Phison Electronics Corp. and Subsidiaries Consolidated Financial Statements for the Nine Months Ended September 30, 2012 and 2011 and Independent Accountants’ Review Report

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INDEPENDENT ACCOUNTANTS’ REVIEW REPORT The Board of Directors and Shareholders Phison Electronics Corp. We have reviewed the accompanying consolidated balance sheets of Phison Electronics Corp. (the “Corporation”) and its subsidiaries as of September 30, 2012 and 2011, and the related consolidated statements of income and cash flows for the nine months then ended. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to issue a report on these consolidated financial statements based on our reviews. Except as stated in the following paragraph, we conducted our reviews in accordance with Statement of Auditing Standards No. 36 - “Engagements to Review Financial Statements” of the Republic of China. A review consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of China, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. As stated in Note 1 to the consolidated financial statements, the financial statements of certain consolidated subsidiaries as of and for the nine months ended September 30, 2012 have not been reviewed. As of September 30, 2012 and 2011, the total assets of these subsidiaries were 1.34% (NT$248,153 thousand) and 0.43% (NT$63,832 thousand) and the total liabilities of these subsidiaries were 0.02% (NT$1,218 thousand) and 0.01% (NT$335 thousand) of the related consolidated amounts as of September 30, 2012 and 2011, respectively. The total net operating revenue of these subsidiaries were 0.05% (NT$11,952 thousand) and 0% (NT$175 thousand), respectively, of consolidated net operating revenue for the nine months ended September 30, 2012 and 2011 and their net loss were (0.90%) (NT$18,891 thousand) and (0.35%) (NT$6,221 thousand), respectively, of consolidated net income for the nine months ended September 30, 2012 and 2011. Furthermore, as stated in Note 9 to the consolidated financial statements, the investments accounted for by the equity method as of September 30, 2012 and 2011 amounted to NT$106,960 thousand and NT$188,899 thousand, respectively, and the investment loss for the nine months ended September 30, 2012 and 2011 were NT$59,475 thousand and NT$7,639 thousand, respectively. These investment amounts and the related information of the investees disclosed in the notes to the consolidated financial statements were based on unreviewed financial statements.

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Based on our reviews, except for the effects of any adjustments that might have been made had the consolidated financial statements of the investees mentioned in the preceding paragraph been reviewed, we are not aware of any material modifications that should be made to the consolidated financial statements of Phison Electronic Corp. and its subsidiaries referred to above for them to be in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the Interpretation No. 0960064020 by the Securities and Futures Bureau under the Financial Supervisory Commission, Executive Yuan, and accounting principles generally accepted in the Republic of China. October 30, 2012

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

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PHISON ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Par Value) (Reviewed, Not Audited) 2012 2011 2012 2011 ASSETS Amount % Amount % LIABILITIES AND SHAREHOLDERS’ EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES

Cash (Note 3) $ 8,044,341 44 $ 5,291,510 36 Short-term loans (Note 13) $ 732,375 4 $ - - Financial assets at fair value through profit or loss - current Notes and accounts payable (Note 4) 551,127 3 517,312 4 Third parties 3,304,955 18 2,268,304 15 Notes and accounts receivable Related parties (Note 17) 1,019,492 6 1,014,221 7

Third parties, net (Note 5) 3,922,548 21 3,423,810 23 Income tax payable 283,028 2 234,481 2 Related parties (Note 17) 245,215 1 600,577 4 Accrued expenses (Note 14) 1,362,082 7 1,143,314 8

Other financial assets 137,521 1 75,175 1 Other 48,383 - 56,387 - Inventories (Note 6) 3,411,825 19 2,509,816 17 Prepayments (Note 12) 242,110 1 400,738 3 Total current liabilities 6,750,315 37 4,716,707 32 Deferred income tax assets - current 68,721 - 37,426 - Restricted assets (Note 18) 20,229 - 5,211 - OTHER LIABILITIES Other 96,643 1 74,663 - Accrued pension cost 732 - - -

Guarantee deposits received 472 - 416 - Total current assets 16,740,280 91 12,936,238 88

Total other liabilities 1,204 - 416 - LONG-TERM INVESTMENTS

Investments accounted for by the equity method (Note 9) 106,960 - 188,899 1 Total liabilities 6,751,519 37 4,717,123 32 Prepayments for long-term investment (Note 8) 34,068 - - - Available-for-sale financial assets - noncurrent (Note 7) - - 11,985 - SHAREHOLDERS' EQUITY (Note 14) Financial assets carried at cost - noncurrent (Note 8) 123,216 1 368,456 3 Capital stock - NT$10 par value

Authorized - 230,000 thousand shares in 2012 and 2011 Total long-term investments 264,244 1 569,340 4 Issued and outstanding - 180,026 thousand shares in 2012 and

178,634 thousand shares in 2011 1,800,257 10 1,786,338 12 PROPERTIES (Notes 10 and 17) Advance receipts for common stock 7,030 - 5,682 -

Cost Capital surplus Land 505,235 3 505,235 4 Additional paid-in capital 3,316,016 18 3,213,198 22 Land improvements 18,695 - 18,695 - Long-term investments 7,488 - 28,526 - Buildings 837,742 5 320,225 2 Employee stock options 14,359 - 61,553 1 Testing equipment 150,339 1 128,174 1 Expired stock options 178 - - - Office equipment 16,985 - 8,059 - Total capital surplus 3,338,041 18 3,303,277 23 Lease improvement 246 - - - Retained earnings Other equipment 3,677 - 1,349 - Legal reserve 1,049,399 5 787,757 5

Total cost 1,532,919 9 981,737 7 Special reserve 6,743 - 14,892 - Less: Accumulated depreciation 155,299 1 123,225 1 Unappropriated retained earnings 5,516,200 30 4,106,600 28

1,377,620 8 858,512 6 Total retained earnings 6,572,342 35 4,909,249 33 Construction in progress - - 301,000 2 Other equity Prepayments for equipment 12,797 - - - Cumulative translation adjustments (8,388) - (4,315) -

Unrealized loss on financial instruments - - (3,215) - Net properties 1,390,417 8 1,159,512 8 Total other equity (8,388) - (7,530) -

INTANGIBLE ASSETS (Note 11) 49,311 - 37,939 - Total shareholders’ equity 11,709,282 63 9,997,016 68 OTHER ASSETS

Guarantee deposits paid 831 - 539 - Deferred income tax assets - noncurrent 15,718 - 9,129 - Miscellaneous - - 1,442 -

Total other assets 16,549 - 11,110 -

TOTAL $ 18,460,801 100 $ 14,714,139 100 TOTAL $ 18,460,801 100 $ 14,714,139 100 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche review report dated October 30, 2012)

