ASUSTEK COMPUTER INC.

Financial Statements June 30, 2011 and 2010

---------------------------------------------------------------------------------------- ---------------------------------------For the convenience of readers and for information purpose only, the auditors report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors report and financial statements shall prevail.

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Independent Auditors Report

To the Board of Directors and Shareholders of ASUSTEK COMPUTER INC.: We have audited the accompanying balance sheet of ASUSTEK COMPUTER INC. as of June 30, 2011, and the related statements of income, of changes in stockholders equity and of cash flows for the six-month period then ended. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements of certain long-term equity investments accounted for under the equity method. These long-term equity investments amounted to $12,295,236,000 as of June 30, 2011, and the related investment loss was $120,008,000 for the six-month period then ended. The financial statements of these investee companies were audited by other auditors whose reports thereon have been furnished to us, and our opinion herein insofar as it relates to the amounts included for these investee companies, is based solely on the reports of other auditors. The financial statements of ASUSTEK COMPUTER INC. as of and for the six-month period ended June 30, 2010 were audited by other auditors whose report dated August 11, 2010 expressed a qualified opinion as the financial statements of certain long-term investments were not audited by independent auditors. Except for the matter discussed in the third paragraph, we conducted our audit in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion. As described in Note 4(7) to the financial statements, certain long-term equity investments accounted for under the equity method amounting to $14,454,545,000 and deferred credits amounting to $869,104,000 as of June 30, 2011, and the related investment loss of $57,172,000 recognized for the six-month period then ended were based on the investee companies financial statements which were not audited by independent auditors. In our opinion, based on our audit and the reports of other auditors, except for the effects of such adjustments, if any, as might have been determined to be necessary had the investee companies financial statements discussed in the third paragraph been audited, the financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of ASUSTEK COMPUTER INC. as of June 30, 2011, and the results of its
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operations and its cash flows for the six-month period then ended in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, Business Entity Accounting Law, Regulation on Business Entity Accounting Handling and generally accepted accounting principles in the Republic of China. As described in Note 4(7), ASUSTEK COMPUTER INC. spun off the OEM assets and business (ASUSTEK COMPUTER INC.s long-term equity investment in PEGATRON CORPORATION) to PEGATRON INTERNATIONAL INVESTMENT CO. on June 1, 2010. PEGATRON INTERNATIONAL INVESTMENT CO. then issued new shares to the Company and its shareholders as consideration. Further, the Company had a capital reduction of 85%. We have also reviewed the consolidated financial statements of ASUSTEK COMPUTER INC. and its subsidiaries as of and for the six-month period ended June 30, 2011. In our report dated August 10, 2011, we expressed a qualified conclusion on the consolidated financial statements as the financial statements of certain subsidiaries were not audited by other auditors. The consolidated financial statements of ASUSTEK COMPUTER INC. and its subsidiaries as of and for the six-month period ended June 30, 2010 were reviewed by other auditors whose report dated August 11, 2010 expressed a qualified conclusion.

PricewaterhouseCoopers, Taiwan August 10, 2011

The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with the 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 financial statements are those generally accepted and applied in the Republic of China.

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ASUSTEK COMPUTER INC. BALANCE SHEETS JUNE 30, 2011 AND 2010 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) JUNE 30, 2011 AMOUNT ASSETS Current Assets Cash and cash equivalents (Note 4(1)) Financial assets at fair value through profit or loss - current (Note 4(2)) Available-for-sale financial assets - current (Note 4(3)) Financial assets carried at cost current (Note 4(4)) Accounts receivable (Note 4(5)) Accounts receivable - related parties (Note 5) Other receivables (Note 5) Inventories (Note 4(6)) Prepayments (Note 7) Deferred income tax assets - current (Note 4(17)) Other current assets - others Funds and Investments Available-for-sale financial assets - non-current (Note 4(3)) Financial assets carried at cost non-current (Note 4(4)) Long-term equity investments accounted for under the equity method (Note 4(7)) Property, Plant and Equipment (Note 4(8)) Cost Land Buildings Instruments and equipment Other equipment Less: Accumulated depreciation and impairment Prepayments for equipment Intangible Asset Computer software Other Assets Leased assets (Note 4(9)) Refundable deposits (Note 6) Deferred expenses Other assets - others (Notes 4(10) and 7) TOTAL ASSETS $ ( JUNE 30, 2010 AMOUNT JUNE 30, 2011 AMOUNT LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Financial liabilities at fair value through profit or loss current (Notes 4(2)(11)) Notes and accounts payable Notes and accounts payable related parties (Note 5) Income tax payable (Note 4(17)) Accrued expenses (Note 5) Dividend payable Receipts in advance (Note 5) Current portion of bonds payable (Note 4(11)) Other currents liabilities (Note 5) Other Liabilities Deferred credits (Notes 4(7) and 5) Deferred income tax liabilities - non-current (Note 4(17)) Other liabilities - others Total Liabilities JUNE 30, 2010 AMOUNT

21,555,017 9,484,515 477,661 372 10,957,685 47,717,961 2,721,716 20,369,246 2,141,161 970,762 36,245 116,432,341 7,487,271 118,860 50,765,350 58,371,481 981,191 2,312,517 460,465 2,072,533 5,826,706 2,247,665 ) ( 115,568 3,694,609 90,230 90,230 96,679 161,072 34,916 292,667 178,881,328

12 5 6 27 2 11 1 1 65 4 29 33 1 1 1 3 1 )( 2 100

16,867,739 5,821,008 252,149 41,162 2,357,373 45,242,423 3,703,680 25,963,241 4,273,123 1,144,927 29,106 105,695,931 5,090,250 445,519 45,451,540 50,987,309 981,191 2,421,641 916,064 1,839,157 6,158,053 1,933,350 120,924 4,345,627 96,002 96,002 98,087 90,526 86,371 2,409,961 2,684,945 163,809,814

10 3 1 28 2 16 3 1 64 3 -

38,848 43,897,327 3,939,477 1,730,820 11,020,221 8,638,233 713,032 2,440,010 61,279 72,479,247 2,289,782 1,957,240 12,996 4,260,018 76,739,265

25 2 1 6 5 1 1 41 1 1 2 43

251,137 30,691,260 11,911,742 1,042,068 10,144,496 858,284 3,690,162 97,929 58,687,078 2,475,184 1,704,087 6,121 4,185,392 62,872,470

19 7 1 6 1 2 36 1 1 2 38

Stockholders' Equity Capital (Note 4(13)) 28 Common stock 31 Stock dividends to be distributed Additional paid-in capital (Note 4(14)) Common stock share premium 1 Others 1 Retained earnings (Note 4(15)) 1 Legal reserve 1 Undistributed earnings 4 Other adjustments to stockholders' equity )( 1 ) Cumulative translation adjustments Net loss not recognized as pension cost 3 Unrealized gain on financial instruments Treasury stock Unrealized gain on cash flow hedges Total stockholders' equity 2 2 100

6,170,166 1,357,437 4,138,802 298,224 21,806,955 67,731,098 (

4 1 2 12 38

6,370,166 4,241,172 199,512 20,158,120 68,723,774 1,465,111 769 ) 73,740 507,780 ) 214,298 100,937,344

4 3 12 42 1 62

1,233,861 ) ( 1 ) 11 - ( 2,245,408 1 - ( 372,177 ) 102,142,063 57

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

178,881,328

100

163,809,814

100

The accompanying notes are an integral part of these financial statements. See report of independent accountants dated August 10, 2011. ~4~

ASUSTEK COMPUTER INC. STATEMENTS OF INCOME FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE DATA) FOR THE SIX-MONTH PERIODS ENDED JUNE 30 2011 2010 AMOUNT % AMOUNT Operating revenues (Note 5) Sales revenue Sales returns and allowances Net sales revenue Operating costs (Notes 4(6) and 5) Cost of goods sold Gross profit Change in unrealized inter-company profits Net gross profit Operating expenses (Note 5) Selling General and administrative Research and development Total operating expenses Operating income Non-operating income and gain Interest income Investment income accounted for under the equity method (Note 4(7)) Foreign currency exchange gain, net Others Total non-operating income and gain Non-operating expense and loss Interest expense (Note 4(11)) Loss on valuation of financial liabilities, net (Notes 4(2)(11)) Others Total non-operating expense and loss Income before income tax Income tax expense (Note 4(17)) Net Income $ ( ( ( ( ( ( ( 138,280,925 102 $ 2,687,561 ) ( 2 ) ( 135,593,364 100 126,188,817 ) ( 93 ) ( 9,404,547 7 126,676 ) - ( 9,277,871 7 1,589,646 ) ( 919,043 ) ( 2,381,822 ) ( 4,890,511 ) ( 4,387,360 99,395 3,218,333 606,096 91,009 4,014,833 ( ( ( ( ( $ 27,701 ) 72,530 ) 4,265 ) 104,496 ) 8,297,697 1,281,765 ) ( 7,015,932 1) 1) 2) 4) 3 2 1 3 6 1) 5 ( ( ( ( ( $ ( ( ( (

146,375,511 101 998,748 ) ( 1 ) 145,376,763 100 136,914,383 ) ( 94 ) 8,462,380 6 447,665 ) 8,014,715 6 1,021,236 ) ( 877,135 ) ( 2,308,604 ) ( 4,206,975 ) ( 3,807,740 48,652 5,566,048 108,610 220,157 5,943,467 42,871 ) 89,956 ) 121,495 ) 254,322 ) 9,496,885 1,238,334 ) ( 8,258,551 1) 1) 1) 3) 3 4 4 7 1) 6

