, we expect this year’s sales quantity will continue to grow given that the Company will remain on developing new products, exploring new customers, and enhancing product promotions.

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3. Cash Flow Analysis

(I) 2012 cash flow analysis:

In 2012, due to the decrease in profitability, increase in inventory, increase in accounts receivable turnover and decrease in accrued expenses, net cash flows from operating activities decreased by 470,559 thousand dollars against 2011. Cash flows used in investing activities increased by 629,334 thousand dollars against 2011 due to addition of offshore offices and acquisition of patents as well as a result of the repayment of held-to-maturity financial assets in 2011 amounting to 325,000 thousand dollars. Due to the buy-back of treasury stocks and distribution of higher cash dividends in 2011, cash flows used in financing activities decreased by 565,716 in 2012.

(II) Improvement plans for insufficient liquidity and liquidity analysis for the coming year:

The Company does not have any liquidity issues. According to the Company’s 2012 financial statements, there is approximately NT$3.66 billion in cash and cash equivalents. There should be no liquidity issues in the coming year.

4. The Effect of Material Capital Expenditures on Financial Position and Operation：

Unit: NT$1,000 Actual/ Expected use of fund

Item Actual/ Expected source of fund

Actual/ Expected date of completion

Total fund needed 2011 2012

Intangible assets- patent Equity fund 2011~ 2012 301,200 120,480 180,720

Impacts on finance and business: The Company aims to strengthen our intellectual property portfolios by obtaining important patents in order to better address the complex, global, intellectual property disputes. The Company also applies the relevant technology in the development of new products for sustain long-term growth.

5. Direct Investment Policy, Reasons for Profit or Loss, Correction Plan and Investment Plan

for the Coming Year: None.

6. Risk Management (1) The impact of interest rate fluctuations, exchange rate fluctuations, and inflation on the

Company’s earnings and coping strategies:

Interest rate fluctuations, exchange rate fluctuations, and inflation can all impact the Company’s profits and losses. Interest-rate fluctuations can impact the Company’s interest income, while inflation can impact the Company’s costs and expenses. Since the Company’s revenue is mostly denominated in US Dollars, fluctuations in exchange rates may impact the Company’s exchange gains/losses, and consequently the Company’s profitability. The Company copes with exchange risk through natural hedging – by maintaining the lowest net foreign currency position. In addition, the Company’s finance department monitors the exchange rates, interest rates, and inflation carefully so that the Company can cope with fluctuations adequately.

(2) High leverage/high risk investment, loans to third parties, endorsements and guarantees,

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and policies in derivatives transactions, reasons for profits/losses and coping strategies：

The Company’s financial policies lean toward conservative. As of the publication date, the Company has not engaged in any high leverage/high risk investments, loans to others, endorsements/guarantees, or derivatives transactions. The Company has instituted the “Procedures Governing the Acquisition or Disposal of Assets,” which governs derivatives transactions; “Operating Procedures of Endorsements and Guarantees,” and “Operating Procedure of Loan Made to Others.” All of these policies have been approved at the Shareholders’ Meeting and shall serve as the basis for governing future transactions.

(3) R&D plans and expected R&D spending in this year：

a. Please refer to the (3) Business operations, products and services in research and development for details of the Company’s R&D plans.

b. Anticipated research and development expenses: The Company is committed to invest in research and development. R&D expense is anticipated to increase in 2013 than in 2012.

(4) The impact of changes in important government and regulatory policies domestically and abroad on the Company’s finance and business and the Company’s responses to the impact:

The Company is an CMOS Imaging Sensor Design company for image sensors. Its customers, suppliers, and competitors are located across the globe. Any major changes in policy or regulations can have an impact on the industry and the Company as well. The Company will continue to monitor any relevant changes in policy or regulations and their impact on the Company’s business operations and take necessary actions to the changes rapidly.

(5) The impact of changes in technology and industry on the Company’s finance and business and the company’s response to the impact：

IC industry faces constant changes and technologies advance rapidly. Companies that are unable to cope with the rapid changes by adjusting their strategy or offering competitive products that meet the market demands will have adverse impacts on their finance and business. The Company carefully monitors changes in its industry and related technologies; and copes with these changes by first evaluating their impact and by developing competitive products that meet market demand. By doing so, the Company will be able to maintain its competitive advantage.

