asia optical co., inc. and subsidiaries · asia optical co., inc. and subsidiaries consolidated...

Asia Optical Co., Inc. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2004 and 2005 andIndependent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and StockholdersAsia Optical Co., Inc.

We have audited the accompanying consolidated balance sheets of Asia Optical Co., Inc. and its subsidiaries (the “Consolidated Company”) as of December 31, 2004 and 2005 and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended, all expressed in New Taiwan dollars. These consolidated financial statements are the responsibility of the Consolidated Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Asia Optical Co., Inc. and its subsidiaries as of December 31, 2004 and 2005 and the results of their operations and their cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.

As discussed in Note 1 to the consolidated financial statements, Asia Optical Co., Inc. adopted on January 1, 2005 the revised Statement of Financial Accounting Standards (SFAS) No. 7, “Consolidated Financial Statements,” which resulted in the increase of the consolidated subsidiaries which the Parent Company can exercise control in the consolidated financial statements as of and for the year ended December 31, 2005. The consolidated financial statements include the accounts of the parent company and direct and indirect subsidiaries, except for individual subsidiaries whose total assets or total revenues are less than 10% of the unconsolidated total assets or revenues of parent company in the year ended December 31, 2004.

As discussed in Note 3 to the consolidated financial statements, effective January 1, 2004, Taiwan Top Optical Ltd. Inc. adopted SFAS No. 18, “Accounting for Pensions”. The adoption of SFAS No. 18 resulted in the recognition of deferred pension cost and accrued pension cost of NT$28,326thousand each and an increase in net income by NT$18,658 thousand for the year ended December 31, 2004.

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Our audits also comprehended the translation of the 2005 New Taiwan dollar amounts into U.S. dollar amounts and in our opinion, such translation has been made in conformity with the basis stated in Note 2. Such U.S. dollar amounts are presented solely for the convenience of readers.

January 27, 2006.

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 audit such consolidated financial statements are those generally accepted and applied in the Republic of China.

For the convenience of readers, the auditors’ 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 auditors’ report and consolidated financial statements shall prevail.

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ASIA OPTICAL CO., INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2004 AND 2005(In Thousands, Except Par Value)

ASSETS 2004 2005 LIABILITIES AND STOCKHOLDERS’ EQUITY 2004 2005 NT$ NT$ US$ (Note 2) NT$ NT$ US$ (Note 2)

CURRENT ASSETS CURRENT LIABILITIESCash and cash equivalents (Notes 2 and 4) $ 5,693,516 $ 7,007,006 $ 213,303 Notes payable (Note 18) $ 254,979 $ 175,616 $ 5,346Short-term investments (Notes 2 and 5) 27,931 2,613 80 Accounts payable - third parties 3,209,776 3,074,301 93,586Notes receivable (Note 2) 35,701 9,553 291 Accounts payable - related parties (Note 18) 221,319 247,287 7,528Accounts receivable - third parties (Notes 2 and 6) 4,191,085 4,264,367 129,813 Income tax payable (Notes 2 and 15) 69,499 153,142 4,662Accounts receivable - related parties (Notes 2 and 18) 250,262 293,505 8,935 Accrued expenses 322,964 336,705 10,250Other financial assets - current (Notes 17, 18 and 19) 445,887 190,842 5,809 Current portion of long-term bonds payable (Notes 2 and 10) 3,203,685 2,273,850 69,219Inventories (Notes 2 and 7) 1,348,243 1,370,102 41,708 Other current liabilities (Notes 2 and 17) 381,117 463,213 14,100Other current assets (Notes 2 and 15) 307,308 377,072 11,478

Total current liabilities 7,663,339 6,724,114 204,691Total current assets 12,299,933 13,515,060 411,417

LONG-TERM LIABILITIESINVESTMENTS IN SHARES OF STOCK (Notes 2 and 8) Bonds payable, net of current portion (Notes 2 and 10) 104,134 18,582 566

Equity-method 192,961 345,345 10,513 Long-term bank loans (Note 11) 1,046,430 985,500 30,000Cost-method 394,687 394,687 12,015Prepayment for investments in shares of stock 52,786 - - Total long-term liabilities 1,150,564 1,004,082 30,566

Total investments in shares of stock 640,434 740,032 22,528 OTHER LIABILITIESReserve for land revaluation increment tax (Note 9) 1,855 1,855 56

OTHER FINANCIAL ASSETS - NONCURRENT 4,305 4,934 150 Accrued pension liability (Notes 2 and 12) 99,027 114,862 3,497Guarantee deposit received 2,464 2,464 75

PROPERTIES (Notes 2, 9 and 19) Deferred income tax liability (Notes 2 and 15) 148,944 108,718 3,310Land 263,295 263,457 8,020 Investments in shares of stock with credit balance (Notes 2 and 8) 141,003 75,366 2,294Buildings 1,095,220 1,506,845 45,870 Unamortized credit account (Note 2) 213,271 174,795 5,321Machinery and equipment 6,009,671 6,429,280 195,716Office equipment 195,111 228,628 6,960 Total other liabilities 606,564 478,060 14,553Other equipment 818,319 980,300 29,842Total cost 8,381,616 9,408,510 286,408 Total liabilities 9,420,467 8,206,256 249,810Land - revaluation increments 4,462 4,462 136Subtotal 8,386,078 9,412,972 286,544 STOCKHOLDERS’ EQUITYLess - accumulated depreciation (2,260,682 ) (2,572,726 ) (78,317 ) Capital stock - common stock, $10 par valueUnfinished construction and prepayment for land and business facilities 209,817 150,780 4,590 Authorized - 313,000 thousand shares; issued - 197,283 thousand and 229,407

thousand shares as of December 31, 2004 and 2005, respectively 1,972,835 2,294,074 69,835Net properties 6,335,213 6,991,026 212,817 Capital surplus

Additional paid-in capital 1,071,669 1,071,669 32,623INTANGIBLE ASSETS (Notes 2 and 12) 76,733 174,288 5,305 Bonds conversion 2,353,631 3,348,677 101,938

Interest refund payable on bond conversion 49,560 75,345 2,294OTHER ASSETS (Note 2) 166,548 149,864 4,562 Retained earnings

Legal reserve 489,781 733,477 22,328Special reserve 5,797 145,805 4,439Unappropriated earnings 4,229,558 5,427,462 165,220

Equity adjustments Cumulative translation adjustments (140,008 ) 47,459 1,445Net loss not recognized as pension cost - (12,231 ) (372 )

Minority interest 69,876 237,211 7,219

Total stockholders’ equity 10,102,699 13,368,948 406,969

TOTAL $ 19,523,166 $ 21,575,204 $ 656,779 TOTAL $ 19,523,166 $ 21,575,204 $ 656,779

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

(With Deloitte & Touche audit report dated January 27, 2006)

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CONSOLIDATED STATEMENTS OF INCOMEYEARS ENDED DECEMBER 31, 2004 AND 2005(In Thousands, Except Earnings Per Share)

2004 2005 NT$ NT$ US$ (Note 2)

GROSS SALES $ 28,030,942 $ 33,736,493 $ 1,026,986

SALES RETURNS AND ALLOWANCES 882,185 142,501 4,338

NET SALES (Notes 2 and 18) 27,148,757 33,593,992 1,022,648

COST OF SALES (Notes 14 and 18) 23,578,624 29,195,330 888,747

GROSS PROFIT 3,570,133 4,398,662 133,901

OPERATING EXPENSES (Notes 14 and 18)Marketing 593,904 645,312 19,644Administration 462,237 658,189 20,036Research and development 258,016 247,197 7,525

Total operating expenses 1,314,157 1,550,698 47,205

OPERATING INCOME 2,255,976 2,847,964 86,696

NONOPERATING INCOME AND GAINSInterest income (Note 18) 59,032 101,965 3,104Investment income on equity-method investments, net (Note 2) - 2,841 86Gains on disposal of investments (Note 2) 11,343 20,255 617Rental income (Note 18) 42,792 46,878 1,427Gains from price recovery of inventories (Note 2) 16,514 - -Others (Note 18) 106,811 77,673 2,364

Total nonoperating income and gains 236,492 249,612 7,598

NONOPERATING EXPENSES AND LOSSESInterest expense (Note 2) 43,938 69,310 2,110Investment loss on equity-method investments, net (Note 2) 47,112 - -Loss on disposal of properties (Note 2) - 6,954 212Losses on physical inventory, net - 33,023 1,005Foreign exchange losses, net (Note 2) 43,677 15,650 476Loss on inventory devaluation and obsolescence (Note 2) - 17,965 547Others 27,667 47,466 1,445