Before Tax Earnings per share (In dollars)(Note 4(18)) Basic earnings per share Diluted earnings per share $ $ 10.99 10.76

A f t e r Ta x $ $ 9.30 9.09

B efo re Tax $ $ 2.14 2.08

A f t e r Ta x $ $ 1.86 1.80

The accompanying notes are an integral part of these financial statements. See report of independent accountants dated August 10, 2011. ~5~

ASUSTEK COMPUTER INC. STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) Capital Stock Dividends to be Distributed Retained Earnings Cumulative translation adjustments Net loss not recognized as pension cost Unrealized gain or loss on financial instruments Unrealized gain on cash flow hedges

Common stock

Additional paid-in capital

Legal reserve

Undistributed earnings

Treasury stock

Total

Balance at January 1, 2010 Appropriations and distributions of 2009 earnings (Note 4(15)) Legal reserve Cash dividends Cumulative translation adjustments Adjustments to investee company's stockholders' equity Changes in unrealized gain on financial assets Adjustments to spin off and capital reduction Purchase of treasury stock Treasury stock retirement Proceeds from disposal of long-term investments accounted for under the equity method Net income for the six-month period ended June 30, 2010 Balance at June 30, 2010 Balance at January 1, 2011 Appropriations and distributions of 2010 earnings (Note 4(15)) Legal reserve Dividends transferred to common stock Cash dividends Cumulative translation adjustments Adjustments to investee company's stockholders' equity Changes in unrealized gain on financial assets Purchase of treasury stock Cancellation of treasury stock Proceeds from disposal of long-term investments accounted for under the equity method Net income for the six-month period ended June 30, 2011 Balance at June 30, 2011

$ 42,467,775 ( 36,097,609 ) 6,370,166 6,270,166 100,000 ) 6,170,166

1,357,437 -

$ 30,237,586 25,636 ( 25,798,854 ) ( 23,684 )

$ 18,910,213 1,247,907 $ 20,158,120 $ 20,158,120 1,648,835 $ 21,806,955 ( ( ( ( ( ( (

$ 77,615,158 1,247,907 ) 8,918,232 ) 6,983,398 ) ( 398 ) 8,258,551 $ 68,723,774 $ 74,802,015 (

$ 1,490,885 74,787 99,230 ) 1,331 ) $ 1,465,111 ($ 1,066,766 ) 167,118 ) 23 ($ 1,233,861 )

($

3,202 ) -

$ 2,159,201 318,796 ) 529,249 )

510,885 ) 3,105 507,780 ) ( (

306,361 -

$173,183,977 8,918,232 ) 74,787 385,224 ) 529,249 ) 70,197,726 ) 510,885 ) 2,707 41,362 ) 8,258,551 $100,937,344 $106,043,660 8,638,233 ) 167,118 ) 556,725 ) 1,053,950 2,609,422 ) 19 7,015,932 $102,142,063

1) ( 2,402 32 769 ) 11 11 ( ( (

92,063 ) ( 214,298 200,655 ( ( (

1,221,037 ) ( 16,379 ) 73,740

$ $

$ $

$ 4,440,684 $ 4,482,124 21,984 67,078 ) 4)

($ $

($ $

$ $

$ 1,197,335 5,877 ) 1,053,950 $ 2,245,408

1,648,835 ) 1,357,437 ) 8,638,233 ) ( 2,442,344 ) 7,015,932 $ 67,731,098

( (

572,832 ) ( 372,177 ) (

( (

2,609,422 ) 2,609,422 -

$ 1,357,437

$ 4,437,026

($

The accompanying notes are an integral part of these financial statements. See report of independent accountants dated August 10, 2011.

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ASUSTEK COMPUTER INC. STATEMENTS OF CASH FLOWS FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 2010 Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization Gain on valuation of financial liabilities, net Cash dividends received from long-term investee companies accounted for under the equity method Investment income accounted for under the equity method Changes in assets and liabilities Financial assets at fair value through profit or loss - current Notes and accounts receivable (including related parties) Other receivables (including related parties) Inventories Prepayments and other current assets Notes and accounts payable (including related parties) Income tax payable Accrued expenses, receipts in advance and other current liabilities Deferred credits Deferred income tax assets and liabilities Others Net cash provided by operating activities Cash flows from investing activities Increase in available-for-sale financial assets Proceeds from disposal of available-for-sale financial assets Increase in long-term equity investments accounted for under the equity method Proceeds from disposal of long-term investments accounted for under the equity method Proceeds from disposal from capital reduction Acquisition of property, plant and equipment Increase in deferred expenses and intangible assets Other assets - other Others Net cash used in investing activities Cash flows from financing activities Redemption of treasury stock Payment of cash dividends Others Net cash used in financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Supplemental disclosures of cash flow information Cash paid during the period for interest Cash paid during the period for income tax Investing and financing activities that result in non-cash flows: Bonds payable - payable in one year Dividends payable Dividends transferred to common stock $ 7,015,932 618,731 67,046 ) ( 800,194 3,218,333 ) ( 1,347,117 7,786,159 75,578 4,788,949 4,923,995 3,639,614 414,278 1,224,672 126,676 3,213 387,736 1,865,433 ) ) ( ) ) ( ( ) $ 8,258,551 517,019 146,527 ) 4,005,594 5,566,048 ) 7,414,819 791,714 ) 2,360,505 10,875,746 ) 256,979 5,078,537 1,435,185 ) 784,298 447,665 420,748 199,979 10,929,474 47,293 277 ) 717,885 1,057,650 497,499 14,532 2,400,804 52,040 1,038,244

( ( ( ( ( (

( (

56,000 ) 45,615 2,752,096 ) ( 333,059 28,577 8,614 1,491 3,116,994

( ( ( ( ( ( ( $ $ $ $ $ $

) ( ) ( ( ) ) (

) ) ) )

2,609,422 ) ( ( 1,110 2,608,312 ) ( 3,859,873 ) 25,414,890 21,555,017 $ 1,302,400 2,440,010 8,638,233 1,357,437 $ $ $ $ $

510,885 ) 8,918,232 ) 3,536 9,425,581 ) 465,649 16,402,090 16,867,739 5 2,252,771 3,690,162 -

The accompanying notes are an integral part of these financial statements. See report of independent accountants dated August 10, 2011.

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ASUSTEK COMPUTER INC. NOTES TO FINANCIAL STATEMENTS JUNE 30, 2011 AND 2010 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANIZATION (1) ASUSTEK COMPUTER INC. (ASUS or the Company) was established on April 2, 1990. The Companys common shares are listed on the Taiwan Stock Exchange (TSE). Its main activities are to produce, design and sell notebook PCs, main boards, CD-ROMs and add-on cards. (2) The Company resolved to spin-off its OEM businesses on January 1, 2008. Pursuant to the Companys resolution, the Company transferred its computer and non-computer OEM businesses to its spun-off subsidiaries, PEGA and UNIHAN, respectively. On June 1, 2010, however, the Company transferred further its OEM assets and business (the Companys long-term equity investment in PEGA) to the Companys another investee, PII. PII issued new shares to the Company and its shareholders as consideration. (3) The Companys headcount totaled 3,805 and 3,456 employees as of June 30, 2011 and 2010, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, Business Entity Accounting Law, Regulation on Business Entity Accounting Handling and generally accepted accounting principles in the Republic of China. The Companys significant accounting policies are as follows: (1) Foreign currency transactions and translation of financial statements in foreign currencies A. Transactions involving non-derivative financial instruments denominated in foreign currencies are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occurred. Translation gain or loss arising from the settlement of assets and liabilities denominated in foreign currencies are included in profit or loss in the year of actual settlement. B. Monetary assets and liabilities denominated in foreign currencies are remeasured at the balance sheet date using the exchange rates in effect on that date, with related exchange gain and loss included in the statement of income. C. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value through stockholders equity are remeasured at the exchange rate prevailing at the balance sheet date, with related exchange gain or loss recorded as cumulative translation adjustment in stockholders equity. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value through profit or loss are remeasured at the exchange rate prevailing at the balance sheet date, with related exchange gain or loss recorded in the statement of income. Non-monetary assets and liabilities denominated in foreign currencies that are measured at cost are remeasured at the historical exchange rate.

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D. Long-term investments in foreign investees, which are accounted for under the equity method, are stated on the basis of stockholders equity in the foreign-currency financial statements of investees. Translation gain or loss from long-term investments is recognized as cumulative translation adjustment in stockholders equity. (2) Classification of current and non-current assets and liabilities A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets: (A) Assets arising from operating activities that are expected to be realized or consumed, or are intended to be sold within the normal operating cycle; (B) Assets held mainly for trading purposes; (C) Assets that are expected to be realized within twelve months from the balance sheet date; (D) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date. B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities: (A) Liabilities arising from operating activities that are expected to be paid off within the normal operating cycle; (B) Liabilities arising mainly from trading activities; (C) Liabilities that are to be paid off within twelve months from the balance sheet date; (D) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. (3) Financial instruments A. In accordance with SFAS No. 34, Financial Instruments: Recognition and Measurement and the Regulations Governing the Preparation of Financial Reports by Securities Issuers, financial assets are classified as financial assets at fair value through profit or loss, financial assets carried at cost, or available-for-sale financial assets, as appropriate. Financial liabilities are classified either as financial liabilities at fair value through profit or loss, or as financial liabilities at cost. B. The Company accounts for purchases and sales of financial assets on the trade date, or the date when the Company commits to purchase or sell the asset. At initial recognition, financial assets are recognized at fair value plus, in the case of investments that are not reported at fair value through profit or loss, directly attributable transaction costs. (A) Financial assets measured at fair value through profit or loss These financial assets are subsequently measured at fair value with changes in fair value recognized in profit and loss. Stocks of listed companies, convertible bonds and closed-end funds are measured at closing prices at the balance sheet date. Open-end funds are measured at the unit price of the net assets at the balance sheet date.