(6) The impact of changes in corporate image on the Company’s crisis management capabilities and the Company’s responses to the impact：

Integrity is of the foremost importance to a company’s image. The Company has not encountered any crisis as a result of material changes in its corporate image. The Company will continue to implement various aspects of corporate governance and seek advice from experts when appropriate. The Company aims to manage the business impact these risks can potentially bring.

(7). Expected benefits and possible risks from mergers and acquisitions and coping strategies：

Currently the Company does not have any plans for mergers and acquisitions. The Company will evaluate the possible risks and benefits as well as the synergy before engaging in mergers and acquisitions.

(8). Expected benefits and possible risks from manufacturing expansion and coping strategies：

The Company is an IC Design company and outsources all of its manufacturing; therefore this issue is not applicable.

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(9). Risks of purchasing and sales concentration and coping strategies：

a. Risks of purchasing concentration The Company’s foundry procurement is potentially subject to concentration risks. In order to risk such concentration risks, the Company will continue to establish co-operative relationship with foundry companies and closely monitor changes in the industry in order to make necessary adjustments in a timely manner.

b. Risks of sales concentration According to 2011 sales records, the Company’s top 1 customers accounted for 40.8% of the Company’s total sales. Any material change to the customers’ business operations may affect the Company materially. In order to lower the risk of sales concentration, the Company will continue to maintain relationships with its customers and develop products that meet the customers’ needs. In addition, the Company aims to develop new customers as it develops new products so that risks of sales concentration can be lowered.

(10). The impact and risk of the transfer of shares in huge volumes by Directors, Supervisors, or major shareholders on the Company, and the Coping Strategies：

Significant changes to the shareholding of the Company’s Directors or major shareholders may lead to changes in the Company’s management and also create skepticism among investors. The Company’s stock price may be adversely affected. To manage such situations, the Company reports all insiders’ share transfer information in compliance with requirements by competent authorities. The company also closely monitors shareholding changes of the insiders in order to take necessary responses timely.

(11). The impact and risk of change in management on the Company, and the measures to cope with：

No change in management team in the Company occurred in the most recent year to the date of printing of this annual report.

(12). Litigation and Non-litigated Incidents：None.

(13). Other Major Risks：None.

7.Other Important Notices：None.

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VIII、Special Notes

1. Summary of Affiliated Enterprises

(1) Organization Chart

37.24% 15.19%

PixArt Imaging Inc.

Yuan-Xiang Investment Corp

75.35% 100% 100%

PixArt Intertional (BVI) Ltd.

24.65%

100% 100%


100%




100%

PixArt Japan K.K.

100%


100%

Yuan Yao Technology Inc.

PixArt Imaging (USA), Inc.


100%

PixArt Imaging (Penang) SDN. BHD.


100% 100%

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(2) Information on Affiliated Enterprises： Dec.31 2011

Company name Date of incorporation Address Paid-in

(Authorized)capital Major business

PixArt International (BVI) Ltd. 93/8/11 B.V.I. US$ 3,749,000 Investment PixArt International (SAMOA) Ltd. 93/8/11 SAMOA US$ 10,330,000 Investment Yuan-Xiang Investment Corp 97/4/25 Taiwan NT$ 400,000,000 Investment Yuan-Feng Investment Corp. 97/4/25 Taiwan NT$ 50,000,000 Investment PrimeSensor Technology Inc. 97/5/28 Taiwan NT$ 131,689,180 IC design Yuan Yao Technology Inc. 100/9/8 Taiwan NT$ 20,000,000 ManufacturingYuanXiang Technology (SAMOA)Ltd. 98/1/16 SAMOA US$ 2,824,000 Investment YuanSheng Investment (SAMOA) Ltd. 98/1/16 SAMOA US$ 1 Investment ePlan Technology (SAMOA ) Ltd. 101/2/17 SAMOA US$ 400,000 Technological servicesPixArt Imaging (USA), Inc. 101/1/31 USA US$ 1,000,000 Technological servicesPixArt Imaging (Penang) SDN. BHD. 101/1/9 PENANG MYR 10,000,000 Technological servicesPixArt Japan K.K. 98/2/27 JAPAN JPY 50,000,000 Technological servicesPrimeSensor Technology (SAMOA)Ltd. 98/12/31 SAMOA US$ 460,0000 Investment