Total nonoperating expenses and losses 162,394 190,368 5,795

(Continued)

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2004 2005 NT$ NT$ US$ (Note 2)

INCOME BEFORE INCOME TAX $ 2,330,074 $ 2,907,208 $ 88,499

INCOME TAX BENEFIT (EXPENSE) (Notes 2 and 15) 85,463 (83,040 ) (2,528 )

PREACQUISITION INCOME - 1,122 34

CONSOLIDATED NET LOSS $ 2,415,537 $ 2,825,290 $ 86,005

BELONGS TO:SHAREHOLDERS OF PARENT COMPANY $ 2,436,960 $ 2,788,781 $ 84,894MINORITY INTEREST (21,423 ) 36,509 1,111

$ 2,415,537 $ 2,825,290 $ 86,005

EARNINGS PER SHARE (EPS)Basic EPS before tax (Note 16) $ 10.85 $ 12.23 $ 0.37Basic EPS after tax (Note 16) $ 11.26 $ 12.31 $ 0.37Diluted EPS before tax (Note 16) $ 9.90 $ 11.46 $ 0.35Diluted EPS after tax (Note 16) $ 10.26 $ 11.53 $ 0.35


(With Deloitte & Touche audit report dated January 27, 2006) (Concluded)

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYYEARS ENDED DECEMBER 31, 2004 AND 2005(In Thousands, Except Per Share Amounts)

Net LossNot

Issued Capital Retained Earnings (Note 13) RecognizedCommon Surplus Unappropriated Cumulative as Pension

Stock (Notes 2, 9,10 Legal Special Earnings Translation Cost Minority(Notes 10 and 13) Reserve Reserve (Note 2) Adjustments (Note 2) Interest Totaland 13) (Note 2)

New Taiwan dollars

BALANCE, JANUARY 1, 2004 $ 1,618,512 $ 2,695,359 $ 293,878 $ 5,797 $ 2,967,174 $ 14,981 $ - $ 571,727 $ 8,167,428

Appropriation of 2003 earningsLegal reserve - - 195,903 - (195,903 ) - - - -Cash dividends - $4 per share - - - - (654,060 ) - - - (654,060 )Stock dividends - $1.5 per share or 15% 245,272 - - - (245,272 ) - - - -Remuneration to directors and supervisors - - - - (35,263 ) - - - (35,263 )Bonuses to employees 44,078 - - - (44,078 ) - - - -

Conversion of bonds 64,973 779,501 - - - - - - 844,474Net income in 2004 - - - - 2,436,960 - - - 2,436,960Translation adjustments on long-term investments in shares of stock - - - - - (154,989 ) - - (154,989 )Minority interest - - - - - - - (501,851 ) (501,851 )

BALANCE, DECEMBER 31, 2004 1,972,835 3,474,860 489,781 5,797 4,229,558 (140,008 ) - 69,876 10,102,699

Appropriation of 2004 earningsLegal reserve - - 243,696 - (243,696 ) - - - -Special reserve - - - 140,008 (140,008 ) - - - -Cash dividends - $4.5 per share - - - - (906,686 ) - - - (906,686 )Stock dividends - $1 per share or 10% 201,486 - - - (201,486 ) - - - -Remuneration to directors and supervisors - - - - (41,065 ) - - - (41,065 )Bonuses to employees 43,118 - - - (55,438 ) - - - (12,320 )

Conversion of bonds 76,635 1,020,831 - - - - - - 1,097,466Effect of changes in equity in long-term equity investment of ownership interest - - - - (2,498 ) - - - (2,498 )Net income in 2005 - - - - 2,788,781 - - - 2,788,781Translation adjustments on long-term investments in shares

of stock - - - - - 187,467 - - 187,467Net loss not recognized as pension cost - - - - - - (12,231 ) - (12,231 )Minority interest - - - - - - - 167,335 167,335

BALANCE, DECEMBER 31, 2005 $ 2,294,074 $ 4,495,691 $ 733,477 $ 145,805 $ 5,427,462 $ 47,459 $ (12,231 ) $ 237,211 $ 13,368,948

(Continued)

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Net LossNot

Issued Capital Retained Earnings (Note 13) RecognizedCommon Surplus Unappropriated Cumulative as Pension

Stock (Notes 2, 9,10 Legal Special Earnings Translation Cost Minority(Notes 10 and 13) Reserve Reserve (Note 2) Adjustments (Note 2) Interest Totaland 13) (Note 2)

U.S. dollars (Note 2)

BALANCE, JANUARY 1, 2005 $ 60,056 $ 105,779 $ 14,910 $ 176 $ 128,754 $ (4,262 ) $ - $ 2,127 $ 307,540

Appropriation of 2004 earningsLegal reserve - - 7,418 - (7,418 ) - - - -Special reserve - - - 4,263 (4,263 ) - - - -Cash dividends - NT$4.5 per share - - - - (27,601 ) - - - (27,601 )Stock dividends - NT$1 per share or 10% 6,133 - - - (6,133 ) - - - -Remuneration to directors and supervisors - - - - (1,250 ) - - - (1,250 )Bonuses to employees 1,313 - - - (1,687 ) - - - (374 )

Conversion of bonds 2,333 31,076 - - - - - - 33,409Effect of changes in equity in long-term equity investment of ownership interest - - - - (76 ) - - - (76 )Net income in 2005 - - - - 84,894 - - - 84,894Translation adjustments on long-term investments in shares of stock - - - - - 5,707 - - 5,707Net loss not recognized as pension cost - - - - - - (372 ) - (372 )Minority interest - - - - - - - 5,092 5,092

BALANCE, DECEMBER 31, 2005 $ 69,835 $ 136,855 $ 22,328 $ 4,439 $ 165,220 $ 1,445 $ (372 ) $ 7,219 $ 406,969



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CONSOLIDATED STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2004 AND 2005(In Thousands)

2004 2005 NT$ NT$ US$

(Note 2)

CASH FLOW FROM OPERATING ACTIVITIESConsolidated net income $ 2,415,537 $ 2,825,290 $ 86,005Preacquisition loss - (1,122 ) (34 )Depreciation 709,684 832,883 25,354Amortization 42,286 65,683 1,999Allowance (reversal of allowance) for doubtful accounts (38,166 ) 18,286 557Investment loss (income) on equity-method investments, net 47,462 (2,275 ) (69 )Gain on disposal of short-term investments (11,343 ) (20,255 ) (617 )Loss (reversal of loss) on inventory devaluation and obsolescence (16,514 ) 17,965 547Loss on decline in value of short-term investments 1,493 - -Loss on disposal of assets, net 3,532 6,203 189Amortization of issue costs of convertible bonds 17,041 8,679 264Amortization of premiums on convertible bonds (13,755 ) (9,636 ) (293 )Bonds payable - reserves for put premium 17,531 1,755 53Foreign exchange losses (gains) on bonds and reserves for put

premium (265,387 ) 90,483 2,754Accrued pension liabilities (32,068 ) (7,199 ) (219 )Deferred income taxes (140,188 ) (87,623 ) (2,667 )Net changes in operating assets and liabilities -

Notes receivable (15,845 ) 26,147 796Accounts receivable 575,906 41,276 1,257Other financial assets - current (excluding financial instruments and pledged time deposits) (21,096 ) 280,436 8,537Inventories (375,595 ) 254,246 7,740Other current assets (48,752 ) 20,501 625Notes payable (142,282 ) (79,592 ) (2,423 )Accounts payable (77,747 ) (725,863 ) (22,096 )Income tax payable (24,534 ) 78,319 2,384Accrued expenses 11,292 (34,283 ) (1,044 )Other current liabilities (34,447 ) (108,273 ) (3,296 )

Net cash provided by operating activities 2,584,045 3,492,031 106,303

CASH FLOW FROM INVESTING ACTIVITIESDecrease in short-term investments for nontrading purposes 1,775,962 45,573 1,387Decrease (increase) in other financial assets - noncurrent 238 (536 ) (16 )Acquisition of investments in shares of stock (113,976 ) (151,836 ) (4,622 )Proceeds from disposal of assets 15,902 206 6Acquisition of properties (2,600,508 ) (1,028,744 ) (31,316 )Increase in intangible assets (30,026 ) (16,059 ) (489 )Increase in deferred charges (114,131 ) (107,113 ) (3,261 )Decrease (increase) in minority interest (479,878 ) 4,159 127

(Continued)