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PHISON ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited) 2012 2011 Amount % Amount % OPERATING REVENUE (Note 17)

Gross sales $ 25,098,106 101 $ 23,697,093 101 Less: Sales returns and allowances 192,769 1 168,095 1 Net sales 24,905,337 100 23,528,998 100 Service revenue 54,465 - 38,006 -

Total operating revenue 24,959,802 100 23,567,004 100

OPERATING COST (Notes 6, 14 and 17) 21,159,016 85 20,436,589 87 GROSS PROFIT 3,800,786 15 3,130,415 13 OPERATING EXPENSES (Note 14)

Marketing 239,950 1 229,115 1 General and administrative 225,193 1 208,897 1 Research and development 895,199 3 825,859 3

Total operating expenses 1,360,342 5 1,263,871 5

OPERATING INCOME 2,440,444 10 1,866,544 8 NONOPERATING INCOME AND GAINS

Valuation gain on financial assets, net (Note 4) 21,422 - - - Gain on disposal of investments, net (Notes 4, 7 and 8)

12,122 - - -

Interest income 9,189 - 5,067 - Gains on disposal of properties (Note 17) 3,137 - 9,993 - Foreign exchange gain, net - - 221,426 1 Other 17,005 - 17,108 -

Total nonoperating income and gains 62,875 - 253,594 1

NONOPERATING EXPENSES AND LOSSES

Equity in net loss of investees (Note 9) 59,475 1 7,639 - Foreign exchange loss, net 52,914 - - - Interest expense 2,164 - 4,253 - Other 2 - 7,856 -

Total nonoperating expenses and losses 114,555 1 19,748 -

(Continued)

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PHISON ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited) 2012 2011 Amount % Amount % CONSOLIDATED INCOME BEFORE INCOME

TAX $ 2,388,764 9 $ 2,100,390 9

INCOME TAX EXPENSE 291,082 1 308,895 1 CONSOLIDATED NET INCOME $ 2,097,682 8 $ 1,791,495 8 ATTRIBUTED TO SHAREHOLDERS OF THE

PARENT $ 2,097,682 8 $ 1,791,495 8

2012 2011 Before

Income Tax

After Income

Tax

Before Income

Tax

After Income

Tax EARNINGS PER SHARE (Note 15)

Basic $ 13.36 $ 11.73 $ 11.80 $ 10.07 Diluted $ 13.16 $ 11.56 $ 11.53 $ 9.83

The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche review report dated October 30, 2012) (Concluded)

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PHISON ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES

Consolidated net income $ 2,097,682 $ 1,791,495 Adjustments to reconcile net income to net cash provided by operating

activities:

Equity in net loss of investees 59,475 7,639 Depreciation 46,247 33,258 Amortization 44,762 36,968 Allowance for sales returns and discounts 43,333 24,829 Allowance for doubtful accounts 17,687 26,482 Deferred income tax (13,147) 38,965 Gain on disposal of investments, net (3,169) (231) Gain on disposal of properties, net (including realized deferred

credits) (3,136) (9,987)

Compensation cost of employee stock options 1,069 14,767 Provision for loss on inventories - 77,727 Impairment loss on financial assets carried at cost - 1,500 Net changes in operating assets and liabilities

Financial assets at fair value through profit or loss - current 7,540 (114,300) Notes and accounts receivable 119,396 (1,093,327) Other financial assets 41,385 56,088 Inventories (1,430,704) (379,755) Other current assets 80,796 457,384 Notes and accounts payable 1,532,998 674,219 Income tax payable (34,411) 102,520 Accrued expenses 110,073 321,921 Other current liabilities 7,136 (44,238) Prepaid pension cost 1,824 1,171

Net cash provided by operating activities 2,726,836 2,025,095

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of properties (183,426) (465,392) Increase in intangible assets (41,685) (17,411) Proceeds of the disposal of financial assets carried at cost 38,396 156 Increase in prepayments for long-term investment (34,068) - Increase in restricted assets (15,018) (9) Increase in financial assets carried at cost (15,000) (3,073) Increase in investments accounted for by the equity method (5,688) (75,536) Proceeds of the disposal of properties 5,118 217 Proceeds of the disposal of available-for-sale financial assets -

noncurrent 2,846 25,054

Decrease (increase) in guarantee deposits paid (291) 1,443

Net cash used in investing activities (248,816) (534,551) (Continued)

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PHISON ELECTRONICS CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) 2012 2011 CASH FLOWS FROM FINANCING ACTIVITIES

Cash dividends paid $ (1,259,494) $ (776,137) Increase (decrease) in short-term loans 429,625 (1,106,940) Advance receipts for common stock - employee stock options 70,497 5,682 Increase in guarantee deposits received 56 10 Transfer of executed employee stock options to capital stock - 64,571

Net cash used in financing activities (759,316) (1,812,814)

EFFECT OF EXCHANGE RATE CHANGES (2,645) 1,841 NET INCREASE (DECREASE) IN CASH 1,716,059 (320,429) CASH, BEGINNING OF PERIOD 6,328,282 5,611,939 CASH, END OF PERIOD $ 8,044,341 $ 5,291,510 SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid $ 1,956 $ 4,686 Income tax paid $ 338,820 $ 167,409

INVESTING ACTIVITIES AFFECTING BOTH CASH AND

NONCASH ITEMS

Increase in properties $ 179,014 $ 460,153 Decrease in payables to contractors and equipment suppliers (included

in other current liabilities) 4,412 5,239

Acquisition of properties $ 183,426 $ 465,392 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche review report dated October 30, 2012) (Concluded)

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PHISON ELECTRONICS CORP. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, the Interpretation No. 0960064020 by the Securities and Futures Bureau under the Financial Supervisory Commission, Executive Yuan, and accounting principles generally accepted in the Republic of China. The accounting policies adopted by the Corporation and subsidiaries as of and for the nine months ended September 30, 2012 and 2011 are the same as those as of and for the six months ended June 30, 2012 and 2011. For the convenience of readers, the independent accountants’ review report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent accountants’ review report and consolidated financial statements shall prevail. Significant accounting policies are summarized as follows: Basis of Consolidation a. Basis of consolidation

The consolidated financial statements as of and for the nine months ended September 30, 2012 and 2011 have been prepared in accordance with the Statement of Financial Accounting Standards (SFAS) No. 7 - “Consolidated Financial Statements” and included the financial statements of the Corporation, its direct and indirect subsidiaries and other investees controlled by the Corporation and subsidiaries.

b. The consolidated subsidiaries and related information are as follows:

Percentage of Ownership as of September 30

Investor Subsidiaries Nature of Business 2012 2011 Description

The Corporation Lian Xu Dong

Investment Corp. Investment 100% 100% -

Phison Electronics Japan Corp.