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(B) Available-for-sale financial assets Available for sale financial assets are those non-derivative financial assets that are designated as available for sale or not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, or loans and receivables. These assets are then measured at fair value. The gain or loss arising from change in fair value, excluding impairment loss and exchange gain or loss from the translation of monetary financial assets denominated in foreign currencies, is recognized in a separate component of stockholders equity until such investment is reclassified or disposed of, upon which the cumulative gain or loss previously charged to stockholders equity is transferred to current profit or loss. (C) Financial assets carried at cost Equity investments without reliable market prices, including emerging and other unlisted stocks, are measured at cost. If objective evidence of impairment exists, the Company recognizes impairment loss, which is not reversed in subsequent periods. C. Subsequent to initial recognition, the Company measures all financial liabilities at amortized cost except for financial liabilities at fair value through profit or loss, which are measured at fair value. (4) Notes and accounts receivable and other receivables A. Notes and accounts receivable are claims resulting from the sales of goods or services. Other receivables are those arising from transactions other than the sale of goods or services. Before December 31, 2010, allowance for doubtful accounts is provided according to the evaluation of the collectibility of notes and accounts receivable and other receivables, taking into account the bad debts incurred in prior years and the aging analysis of the receivables. B. Effective January 1, 2011, notes and accounts receivable and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. A provision for impairment is established when there is objective evidence that the receivables are impaired. The amount of the provision is the difference between the assets carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. When the fair value of the asset subsequently increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed to the extent of the loss previously recognized in profit or loss. Such recovery of impairment loss shall not make the assets carrying amount greater than its amortized cost where no impairment loss was recognized. Subsequent recoveries of amounts previously written off are recognized in profit or loss. (5) Inventories The costs of inventories consist of those necessary expenditures incurred in bringing each item of inventory to its usable condition and location. Cost is calculated on a weighted-average basis. Inventories are valued at the lower of cost or net realizable value. Net realizable value by item is determined based on the estimated selling price in the ordinary course of business, less estimated costs of completion and costs to sell.

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(6)

Long-term equity investments accounted for under equity method A. Long-term investments are accounted for under the equity method when the percentage of ownership held by the Company and its subsidiaries exceeds 20% or if the Company and its subsidiaries own less than 20% of the investees common stock but have significant influence on the investees operations. If an investee company accounted for under the equity method issues new shares and the Company does not purchase new shares proportionately, then the investment percentage, and therefore the equity in net assets of the investee, will be changed. The effect of such change is adjusted against the additional paid-in capital resulting from long-term equity investments or retained earnings. B. The difference between the cost of the investment and the amount of underlying equity in net assets of an investee attributed to depreciable, depletable, or amortizable assets is amortized over the estimated remaining economic years. The difference attributed to the carrying amount in excess of or lower than the fair value of assets is written off entirely when the difference disappear. The cost of investment in excess of the fair value of identifiable net assets is recognized as goodwill and is no longer amortized. The difference attributed to the fair value of identifiable net assets in excess of the cost of investment causes a proportional decrease in the carrying amount of non-current assets. When the carrying amount of non-current assets is reduced to zero, the remaining difference is recorded as extraordinary gain or loss. C. When the equity of long-term equity investment under the equity method including unrealized gain on financial instruments, foreign currency translation adjustments, net loss not recognized as pension cost, and unrealized losses on cash flow hedges is changed, the changes in percentage of ownership are reflected in those related accounts and long-term equity investment under the equity method. D. Unrealized inter-company profit or loss resulting from transactions between the Company and investees accounted for under the equity method are accounted in unrealized gain on inter-affiliate accounts and deferred until realized. E. The investees over which the Company has control are accounted for under the equity method. The Company prepares consolidated financial statements on a quarterly basis.

(7) Property, plant and equipment, leased assets and idle assets A. Property, plant and equipment are stated at cost. Cost associated with significant additions, improvements, and replacements to property, plant and equipment are capitalized. Expenditures for regular repairs and maintenance are charged against operating income. B. Property, plant and equipment leased to other parties under operating leases are classified as leased assets. The related depreciation is provided under the straight-line method based on the assets estimated useful lives and accounted for as a reduction of rental income. Property, plant and equipment not currently used in operations are transferred to idle assets. The cost, accumulated depreciation, and accumulated impairment of the original assets not currently used in operations are all transferred to idle assets, and depreciated. C. Depreciation is provided under the straight-line method over the estimated lives of the assets. Salvage value of the fully depreciated assets that are still in use is depreciated over the re-estimated useful lives. The estimated useful lives of buildings are 3~50 years, machinery and equipment are 3~8 years and other equipment are 1~15 years.
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(8)

Intangible assets and deferred expenses Intangible assets represent computer software, which are amortized using the straight-line method over 3 years. Deferred expenses represent office decorations, which are amortized using the straight-line method over 2 ~ 5 years.

(9)

Impairment of non-financial assets A. The Company assesses all applicable assets subject to Statement of Financial Accounting Standards (SFAS) No. 35 for indication of impairment at the balance sheet date. If any indication of impairment exists, the Company then compares the carrying amount with the recoverable amount of the assets or the cash-generating unit (CGU) and writes down the carrying amount to the recoverable amount. If the recoverable amount of an asset other than goodwill has increased as a result of the increase in its estimated service potential, the Company reverses the impairment loss to the extent that the carrying amount after the reversal would not exceed the amount (net of amortization or depreciation) that would otherwise result had no impairment loss been recognized in prior periods. B. The Company assesses the goodwill and intangible assets that have indefinite lives or that are not yet available for use periodically on an annual basis and recognizes an impairment loss on the carrying value in excess of the recoverable amount. The loss is first recorded against the goodwill allocated to the CGU, with any remaining loss allocated to other assets on a pro rata basis proportionate to their carrying amounts. The write-down of goodwill cannot be reversed in subsequent periods under any circumstances.

(10) Convertible bonds payable Bonds issued after January 1, 2006 are accounted for in accordance with SFAS No. 36 and Interpretations (95) 290, (97) 331 and (98) 046 by the Accounting Research and Development Foundation (ARDF) as follows: A. The issuance costs are allocated to the related liability and equity components in proportion of the initially recognized amounts. B. Convertible bonds bearing a clause on conversion price adjustment based on stock market price do not include the equity component. For the liability components, the fair value of the conversion right and call/put option is determined first, and then the book value of main debt component is determined based on the net amount of the issuance price after deducting the fair value of the call/put option and conversion right with a clause on price adjustment. C. Convertible bonds are subsequently measured at amortized cost. Derivatives with call/put options and conversion rights with a clause on price adjustment are recognized as financial liabilities at fair value through profit or loss and are subsequently measured at fair value. Movements in the fair value of the derivatives are recognized as gain/(loss) on valuation of financial liabilities. D. If the bondholder exercises the right to convert the bonds ahead of the maturity date of the bond, the book value of the liability component is adjusted to the value on the conversion date, which serves as the basis for the recording of the issuance of common stock so that no conversion gain and loss is recognized thereon.

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E. If the bondholder is eligible to exercise the put option within one year, the bonds payable are reclassified as current liability. When the put option expires, those bonds payable are reclassified as long-term liability if the liability meets the definition of long-term liability. (11) Pension A. Under the defined benefit pension plan, net periodic pension costs are recognized in accordance with the actuarial calculations. Net periodic pension costs include service cost, interest cost, expected return on plan assets, and amortization of unrecognized net transition obligation and gain or loss on plan assets. Unrecognized net transition obligation is amortized on a straight-line basis over the employees remaining service period. B. Under the defined contribution pension plan, net periodic pension costs are recognized as incurred. (12) Income tax A. Income tax is calculated on the basis of accounting income. The differences between the tax bases and the book values of assets and liabilities are recorded as deferred tax using the enacted tax rates for the periods in which the deferred tax is expected to be reversed. The tax effects from taxable temporary differences are recognized as deferred tax liabilities, while the deductible temporary differences and investment tax credits are accounted for as deferred tax assets, which are assessed for an allowance for deferred tax assets based on future realization. B. Deferred income tax assets or liabilities are classified as current or non-current based on the classification of items that resulted in the deferred item or based on the timing of the expected reversal, for certain transactions not directly related to an asset or liability. When a change in the tax laws is enacted, the deferred tax liability or asset is recomputed accordingly in the period of change. The difference between the new amount and the original amount, that is, the effect of changes in the deferred tax liability or asset, is recognized as an adjustment to current income tax expense (benefit). C. Over or under provision of prior years income tax liabilities is included in current years income tax. D. The 10% additional income tax on unappropriated earnings is recorded as current income tax expense in the year when the shareholders resolve not to distribute the earnings. E. Current income tax is the higher of current income tax payable or the Alternative Minimum Tax (AMT) calculated by applying the Income Basic Tax Act (IBTA). The Company has taken into consideration the impact of the AMT in the determination of its current income tax expense and its future impact when estimating the realizable value of the deferred tax assets.