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2004 2005NT$ NT$ US$

(Note 2)

Decrease in other financial assets - current $ - $ 3,805 $ 116Increase in refundable deposits (828 ) - -Proceeds from disposal of investments in shares of stock 21,041 - -Increase in unamortized credit account 7,097 - -

Net cash used in investing activities (1,519,107) (1,250,545 ) (38,068 )

CASH FLOW FROM FINANCING ACTIVITIESCash dividends (654,060 ) (906,686 ) (27,601 )Remuneration to directors and supervisors (35,263 ) (53,385 ) (1,624 )Decrease (increase) in other financial assets - current

(restricted time deposits) (1,823 ) 4,628 140Repayment for long-term bank loans - (60,930 ) (1,855 )Increase in guarantee deposits received 2,464 - -Proceeds from long-term bank loans 536,355 - -Decrease in short-term bank loans (170,025 ) - -

Net cash provided by financing activities (322,352 ) (1,016,373 ) (30,940 )

Cumulative translation adjustments (78,519 ) 34,213 1,041

EFFECT OF FIRST-TIME CONSOLIDATED SUBSIDIARIES - 54,164 1,648

NET INCREASE IN CASH AND CASH EQUIVALENTS 664,067 1,313,490 39,984

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 5,029,449 5,693,516 173,319

CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,693,516 $ 7,007,006 $ 213,303

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest paid, net of amount capitalized $ 23,120 $ 68,512 $ 2,086Income tax paid $ 79,906 $ 98,152 $ 2,988

NONCASH INVESTING AND FINANCING ACTIVITIESBonds payable - current portion $ 3,203,685 $ 2,273,850 $ 69,219Bonds payable converted into common stock $ 844,474 $ 1,097,466 $ 33,409



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NOTES TO CONSOLIDATED FINANCIAL STATEMENTSYEARS ENDED DECEMBER 31, 2004 AND 2005(In Thousands, Unless Stated Otherwise)

1. ORGANIZATION AND OPERATIONS

Asia Optical Co., Inc. (the “Parent Company”) was established in October 1980 according to the Company Law of the Republic of China (ROC). The Parent Company mainly manufactures, processes, and sells cameras, riflescopes, photocopier lenses, scanner lenses and optical components.

In August 2000, the Securities and Futures Commission (SFC; effective July 1, 2004, renamed Securities and Futures Bureau (SFB), Financial Supervisory Commission, Executive Yuan, ROC) approved the trading of the Parent Company’s common shares on the Over-The-Counter Securities Exchange in the R.O.C.After the Parent Company’s shares ceased to be OTC traded, the SFC approved the listing of the Parent Company’s common shares on the Taiwan Stock Exchange in July 2002.

The Parent Company and its subsidiaries (collectively, the “Consolidated Company”) had 13,065 and 13,464 employees as of December 31, 2004 and 2005, respectively.

The subsidiaries included in the consolidated financial statements are shown below:

Ownership %December 31

Investor Investee Business 2005 2004

Parent Company Asia Optical International Ltd. (“Asia (B.V.I.)”)

Sales 100 100

Powerlink Electronic International Ltd. (“Powerlink”)

Sales 100 100

Richman International Group Co., Ltd. (“Richman”)

Holding company 100 100

Taiwan Top Optical Co., Ltd. (“Taiwan Top”)

Manufacture of optical products 86 86

Parent Company and Richman Dong-Guan Tailien Optical Co., Ltd. (“Dong-Guan Tailien”)


Asia (B.V.I.) Dong-Guan Sintai Optical Co., Ltd. (“Dong-Guan Sintai”)


Shen Zhen Sintai Optical Co., Ltd. (“Shen Zhen Sintai”)


Great China Investment Enterprise Holding Limited. (“Great”)

Sales 99 99

Powerlink Scopro Optical Co., Inc. (“Scopro”) Manufacture of optical products 55 55Great Myanmar Asia Optical International

Co., Ltd. (“Myanmar Asia”)Manufacture of optical products 100 98

The equity interest of the Parent Company and Richman in Dong Guan Tailien was not over 50%. However, the Parent Company has controlling influence over this investee. Thus, Dong-Guan Tailien was included in the consolidation.

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The subsidiaries not included are shown below:

Ownership %December 31

Investor Investee Business 2005 2004

Asia (B.V.I.) Dong Yang Optelectronics (Shen Zhen) Inc.(“Shen Zhen Dong Yang”)


Winton International Industries Ltd. (“Winton”)

Sale of precision instruments, testing machines for electronic use and printing devices

60 60

Sintai Photonics Technology (Shang Hai) Ltd. (“Shang Hai Sintai”)

Manufacture of electronic products 100 -

Hang-Zhou Nikon Camera Co., Ltd. (“Hang-Zhou Nikon”)


Winton Dong-Guan Sintai North Precision Optical Co., Ltd. (“Sintai North Precision”)

Manufacture of electronic products 100 100

Same chairman as the Parent Company’s

Worldview Technology Corp. (“Worldview”)

Design and development of optical products

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Shen Zhen Dong Yang, Winton, Shang Hai Sintai, Hang-Zhou Nikon, Sintai North Precision and Worldview were not consolidated because neither their total assets nor total sales individually reached at least 3% or collectively reached at least 5% of those of the Company.

The Parent Company adopted the revised SFAS No. 7, “Consolidated Financial Statements,” resulting in the increase in consolidated subsidiaries for the year ended December 31, 2005 to include Richman, Dong-Guan Tailien, Great and Myanmar Asia. However, under SFAS No. 7, the 2004 consolidated financial statements need not be restated despite the increase in the 2005 consolidated subsidiaries from those of 2004.

The reasons for the addition of four companies in the 2005 consolidated financial statements are shown below:

Added Subsidiary Reason for Addition

Richman Equity-method investee of Dong-Guan Tailien, which is included in the consolidated financial statements

Dong-Guan Tailien The Parent Company can directly or indirectly control Dong-Guan Tailien’s personnel, finance and operating policies

Great Equity-method investee of Myanmar Asia, which is included in the consolidated financial statements

Myanmar Asia Operations are increasing and expected to contribute significantly to consolidated operating results

2. 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 and accounting principles generally accepted in the R.O.C. In preparing consolidated financial statements, the Consolidated Company is required to make certain estimates and assumptions, which could affect the amounts of allowance for doubtful receivables, allowance for inventory loss, depreciation for properties, amortization of intangible assets and other assets and pension during the reporting years. Actual results could differ from these estimates.

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For the convenience of readers, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the R.O.C. 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 financial statements shall prevail. The Consolidated Company’s significant accounting policies are summarized as follows:

Consolidation

The consolidated financial statements include the accounts of the Parent Company’s direct and indirect subsidiaries as well as investees with personnel matters, finance and operations over which the ParentCompany can exercise control. The subsidiaries that met the consolidation criteria as of 2004 and 2005 are listed in Note 1.

All significant intercompany accounts and transactions have been eliminated in the consolidation. The difference between the costs of investments and the Parent Company’s equity in the book value of the subsidiaries’ net assets is treated as credit balance on consolidation and amortized over 5 to 10 years using the straight-line method.

The accounts and financial statements of consolidated foreign subsidiaries were originally recorded and prepared in their respective local currencies (which were also their functional currencies). Those financial statements were converted into New Taiwan dollars (NT dollars) at the following exchange rates: (a) assets and liabilities - rates on the balance sheet dates, (b) capital stock - historical rate, (c) beginning retained earnings - the NT dollar ending balance from the prior year, and (d) income and expense account -weighted-average rate during the year. Any resulting translation difference is recorded as cumulative translation adjustments.

Current and Noncurrent Assets and Liabilities

Current assets included unrestricted cash or cash equivalents and those assets to be converted to cash, sold or consumed within one year. Current liabilities are obligations due on demand within one year from the balance sheet date. All other assets and liabilities are classified as noncurrent.

Cash Equivalents

Cash equivalents are bonds with repurchase agreements with original maturities of 90 days or less.

Short-term Investments

Short-term investments are shares in listed companies and mutual funds. Stock dividends are recorded as increase in the number of shares held but are not recognized as investment income. Short-term investments are stated at the lower of aggregate weighted-average cost or market value. Declines (recovery) in market value are charged to loss (income) at time of occurrence. For open-end mutual funds, market value is the net asset value as of the balance sheet date, and for closed-end mutual funds and listed shares, market value is the average closing price in the last month of the reporting year.

Allowance for Doubtful Accounts

Allowance for doubtful accounts is determined on the basis of evaluation of the collectibility, prior loss experience, and aging of notes and accounts receivable.