Sale and service office 100% 100% -

Emtops Electronics Corp.

Sell flash memory controllers and peripheral system applications products

100% 100% -

Phisontech Electronics (Malaysia) Sdn. Bhd.

Design, produce and sell flash memory controllers and peripheral system applications

100% - Established in May 2012

Global Flash Limited Investment and trade 100% - Established in June 2012

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The financial statements of certain consolidated subsidiaries as of and for the nine months ended September 30, 2012 have not been reviewed. As of September 30, 2012 and 2011, the total assets of these subsidiaries were 1.34% ($248,153 thousand) and 0.43% ($63,832 thousand) and the total liabilities of these subsidiaries were 0.02% ($1,218 thousand) and 0.01% ($335 thousand) of the related consolidated amounts as of September 30, 2012 and 2011, respectively. The total net operating revenue of these subsidiaries were 0.05% ($11,952 thousand) and 0% ($175 thousand), respectively, of consolidated net operating revenue for the nine months ended September 30, 2012 and 2011 and their net loss were (0.90%) ($18,891 thousand) and (0.35%) ($6,221 thousand), respectively, of consolidated net income for the nine months ended September 30, 2012 and 2011.

c. No subsidiary was excluded from the consolidated financial statements. d. There were no significant transactions between the Corporation and subsidiaries.

2. ACCOUNTING CHANGES

Financial Instruments On January 1, 2011, the Corporation and subsidiaries adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34 - “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Corporation and subsidiaries are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost if a debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This accounting change had no material effect on consolidated net income and after income tax basic earnings per share for the nine months ended September 30, 2011. Operating Segments On January 1, 2011, the Corporation and subsidiaries adopted the newly issued SFAS No. 41 - “Operating Segments.” The statement requires that segment information be disclosed on the basis of the information about the components of the Corporation that management uses to make decisions about operating matters. SFAS No. 41 requires the identification of operating segments on the basis of internal reports that are regularly reviewed by the Corporation's chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20 - “Segment Reporting.” This adoption only affects the Corporation and subsidiaries’ reporting form on segment information.

3. CASH

September 30 2012 2011

Savings accounts $ 6,499,321 $ 4,007,417 Foreign savings accounts 811,939 803,071 Certificates of deposits 732,968 480,910 Cash on hand 103 102 Checking accounts 10 10 $ 8,044,341 $ 5,291,510

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4. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT O R LOSS - CURRENT Financial instruments classified as held for trading were as follows:

September 30 2012 2011

Financial assets held for trading Beneficial certificates - open-end funds $ 473,724 $ 504,870 Domestic quoted stocks 77,403 12,442 $ 551,127 $ 517,312 On the financial instruments held for trading for the nine months ended September 30, 2012 and 2011, net gain and loss on financial assets were gain of $30,375 thousand and loss of $6,533 thousand, respectively.

5. NOTES AND ACCOUNTS RECEIVABLE - THIRD PARTIES, NET

September 30 2012 2011

Notes receivable $ 1,284 $ 1,636 Accounts receivable 4,026,641 3,509,118 4,027,925 3,510,754 Less: Allowance for sale returns and discounts 56,681 55,396 Allowance for doubtful accounts 48,696 31,548 $ 3,922,548 $ 3,423,810 The factored accounts receivable were as follows:

Factor Factored

Amount Settle

Amount Prepayment

Discount Rate (%)

Factor’s Limit

Nine months ended September 30, 2012

HSBC Bank $ 240,153 $ 214,019 $ - - US$7,900 thousand Nine months ended September 30, 2011

HSBC Bank 8,507 3,906 $ - - US$300 thousand The limit above is used on a revolving basis. The factor is HSBC Bank (Taiwan) Limited. This sale was without recourse.

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6. INVENTORIES, NET

September 30 2012 2011 Merchandise $ 122 $ 3 Finished goods 48,762 39,611 Semifinished goods 658,818 499,373 Work-in-process 831,428 882,999 Raw materials 1,872,695 1,087,830 $ 3,411,825 $ 2,509,816 Allowances for inventory devaluation as of September 30, 2012 and 2011 were $266,222 thousand. The costs of inventories recognized as cost of goods sold for the nine months ended September 30, 2012 and 2011 were $21,159,016 thousand and $20,436,589 thousand, respectively. Cost of goods sold for the nine months ended September 30, 2011 included an inventory devaluation of $77,727 thousand.

7. AVAILABLE-FOR-SALE FINANCIAL ASSETS - NONCURREN T

September 30 2012 2011 Domestic quoted stocks $ - $ 11,985 The Corporation disposed of all of the private-placement shares for the nine months ended September 30, 2012, which resulted in a gain of $46 thousand.

8. FINANCIAL ASSETS CARRIED AT COST - NONCURRENT

September 30 2012 2011

Common stock - unlisted stocks $ 104,788 $ 350,028 Foreign common stock - unlisted stocks 18,428 18,428 $ 123,216 $ 368,456 Prepayments for long-term investment $ 34,068 $ - These stocks were measured at cost because they had no active market and their fair value could not be reliably measured. The Corporation disposed of a part of its equity investment in Aptos Technology Inc. and had a gain of $3,123 thousand. The Corporation recognized an impairment loss of $1,500 thousand for the nine months ended September 30, 2011 on Jafco Asia Technology Fund IV L.P. As of September 30, 2012, the Corporation had recognized an accumulated impairment loss of $8,800 thousand on its investment in Jafco Asia Technology Fund IV L.P.