(3) Data for Common Shareholders of Treated as Controlled Companies and Affiliates: None. (4) Business of PixArt and its Affiliated Enterprises:

The major businesses of our company and related subsidiary are CMOS image sensor related IC design and other investment business, please refer to (2) Major business of Information on affiliated enterprises.

(5) Directors, Supervisors and President of Affiliated Enterprises:：

Dec.31 2011 Shareholding Company Name Title Name and Representative Shares (%)

PixArt International (BVI) Ltd. Director PixArt Imaging Inc (Representative :Sen-Huang Huang ) 2,825,000 75.35 %

PixArt International (Samoa) Ltd. Director PixArt Imaging Inc (Representative :Sen-Huang Huang ) 10,330,000 100%


Director

Director

Director

Supervisor

President

PixArt Imaging Inc. (Representative:Sen-Huang Huang) PixArt Imaging Inc. (Representative:Chia-Lin Chang) PixArt Imaging Inc. (Representative: Mei-Wei Lo) PixArt Imaging Inc. (Representative: Hsiu-Chen Tsai) Sen-Huang Huang

40,000,000 100％


Director

Director

Director

Supervisor

President

PixArt Imaging Inc. (Representative:Sen-Huang Huang) PixArt Imaging Inc. (Representative:Chia-Lin Chang) PixArt Imaging Inc. (Representative: Mei-Wei Lo) PixArt Imaging Inc. (Representative: Hsiu-Chen Tsai) Sen-Huang Huang

5,000,000 100%


Director

Director

Director

Supervisor

President

Yuan-Xiang Investment Corp. (Representative:Sen-Huang Huang) Yuan-Xiang Investment Corp. (Representative: Wen-Cheng Yen) Yuan-Xiang Investment Corp. (Representative: Mei-Wei Lo) Yuan-Xiang Investment Corp. (Representative: Hsiu-Chen Tsai) Sen-Huang Huang

4,904,033 37.24%

Yuan Yao Technology Inc. Director Yuan-Xiang Investment Corp. 2,000,000 100%

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Director

Director

Supervisor

President

(Representative:Sen-Huang Huang) Yuan-Xiang Investment Corp.. (Representative: Wei-Chung Wang) Yuan-Xiang Investment Corp. (Representative: Mei-Wei Lo) Yuan-Xiang Investment Corp. (Representative: Hsiu-Chen Tsai) Sen-Huang Huang

YuanXiang Technology (SAMOA)Ltd. Director

PixArt International (BVI) Ltd. (Representative:Sen-Huang Huang) 2,824,000 100%

YuanSheng Investment (SAMOA) Ltd. Director

PrimeSensor Technology Inc. (Representative:Sen-Huang Huang) 1 100%

ePlan Technology (SAMOA) Ltd. Director PixArt International (Samoa) Ltd. (Representative:Sen-Huang Huang) 400,000 100%

PixArt Imaging (USA), Inc. Director PixArt International (Samoa) Ltd. (Representative:Sen-Huang Huang) 10,000 100%

PixArt Imaging (Penang) SDN. BHD. Director PixArt International (Samoa) Ltd. (Representative:Sen-Huang Huang) 10,000,000 100%

PixArt Japan K.K Director Director Director

Supervisor

Lucas Oliver-Frost Sen-Huang Huang Hsiu-Chen Tsai Mei-Wei Lo

－－

PrimeSensor Technology (SAMOA )Ltd. Director PrimeSensor Technology Inc.