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Inventories

Inventories are stated at the lower of cost or market value (“LCM”). Cost is determined by using the moving-average method. Inventories are accounted for at standard cost and adjusted to the moving-average cost as of the balance sheet date. Market value of raw materials and merchandise inventories are based on replacement cost and market values of finished goods and work in process are based on their net realizable values. Loss on inventory valuation and obsolescence is charged to income.

Investments in Shares of Stock (Including Those with Credit Balance)

Investments in shares of stock in companies in which the Consolidated Company owns at least 20% of the outstanding common stock or exercises significant influence over the investees’ financial and operating policy decisions are accounted for by the equity method. Under this method, the investments are carried at cost on the acquisition date, and the difference between the costs of the investments and the Consolidated Company’s equity in the book value of the investee’s net assets on acquisition dates (referred to as “goodwill”) is amortized over 5 to 10 years. The investment carrying values are then adjusted for the equity in the investee companies’ net income or net loss after the date of the investments. Cash dividends received are accounted for as a reduction of the carrying value of the investments.

If the Consolidated Company’s equity in an investee’s losses equals to or exceeds the carrying amount plus any advances given to an investee, the recognized investment loss is limited to the extent that the carrying value of the investment and advances are equal to zero. But if any of the following conditions is met, the Consolidated Company will continue to recognize investment losses in proportion to its equity in the investee: (a) the investor guarantees the obligations of an investee and is committed to provide further financial support to an investee; or (b) an investee’s losses are temporary and sufficient evidence shows imminent return to profitable operations. However, since 2005, even if either of the preceding conditions is met, if the Consolidated Company’s equity in an investee’s losses exceeds the carrying amount plus any advances given to an investee, the investment losses will be wholly (i.e., no longer proportionately) absorbed by the Consolidated Company till they are entirely reversed. When the investee returns to profitable operations, the Consolidated Company will have first priority in sharing in the investee’s earnings.

If an investee issues additional shares and the Consolidated Company subscribes for these shares at a percentage different from its current equity in the investee, the resulting increase in the investee’s net assets is credited to capital surplus. Any decrease in equity is debited to capital surplus. If capital surplus is not enough for debiting purposes, the difference is debited to unappropriated retained earnings.

Other investments are carried at cost. An allowance for decline in market value is made for any permanent impairment in the carrying value of the investments, and this decline is charged to current income.

For both equity-method and cost-method investments, stock dividends are recorded as increase in the number of shares held but are not recognized as investment income. Costs of investments sold are determined by the weighted-average method.

Properties

Properties (or plus revaluation increments) are stated at cost less accumulated depreciation. Major renewals, betterments and interest expenses incurred during the construction and in the acquisition of properties are capitalized, while maintenance and repairs are charged to current income.

Depreciation expense is computed using the straight-line method over service lives estimated as follows: buildings, 2 to 50 years; machinery and equipment, 2 to 12 years; office equipment, 1 to 8 years; and other equipment, 2 to 35 years. Properties still used in operations after they have reached their originally estimated service lives are further depreciated over their reestimated service lives.

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Upon retirement or other disposal of properties, the related cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is recorded as nonoperating income or loss in the current year.

Computer Software Cost

Computer software cost (included in intangible assets) is stated at acquisition cost, which is amortized using the straight-line method over three years.

Deferred Charges

Deferred charges include issue costs of convertible bonds and molding expense (included in other assets) which are stated at acquisition cost. The issue costs of convertible bonds are amortized from the date of debt issuance to the put date using the straight-line method. Molding expense is amortized on a straight-line method over the estimated useful life of 2 to 10 years.

Asset Impairment

If impairment of properties, intangible assets, deferred charges and equity-method investments is determined on the balance sheet date and the carrying amount of an asset exceeds its recoverable amount, the excess is recognized as loss. If the recoverable amount increases in the future period, the subsequent reversal of the impairment loss is recognized as gain. However, the increased carrying amount of an asset due to reversal of an impairment loss should not exceed the carrying amount that would have been determined (net of depreciation), had no impairment loss been recognized for the assets in prior years. In addition, impairment loss on goodwill should not be reversed.

If the asset is carried at an amount based on revaluation made under certain regulations, any impairment loss on this asset is treated as a reduction of revaluation increment. A reversal of an impairment loss on a revalued asset is credited directly to equity under the heading revaluation increment. However, to the extent that an impairment loss on the same revalued asset was previously recognized as profit or loss, a reversal of that impairment loss is also recognized as profit or loss.

Bonds Payable

The conversion of convertible bonds is accounted for by the carrying value method. Upon conversion of bonds payable, the related unamortized premium (discount), issue costs of convertible bonds, interest payable, reserve for put premium and the principal amount of bonds payable are removed from the accounts at conversion date. Capital stock should be valued at its carrying value net of the amounts written off, and the difference of this net amount and the par value of capital stock is recognized as capital surplus.

Revenue Recognition

Revenue is recognized when the right or title to a product is transferred to customers (local trade is upon transfer out; export trade is upon shipment).

Sales are determined at fair value, taking into account sales discounts agreed on by the Consolidated Company and the customers. Since the receivables from sales are collectible within one year and sales transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash received.

Pension Costs

The Parent Company and Taiwan Top has two types of pension plans: defined benefit and defined contribution.

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Under the defined benefit pension plan, pension costs are recognized on the basis of actuarial calculations. The employer promises to pay a one-time pension benefit, i.e., a defined lump sum or a series of pension benefits with a defined annuity whether or not the employer makes pension contributions. Prior service costs are amortized on an average basis over the employees’ future service periods. The prior service cost is recognized as current cost if the plan is amended. If the plan is curtailed or settled, the Parent Company and Taiwan Top will recognize gains or losses as part of the net pension cost for the year.

Under a defined contribution pension plan, the employer contributes annually an amount defined by the pension plan to a pension fund under the custody and management of a trustee.

Taiwan Top recognized deferred pension costs and accrued pension liabilities in 2004 based on the actuarial calculations in 2003.

Income Tax

Deferred income taxes of the Parent Company and Taiwan Top are recognized for the tax effects of temporary differences, unused tax credits, and operating loss carryforwards. A valuation allowance is provided for deferred tax assets that are not certain to be realized. Deferred income taxes are classified as current or noncurrent on the basis of the classification of the related asset and liability for financial reporting. A deferred tax asset or a liability that is not related to an asset or liability for financial reporting is classified according to the expected realization date of the temporary difference.

Income tax credits of the Parent Company and Taiwan Top are recognized in the current period as a reduction of current income tax obligations. These credits are mainly for certain purchases of eligible equipment, research and development expenditures, personnel training expenditures, and investments in shares of emerging, important and strategic industries.

Adjustments of prior years’ tax liabilities are added to or deducted from the current period’s income tax expense.

Income taxes (10%) of the Parent Company and Taiwan Top on undistributed earnings generated since 1998 are recorded as expense in the year when the stockholders resolve to retain the earnings.

Derivative Transactions

The currency portion of assets and/or liabilities on currency swap contracts and other financial instruments, which are held for nontrading purposes, are recorded at spot rates and the forward rates on the starting dates of the contracts. The premiums or discounts are amortized using the straight-line method over the terms of the contracts, and the amortization is charged/credited to income. For currency swap contracts open as of the balance sheet date, receivables and payables are netted out, and the net amount is recognized as assets or liabilitity.

European style currency option contracts for nontrading purposes are not recognized as assets or liabilities on the contract dates. The gains or losses on the exercise of the options are recognized as current income.The price for the purchase of foreign-currency option contracts is amortized using the straight-line method over the term of the currency option contracts.

Foreign-currency Transactions

Transactions (except currency swap transactions) and option transactions that are denominated in currencies other than New Taiwan dollars are recorded in New Taiwan dollars at the exchange rates prevailing on the transaction dates. In addition, the gains or losses (measured from the transaction date or the most recent intervening balance sheet date, whichever is later) realized upon the settlement of foreign-currency transactions at prevailing exchange rates are included in the period in which the transaction is settled and charged to currency income. The balances of the foreign-currency assets and liabilities as of balance sheet dates are adjusted to reflect the prevailing exchange rates, and the resulting differences are recorded as

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follows: (a) those pertaining to equity-method investments in shares of stock-as translation adjustments under stockholders’ equity; and (b) others – as credits or charges to current income.