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9. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD

September 30 2012 2011 % of % of Carrying Owner- Carrying Owner- Amount ship Amount ship Unlisted stocks

Kingston Solutions Inc. $ 45,608 48.00 $ 122,712 48.00 Giesecke & Devrient Secure Flash Solutions

GmbH 23,750 30.00

27,924 30.00

Microtops Design Corporation 18,900 49.00 19,182 49.00 Flexmedia Electronics Corporation 18,702 21.43 19,081 21.43

$ 106,960 $ 188,899 In November 2007, the Corporation invested in Flexmedia Electronics Corporation (“Flexmedia”), which researches, develops, produces and sells high-tech multimedia products. In September 2008, the Corporation and TOSHIBA Corporation, Japan, a corporate member of the Corporation’s board of directors, jointly established Microtops Design Corporation, which researches, develops and designs flash memory controllers and peripheral system applications. In October 2009, the Corporation and Giesecke & Devrient GmbH jointly established Giesecke & Devrient Secure Flash Solutions GmbH (“Giesecke & Devrient Solutions”), to develop and market hardware-based, high-level security solutions for mobile end-user devices. The Corporation invested EUR600 thousand in April 2011 and EUR150 thousand in September 2012 to acquire new shares for capital increase of Giesecke & Devrient Solutions. In November 2010, the Corporation and Kingston Technology Corporation jointly established Kingston Solutions Inc., which focuses on embedded flash product and market developments. The Corporation invested $50,000 thousand in August 2011 to acquire new shares for capital increase of Kingston Solutions Inc., and the Corporation’s ownership increased to 48%. The investment gain and loss recognized by the equity-method for the nine months ended September 30, 2012 and 2011 were summarized as follows: Nine Months Ended September 30 2012 2011 Unreviewed

Kingston Solutions Inc. $ (48,655) $ 6,462 Giesecke & Devrient Secure Flash Solutions GmbH (13,327) (18,157) Microtops Design Corporation 3,363 4,531 Flexmedia Electronics Corporation (856) 3,338 Aptos Technology Inc. - (3,813)

$ (59,475) $ (7,639)

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10. PROPERTIES

September 30 2012 2011 Accumulated depreciation

Land improvements $ 4,159 $ 1,822 Buildings 68,881 50,572 Testing equipment 76,589 65,697 Office equipment 4,890 4,096 Leasehold improvements 20 - Other equipment 760 1,038

$ 155,299 $ 123,225

11. INTANGIBLE ASSETS

September 30 2012 2011 Computer software $ 38,840 $ 34,408 Technology license fees 10,471 3,531 $ 49,311 $ 37,939

12. PREPAYMENTS

To have a steady long-term supply of NAND Flash products to meet increasing business needs as well as enhance the cooperative relationship with the supplier, the Corporation made prepayments for the future product purchases. The prepayments were US$50,000 thousand in January 2010 and NT$150,000 thousand in October 2011. As of September 30, 2012, the prepayments were $238,359 thousand.

13. SHORT-TERM LOANS

Loan Nature Interest Rate (%) Maturity Date Amount September 30, 2012 Credit loan 0.766%-0.800% 2012.11.17 $ 732,375

14. SHAREHOLDERS’ EQUITY

a. Capital surplus

The capital surplus from shares issued in excess of par (additional paid-in capital from issuance of common shares, additional paid-in capital from issuance of common shares on the exercise of options, and transfer of the value of expired options) may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed as cash dividends or transferred to capital. This transfer is limited to a certain percentage of the Corporation’s paid-in capital. However, the capital surplus from long-term equity investments may not be used for any purpose.

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b. Appropriation of earnings and dividend policy

The Corporation’s Articles of Incorporation provide that, under the board of directors’ resolution, annual net income (less any deficit and 10% as legal reserve) less special reserve based on relevant laws and regulations and any portion decided to be retained plus unappropriated earnings of prior years should be distributed as follows: 1) 1 %, as remuneration to directors and supervisors; 2) 12% to 25%, as bonus to employees; and 3) The remainder, as dividends. If the bonus to employees is distributed as stock dividend, the employees of the Corporation must meet certain terms to be eligible for these stock dividends. The Corporation’s dividend appropriation is based on its profitability. In addition, since the Corporation is expanding fast, dividends will be appropriated in consideration of the current and future investment environment, capital requirements, domestic and international competition, capital budget plans, shareholders’ interests, balance between cash and stock dividends, and the Corporation’s long-term financial plans. The board of directors prepares the proposal on annual earnings distribution for the shareholders’ approval. Profits may be distributed as cash or stock dividend; however, cash dividends should be at least 10% of total distribution. For the nine months ended September 30, 2012 and 2011, the bonus to employees and remuneration to directors and supervisors represented 12% and 1%, respectively, of net income (net of the bonus and remuneration). If there are material differences between the bonus and remuneration estimates and the amounts proposed by the board of directors in the following year, the estimates are adjusted in the year of the proposal. If the actual amounts subsequently resolved by the shareholders differ from the proposed amounts, the differences are recorded in the year of shareholders’ resolution as changes in accounting estimate. If a share bonus is resolved to be distributed to employees, the number of shares is determined by dividing the amount of the share bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day immediately preceding the shareholders’ meeting. A regulation issued by the Securities and Futures Bureau requires a special reserve to be made from the unappropriated earnings, equivalent to the debit balance of any account shown in shareholders’ equity. The special reserve appropriated will be reserved to the extent that the net debit balance reverses. Legal reserve shall be appropriated until it has reached the Corporation’s paid-in capital. This reserve may be used to offset a deficit. If the Corporation has no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash. Under the Imputed Income Tax System, ROC-resident shareholders are allowed tax credits for the income tax paid by the Corporation. Tax credits allocated to shareholders are based on the balance of the imputation credit account (ICA) on the dividend distribution date.

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The earnings appropriations and dividend distributions on 2011 and 2010, which were resolved by the shareholders’ meetings on June 6, 2012 and June 15, 2011, respectively, were as follows: Appropriation of Dividends Per Share Earnings (NT$) For Fiscal For Fiscal For Fiscal For Fiscal Year 2011 Year 2010 Year 2011 Year 2010 Legal reserve $ 261,642 $ 151,572 (Reversal of) special reserve (8,149) 13,249 Cash dividends 1,259,494 776,143 $6.996189 $4.344886 $ 1,512,987 $ 940,964 The bonus to employees and the remuneration to directors and supervisors for 2011 and 2010 were resolved by the shareholders’ meetings on June 6, 2012 and June 15, 2011, respectively, as follows: Years Ended December 31 2011 2010 Cash Stock Cash Stock Bonus to employees $ 310,000 $ - $ 222,000 $ - Remuneration to directors and

supervisors 15,853 -

10,082

-

The differences between the approved amounts of the bonus to employees and the remuneration to directors and supervisors and the accrual amounts reflected in the financial statements for the years ended December 31, 2011 and 2010 were primarily due to changes in estimates, which had been adjusted in profit and loss for the nine months ended September 30, 2012 and 2011. The differences were as follows: Years Ended December 31 2011 2010

Bonus to

Employees

Remuneration to Directors

and Supervisors

Bonus to Employees

Remuneration to Directors

and Supervisors

Amounts approved in

shareholders’ meetings $ 310,000 $ 15,853 $ 222,000 $ 10,082

Amounts recognized in respective financial statements

310,000 14,969 222,000 10,082 $ - $ 884 $ - $ - Information on the bonus to employees, directors and supervisors is available on the Market Observation Post System website of the Taiwan Stock Exchange.