(Representative:Sen-Huang Huang) 460,000 100%

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(6) Operation Results of Affiliated Enterprises Dec.31 2012；Unit：NT$ 1,000

Company name Paid-in

(Authorized) capital

Total assets Total liabilities Net value Revenue Income/loss

From operationNet

Income/LossEPS ($) after tax

PixArt International (BVI) Ltd. (Note) NT$ 113,640 NT$ 37,200 - NT$ 37,200 - NT$ (2) NT$ (22,912) NT$ (6.11)

PixArt International (Samoa) Ltd. NT$ 308,134 NT$ 96,400 NT$ 35,959 NT$ 60,441 NT$ 214 NT$ (169,844) NT$ (210,845) NT$ (20.41)

Yuan-Xiang Investment Corp. NT$ 400,000 NT$ 241,720 - NT$ 241,720 NT$ 1,503 NT$ (122,609) NT$ (122,609) NT$ (3.07)

Yuan-Feng Investment Corp. NT$ 50,000 NT$ 35,492 - NT$ 35,492 NT$ 234 NT$ (3,148) NT$ (3,130) NT$ (0.63)

Yuan Yao Technology Inc. NT$ 20,000 NT$ 19,753 - NT$ 19,753 - NT$ (281) NT$ (143) NT$ (0.07)

PrimeSensor Technology Inc. NT$ 131,689 NT$ 111,976 NT$ 22,241 NT$ 89,735 NT$ 210,742 NT$ (35,195) NT$ (42,564) NT$ (2.79)

YuanXiang Technology (SAMOA)Ltd. NT$ 85,097 NT$ 16,874 NT$ 4,984 NT$ 11,890 - NT$ (20,921) NT$ (20,219) NT$ (7.16)

YuanSheng Investment (SAMOA) Ltd. - - - - - - NT$ 27 NT$ 27

PixArt Japan K.K JPY 50,000 JPY 50,720 JPY 6,998 JPY 43,722 JPY 55,771 JPY 3,649 JPY 2,172 JPY 2,172

PrimeSensor Technology (SAMOA)Ltd. NT$ 14,155 NT$ 982 NT$ 560 NT$ 422 - NT$ (3,475) NT$ (3,622) NT$ (7.87)

PixArt Imaging (USA), Inc. US$ 1,000 US$ 1,241 US$ 163 US$ 1,078 US$ 2,322 US$ 77 US$ 77 US$ 7.74

ePlan Technology (SAMOA) Ltd. NT$ 11,881 NT$ 79 - NT$ 79 - NT$ (11,816) NT$ (11,802) NT$ (29.50)

PixArt Imaging (Penang) SDN. BHD. MYR 10,000 MYR 8,604 MYR 2,061 MYR 6,543 MYR 7,067 MYR (3,501) MYR (3,457) MYR(0.35)

Note: EPS is calculated based on outstanding common shares at the end of the period

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(7) Consolidated Financial Statements of affiliated Enterprises: Please refer to “Consolidated Financial Statements” in VI, “Financial Information” in V, and the representation letter on next page.

(8) Affiliated Reports: Not Applicable.

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Representation Letter

The entities included in the consolidated financial statements as of December 31, 2012 and

for the year then ended prepared under the R.O.C.’s Statement of Financial Accounting

Standards No.7 (referred to as “Consolidated Financial Statements”) are the same as the

entities to be included in the combined financial statements of the Company, if any to be

prepared, pursuant to the Criteria Governing Preparation of Affiliation Reports, Consolidated

Business Reports and Consolidated Financial Statements of Affiliated Enterprises (referred

to as “Combined Financial Statements”). Also, the footnotes disclosed in the Consolidated

Financial Statements have fully covered the required information in such Combined

Financial Statements. Accordingly, the Company did not prepare any other set of Combined

Financial Statements than the Consolidated Financial Statements.

Very truly yours,

PixArt Imaging Inc.

Chairman: Sen-Huang Huang March 19, 2013

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2. Status of Private Placement of Securities：None

3. Acquisition or Disposal of PixArt’s shares by Subsidiaries：None

4. Other Necessary Supplements: None

5. Events regulated in Article 36-2-2 of the Securities and Exchange Laws that will

materially affect shareholders’ equity or the share price: None

PixArt Imaging Inc.

Chairman：Sen-Huang Huang

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