Translation into U.S. Dollars

The consolidated financial statements are stated in New Taiwan dollars. The translations of the 2005 New Taiwan dollar amounts into U.S. dollar amounts are included solely for the convenience of readers, using the rate of NT$32.85 to US$1, the average of the buying and selling rates of Taiwan Bank on December 31, 2005. The convenience translations should not be construed as representations that the New Taiwan dollar amounts have been, could have been, or could in the future to be converted into U.S. dollars at this or any other exchange rate.

Reclassifications

Certain accounts in the 2004 consolidated financial statements had been reclassified to be consistent with the 2005 consolidated financial statements presentation.

3. CHANGE IN ACCOUNTING PRINCIPLE

As described in Note 2, Taiwan Top, a subsidiary of the Parent Company, adopted SFAS No. 18, “Accounting for Pensions”. The adoption of SFAS No. 18 resulted in the recognition of deferred pension cost and accrued pension cost of NT$28,326 thousand each, and an increase in net income by NT$18,658thousand for the year ended December 31, 2004.

4. CASH AND CASH EQUIVALENTS

2004 2005 NT$ NT$ US$

(Note 2)

CashCash on hand $ 1,960 $ 4,674 $ 142Cash in banks

Checking accounts 14,070 13,528 412Savings accounts 126,278 32,255 982Foreign-currency deposits 3,324,261 3,601,005 109,620Time deposits 936,350 2,797,094 85,147

Cash equivalents - bonds with repurchase agreements 1,290,597 558,450 17,000

$ 5,693,516 $ 7,007,006 $ 213,303

As of December 31, 2004 and 2005, the Consolidated Company had foreign currency deposits as blow:

2004 2005 NT$ NT$ US$

(Note 2)

Hong Kong $ 25,660 $ 2,049 $ 62Japan-Tokyo 215 17 -Philippine-Manila 6,250 1,455 44Mainland China-Dong Guan, Shen Zhen 184,306 337,299 10,268Myanmar-Yangon 6,796 10,295 314

$ 223,227 $ 351,115 $ 10,688

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5. SHORT-TERM INVESTMENTS

2004 2005 NT$ NT$ US$

(Note 2)

Stock $ 14,797 $ 2,613 $ 80Mutual funds 13,134 - -

$ 27,931 $ 2,613 $ 80

6. ACCOUNTS RECEIVABLE - THIRD PARTIES

2004 2005 NT$ NT$ US$

(Note 2)

Accounts receivable $ 4,263,201 $ 4,354,746 $ 132,564Less - allowance for doubtful accounts (72,116 ) (90,379 ) (2,751 )

$ 4,191,085 $ 4,264,367 $ 129,813

7. INVENTORIES

2004 2005 NT$ NT$ US$

(Note 2)

Raw materials $ 1,214,098 $ 1,067,597 $ 32,499Supplies 43,987 174 5Work in process 49,574 73,090 2,225Finished goods 55,752 52,061 1,585Merchandise inventories 115 195,280 5,945Materials in transit 22,513 15,806 481

1,386,039 1,404,008 42,740Less - allowance for losses (37,796 ) (33,906 ) (1,032 )

$ 1,348,243 $ 1,370,102 $ 41,708

8. INVESTMENTS IN SHARES OF STOCKS (WITH CREDIT BALANCE)

2004 2005 Carrying Ownership Ownership Value Percentage Carrying Value Percentage

NT$ NT$ US$(Note 2)

Equity method

Hang-Zhou Nikon $ 8,263 35 $ 8,724 $ 266 35Dong-Guan Nikon Surveying Instruments Co., Ltd. (“Dong-Guan Nikon”) 12,109 40 10,157 309 40Shen Zhen Dong Yang 28,215 100 41,948 1,277 100

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2004 2005 Carrying Ownership Ownership Value Percentage Carrying Value Percentage

NT$ NT$ US$(Note 2)

Shang Hai Mobiling Limited (“Shang Hai Mobiling”) 23,215 33 21,352 650 33Pentax Sintai Holding Co., Ltd. (“Pentax Sintai”) 38,374 40 62,985 1,917 40Shang Hai Sintai - - 197,091 6,000 100Winton - - 3,088 94 60Dong-Guan Tailien 49,463 24 - - -Richman 33,322 100 - - -

$ 192,961 $ 345,345 $ 10,513Cost method

Optorun Co., Ltd. (“Optorun”) $ 59,136 3 $ 59,136 $ 1,800 3Pioneer Technology Co., Ltd. (“Pioneer”) 145,656 13 145,656 4,434 13Kotura, Inc. 69,040 1 69,040 2,102 1Match Lab. Inc. 120,855 5 120,855 3,679 5

$ 394,687 $ 394,687 $ 12,015

Prepayment for investments in shares of stock

Shang Hai Sintai $ 52,786 - $ - $ - -

Investment in shares of stock with credit balance (reported as other liabilities)

Asia Photonics Technology Co., Inc. (“Asia Photonics”) $ (75,366 ) 33 $ (75,366 ) $ 2,294 33Winton (2,331 ) 60 - - -Great (63,306 ) 99 - - -

$ (141,003 ) $ (75,366 ) $ 2,294

Investments in companies established in Mainland China had been approved by the Investment Commission of the Ministry of Economic Affairs.

The carrying values of the equity-method investments and investments in shares of stock with credit balance as of December 31, 2004 and 2005 and the related equity in net income or loss for the years then ended were based on audited financial statements of the investees.

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9. PROPERTIES

Accumulated depreciation consisted of:

2004 2005 NT$ NT$ US$

(Note 2)

Buildings $ 244,526 $ 300,498 $ 9,147Machinery and equipment 1,470,691 1,685,011 51,294Office equipment 151,898 189,350 5,764Other equipment 393,567 397,867 12,112

$ 2,260,682 $ 2,572,726 $ 78,317

Government-required revaluations in 1975 resulted in the NT$4,636 thousand appreciation of land owned by Taiwan Top, which provided a corresponding reserve for land value increment tax of NT$1,927 thousand. Later, as a result of government sequestration, revaluations of land amounting to NT$174 thousand and a reserve of NT$72 thousand for land value increment tax were written off. The remaining appreciation amount, net of reserve for land value increment tax of NT$245 thousand, was credited to capital surplus in 1995. As of December 31, 2004 and 2005, the land-revaluation increments, reserve for land revaluation increment tax, and capital surplus of Taiwan Top amounted to NT$4,462 thousand, NT$1,855 thousand, and NT$2,464 thousand, respectively.

10. BONDS PAYABLE

2004 2005 NT$ NT$ US$

(Note 2)

First overseas convertible bonds $ 584,189 $ 18,582 $ 566First domestic convertible bonds 104,134 31,837 969Second overseas convertible bonds 2,619,496 2,242,013 68,250

3,307,819 2,292,432 69,785Less - current portion (3,203,685 ) (2,273,850 ) (69,219 )

$ 104,134 $ 18,582 $ 566

a. First overseas convertible bonds

2004 2005 NT$ NT$ US$

(Note 2)

Unsecured convertible bonds $ 619,648 $ 19,276 $ 587Add - reserve for put premium 25,100 492 15Less - gains on foreign exchange (60,559 ) (1,186 ) (36 )

Current portion (584,189 ) - -

$ - $ 18,528 $ 566

In March 2002, the Parent Company issued overseas convertible bonds of US$60,000 thousand in Europe to make investments, buy machinery and equipment, and set up an ERP (enterprise resource planning) and electronic business system. The trustee is the New York Bank.

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Terms of the convertible bonds are summarized as follows:

Issue date: March 28, 2002

Maturity date: March 27, 2007

Aggregate principal amount: Par US$60,000 thousand

Coupon interest rate: 0%

Due payment: The bondholders may ask to put or to convert the bonds into shares in accordance with laws and regulations, or the parent company may call the bonds according to the Parent Company’s rules; otherwise, the principal is repaid in cash at one time upon maturity.

Put option for bondholders: Face value of bonds, with reserve for put premium

On March 28, 2004 at 104.04% of par value; On March 28, 2005 at 104.59% of par value

Call rights of bond issuer: The Parent Company has the right to call and retire all or part of the bonds, if after one year of issuance, the closing price of the parent company’s common stock in the stock exchange exceeds 50% of the prevailing conversion price for 30 consecutive trading days.

The Parent Company may also call and retire all or part of the bonds at par value at any time if the total outstanding bonds amount is less than US$6,000 thousand (which is 10% of the total issued amount).

Conversion price: NT$118.66 (in dollars) per share.