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c. Stock options

On January 3, 2008 and November 19, 2008, the Financial Supervisory Commission approved the Corporation’s Employee Stock Option Plans, consisting of the fourth plan and the fifth plan, respectively, and under which qualified employees obtained 500 thousand units, and 4,000 thousand units, respectively, of option rights. For all the plans, each unit represents one common share. The fourth plan option rights are valid for three years from the date of issuance and exercisable at certain percentages after the second year of issuance, and the fifth plan option rights are valid for four years from the date of issuance and exercisable at 50 percent after the second year of issuance and at 100 percent after the third year of issuance. Under the Plans, the options are granted at an exercise price equal to the closing price of the Corporation’s common shares as shown on the OTC exchange on the grant date. Based on the Plans, the exercise prices have been adjusted to reflect the appropriation of dividends. The changes in outstanding stock options for the nine months ended September 30, 2012 and 2011 were as follows: Nine Months Ended September 30 2012 2011

Number of Weighted- average Number of

Weighted- average

Options (In Exercise Options (In Exercise Thousands) Price (NT$) Thousands) Price (NT$) Balance, beginning of period 1,655 $ 53.20 3,400 $ 51.41 Options exercised 1,330 53.20 1,393 50.43 Options expired 12 53.20 - - Balance, end of period 313 2,007 Options exercisable, end of period 313 429 The information about outstanding options as of September 30, 2012 and 2011 was as follows: September 30 2012 2011

Range of Exercise

Price (NT$)

Weighted- average

Remaining Contractual Life (Years)

Range of Exercise

Price (NT$)

Weighted- average

Remaining Contractual Life (Years)

The fourth plan $ - - $ 28.20 0.14 The fifth plan 51.50 0.25-0.29 53.20 1.00-1.17

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The fourth plan and fifth plan options were issued on November 20, 2008 and January 19, 2009, respectively, and these two plans were priced using the Black-Scholes pricing model, and the inputs to the model were as follows: The Fourth Plan The Fifth Plan Grant-date share price (NT$) $39.10 $74 Exercise price (NT$) $39.10 $74 Expected volatility 63.47% 60.24%-62.55% Expected life (years) 2.50 3.00-3.50 Expected dividend yield 0% 0% Risk-free interest rate 1.33% 0.84%-0.88% Compensation costs recognized for employee stock options were $1,069 thousand and $14,767 thousand for the nine months ended September 30, 2012 and 2011, respectively.

15. EARNINGS PER SHARE The numerators and denominators used in computing earnings per share (EPS) were as follows: Amount (Numerator) Number of EPS (NT$) Before After Shares Before After Income Income (Denominator) Income Income Tax Tax (In Thousands) Tax Tax Nine months ended September 30, 2012 Basic EPS

Consolidated income available to common shareholders $ 2,388,764 $ 2,097,682 178,829 $ 13.36 $ 11.73

Effect of dilutive potential common stock Employee stock options - - 640 Bonus to employees - - 2,004

Diluted EPS

Consolidated income available to common shareholders (including effect of dilutive potential common stock) $ 2,388,764 $ 2,097,682 181,473 $ 13.16 $ 11.56

Nine months ended September 30, 2011 Basic EPS

Consolidated income available to common shareholders $ 2,100,390 $ 1,791,495 177,949 $ 11.80 $ 10.07

Effect of dilutive potential common stock Employee stock options - - 1,915 Bonus to employees - - 2,308

Diluted EPS

Consolidated income available to common shareholders (including effect of dilutive potential common stock) $ 2,100,390 $ 1,791,495 182,172 $ 11.53 $ 9.83

The ARDF issued Interpretation 2007-052, that requires companies to recognize bonus paid to employees and remuneration to directors and supervisors as compensation expenses beginning January 1, 2008. These bonuses were previously recorded as appropriations from earnings. If the Corporation may settle the bonus to employees by cash or shares, the Corporation should presume that the entire amount of the bonus will be settled in shares and the resulting potential shares should be included in the weighted average number of shares outstanding used in the calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the entire amount of the bonus by the closing price of the shares at the balance sheet date. Such dilutive effect of the potential shares needs to be included in the calculation of diluted EPS until the shareholders resolve the number of shares to be distributed to employees at their meeting in the following year.

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16. FINANCIAL INSTRUMENTS

a. The methods and assumptions applied in determining fair values of financial instruments were as

follows:

1) Short-term financial instruments - the carrying value reported in the balance sheets is a reasonable basis for estimating fair value because these instruments have short maturities. These instruments included cash, notes and accounts receivable, other financial assets, restricted assets, short-term loans, notes and accounts payable and accrued expenses.

2) Fair values of financial instruments designated as at FVTPL and available-for-sale financial assets

are based on their quoted prices in an active market. For those instruments with no quoted market prices, their fair values are determined using valuation techniques incorporating estimates and assumptions consistent with those generally used by other market participants to price financial instruments.

3) Financial assets carried at cost - noncurrent have no active market and entail an unreasonably high

cost to obtain verifiable fair values. Therefore, no fair value is presented. 4) For guarantee deposits paid and guarantee deposits received, fair values are estimated at their

carrying amount because these deposits do not have specific due dates.

b. The fair values of financial assets and liabilities were not simultaneously determined by quoted prices in active markets and by estimations using valuation methods.

c. The gain was recognized $46 thousand and $254 thousand for fair value changes based on of using

valuation methods for the nine months ended September 30, 2012 and 2011, respectively. d. The financial assets exposed to fair value interest rate risk amounted to $753,197 thousand and

$486,121 thousand as of September 30, 2012 and 2011, respectively. The financial assets exposed to cash flow interest rate risk amounted to $7,311,260 thousand and $4,810,488 thousand as of September 30, 2012 and 2011, respectively. The financial liabilities exposed to cash flow interest rate risk amounted to $732,375 thousand and $0 thousand as of September 30, 2012 and 2011, respectively.

e. Financial risks:

1) Market risk

The market risk includes foreign exchange rate risk and market price risk. All foreign loans are used to hedge exchange rate fluctuations of net foreign currency-denominated assets or liabilities. Gains or losses on these hedging instruments are likely to offset the gains or losses on the hedged items. Thus, the market risk is immaterial. The fair values of financial assets held for trading and available-for-sale financial assets are influenced by market prices.

2) Credit risk

Credit risk represents the potential impact on financial assets that the Corporation and subsidiaries might encounter if counter-parties or third parties breach the contracts. Other factors that affect financial assets include credit risk concentration, components of financial instruments, contract amount and other receivables. The maximum credit risk exposure of each financial instrument is the same as its carrying value.