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(13) Treasury stock A. When a company acquires its outstanding shares as treasury stock, the acquisition cost should be debited to the treasury stock account (a contra account under stockholders equity) if the shares are purchased. B. When a companys treasury stock is retired, the treasury stock account should be credited, and the capital surplus-premium on stock account and capital stock account should be debited proportionately according to the share ratio. An excess of the carrying value of treasury stock over the sum of its par value and premium on stock should first be offset against capital surplus from the same class of treasury stock transactions, and the remainder, if any, debited to retained earnings. An excess of the sum of the par value and premium on stock of treasury stock over its carrying value should be credited to additional paid-in capital from the same class of treasury stock transactions. C. The cost of treasury stock is accounted for on a weighted-average basis. (14) Employees bonuses and directors and supervisors remuneration and share-based payment Pursuant to Interpretation (96) 052 issued by the ARDF, the costs of employees bonuses and directors and supervisors remuneration are accounted for as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and the amounts can be estimated reasonably. However, if the accrued amounts for employees bonuses and directors and supervisors remuneration are significantly different from the distributed amounts resolved by the Board of Directors, then the differences shall be adjusted in current years gain or loss (the year of recognition) and, if the accrued amounts for employees bonus and directors and supervisors remuneration are significantly different from the actual distributed amounts resolved by the stockholders at their annual stockholders meeting subsequently, the differences shall be recognized as gain or loss in the following year treated as accounting estimate difference. In addition, according to Interpretation (97) 127 issued by the ARDF, the Company calculates the number of shares of employees stock bonus based on the closing price of the Companys common stock at the previous day of the stockholders meeting held in the year following the financial reporting year, and after taking into account the effects of ex-rights and ex-dividends. The Company adopts SFAS No. 39 to account for the transfer of equity instruments from shareholders to the Groups employees. (15) Earnings per share A. Earnings per share of common stock is computed based on the weighted-average number of common shares outstanding during the period. Earnings per share for prior period is retroactively adjusted to reflect the effects of new shares issued from the capitalization of additional paid-in capital or retained earnings. B. The convertible bonds and employee stock bonuses which have not yet been approved in the stockholders meeting are potential common shares. Only basic earnings per share is disclosed if there is no dilutive effect. Otherwise, both basic and diluted earnings per share are disclosed. For the purpose of calculating diluted earnings per share, the potential common shares are deemed to have been converted into common stock at the beginning of the period, and the effect on net income of the additional common shares outstanding is considered accordingly.
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(16) Revenues, costs and expenses The Company recognizes revenue when the earning process has been significantly completed, which means the revenue has been realized or is readily realizable and earned. Cost is recognized when the related revenue is accrued; expenses are recognized as current expenses when incurred. (17) Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. Actual results could differ from those assumptions and estimates. (18) Spin-off transaction The Company resolved to spin off its OEM assets and businesses. The Company adopted Interpretations (91) 128, (92) 106 and (92) 107 issued by the ARDF to account for its spin-off transactions. Since the transferee company continues the transferor companys economic activities, the Company did not record any gain or loss from the said spin-off transaction but has adjusted the net assets and long-term equity investment related additional paid-in capital and other equity account against retained earnings or other components. (19) Operating segments In accordance with SFAS No. 41, Segment reporting, operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. 3. CHANGES IN ACCOUNTING PRINCIPLES (1) Notes and accounts receivable Effective January 1, 2011, the Company adopted the amendments of SFAS No. 34, Accounting for Financial Instruments. Under this standard, a provision for impairment (bad debt) of accounts and notes receivable and other receivables is established when there is objective evidence that they are impaired. This change in accounting principle had no significant effect on the net income for the six-month period ended June 30, 2011. (2) Operating segments Effective January 1, 2011, the Company adopted SFAS No. 41, Segment Reporting, replacing the original SFAS No. 20, Disclosure of Segment Financial Information. The segment information for the six-month period ended June 30, 2010 has been prepared retrospectively. This change in accounting principle had no significant effect on the net income and earnings per share for the six-month periods ended June 30, 2011 and 2010.

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4. DETAILS OF SIGNIFICANT ACCOUNTS (1) Cash and cash equivalents

2011/6/30 Petty cash and cash on hand Checking and demand deposits Time deposits $ 250 19,555 21,535,212 21,555,017 $ 2010/6/30 263 392,244 16,475,232 16,867,739

(2) Financial instruments The financial instruments held by the Company are as follows:
Items Current: Financial assets measured at fair value through profit or loss: Open-end funds Convertible bonds Financial liabilities measured at fair value through profit or loss: Call/put options and conversion right - convertible bonds Forward exchange contracts 2011/6/30 20101/6/30

$ $

9,376,515 108,000 9,484,515

$ $

5,821,008 5,821,008

23,610 15,238 38,848

139,296 111,841 251,137

A. For the six-month periods ended June 30, 2011 and 2010, the Company recognized net financial assets gain on valuation of $22,676 and $1,496, respectively, and net financial liabilities loss on valuation of $72,530 and $89,956, respectively. B. The trading items and contract information of derivatives are as follows:
2011/6/30 Contract Amount Items Derivative financial liabilities Forward exchange contracts USD 120,000 2011.05~2011.08 USD 518,000 2010.05~2010.09 (Nominal principal) (in thousands) Contract Period 2010/6/30 Contract Amount (Nominal principal) (in thousands) Contract Period

The main purpose of the Companys entering into foreign currency contracts was to hedge foreign currency risk from operating activities. As of June 30, 2011 and 2010, the Company did not meet the criteria for hedge accounting. C. Please see Note 4(11) on Bonds payable.

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(3) Available-for-sale financial assets

Items Current: Stocks of listed companies AZURE EDISON NUVOTON D-LINK ENE ALCOR MICRO Non-Current: Stocks of listed companies ADVANTECH Others 2011/6/30 2010/6/30

308,802 31,800 29,832 52,453 54,774 477,661

252,149 252,149

$ $

7,428,244 59,027 7,487,271

$ $

5,030,808 59,442 5,090,250

For available-for-sale financial assets, the amount of gain (loss) recognized directly in equity was $1,053,950 and $(529,249) for the six-month periods ended June 30, 2011 and 2010, respectively. (4) Financial assets carried at cost
Items Current: Stocks of unlisted companies AZUREWAVE CAYMAN EDISON GREENASUS
Non-current: Stocks of unlisted companies AZURE AMTRUST CAPITAL I LEDLINK UPI SEMICONDUCTOR NUVOTON Others Less: provision for impairment

2011/6/30

2010/6/30

372 372

372 40,000 790 41,162

( $

100,000 31,500 24,500 1 156,001 37,141) 118,860

( $

202,660 100,000 45,000 135,000 482,660 37,141) 445,519

A. The above investments were measured at cost since there are no public quotes in active markets and their fair value cannot be measured reliably.

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B. GREENASUS and AZUREWAVE CAYMAN began their liquidation procedures in December and October 2009, respectively. The Company has discontinued applying the equity method in accordance with related regulations. In addition, the Company and its subsidiaries lost significant influence on AZURE on June 1, 2010, the spin-off date, and accordingly discontinued applying the equity method. C. After evaluating and comparing the carrying value of financial assets carried at cost and the recoverable amount, no impairment loss was recognized for the six-month periods ended June 30, 2011 and 2010. (5) Accounts receivable
2011/6/30 Accounts receivable Less: allowance for doubtful accounts (provision for impairment) $ ( $ 11,105,902 148,217) 10,957,685 $ ( $ 2010/6/30 2,413,501 56,128) 2,357,373

(6)

Inventories
2011/6/30 Raw materials Work in process Finished goods Merchandise inventory Inventories in transit Less: allowance for inventory valuation loss and obsolescence $ 6,014,734 1,455,220 753,395 14,203,744 62,694 22,489,787 2,120,541) 20,369,246 $ 2010/6/30 6,865,323 1,306,690 508,825 18,424,259 712,947 27,818,044 1,854,803) 25,963,241

( $

( $

The amount of inventories recognized as net loss (gain) amounted to $229,366 and ($526,176), of which ($229,266) and $533,251 were recognized as (increase) deduction from cost of sales due to a (loss) reversal of inventory cost to its net realizable value for the six-month periods ended June 30, 2011 and 2010, respectively.