Conversion period: The bondholders may request the Parent Company to convert their bonds into the Parent Company’s common stock during the period from 30 days after the date of issuance to the 30th day before the maturity date, except for the period in which share transfer is prohibited by law.

As of December 31, 2005, the carrying amount of the bonds that had been converted into 14,125thousand shares was US$59,450 thousand. The balance of paid-in capital - bond conversion was $1,813,775 thousand, and accreted interest payable was $61,115 thousand. The application for the conversion had been approved by the SFB and registered with the authorities.

b. First domestic convertible bonds

2004 2005 NT$ NT$ US$

(Note 2)

Unsecured convertible bonds $ 102,000 $ 30,800 $ 938Add - reserve for put premium 2,134 1,037 31Less - current portion - (31,837 ) (969 )

$ 104,134 $ - $ -

In April 2003, the Parent Company issued domestic convertible bonds amounting to NT$1,200,000 thousand to construct a building and buy machinery and equipment.

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Issue date: April 28, 2003

Maturity date: April 27, 2008

Aggregate principal amount: Par NT$1,200,000 thousand


Due payment: The bondholders may ask to redeem or to convert the bonds into shares in accordance with laws and regulations, or the Parent Company may call the bonds according to the Parent Company’s rules; otherwise, the principal is repaid in cash at one time upon maturity.


On April 28, 2006 at 103.03% On April 28, 2007 at 105.09%

Call rights of bond issuer: The Parent Company has the right to call and retire all or part of the bonds in the period from three months after the date of issuance to 40th day before the maturity date if the closing price of the Parent Company’s common stock in the stock exchange exceeds 50% of the prevailing conversion price for 30 consecutive trading days.

The Parent Company may also call and retire all or part of the bonds at par value at any time if the total outstanding bonds amount to less than $120,000 thousand (which is 10% of the total issued amount).


Conversion period: The bondholders may request the Parent Company to convert their bonds into the Parent Company’s common stock during the period from three months after the date of issuance to the 10th day before the maturity date, except for the period in which share transfer is prohibited by law.

As of December 31, 2005, the carrying amount of the bonds that had been converted into 9,001thousand shares was $1,169,200 thousand. The balance of paid-in capital - bond conversion was $1,076,850 thousand, and accreted interest payable was $14,231 thousand. The application for the conversion had been approved by the SFB and registered with the authorities.

The bondholders were entitled to ask the Parent Company to redeem the convertible bonds at 103.03% of par value on April 28, 2006; thus, the Parent Company transferred the convertible bonds amounting to $31,837 thousand to current liability. However, the Parent Company is not required to redeem the convertible bonds, except at the bondholders’ request.

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c. Second overseas convertible bonds

2004 2005 NT$ NT$ US$

(Note 2)

Unsecured convertible bonds $ 2,787,090 $ 2,311,286 $ 70,359Add - reserve for put premium 10,425 - -Loss - gains on foreign exchange (178,019 ) (69,273 ) (2,109 )

Current portion $ 2,619,496 $ 2,242,013 $ 68,250

In October 2003, the Parent Company issued overseas convertible bonds in Europe to make investments, buy machinery, equipment, materials from overseas, land and construct a building. The trustee is New York Bank.


Issue date: October 14, 2003

Maturity date: October 13, 2008

Aggregate principal amount: Par US$83,000 thousand at a premium of 101%


Due payment: The bondholders may ask to redeem or convert the bonds into shares in accordance with laws and regulations, or the Parent Company may call the bonds according to the Parent Company’s rules; otherwise, the principal is repaid in cash at one time upon maturity.


On October 14, 2005 at 100.00%On October 14, 2006 at 99.00%

Call rights of bond issuer: The Parent Company has the right to call and retire all or part of the bonds if after two years of issuance, the closing price of the Parent Company’s common stock in the stock exchange exceeds 25% of the prevailing conversion price for 20 consecutive trading days.

The Parent Company may also call and retire all or part of the bonds at par value at any time if the 90% of the total bonds issued had been converted into shares or called.


Conversion period: The bondholders may request the Parent Company to convert their bonds into the Parent Company’s common stock during the period from 30 days after the date of issuance to the 30th day before the maturity date, except for the period in which share transfer is prohibited by law.

As of December 31, 2005, the carrying amount of the bonds that had been converted into 2,573thousand shares was US$14,750 thousand. The balance of paid-in capital - bond conversion was $458,051 thousand. The application for the conversion had been approved by the SFB and registered with the authorities.

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The bondholders were entitled to ask the Parent Company to redeem the convertible bonds at 99.00% of par value on October 14, 2006; thus, the Parent Company transferred the convertible bonds amounting to $2,242,013 thousand to current liability. However, the Parent Company is not required to redeem the convertible bonds, except at the bondholders’ request.

11. LONG-TERM BANK LOANS

In December 2003, Asia (B.V.I.) had a syndicated loan agreement amounting to US$30,000 thousand with Chinatrust Commercial Bank (“Chinatrust”) and 13 other banks. The related credit line of US$65,700 thousand will be available for use from December 2003 to December 2006. In December 2005, Asia (B.V.I.) fully repaid this loan in advance and then entered into another syndicated loan agreement with Chinatrust and 15 other banks. The related credit line of US$84,000 thousand is available for use from December 2005 to December 2010.

For its second loan, Asia (B.V.I.) committed to pay fees quarterly after one year from the date of loan contract if the amount borrowed is less than 50% of the US$84,000 thousand credit line, the fee will be 0.10% of half of the unused credit line.

Under the second syndicated loan agreement, the Parent Company and Asia (B.V.I.) should maintain the following financial ratios:

Parent Company Asia (B.V.I.)

Current ratio (include) At least 1.0 At least 1.5Debt ratio (include) At least 1.2 At least 1.2Interest coverage (include) At least 4.0 At least 4.0

Net tangible assets (total assets minus intangible assets) At leastNT$9,000,000

At leastNT$5,000,000

As of December 31, 2004 and 2005, the loans obtained amounted to US$33,000 thousand and US$30,000 thousand, respectively, with interest rates of 3.125% to 3.1875% and 5.0325%, respectively. The interest, payable quarterly, is calculated at 0.47% plus LIBOR-BBA (London Interbank Offered Rate–British BanksAdministration).

12. PENSION PLAN

The Labor Pension Act (the “Act”), which took effect on July 1, 2005 provides for a pension mechanism considered a defined contribution plan. The employees subject to the Labor Standards Law before the enforcement of this Act may choose to be subject to the pension mechanism under the Act or to remain to be subject to the pension mechanism under the Labor Standards Law. For those employees who were subject to the Labor Standards Law before July 1, 2005 and still work for the same business on July 1, 2005 and choose to be subject to the pension mechanism under this Act, their service years as of July 1, 2005 willbe retained. Under the Act, the rate of the Parent Company and Taiwan Top’s monthly contribution to the Labor Pension Fund should be at least 6% of the employee’s monthly wages. Thus, the Parent Company and Taiwan Top recognized pension costs of NT$11,710 thousand from July 1, 2005 to December 31, 2005.

The Parent Company and Taiwan Top’s pension plan under the Labor Standards Law is a defined benefit pension plan. Under this plan, employees should receive retirement payments as a lump sum equal to two base units for each of the first 15 service years with each year of service after 15 years entitled to only 1 unit of base wage; the maximum is 45 units. Benefit payments are calculated on the basis of years of employment and the average monthly basic compensation of the last six months before retirement. The Parent Company and Taiwan Top’s annual contribution to the pension fund are at 3% and 8% of employees’monthly basic salaries. The funds are deposited in the Central Trust of China, a government-designated custodian of pension funds, and are managed by the Pension Fund Administration Committee.