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3) Liquidity risk

The Corporation and subsidiaries have no cash flow risks because they have sufficient operating capital to meet cash needs. However, as of September 30, 2012 and 2011, the Corporation and subsidiaries had equity instruments without any active market; thus, they expect to have significant liquidity risk. Because the Corporation and subsidiaries’ equity instruments account for a small percentage of the total assets, the liquidity risk will have no significant effect.

4) Cash flow interest rate risk. Due to market interest rate fluctuations, assets and liabilities with floating interest rate will affect cash flows. The Corporation and subsidiaries expect, however, that fluctuations will have no significant effect on future cash flows.

17. RELATED-PARTY TRANSACTIONS

The Corporation and subsidiaries’ related-party transactions were as follows:

a. The Corporation and subsidiaries’ related parties were as follows:

Related Party Relationship with

the Corporation and Subsidiaries Toshiba Corporation, Japan Board director Toshiba International Procurement Hong Kong, Ltd. Subsidiary of Toshiba Toshiba Corporation Personal Computer & Network Company Subsidiary of Toshiba Toshiba Singapore Pte Ltd. Computer System Division Subsidiary of Toshiba Toshiba America Information Subsidiary of Toshiba Toshiba Memory Semiconductor Taiwan Corporation Subsidiary of Toshiba Toshiba Electronics Taiwan Corporation Subsidiary of Toshiba Flexmedia Electronics Corporation Equity-method investee Microtops Design Corporation Equity-method investee Giesecke & Devrient Secure Flash Solutions GmbH Equity-method investee Kingston Solutions Inc. Equity-method investee Aptos Technology Inc. The Corporation had served as its

board of director and dismissed naturally in November 2011

b. The significant transactions with the related parties were summarized as follows:

The terms of sales to related parties were similar to those for third parties.

Nine Months Ended September 30 2012 2011 Amount % Amount %

1) Net sales Toshiba Corporation, Japan $ 1,548,360 6 $ 1,533,968 7 Toshiba International Procurement Hong

Kong, Ltd. 264,648 1 308,753 1 Microtops Design Corporation 18,215 - - - Aptos Technology Inc. - - 685,897 3 Other 24,419 - 60,861 -

$ 1,855,642 7 $ 2,589,479 11

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Nine Months Ended September 30 2012 2011 Amount % Amount %

2) Purchases

Toshiba Electronics Taiwan Corporation $ 4,863,119 24 $ 6,304,630 33 Toshiba Corporation, Japan - - 77,724 1 Other 25,497 - 33,280 -

$ 4,888,616 24 $ 6,415,634 34 3) Processing expenses (included in

manufacturing expenses)

Aptos Technology Inc. $ - - $ 67,026 5

September 30 2012 2011 Amount % Amount %

4) Notes and accounts receivable

Toshiba Corporation, Japan $ 158,220 4 $ 326,078 8 Toshiba International Procurement Hong

Kong, Ltd. 82,646 2

124,210 3

Aptos Technology Inc. - - 149,136 4 Other 4,349 - 1,153 -

$ 245,215 6 $ 600,577 15 5) Notes and accounts payable

Toshiba Electronics Taiwan Corporation $ 1,017,756 24 $ 984,223 30 Aptos Technology Inc. - - 27,208 1 Other 1,736 - 2,790 - $ 1,019,492 24 $ 1,014,221 31

6) In August 2009, the Corporation sold a part of its land and buildings to Aptos Technology Inc.

(“Aptos”), an equity-method investee, to expand Aptos’s production facilities for its growing share of the market. The selling price was $170,811 thousand, and the gain on this sale was $49,309 thousand, but of this amount, $10,221 thousand was deferred and recognized at the percentage of the Corporation’s equity in Aptos. However, when Aptos increased its capital on March 2, 2011, the Corporation did not subscribe for the new shares, thus, the Corporation ceased to have significant influence on this investee. For the nine months ended September 30, 2011, the remaining deferred credit of $9,975 thousand had all been realized. The Corporation also bought testing equipment from Flexmedia Electronics Corporation for $3,253 thousand for the nine months ended September 30, 2011.

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18. PLEDGED ASSETS

The following assets had been pledged as refundable deposits as required by customs authorities:

September 30 2012 2011 Refundable deposits for the Customs Duty Bureau - certificates of

deposits $ 20,229 $ 5,211

19. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

The Corporation and subsidiaries’ significant commitments and contingencies as of September 30, 2012 were as follows: a. The Corporation and subsidiaries rent their office under operating lease agreements expiring on April

2014.

As of September 30, 2012, future remaining lease payments were as follows:

Period/Year Amount 2012 (from October to December) $ 936 2013 2,751 2014 594 $ 4,281

b. Unused letters of credit amounted to NT$710,000 thousand. c. On August 21, 2012, the Corporation became the subject of a civil indictment initiated by Wisdomflow

Technical Corporation (“Wisdomflow”) through the Intellectual Property Court of Republic of Seychelles. Wisdomflow is bringing an patent infringement action against Fruitshop International Co., Ltd. toward its certain flash drives. Wisdomflow is seeking $5 million in damages from the Corporation. The Corporation has appointed a lawyer to handle this lawsuit and believes this case would not have a material effect on the Corporation’s financial statements.

20. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY F INANCIAL ASSETS AND LIABILITIES The monetary assets or liabilities denominated in foreign currencies and have a material effect on the Corporation and subsidiaries’ consolidated financial statements as follows:

In Thousands of New Taiwan Dollars and Foreign Currencies

September 30 2012 2011

Foreign

Currencies Exchange

Rates New Taiwan

Dollars Foreign

Currencies Exchange

Rates New Taiwan

Dollars Financial assets Monetary items

USD $ 168,935 29.295 $ 4,948,946 $ 165,202 30.48 $ 5,035,358 MYR 6,868 9.1805 63,052 - - -

(Continued)

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September 30 2012 2011

Foreign

Currencies Exchange

Rates New Taiwan

Dollars Foreign

Currencies Exchange

Rates New Taiwan

Dollars

RMB $ 7,041 4.6600 $ 32,811 $ - - $ - JPY 22,157 0.3777 8,368 42,853 0.3975 17,034 EUR - - - 49 41.23 2,031

Investments accounted for by the equity method

EUR 627 37.89 23,750 677 41.23 27,924

Financial liabilities Monetary items

USD 140,389 29.295 4,112,692 88,218 30.48 2,688,883 MYR 94 9.1805 863 - - -

(Concluded) 21. ADDITIONAL DISCLOSURES

Business relationship between the Corporation and subsidiaries, and significant intercompany transactions: None.