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(7)

Long-term equity investments A. Details of long-term equity investments accounted for under the equity method are as follows:
2011/6/30 Carrying amount 21,078,323 13,278,463 9,060,336 2,626,373 1,179,672 809,206 761,314 662,581 1,309,082 50,765,350 2010/6/30 Percentage of ownership 23.99 100.00 100.00 100.00 100.00 100.00 100.00

Investee company PEGA AIL ASKEY SYT HCVC ASUTC HMI AHL Others

Percentage of Carrying ownership amount 24.45 $ 22,786,712 100.00 10,065,887 100.00 8,893,294 47.00 100.00 1,052,117 100.00 625,770 100.00 209,262 100.00 615,279 1,203,219 $ 45,451,540

B. The investment (loss) income recognized under the equity method amounted to ($57,172) and $532,389 for the six-month periods ended June 30, 2011 and 2010, respectively which were determined based on the investees unaudited financial statements. As of June 30, 2011 and 2010, the related long-term equity investments (deferred credits) amounted to $14,454,545 ($869,104) and $14,644,548 ($822,862), respectively. C. On June 1, 2010, the Company transferred the OEM assets and business (the Companys long-term equity investment in PEGA) to PII. PII then issued new shares to the Company and its shareholders as consideration. The Company then obtained 25% ownership of the consolidated PEGA and PII (PII is the dissolved company.) The long-term investment decreased by $70,197,726 after this transaction. D. AHL decreased its capital and the Company received a return of capital amounting to $1,061,951 for the six-month period ended June 30, 2010. E. SYT had a cash capital increase on January 10, 2010, and the Company invested $2,500,400. After the capital increase, the Company held 45,120,000 shares of SYT, representing 47% ownership. F. The unrealized loss on financial assets resulting from long-term equity investments (including unrealized gain on cash flow hedge) were $578,709 and $410,859 for the six-month periods ended June 30, 2011 and 2010, respectively. G. The Company received cash dividends during the six-month periods ended June 30, 2011 and 2010 amounting to $800,194 and $4,005,594, respectively, accounted for as a deduction from long-term equity investment. H. As approved by the authorities and in compliance with the related regulations, SYT had obtained 86,220,000 shares of AAEON, and the merger record date was set on June 1, 2011. After the merger, SYT was the surviving company, and SYT has been approved by the authorities on July 4, 2011 to change its name to AAEON.
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(8) Property, plant and equipment

2011/6/30 Accumulated depreciation and impairment $ ( ( ( ($ 367,008) 302,492) 1,578,165) 2,247,665)
2010/6/30 Accumulated depreciation and impairment $ ( ( ( ($ 428,548) 671,597) 833,205) 1,933,350)

Land Buildings Instruments and equipment Other equipment Prepayments for equipment

Initial cost 981,191 2,312,517 460,465 2,072,533 115,568 5,942,274

Book value 981,191 1,945,509 157,973 494,368 115,568 $ 3,694,609 $

Land Buildings Instruments and equipment Other equipment Prepayments for equipment

Initial cost 981,191 2,421,641 916,064 1,839,157 120,924 6,278,977

Book value $ 981,191 1,993,093 244,467 1,005,952 120,924 $ 4,345,627

A. After evaluating and comparing the carrying value of property, plant and equipment and its recoverable amount, the Company recognized loss on impairment of $335,171 and $0 for the six-month periods ended June 30, 2011 and 2010, respectively. B. Property, plant and equipment are not pledged as collateral. (9) Leased assets
2011/6/30 Initial cost Land Buildings Less: accumulated depreciation - buildings $ 38,233 80,731 118,964 22,285) 96,679 $ 2010/6/30 38,233 80,731 118,964 20,877) 98,087

( $

( $

Leased assets are not pledged as collateral.

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(10) Idle assets

Other equipment Less: accumulated depreciation Less: accumulated impairment $ ( ( $ 2011/6/30 1,338,232 1,028,773) 309,459) $ ( ( $ 2010/6/30 1,336,601 1,028,773) 307,828) -

A. There is no indication of cash flow in future years for idle assets which are currently not used for operations; therefore, the Company recognized the net fair value as the recoverable amount. After evaluating and comparing the carrying value of idle assets and their recoverable amount, the Company recognized the loss on impairment of $0 and $6,211 for the six-month periods ended June 30, 2011 and 2010, respectively. B. Idle assets are not pledged as collateral. (11) Bonds payable The details of domestic unsecured convertible bonds are as follows:
2011/6/30 12,000,000 7,000) 9,533,600) 19,390) 2,440,010 2,440,010) 2010/6/30 12,000,000 7,000) 8,187,100) 115,738) 3,690,162 3,690,162) -

Aggregate principal amount Accumulated converted amount Accumulated redeemed amount Discount on bonds payable Less: convertible bonds payableLess: redeemable within one year Total

$ ( ( ( ( $

$ ( ( ( ( $

2011/6/30 Debt-component embedded derivative: call/put option and conversion option price/reset conversion rights $ 23,610 23,610 $

2010/6/30 26,261 113,035 139,296

Gain on valuation of financial liabilities Interest expense

2011/1/1~6/30 $ 80,914 $ 27,700

2010/1/1~6/30 $ 146,527 $ 42,866

A. The Company issued the redeemable domestic unsecured convertible bonds on November 7, 2006. The main issuance terms of that are as follows: (A) Total amount of the convertible bonds at issuance: $12,000,000 (B) Nominal rate: 0% (C) Duration of issuance: 5 years (from November 7, 2006 to November 7, 2011)
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(D) Conversion period: Each bondholder has the right to convert all or from time to time any portion of its convertible bonds into common shares during the conversion period (up to 31 days after the original issue date to 10 days before the maturity date). (E) Conversion price and adjustment: The conversion price is $105.4 (in dollars) per common share initially. The conversion price will be adjusted upon the occurrence of an increase in the number of common shares. On June 24, 2010, the Company adjusted further the conversion price to $345.8 (in dollars), considering the effect of capital reduction. (F) Call option: The Company could redeem the convertible bonds at par value at any time during the period from December 8, 2006 to September 28, 2011, under the following conditions: the closing price of the common shares on each of 30 consecutive trading days reaches or exceeds 50% of the conversion price, or the outstanding balance of the bonds is less than 10% of the original issuance. (G) Put option: Each bondholder has the right to put the convertible bonds at par value after the 3rd and 4th year. B. The fair value of non-equity convertible options, put options, call options and resetting options embedded in bonds payable was separated from bonds payable, and was recognized in Financial assets or liabilities at fair value through profit or loss in accordance with SFAS No. 34. (12) Pension A. Effective from 1995, the Company adopted SFAS No. 18, Accounting for Pensions. The funding status of the pension plan as of December 31, 1995 was measured on an actuarial basis. In accordance with SFAS No. 18, net pension cost was recognized from January 1, 1996. Because the accrued pension liability was equal to the funding status of the pension plan, no unrecognized transitional net assets or net obligations shall be amortized in the future. In addition, except for a few foreign employees, the Company had settled its financial obligations to its employees under the pension plan accounted for based on SFAS No. 18 at December 31, 2007. B. Effective July 1, 2005, the Company has established a funded defined contribution pension plan (the New Plan) under the Labor Pension (the Act) for all employees except for few foreign employees. Under the New Plan, the Company contributes monthly an amount based on not less than 6% of the employees monthly salaries and wages to the employees individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are portable when the employees are terminated. The pension costs under defined contribution pension plan for the six-month periods ended June 30, 2011 and 2010 were $68,501 and $65,927, respectively. C. For the six-month period ended June 30, 2011, the Company obtained approval from the Labor Affairs Bureau, Taipei, for the suspension of the monthly contributions to the pension fund for foreign employees under the Labor Standards Law. (13) Common stock A. As of June 30, 2011, the Companys authorized capital was $47,500,000, consisting of 4,750,000,000 shares of common stock (including 50,000,000 shares which were reserved for

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employee stock options), and the paid-in capital was $6,170,166 with a par value of $10 (in dollars) per share. B. In order to maximize the efficiency of the own-brand business and to diversify the OEM business, the Company held a special shareholders meeting on February 9, 2010 and resolved to decrease its authorized capital by 85% and transfer its OEM business. The record date for the capital reduction and transfer is June 1, 2010. The capital reduction, which amounted to $36,097,609, was authorized by Financial Supervisory Commission, Executive Yuan, on April 9, 2010. The registration procedures related to the reduction were completed on June 21, 2010. C. On June 6, 2011, the shareholders resolved to declare stock dividends of $1,357,437 (which was recognized as "Stock dividends to be distributed"). The capital increase has been approved by the Financial Supervisory Commission, Executive Yuan, The Company announced August 6, 2011 as the ex-right (ex-dividend) record date. D. As of June 30, 2011, the Company issued Global Depositary Receipts (GDRs), of which 4,787,000 units of the GDRs are now listed on the London Stock Exchange. Per unit of GDR represents 5 shares of the Companys common stock and total GDRs represent 23,934,000 shares of the Companys common stock. The terms of GDR are as follows: (A) Voting rights GDR holders may, pursuant to the Depositary Agreement and the relevant laws and regulations of the R.O.C., exercise the voting rights pertaining to the underlying common shares represented by the GDRs. (B) Dividends, stock warrants and other rights GDR holders and common shares holders are all entitled to receive dividends. The Depositary may issue new GDRs in proportion to GDRs holding ratios or raise the number of shares of common stock represented by each unit of GDR or sell stock dividends on behalf of GDR holders and distribute selling income to them in proportion to their GDRs holding ratios. (14) Additional paid-in capital The Securities and Exchange Act requires that capital reserve shall be exclusively used to cover accumulated deficit or to increase capital and shall not be used for any other purpose. However, capital reserve arising from paid-in capital in excess of par value on issuance of common stock and donations can be capitalized once a year, provided that the Company has no accumulated deficit and the amount to be capitalized does not exceed 10% of the paid-in capital. (15) Retained earnings A. According to the Companys articles of incorporation, annual net income after covering prior years losses, if any, should be distributed as follows: 10% as legal reserve, an appropriate amount as special reserve according to relevant regulation or as required by the government, 10% of capital stock as capital interest, no less than 1% as employees bonuses, and no more than 1% as directors and supervisors bonuses. When the employees bonuses are distributed in stock, the recipients must include the employees of subsidiaries. After the distribution of earnings, the remaining earnings, if any, may be appropriated according to a resolution adopted in the stockholders meeting.
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B. The Company is facing a rapidly changing industrial environment, with the life cycle of the industry in the growth phase. In light of the long-term financial plan of the Company and the demand for cash by the stockholders, the Company should distribute cash dividends of not less than 10% of the total dividends declared. C. Except for covering accumulated deficit or increasing capital, the legal reserve shall not be used for any other purpose. Capitalization of the legal reserve is permitted, provided that the balance of the reserve exceeds 50% of the Companys paid-in capital and the amount capitalized does not exceed 50% of the balance of the reserves. D. The appropriation of 2010 and 2009 earnings had been resolved at the stockholders meeting on June 9, 2011 and April 22, 2010, respectively. Details are summarized as follows:
2010 Dividends per share (in dollars) $ 14.00 2.20 2009 Dividends per share (in dollars) $ 2.10 -