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The Parent Company and Taiwan Top’s pension information on defined benefit plan:

a. Pension cost:

2004 2005 NT$ NT$ US$

(Note 2)

Service cost $ 14,204 $ 9,882 $ 301Interest cost 9,943 7,740 236Expected return on plan assets (2,594 ) (3,135 ) (95 )Amortization 10,428 10,231 311Revenue of pension paid off (36,987 ) (1,504 ) (46 )

$ (5,006 ) $ 23,214 $ 707

b. Reconciliation of the funded status of the plan and accrued pension liabilities:

2004 2005 NT$ NT$ US$

(Note 2)

Benefit obligationsVested benefit obligations $ 29,496 $ 32,386 $ 986Non-vested benefit obligations 153,784 143,173 4,358Accumulated benefit obligations 183,280 175,559 5,344Additional benefits at future salaries 54,869 49,011 1,492Projected benefit obligations 238,149 224,570 6,836

Plan assets at fair value (84,253 ) (60,698 ) (1,848 )

Projected benefit obligations in excess of plan assets 153,896 163,872 4,988Unrecognized net transition obligations (73,746 ) (61,038 ) (1,858 )Unrecognized net pension losses (29,638 ) (56,948 ) (1,733 )Adjustment of minimum pension liabilities 48,515 68,976 2,100

Accrued pension liability $ 99,027 $ 114,862 $ 3,497

Vested benefit $ 36,632 $ 39,433 $ 1,200

c. Actuarial assumptions:

Discount rate used in determining present values 3.25% 3.25%Future salary increase 2.50% 2.25%~2.5%Expected return rate on plan assets 3.25% 3.25%

d. Summary of changes in pension fund:

Contributions $ 26,792 $ 23,186 $ 706Payment of benefits $ 22,572 $ 52,268 $ 1,591

Other subsidiaries’ pension information is as follows:

a. Under the rules in Mainland China, Dong-Guan Sintai and Dong-Guan Tailien should contribute 18% of the local standard units to the government. The contribution rates are 10% for subsidiaries and 8% for employees.

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b. Under the rules in Mainland China,Shen Zhen Sintai should contribute 14% of the local standard units to the government. The contribution rates are 9% for Shen Zhen Sintai and 5% for employees.

c. Asia (B.V.I.), Powerlink, Richman and Great are holding companies. So, they have no pension plans.

d. Scopro and Myanmar Asia have no pension plans so far.

The pension costs of other subsidiaries were NT$16,435 in 2004 and NT$22,360 in 2005.

13. STOCKHOLDERS’ EQUITY

Under the Company Law, capital surplus generated from investments in shares of stock may not be distributed; other capital surplus may only be used to offset deficit. In addition, the capital surplus generated from paid-in capital in excess of par value (arising from regular issuance of stock, shares issuance in connection with a business combination, and treasury stock reissuance) and from donations may be capitalized within certain limits.

Under the Parent Company’s Articles of Incorporation annual earnings should first be used to pay income tax and offset any prior years’ deficit. From the remainder, if any, a 10% legal reserve should be appropriated. If required under certain regulations, special reserve is appropriated next. Any remaining balance should be appropriated as follows:

a. At least 2% as bonuses to employees. Bonus in the form of stock is limited to a certain amount as required by the law or authorities.

b. 2% as remuneration to directors and supervisors, and

c. Any remaining balance as dividends.

Under approval by the board of directors, subsidiaries’ employees may also receive bonuses.

Under the Company Law of the ROC and the Parent Company’s Articles of Incorporation, in deciding its stock dividend policy, the Parent Company should consider that it is currently expanding and has a great demand for capital. Thus, for a stable dividend policy, the board of directors should take into account the results of operations, financial position and capital demand of the Parent Company when deciding the type of dividends (cash or stock) to be distributed. Total dividends paid should be less than 90% of retained earnings available for appropriation, and the cash dividends must be more than 10% of total dividends paid.

Under SFB regulations, a special reserve has to be appropriated from retained earnings equal to the debit balance of any stockholders’ equity account (cumulative translation adjustments, etc.,). At the end of each financial reporting year, the balance of the special reserve will be adjusted on the basis of the debit balance of the relevant stockholders’ equity account.

Under the Company Law, legal reserve should be appropriated each year until the reserve equals the Parent Company’s paid-in capital. This reserve can only be used to offset deficit. When the reserve reaches 50% of the Parent Company’s paid-in capital, up to one half thereof may be transferred to capital as stock dividend.

The appropriation of the 2004 and 2005 retained earnings as proposed by the board of directors and approved by stockholders was as follows:

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Appropriation of Dividend Per Share Retained Earnings (In Dollars) 2003 2004 2003 2004 NT$ NT$ NT$ NT$

Legal reserve $ 195,903 $ 243,696Special reserve - 140,008Dividends - cash 654,060 906,686 $ 4.0 $ 4.5Dividends - stock 245,272 201,486 1.5 1.0Remuneration to directors and supervisors 35,263 41,065Bonuses to employees 44,078 55,438

$ 1,174,576 $ 1,588,379

Stock dividend as bonuses to employees consisted of 4,408 thousand shares in 2003 and 4,312 thousand shares in 2004, which were 3% and 2% respectively, of total outstanding shares. Had remuneration to directors and supervisors and bonuses to employees been treated as expenses in 2003 and 2004, the basic EPS after tax would have decreased from NT$12.78 to NT$12.26 and from NT$12.62 to NT$12.12, respectively.

As of January 27, 2006, the date of the accompanying auditors’ report, the appropriation of the 2005 earnings had not been decided. Information on earnings information can be accessed online through the Market Observation Post System on the Web site of the Taiwan Stock Exchange.

Under the integrated income tax system, ROC resident stockholders are allowed income tax credits for the income tax paid by the Parent Company on earnings generated since January 1, 1998. The ParentCompany maintains an imputaion credit account (ICA) for the income tax and the tax credit allocated to each stockholder. The tax credit allocation is at a ratio set on the dividend distribution date. The maximum credit allocated to each stockholder cannot exceed the balance shown in the ICA on the dividend distribution date. (Related information is shown in Note 13d.).

14. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSES

2004Cost of Operating 2005

Sales Expense Total Cost of Sales Operating Expense Total NT$ NT$ NT$ NT$ US$

(Note 2) NT$ US$

(Note 2) NT$ US$

(Note 2)Personnel expenses

Salary $ 1,060,834 $ 260,065 $ 1,320,899 $ 1,318,334 $ 40,132 $ 320,089 $ 9,744 $ 1,638,423 $ 49,876Labor insurance 27,019 14,568 41,587 32,552 991 18,109 551 50,661 1,542Pension fund 9,176 20,910 30,086 31,845 969 38,197 1,163 70,042 2,132Others 19,397 5,942 25,339 28,645 872 7,541 230 36,186 1,102

Depreciation 650,235 59,449 709,684 770,398 23,452 62,485 1,902 832,883 25,354Amortization 25,154 55,607 80,761 54,934 1,672 10,749 327 65,683 1,999

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15. INCOME TAX

a. Reconciliation of imputed income tax on pretax income at statutory rates to current income tax is shown below:

2004 2005 NT$ NT$ US$

(Note 2)

Imputed income tax expense computed on pretax income at statutory rate (25%) $ 605,492 $ 824,483 $ 25,098Permanent differences (456,078 ) (589,501 ) (17,945 )Temporary differences (24,817 ) 27,821 847

Income tax payable - current $ 124,597 $ 262,803 $ 8,000

b. The details of income tax expense (benefit) are as follows:

Income taxes payable - current $ 124,597 $ 262,803 $ 8,000Minimal income taxes 113 101 3Investment tax credits (47,169 ) (72,298 ) (2,201 )Deferred income taxes

Investment taxes credits (78,296 ) 26,197 797Equity in net gain of investees (127,197 ) (60,000 ) (1,826 )Provisions for loss on inventories 128 (38 ) (1 )Provisions for bad debts (1,378 ) 1,765 54Unrealized foreign exchange gain (loss), net 27,924 (29,392 ) (895 )Reserves for put premium (716 ) 7,738 235Pension expenses 7,979 (505 ) (15 )Loss carry forward (40,015 ) (738 ) (22 )Others 3,092 844 26Valuation allowance 68,292 (33,494 ) (1,020 )

Prior year's adjustment (22,817 ) (19,943 ) (607 )

Income tax expense (benefit) $ (85,463 ) $ 83,040 $ 2,528

c. Deferred income taxes assets (liabilities) were as follows:

2004 2005 NT$ NT$ US$

(Note 2)

Current Allowance for losses on obsolete inventories $ 5,509 $ 5,547 $ 169Investment tax credits 65,206 75,835 2,308Unrealized foreign exchange loss (gain) (23,524 ) 5,868 179Others 6,338 4,305 131Less - valuation allowance (10,206 ) (835 ) (25 )

$ 43,323 $ 90,720 $ 2,762

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2004 2005 NT$ NT$ US$

(Note 2)

Noncurrent Investment income on equity-method investments $ (280,814 ) $ (220,814 ) $ (6,722 )Recognized pension costs in excess of amount

deductible for income tax purpose 12,632 13,136 400Investment tax credits 160,410 123,583 3,762Reserve for put premium 8,120 382 11Loss carry forward 68,765 69,503 2,116Others 575 - -Less - valuation allowance (118,632 ) (94,508 ) (2,877 )

$ (148,944 ) $ (108,718 ) $ (3,310 )

d. The Parent Company and Taiwan Top’s income tax returns through 2002 had been examined and cleared by the tax authorities.

e. Integrated income tax information of the Parent Company and Taiwan Top are as follows:

2004 2005 NT$ NT$ US$

(Note 2)

Ending balance of imputation credit account (ICA)Parent Company $ 54,682 $ 67,566 $ 2,057Taiwan Top $ 9,629 $ 9,629 $ 293

The expected creditable tax ratio for earnings of the Parent Company and Taiwan Top up to 2005, which will be distributed in 2006, are 2.49% and 4.92%, and the actual ratio for the prior year’s distribution of the 2004 earnings were 2.40% and 0%, respectively.