22. OPERATING SEGMENT FINANCIAL INFORMATION

Information reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance focuses on types of goods or services delivered or provided. The Corporation and subsidiaries’ reportable segments under Statement of Financial Accounting Standards (SFAS) No. 41 - “Operating Segments” therefore include departments that design and sell of flash memory controllers and make investments. a. Segment revenues and results

The Corporation and subsidiaries’ revenues and results reportable segments were as follows: Segment Revenues Segment Profits

Nine Months Ended

September 30 Nine Months Ended

September 30 2012 2011 2012 2011 Department that designs and sells

flash memory controllers $ 24,959,802 $ 23,567,004 $ 2,440,500 $ 1,866,566

Investment department - - (56) (22) Total operating segments $ 24,959,802 $ 23,567,004 2,440,444 1,866,544 Equity in net loss of investees (59,475) (7,639) Foreign exchange (loss) gain, net (52,914) 221,426 Valuation gain (loss) on financial

asset, net 21,422 (2,599)

Gain on disposal of investments, net

12,122 (3,703)

Interest income 9,189 5,067 Other, net 17,976 21,294 Income before income tax $ 2,388,764 $ 2,100,390

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Segment revenue reported above was generated from external customers. There were no intersegment sales for the nine months ended September 30, 2012 and 2011. Segment profit is the profit earned by each segment without investment income or loss recognized under the equity method, rental revenue, interest income, gain or loss on disposal of property, plant and equipment, gain or loss on sale of investments, exchange gain or loss, valuation gain or loss on financial instruments, interest expense and income tax expense. This is the measure reported to the chief operating decision maker for the purposes of resource allocation and assessment of segment performance.

b. Segment assets

September 30 2012 2011

Department that designs and sells flash memory controllers $ 18,400,156 $ 14,693,592 Investment department 60,645 20,547 Total segment assets $ 18,460,801 $ 14,714,139

23. PRE-DISCLOSURE FOR ADOPTION OF INTERNATIONAL FI NANCIAL REPORTING

STANDARDS

Under Rule No. 0990004943 issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Corporation and subsidiaries disclose the following information on the adoption of International Financial Reporting Standards: a. On May 14, 2009, the FSC announced the “Framework for Adoption of International Financial

Reporting Standards by Companies in the ROC.” In this framework, starting 2013, companies with shares listed on the Taiwan Stock Exchange or traded on the Taiwan Gre-Tai Securities Market or Emerging Stock Market should prepare their financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, and the interpretations as well as related guidances (IFRSs), which is approved by the Financial Supervisory Commission (FSC). To comply with this framework, the Corporation and subsidiaries have set up a project team and made a plan to adopt the IFRSs. Leading the implementation of this plan is Mr. Khein Seng Pua, the chairman, and Mr. Chee Kong Aw Yong, the general manager. The main contents of the plan, anticipated schedule and status of execution as of September 30, 2012 were as follows:

Contents of Plan Responsible Department

Status of Execution

1) Develop the IFRS conversion project team IFRS project team Done 2) Formulate an employee training plan IFRS project team Done 3) Develop the IFRS conversion plan IFRS project team Done 4) Identify the consolidated entities under IFRSs Accounting Done 5) Idntify the major differences between the existing and the

accounting policies to be adopted under IFRSs Accounting Done

(Continued)

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Contents of Plan Responsible Department

Status of Execution

6) Assess exemptions that the Corporation may elect and the related

impact under IFRS 1 First-time Adoption of International Financial Reporting Standards (“IFRS 1”)

Accounting Done

7) Assess modifications to the IT systems and structure process IFRS project team Done 8) Assess modifications to the internal control process IFRS project team Done 9) Determine acconting policies under IFRSs Accounting Done

10) Determine exemptions that the Corporation may elect and the

related impact under IFRS 1 First-time Adoption of International Financial Reporting Standards

Accounting Done

11) Prepare the opening IFRSs statement of financial position as of

January 1, 2012 Accounting Done

12) Prepare the 2012 IFRS comparative process financial

information Accounting In progress

13) Modify the internal control process (including financial reporting

process and related IT systems and structure) IFRS project team In progress

(Concluded) b. The Corporation and subsidiaries had assessed the material differences, shown below, between the

current accounting policies and the accounting policies to be adopted under IFRSs:

1) Reconciliation on balance sheet on January 1, 2012

ROC GAAP Influence IFRSs Description Notes and accounts receivable - third

parties, net $ 3,580,237 $ 88,796 $ 3,669,033 5) d)

Deferred income tax assets - current 61,450 (61,450) - 5) b) Other current assets 182,378 4,011 186,389 5) f) Prepayments for equipment 4,011 (4,011) - 5) f) Deferred income tax assets - noncurrent 9,672 65,335 75,007 5) b), c) Other assets 1,092 (1,092) - 5) c) Liability reserve - current - 88,796 88,796 5) d) Accrued pension cost - 21,760 21,760 5) c) Capital surplus - long-term investment 10,373 (10,373) - 5) e) Unappropriated retained earnings 4,931,505 (8,594) 4,922,911 5) c), e)

2) Reconciliation on balance sheet on September 30, 2012

ROC GAAP Influence IFRSs Description Cash $ 8,044,341 $ (37,640) $ 8,006,701 5) a) Notes and accounts receivable - third

parties, net 3,922,548 56,681 3,979,229 5) d)

Other financial assets 137,521 37,640 175,161 5) a) Deferred income tax assets - current 68,721 (68,721) - 5) b) Other current assets 96,643 12,797 109,440 5) f) Prepayments for equipment 12,797 (12,797) - 5) f)

(Continued)

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ROC GAAP Influence IFRSs Description Deferred income tax assets - noncurrent $ 15,718 $ 72,432 $ 88,150 5) b), c) Liability reserve - current - 56,681 56,681 5) d) Accrued pension cost 732 21,829 22,561 5) c) Capital surplus - long-term investment 7,488 (7,488) - 5) e) Unappropriated retained earnings 5,516,200 (10,629) 5,505,571 5) c), e)

(Concluded) 3) Reconciliation on income statement for the nine months ended September 30, 2012

ROC GAAP Influence IFRSs Description Operating revenue $ 24,959,802 $ - $ 24,959,802 - Operating costs 21,159,016 - 21,159,016 - Gross profit 3,800,786 3,800,786 - Operating expenses 1,360,342 (1,024) 1,359,318 5) c) Operating income 2,440,444 1,024 2,441,468 - Nonoperating income and gains 62,875 (2,885) 59,990 5) e) Nonoperating expenses and losses 114,555 - 114,555 - Income before income tax 2,388,764 (1,861) 2,386,903 - Income tax expense 291,082 174 291,256 5) c) Net income $ 2,097,682 $ (2,035) $ 2,095,647 -