Cash dividends Stock dividends Directors' and supervisors' remuneration Employees' cash bonus

Amount $ 8,638,233 1,357,437 142,125

Amount $ 8,918,232 69,844

710,625

698,438

(A) The appropriation of 2010 earnings stated above is the same as that proposed by the Board of Directors on April 20, 2011. (B) There was no difference between the actual amounts of employees bonuses and directors and supervisors remuneration for 2010 and 2009 with the amounts accrued as expenses in the 2010 and 2009 financial statements. E. The Company estimates the amount of employees bonuses and directors and supervisors remuneration according to the Company Law and the Companys articles of incorporation. The employees bonuses and directors and supervisors remuneration were estimated and recognized based on a specific percentage approved by the management in accordance with the Companys articles of incorporation. The Company recognized employees bonuses of $284,866 and $339,776, and directors and supervisors remuneration of $56,973 and $67,955 for the six-month periods ended June 30, 2011 and 2010, respectively. The number of shares of the dividend distribution is based on the closing price of the day before the stockholders meeting date and considering the effect of ex-rights and ex-dividends. Differences between the amounts approved in the stockholders meeting and those recognized in the financial statements, if any, are accounted for as changes in accounting estimates and recognized as profit or loss in the year of distribution.

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(16) Treasury stock A. In order to maintain the Companys credibility and stockholders interest, the Company based on the
Securities and Exchange Act No. 28(2) to purchase of treasury stock for the six-month periods ended June 30, 2010 and 2011, respectively. Movements of treasury stock were as follows:

2011/1/1~6/30 Shares Beginning of the period Addition Cancellation Ending of the period

2010/1/1~6/30 Shares

(in thousands) Amount (in thousands) Amount - $ - $ 10,000 2,609,422 2,090 507,780 ( 10,000) ( 2,609,422) - $ 2,090 $ 507,780

B. Pursuant to the Company Act, the Company purchased 54,000 shares, amounting to $3,105, from
shareholders who disagreed with the transfer of the Companys OEM business. However, the Company subsequently disposed those shares in the open market after they were purchased.

C. Pursuant to the Securities and Exchange Act, the number of shares bought back as treasury stock should not exceed 10% of the number of the Companys issued and outstanding shares and the amount bought back should not exceed the sum of retained earnings, paid-in capital in excess of par value and realized capital reserve. D. Pursuant to the Securities and Exchange Act, treasury stock should not be pledged as collateral and is not entitled to dividends before it is reissued. E. Pursuant to the Securities and Exchange Act, treasury stock for the purpose of enhancing the Companys credit worthiness and stockholders right should be retired within six months after acquisition. (17) Income tax A. According to the amended tax law issued on May 27, 2009, the statutory income tax rate was reduced from 25% to 20%, effective January 1, 2010. However, further amendment of this tax law was made and announced on June 15, 2010, under which, the statutory income tax rate has been reduced further to 17%. The Company is subject to income tax rate at a statutory rate of 17% for the six-month periods ended June 30, 2011 and 2010. The Company is also subject to the Income Basic Tax Act to calculate income tax. The components of income tax expense of the Company for the six-month periods ended June 30, 2011 and 2010 are as follows:

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Current income tax 10% additional income tax on unappropriated earnings Deferred income tax expense (benefit): Increase in unrealized sales profit on inter-affiliate accounts Decrease in unrealized purchase discounts (Increase) decrease in inventory valuation loss Increase in investment income under the equity method Decrease in unrealized accrued expense Tax effect resulting from change in income tax rate Others Income tax expense

2011/1/1~6/30 $ 800,593 484,385 1,284,978 ( ( ( 21,535) 79,842) 38,975) 70,014 2,026 65,099 3,213) 1,281,765 ( (

2010/1/1~6/30 $ 817,586 817,586 89,533) 203,826) 106,651 667,864 921 98,675) 37,346 420,748 1,238,334

( $

B. The income tax computed on pre-tax financial income at the statutory rate was reconciled with the income tax expense as follows:
2011/1/1~6/30 $ 1,410,609 484,385 ( ( 430,913) 431,700) 11,831 273,884 46,190) 9,859 1,281,765 ( ( ( 2010/1/1~6/30 $ 1,614,470 383,466) 20,762) 17,516 11,422) 4,922 17,076 1,238,334

Income tax calculated on pre-tax financial income 10% additional income tax on unappropriated earnings Investment tax credits Tax effect of correction of minimum tax Effect of change in income tax rate Unrealized valuation gain or loss Difference between prior year's income tax estimation and assessed results Effect of change in exchange rate Others Income tax expense

( $

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C. The components of deferred income tax assets (liabilities) are as follows:

2011/6/30 Deferred income tax assets: Unrealized sales profit Unrealized purchase discounts Inventory provisions Unrealized accrued expenses Others Deferred income tax liabilities: Investment income recognized under the equity method (overseas) Others $ 241,515 516,073 360,492 145,741 52,616 1,316,437 2,009,848) 293,067) 2,302,915) 986,478)
2011/6/30 970,762 1,957,240) 986,478)

2010/6/30 $ 280,895 367,855 315,316 210,667 23,994 1,198,727 1,551,779) 206,108) 1,757,887) 559,160)
2010/6/30 1,144,927 1,704,087) 559,160)

( ( ( ($
$ ( ($

( ( ( ($
$ ( ($

Net deferred income tax assets - current Net deferred income tax liabilities non-current

D. The tax authorities have examined the Companys income tax returns through 2008 except for the year 2006. The tax authorities assessed the Company for additional income tax of $870,587 for the years 1996, 1998 and 2008. The Company disagreed with the assessment and filed formal tax appeals. The additional income tax liability for these assessments was recognized in current income tax. E. The Company recalculated the disposal costs of stock dividends received at their par value in accordance with the Tai-Cai-Shui Letter No. 09900179790 of the Ministry of Finance, dated August 6, 2010, and applied with the tax authority for correction of 2008 income tax return. The correction resulted in income tax refundable amounting to $431,700. F. Imputation credit account and creditable ratio
ICA balance Creditable ratio for earnings distribution $ 2011/6/30 13,286,468 2010 (Expected) 18.01% $ 2010/6/30 11,720,021 2009 (Actual) 20.34%

G. Unappropriated retained earnings

2011/6/30 Earnings generated in and before 1997 Earnings generated in and after 1998 $ $ 67,731,098 67,731,098 $ $ 2010/6/30 2,858,368 65,865,406 68,723,774

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(18) Earnings per share

2011/1/1~6/30 Weightedaverage outstanding Amount Before tax Basic earnings per share: Net income Dilutive effect of common stock equivlents: Convertible bonds Employees' bonus Net income attributable to common stockholders plus dilutive effect of common stock equivalents $ 8,244,483 $ 6,962,718 765,998 $ 10.76 $ 9.09 ( 53,214) ( 53,214) 7,112 4,095 $ 8,297,697 $ 7,015,932 754,791 $ 10.99 $ 9.30 After tax common shares (in thousands) Earnings per share (in dollars) Before tax After tax

2010/1/1~6/30 Weightedaverage Amount Before tax Basic earnings per share: Net income Dilutive effect of common stock equivalents: Convertible bonds Employees' bonus Net income attributable to common stockholders plus dilutive effect of common stock equivalents $ 9,393,224 $ 8,154,890 4,519,733 $ 2.08 $ 1.80 ( 103,661) ( 103,661) 60,511 12,245 $ 9,496,885 $ 8,258,551 4,446,977 $ 2.14 $ 1.86 After tax outstanding common shares (in thousands) Earnings per share (in dollars) Before tax After tax

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(19) Personnel, depreciation, and amortization expenses Personnel, depreciation, and amortization expenses are summarized as follows:
2011/1/1~6/30 Operating Operating cost Personnel expenses Salaries Labor and health insurance Pension Others Depreciation Amortization 2,259 3,082 455,538 156 66,242 66,058 102,413 60,624 68,501 69,140 557,951 60,780 2,463 4,078 284,693 334 63,464 69,017 105,205 126,787 65,927 73,095 389,898 127,121 $ 92,829 3,984 $ 2,876,952 108,777 $ 2,969,781 112,761 $ 80,027 3,401 $ 2,296,027 86,224 $ 2,376,054 89,625 expense Total Operating cost 2010/1/1~6/30 Operating expense Total