4) Exemptions in International Financial Reporting Standards 1

International Financial Reporting Standards 1 First-time Adoption of International Reporting Standards states procedures that apply when companies first adopt IFRSs as consolidated financial statements base. According to the Standard, the Corporation and subsidiaries should construct accounting policies under IFRSs and trace the adoption of those accounting policies to determine the beginning balance sheet on IFRSs conversion day (January 1, 2012). The Standard exempts several accounting policies from tracing. Exemptions adopted by the Corporation and subsidiaries are as follows: Employee benefit The Corporation and subsidiaries chose to recognize all unrecognized accumulated actuarial income/losses under retained earnings as of January 1, 2012. Share-based payment The Corporation chose to take the optional exemption from applying IFRS 2 - “Share-based Payment”, retrospectively for the share-based payment transactions granted and vested before January 1, 2012.

5) Material reconciliation on IFRSs conversion

a) Cash equivalents

Under ROC GAAP, the term “cash” used in the financial statements includes time deposits that are cancellable but without any loss of principal. Under IFRSs, cash equivalents are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value. An investment normally qualifies as a cash equivalent only when it has a short maturity of three months or less from the date of acquisition. Therefore, some certificates of deposit had maturity of more than 3 months but less than 12 months from the date of investment are all classified as “other financial assets”.

- 26 -

As of September 30, 2012 and January 1, 2012, the Corporation and subsidiaries reclassified $37,640 thousand and $0 thousand of cash to other financial assets, respectively.

b) Deferred income tax assets

Under ROC GAAP, a deferred tax asset or liability should be classified as current or noncurrent according to the classification of the related asset or liability for financial reporting. However, if a deferred asset or liability cannot be related to an asset or liability in the financial statements, it should be classified as current or noncurrent on the basis of the expected realization date of the temporary difference. Under IFRSs, deferred income tax assets and liabilities are all classified as noncurrent. As of September 30, 2012 and January 1, 2012, the Corporation and subsidiaries reclassified $68,721 thousand and $61,450 thousand of deferred income tax assets to noncurrrent assets, respectively.

c) Employee benefit - actuarial gains and losses under defined benefit plan Under ROC GAAP, the Corporation and subsidiaries should use straight-line method to amortize unrecognized net transitional obligation generated by first adoption of SFAS No. 18 - “Accounting for pensions”, based on expected employees’ average remaining service year, which is recognized as part of the net periodic pension cost for the year. Under IFRSs, unrecognized net transitional obligation should all be recognized in current period and reconcile retained earnings because it is inapplicable to IAS 19 - “Employee Benefits”. Under ROC GAAP, actuarial gains and losses can be amortized based on employees’ average remaining service year through the corridor approach. The amount should be amortized into the income statement. Under IFRSs, according to IAS 19 - “Employee Benefits”, actuaried gain/loss is recognized under other comprehensive income and is presented as a part of retained earnings on statement of change in stockholder equity. The Corporation and subsidiaries will not reclassify to income statement in the following years. As of September 30, 2012 and January 1, 2012, the Corporation and subsidiaries reduced $0 thousand and $1,092 thousand of other assets; increased $21,829 thousand and $21,760 thousand of accrued pension cost; increased $3,711 thousand and $3,885 thousand of deferred income tax assets according to IAS 19 - “Employee Benefits” and IFRS 1 - “First-time Adoption of International Reporting Standards”. Pension costs decreased by $1,024 thousand and income tax expenses increased by $174 thousand for the nine months ended September 30, 2012.

d) Allowances for sales returns and discounts Under ROC GAAP, sales returns and discounts are estimated on the basis of historical experience and relevant factors. Sales returns and allowances are recognized as reductions of current year’s sales revenue when allowances are recognized as deductions from accounts receivable. Under IFRSs, allowances for sales returns and discounts is present obligation as a result of a past event with uncertainty in amount and timing; therefore, it is reclassified as a reserve (under current liabilities). As of September 30, 2012 and January 1, 2012, the Corporation and subsidiaries reclassified $56,681 thousand and $88,796 thousand of allowances of sales returns and discounts to liability reserve - current, respectively.

e) Changes in ownership interest in an associate not resulting in a loss of significant influence

(change in ownership level due to the investor’s subscription for shares issued by an investee at a rate not equal to its current equity).

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Under ROC GAAP, the Corporation subscribes for additional shares issued by an investee at a rate not equal to its current equity, the increase in the Corporation’s equity in the investee’s net assets is credited to capital surplus. Any decrease in the Corporation’s equity in the investee’s net assets is debited to capital surplus. If capital surplus is not enough for debiting purposes, the debit is made against unappropriated earnings. Under IFRSs, changes in ownership interest in an associate not resulting in a loss of significant influence are deemed disposal. Further, according to “IFRSs adoption FAQ”, issued by Taiwan Stock Exchange Corp., capital surplus should be reconciled on conversion day if it does not conform to IFRSs or related Corporation Law and Ministry of Economics Affairs regulations. According to “IFRSs adoption FAQ”, issued by Taiwan Stock Exchange Corp., the Corporation and subsidiaries opt not to trace back and reclassify capital surplus - long-term investment to retained earnings. As of September 30, 2012 and January 1, 2012, the Corporation reduce $7,488 thousand and $10,373 thousand of capital surplus - long-term investment. Further, other income is reduced by $2,885 thousand for the nine months ended September 30, 2012.

f) Prepayments for equipment

Under ROC GAAP, the prepaid item for purchasing property should be classified as “prepayments for equipment” under fixed assets. Under IFRSs, they are reclassified as prepaid item in the category of other assets and should be classified as current or noncurrent on the basis of the expected realization date. As of September 30, 2012 and January 1, 2012, the Corporation and subsidiaries reclassified $12,797 thousand and $4,011 thousand of prepayments for equipment to other current assets, respectively.

c. The Corporation and subsidiaries have prepared the above assessments in compliance with (a) the 2010

version of the IFRSs translated by the ARDF and issued by the FSC and (b) the Guidelines Governing the Preparation of Financial Reports by Securities Issuers amended and issued by the FSC on December 22, 2011. These assessments may be changed as the International Accounting Statements Board continues to issue or amend standards, and as the FSC may issue new rules governing the adoption of IFRSs by companies with shares listed on the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market. Actual accounting policies adopted under IFRSs in future may differ from those contemplated during the assessments.