5. RELATED PARTY TRANSACTIONS (1) Names and relationships of the related parties
Related Party ASUS COMPUTER INTERNATIONAL (ACI) ASKEY COMPUTER CORP. (ASKEY) AXUS MICROSYSTEMS INC. (AXUS) SHINEWAVE INTERNATIONAL INC. (SWI) ASUS HOLLAND B.V. (ACH) ASUSTEK HOLDINGS LIMITED (AHL) ASUS INTERNATIONAL LIMITED (AIL) ASUSCHANNEL CORPORATION (ASUSCH) ASUS TECHNOLOGY INCORPORATION (ASUTC) ASMEDIA TECHNOLOGY INC. (ASMEDIA) ECAREME TECHNOLOGIES, INC. (ECAREME) INTERNATIONAL UNITED TECHNOLOGY CO., LTD. (TAIWAN) (IUT) HUA-CHENG VENTURE CAPITAL CORP. (HCVC) HUA-MIN INVESTMENT CO., LTD. (HMI) AGAIT TECHNOLOGY CORPORATION (AGA) ENERTRONIX, INC. (EN) SHUO-YANG TECHNOLOGY INC. (SYT) CHANNEL PILOT LIMITED (CHANNEL) ASUS TECHNOLOGY PTE. LIMITED (ASTP) ASUS TECHNOLOGY (HONG KONG) LIMITED (ACHK) ASUS COMPUTER BENELUX B.V. (ACBNL) ASUS COMPUTER GMBH (ACG) ASUS FRANCE SARL (ACF) Relationship with the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company (Note 6) Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company

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Related Party ASUSTEK (UK) LIMITED (ACUK) ASUS KOREA CO., LTD. (ACKR) ASUSTEK COMPUTER (S) PTE. LTD. (ACSG) ASUS POLSKA SP. Z O.O. (ACPL) ASUS TECHNOLOGY PRIVATE LIMITED (ACIN) ASUS TECHNOLOGY HOLLAND B.V. (ACNL) ASUS TECHNOLOGY (VIETNAM) CO. LTD. (ACVN) ASUSTEK ITALY S.R.L. (ACIT) ASUS MIDDLE EAST FZCO (ACAE) ASUS IBERICA S.L. (ACIB) ASUS TECHNOLOGY (SUZHOU) CO., LTD. (ACSZ) ASUSTEK COMPUTER (SHANGHAI) CO., LTD. (ACSH) ASUS JAPAN INCORPORATION (ACJP) ASUS COMPUTER CZECH REPUBLIC S.R.O. (ACCZ) ASUS EGYPT L. L. C. (ACEG) ASUS CZECH SERVICE S.R.O. (ACCZS) DEEP DELIGHT LIMITED (DDL) ASUS COMPUTER CORPORATION (ACBVI) ASUS SERVICE AUSTRALIA PTY LIMITED (ASAU) ASUS AUSTRALIA PTY LIMITED (ACAU) UNIMAX HOLDINGS LIMITED (UHL) UNIMAX ELECTRONICS INCORPORATION (UEI) CENTRAL TEC ASIA LIMITED (CTEC) ASUS COMPUTER (SHANGHAI) CO., LTD. (ACS) ASUS HUNGARY SERVICES LIMITED LIABILITY COMPANY (ACHU) ASUS PORTUGAL, SOCIEDADE UNIPESSOAL LDA. (ACPT) ASUS SWITZERLAND GMBH (ACCH) EMES (SUZHOU) CO., LTD. (EMES) GREAT EXTEND INVESTMENT CORP. (GEI) INTERNATIONAL UNITED TECHNOLOGY CO., LTD. (IUTS) MOBOSTAR TECHNOLOGY LIMITED (MOBO) ASKEY INTERNATIONAL CORP. (ASKEYI) DYNALINK INTERNATIONAL CORP. (DIC) MAGIC INTERNATIONAL CO., LTD. (MIC) ASKEY (VIETNAM) COMPANY LIMITED (ASKEYVN) MAGICOM INTERNATIONAL CORP. (MAGICOM) ASKEY TECHNOLOGY (SHANGHAI) LTD. (ASKEYSH) LEADING PROFIT CO., LTD. (LP) UNI LEADER INTERNATIONAL LTD. (UNI) OPENBASE LIMITED (OB)

Relationship with the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company

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Related Party AGAITECH HOLDING LTD. (AGAHL) AGAIT TECHNOLOGY (SHENZHEN) LIMITED (AGASZ) AGAIT TECHNOLOGY (H.K.) CORPORATION LIMITED (AGAHK) ENERTRONIX INTERNATIONAL LIMITED (ENIL) ENERTRONIX HOLDING LIMITED (ENHL) ENERTRONIX (HUIZHOU) LTD. (ENHZ) AAEON TECHNOLOGY INC. (AAEON) AAEON ELECTRONICS, INC. (AAEONEI) AAEON SYSTEMS, INC. (AAEONSI) AAEON DEVELOPMENT, INC. (AAEONDI) AAEON TECHNOLOGY CO., LTD. (AAEONTCL) AAEON TECHNOLOGY (EUROPE) B.V. (AAEONEU) AAEON TECHNOLOGY GMBH (AAEONG) AAEON INVESTMENT, CO., LTD. (AAEONI) ONYX HEALTHCARE INC. (ONYX) AAEON TECHNOLOGY SINGAPORE PTE. LTD. (AAEONSG) AAEON TECHNOLOGY (SUZHOU) INC. (AAEONSZ) ACBZ REPRESENTAIVE COMERCIAL LTDA. (ACBZ) ASUSTEK COMPUTER (CHONGQING) CO., LTD. (ACCQ) BIG PROFIT LIMITED (BP) FAMOUSE STAR INVESTMENTS LIMITED (FSI) ASKEY TECHNOLOGY (JIANGSU) LTD. (ASKEYJS) ASON TECHNOLOGY (SUZHOU) LTD. (ASON) ASHINE TECHNOLOGY (SUZHOU) LTD. (ASHINE) PEGATRON CORPORATION (PEGA) PIOTEK COMPUTER (SUZHOU) CO., LTD. (PIOTEK) (Note 4) PIOTEK (H.K.) TRADING LIMITED (PIOTEKHK) (Note 4) ASIAROCK TECHNOLOGY LIMITED (ASIAROCK) AZUREWAVE TECHNOLOGIES, INC. (AZURE) ABILITY ENTERPRISE CO., LTD. (ABILITY) CASETEK COMPUTER (SUZHOU) CO., LTD. (CASE)

Relationship with the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company (Note 6) Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Subsidiary of the Company Investee evaluated under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1)

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Related Party AMA PRECISION INC. (AMAP) PEGATRON JAPAN INC. (PJ) PEGATRON CZECH S.R.O. (PCZ) ASFLY TRAVEL SERVICE LIMITED (ASFLY) CORE-TEK (SHANGHAI) LIMITED (CORE) POWTEK (SHANGHAI) CO., LTD. (POW) UNIHAN CORPORATION (UNIHAN) KAEDAR ELECTRONICS (KUNSHAN) CO., LTD. (KAEDARKS) ASUSPOWER CORPORATION (ASUSP) MAINTEK COMPUTER (SUZHOU) CO., LTD. (MAIN) RIH LI INTERNATIONAL LIMITED (RIHLI) ASINT TECHNOLOGY CORPORATION (ASINT) LITEMAX ELECTRONICS INC. (LITEMAX) EXCELLIANCE MOS CORPORATION (EMC) POTIX CORPORATION (CAYMAN) (POTIXC) WUJIANG WILL STAR INVESTMENTS LIMITED (WJWS) ASAP INTERNATIONAL CO., LTD. (ASAPHK) SHANGHAI INDEED TECHNOLOGY CO., LTD. (SHINDEED) PEGATRON INTERNATIONAL INVESTMENT CO., LTD. (PII) Directors, supervisors, and key management of the Company Others (related parties with non-significant transactions)

Relationship with the Company Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method (Note 1) Subsidiary of investee accounted for under the equity method Investee evaluated under the equity method Investee evaluated under the equity method Investee evaluated under the equity method Investee evaluated under the equity method Non-related parties of the Company (Note 7) Non-related parties of the Company (Notes 1 and 3) Non-related parties of the Company (Note 2) Non-related parties of the Company (Note 5) Directors, supervisors, and key management of the Company Related parties under the definition of SFAS No. 6

Note 1: Subsidiary of the Company before May 31, 2010. Note 2: Investee accounted for under the equity method before May 31, 2010. Note 3: Subsidiary of investee accounted for under the equity method from June 1 to December 30, 2010. Note 4: BOARDTEK (H.K.) TRADING LIMITED and BOARDTEK COMPUTER (SUZHOU) CO., changed their names to PIOTEK (H.K.) TRADING LIMITED and PIOTEK COMPUTER (SUZHOU) CO., respectively, in 2010. Note 5: Subsidiary of the Company before May 31, 2010. PII was dissolved on June 10, 2010. Note 6: AAEON merged with SYT on June 1, 2011 with SYT as the surviving company. Note 7: Subsidiary of the Company before June 29, 2011.
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(2) Significant related party transactions A. Sales

2011/1/1~6/30 Amount % 126,264,294 93 $ 6,356,533 5 376,473 132,997,300 98 $ 2010/1/1~6/30 Amount % 135,351,204 93 6,373,787 4 184,136 1 141,909,127 98

ASTP ASUTC Others

(A) The sales prices of related party transactions were decided on the basis of the economic environment and market competition in each sales area. The terms of the transactions are O/A 90 days or open account 30 to 90 days. The terms of the above transactions are not different from those with third parties. (B) The unrealized gain resulting from the above transactions as of June 30, 2011 and 2010 was $1,420,678 and $1,652,322, respectively, which was recognized as deferred credits. B. Purchases (including purchases on behalf)
2011/1/1~6/30 Amount % 66,325,535 32 $ 1,515,797 1 2,023,787 1 69,865,119 34 $ 2010/1/1~6/30 Amount % 105,733,694 50 2,949,925 1 1,830,105 1 110,513,724 52

PEGA ASINT Others

Purchase terms are open account 30 to 60 days or 7 to 90 days from receipt of goods and were similar to those for third party customers. C. Cost, processing, and rework expenses, etc.
2011/1/1~6/30 Amount $ 1,111,437 25,336 1,136,773 2010/1/1~6/30 Amount $ 1,278,905 12,686 1,291,591

PEGA Others

Items Processing and rework expenses, etc.

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D. Notes and accounts receivable

2011/6/30 Amount 46,445,137 1,234,942 37,882 47,717,961 % 79 $ 2 81 $ 2010/6/30 Amount 43,649,617 1,498,772 94,034 45,242,423 % 92 3 95

ASTP ASUTC Others

The Company reclassified accounts receivable from related parties which were overdue for three months to other receivables related parties amounting to $355 and $308,659 as of June 30, 2011 and 2010, respectively. E. Notes and accounts payable
2011/6/30 Amount 2,976,685 962,792 3,939,477 % 6 $ 2 8 $ 2010/6/30 Amount 10,951,293 960,449 11,911,742 % 25 2 27

PEGA Others

$ $

F. Other receivables from affiliated companies (non-financing)

2011/6/30 Amount 766 % - $ 2010/6/30 Amount 330,586 % 9

Others

G. Accrued expenses, other current liabilities and receipts in advance

2011/6/30 Amount 732,208 421,349 1,153,557 2010/6/30 Amount 567,106 469,590 1,036,696

% 6 $ 4 10 $

% 5 5 10

PEGA Others

$ $

H. Commitments Endorsements and guarantees provided for the related party are as follows:
2011/6/30 PEGA $ $ 2010/6/30 9,645,000

6. PLEDGED ASSETS
Book Value Pledged assets Item 2011/6/30 2010/6/30 Guarantee deposits Pledged time deposit $ 150,025 $ 81,979 Purpose Guarantee for import duty

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7. COMMITMENTS AND CONTINGENCIES (1) See Note 5 for guarantees made to the related party. (2) Lawsuits for infringement of intellectual property rights A. In January 2007, a Japanese company filed a lawsuit against the Company and its US subsidiary for infringement of intellectual property rights. In May and September 2007, another plaintiff, a US company, also filed a lawsuit against the Company and its US subsidiary for patent infringement and violation of trade secrets. These lawsuits are currently under investigation in a Utah court in the US. The Japanese company has withdrawn the lawsuit, and the Company is waiting for the courts final written judgment. B. In July 2009, a US B company filed a lawsuit against the Companys US subsidiary and other third parties for patent infringement of flash memory chips. In July 2009, B company also filed an investigation with the United Sates International Trade Commission (ITC) against the Companys suppliers and its customers. In 2010, B Company and Supplier S have reached a settlement. C. In February 2011, a US patentee, GO Company, filed a lawsuit with the United States District Court of Delaware (Court) against several defendants including the Companys client, GA Company, alleging infringement, among others, of its patent. Based on the contract previously signed by the Company and GA Company, the Company has a guaranty liability to GO Company for the event above, and shall bear the lawyers fees. This case is currently on trial at the Court. D. Several patentees filed lawsuits or investigations for patent infringement against the Company. These lawsuits or investigations are currently under investigation in a Delaware court, in an East Texas court, in a California court, in a Florida court and in a Shanghai court. The outcome of these lawsuits is not certain. The Company continuously evaluates the possible loss, and a provision has been estimated and recognized in the books. (3) To ensure the supply of raw materials, the company entered into an agreement with a supplier for a guaranteed quantity of materials supply at a discount to market price or at an agreed price. The payment was recognized as prepayment of $457,154 as of June 30, 2011, and separately recognized as prepayment of $3,196,803 and other assets-other of $2,402,625 as of June 30, 2010. (4) The Company entered into operating lease contracts for its offices and parking spaces. Future lease payments under those leases are as follows:
Year 2012 2013 2014 Amount 105,053 205,922 134,631

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8. SIGNIFICANT DISASTER LOSS: NONE. 9. SUBSEQUENT EVENTS: NONE. 10. OTHERS (1) Financial statement presentation Certain accounts in the June 30, 2010 financial statements were reclassified to conform with the June 30, 2011 financial statement presentation. (2) Fair values of the financial instruments
2011/6/30 Fair value Estimated Quotations in an active Book value Financial instruments Non-derivative financial instruments Assets Financial assets at fair value through profit or loss Available-for-sale financial assets - current Available-for-sale financial assets - non-current Financial assets caried at cost - current Financial assets caried at cost - non-current Liabilities Bonds payable - current 2,440,010 2,440,955 3,690,162 3,698,193 $ 9,484,515 477,661 7,487,271 372 118,860 $ 9,484,515 477,661 7,487,271 $ $ 5,821,008 252,149 5,090,250 41,162 445,519 $ 5,821,008 252,149 5,090,250 $ market using a valuation technique Book value Quotations in an active market 2010/6/30 Fair value Estimated using a valuation technique

Derivative financial instruments Liabilities Financial liabilities at fair value through profit or loss Forward exchange contract Liabilities for derivative financial instruments embedded in convertible bonds

15,238 23,610

15,238 23,610

111,841 139,296

111,841 139,296

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The methods and assumptions used to estimate the fair values of the above financial instruments are summarized below: A. The above financial instruments exclude cash and cash equivalents, notes/accounts receivable (including related parties), other receivables (including related parties), refundable deposits, notes/accounts payable (including related parties), accrued expenses, dividends payable, other current liabilities and guarantee deposits received. For such financial instruments, the fair values were determined based on their carrying values because of the short maturities of the instruments. B. The fair values of financial instruments at fair value through profit or loss and available-for-sale financial instruments are based on quoted market prices in an active market. If the market for a financial instrument is not active, an entity establishes fair value by using a valuation technique. The Company uses estimates and assumptions that are consistent with information that market participants would use in setting a price for these financial instruments. C. The fair value of convertible bonds payable is not available, and a valuation technique is used. The assumptions used in the said valuation are the same as those used by financial market traders when quoting their prices. However, the fair value is not expected to equal future cash outflow. D. The fair values of derivative financial instruments which include unrealized gains or losses on unsettled contracts were determined based on the amounts to be received or paid assuming that the contracts were settled as of the reporting date. E. Financial assets carried at cost and held to maturity are invested in unquoted equity instruments and mutual fund bond obligations whose fair value cannot be estimated. (3) Procedure of financial risk control The management can effectively control significant market risks after appropriately taking into consideration the economic environment, competition, and changes of market value risk by setting the goal of risk management. (4) Information of material financial risk A. Market risk (A) The main currency for purchases and sales of the Company is the US dollar. The Company uses the principle of natural hedge to mitigate the risk and utilizes spot or forward exchange contracts and currency option contracts to hedge foreign currency risk. The forward exchange and currency option contracts duration corresponds to the Companys foreign currency assets and liabilities due date and future cash flows. The exchange gain and loss resulting from foreign currency assets and liabilities will be offset by the exchange gain and loss resulting from the hedged item. (B) The open-end funds and stocks of listed companies held by the Company are classified as financial assets measured at fair value through profit or loss and available-for-sale financial assets. As these assets are measured at fair value, the Company has risk exposure related to changes in fair value in an equity securities market. (C) Information of significant foreign currency denominated assets and liabilities:
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2011/6/30 Foreign Currency (in dollars) Financial assets Monetary item USD Long-term investments accounted for under the equity method USD Financial liabilities Monetary item USD Rate NTD Foreign Currency (in dollars)

2010/6/30 Rate NTD

2,092,266,854

28.725 $

60,100,365

1,601,120,870

32.15 $

51,476,036

476,360,607

28.725

13,683,458

332,260,882

32.15

10,682,187

1,768,208,528

28.725

50,791,790

1,073,593,487

32.15

34,516,031

B. Credit risk (A) Credit risk means the potential loss of the Company if the counterparty involved in that transaction defaults. Since the Companys derivative financial instrument agreements are entered into with international financial institutions with good credit ratings, management believes that there is no significant credit risk from these transactions. (B) The primary potential credit risk is from financial instruments like cash, bank deposits, equity securities under non-equity method, and accounts receivable. The Company deposits cash in different financial institutions. Equity securities under non-equity method were funds and listed stocks issued by companies with good credit ratings. The Company manages credit risk exposure related to each financial institution and believes that there is no significant concentration of credit risk of cash and equity securities. The customers of the Company have good credit and profit records. The Company evaluates the financial condition of these customers in order to reduce credit risk of accounts receivable. C. Liquidity risk (A) The Company adjusts its funding mainly through corporate bonds, cash and bank deposits. The Company maintains funding sufficient to fulfill all contract obligations, and thereby expects no significant liquidity risk would arise from lack of funding. (B) The Company invests in funds and listed stocks, which are traded in active markets and are expected to be readily converted into certain amount of cash approximate to their fair values in the market. The Company has lower funding risk for forward exchange contracts and currency option contracts because sufficient working capital is maintained to fulfill contract obligations, and lower cash flow risk as the exchange rate of those contracts was known. (C) The Company is expected to have liquidity risk since investments in equity instruments carried at cost have no active market.

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