The imputation credit allocated to each stockholder is based on the balance of the ICA on the dividend distribution date; thus, the expected creditable ratio for the distribution of the 2005 earnings may be adjusted according to the actual ICA balance in 2006.

As of December 31, 2004 and 2005, the Parent Company and Taiwan Top of the undistributed earnings generated until 1997 were NT$22,085 thousand and NT$ 499 thousand, respectively.

f. Investment tax credits of the Parent Company and Taiwan Top

As of December 31, 2005, the investment tax credits that could be used to offset the income taxes of the Parent Company and Taiwan Top were the following:

UnusedRegulatory Basis Tax Credit Credit Expiry

Company of Tax Credits Item Granted Amount Year

Parent Company Statute for Upgrading Industries Machinery and equipment $ 84,183 $ 61,554 200776,459 76,459 200812,343 12,343 2009

Taiwan Top Statute for Upgrading Industries Machinery and equipment 1,526 1,526 20079,431 9,431 2008

480 480 2009

- 29 -

UnusedRegulatory Basis Tax Credit Credit Expiry

Company of Tax Credits Item Granted Amount Year

Taiwan Top Statute for Upgrading Industries Personnel training 57 57 200641 41 200721 21 2008

Research and development 779 779 200617,070 17,070 200716,659 16,659 2008

Under the Statute for Upgrading Industries, the maximum investment tax credit that may be used tooffset income tax liabilities is only up to 50% of the Parent Company and Taiwan Top’s annual income tax payable. But starting from the year of expiry, there will be no such limit.

16. EARNINGS PER SHARE (EPS)

The numerators and denominators used in calculating the Parent Company’s earnings per share (EPS) were as follows:

2004EPS

Net Income (Numerator) (N.T. Dollars)Before After Number of Before AfterIncome Income Shares Income Income

EPS Tax Tax (Denominator) Tax Tax

Basic $ 2,347,333 $ 2,436,960 216,438,680 $ 10.85 $ 11.26Dilutive effects

Overseas convertible bonds 11,504 8,628 18,647,630Domestic convertible bonds 6,027 4,520 3,775,287

Diluted $ 2,364,864 $ 2,450,108 238,861,597 $ 9.9 $ 10.26

2005Number of EPS

Net Income (Numerator) Shares Before After Before Income Tax After Income Tax (Denominator) Income Tax Income Tax

NT$ US$(Note 2) NT$ US$(Note 2) NT$ US$ NT$ US$(Note 2) (Note 2)

Basic $ 2,771,043 $ 84,354 $ 2,788,781 $ 84,894 226,570,574 $12.23 $ 0.37 $12.31 $ 0.37Dilutive effects

Overseas convertible bonds 910 28 682 21 14,732,735Domestic convertible bonds 845 26 634 19 641,702

Diluted $ 2,772,798 $ 84,408 $ 2,790,097 $ 84,934 241,945,011 $11.46 $ 0.35 $11.53 $ 0.35

The number of shares outstanding used in the calculation of the weighted-average number of shares outstanding has been retroactively adjusted to reflect the effect of stock dividends distributed. The retroactive adjustment caused both the basic and diluted earnings per share after income tax in 2004 to decrease from NT$12.62 to NT$11.26 and from NT$11.35 to NT$10.26, respectively.

The calculation of EPS before tax was based on income before tax of the Parent Company.

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17. FINANCIAL INSTRUMENTS

a. Derivative financial instruments

The Consolidated Company held derivative financial instruments for nontrading purposes to hedge exchange rate fluctuations of foreign-currency assets or liabilities.

Derivative transactions are summarized as follows:

1) Option contracts

a) Contract nominal amount and credit risk

Nominal Amount Date of Maturity Type Payoff Formula

2004

US$ 1,000 2005.1.5 JPY Put - USD Call a. If rate ever trades atUS$ 1,000 2005.2.4 JPY Put - USD Call 110 any spot time during the contract

period, the whole structure would US$ (1,000) 2005.1.5 JPY Call - USD Put disappear.US$ (1,000) 2005.2.4 JPY Call - USD Put b. USD/JPY:1/104

The Consolidated Company deals with banks with good credit standing; thus, credit risks are considered insignificant.

b) Market risk

The forward options that the Consolidated Company uses are all European style options. The strike rate is fixed; thus, the market risk is insignificant.

c) Liquidity risk, cash flow risk and the amount, timing and uncertainty of future cash requirements risk

The contract was settled in 2005; there was no material gain or loss on this settlement.

d) Purpose and strategy

Currencies used by the Consolidated Company in transaction are mainly in U.S. dollars and yen. Since the forward rates for settling contracts are fixed, risks on exchange rate fluctuations are minimized.

e) Presentation of derivative financial instruments in the financial statements

The amounts of currency option contracts were shown as foreign exchange losses of NT$370 thousand in the financial statements in 2005.

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2) Others

a) Contract nominal amount and credit risk

Nominal Credit Financial Instrument Amount Risk

2004

Interest rate-linked deposit US$ 3,000 -Currency swap contract US$ 3,000 -Interest rate swap contract JPY 40,000 -Dual currency convertible contract JPY 100,000 -

2005

Interest rate-linked deposit US$ 1,500 -Currency swap contract US$ 11,000 -

The Consolidated Company deals with banks with good credit standing; thus, credit risks are considered insignificant.

b) Market risk

The gains or losses on the exchange rate and interest rate fluctuations of hedged assets or liabilities will be offset by the gains or losses on currency swap contract and interest rate swap contract; thus, the market risk is considered insignificant.

The other derivative financial instruments are transacted only at nominal amounts plus interest income. Since the exchange rate and interest rate for the currency swap contracts are fixed, market risk is considered insignificant.

c) Liquidity risk, cash flow risk and the amount, timing and uncertainty of future cash requirements risk

The currency swap contracts will result in an inflow of US$11,000 thousand and an outflow of NT$364,002 thousand in January 2006. The Consolidated Company has enough working capital to meet this cash outflow requirement; thus, there is no capital deficiency risk. In addition, the exchange rate and interest rate for the currency swap contracts are fixed; thus, the cash flow risk is considered insignificant.

The forward exchange contracts, interest rate-linked deposit and interest rate swap contractinvolve a nominal amount plus fixed income when the contracts mature and there are no cash outflow requirements; so, there is no capital deficiency risk.

d) Presentation of derivative financial instruments

Derivative financial transactions are presented under other financial assets - current and other current liabilities.

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b. Fair values of financial instruments

2004 Carrying Fair 2005 Value Value Carrying Value Fair Value NT$ NT$ NT$ US$

(Note 2) NT$ US$

(Note 2)Nonderivative financial instrument

AssetsCash and cash equivalents $ 5,693,516 $ 5,693,516 $ 7,007,006 $ 213,303 $ 7,007,006 $ 213,303Short-term investments 27,931 33,125 2,613 80 9,687 295Notes and accounts receivable 4,477,048 4,477,048 4,567,425 139,039 4,567,425 139,039Other financial assets - current 319,827 319,827 141,567 4,309 141,567 4,309Investments in shares of stock 640,434 640,434 740,032 22,528 740,032 22,528Other financial assets - noncurrent 4,305 4,305 4,934 150 4,934 150

LiabilitiesNotes and accounts payable 3,686,074 3,686,074 3,497,204 106,460 3,497,204 106,460Accrued expenses 322,964 322,964 336,705 10,250 336,705 10,250Other financial liabilities - current 178,414 178,414 20,139 613 20,139 613Bonds payable (including current portion) 3,307,819 3,307,819 2,292,432 69,785 2,292,432 69,785Long-term bank loans 1,046,430 1,046,430 985,500 30,000 985,500 30,000

Derivative financial instruments

Other financial assets - current 126,060 126,060 49,275 1,500 37,474 $ 1,141Other current liabilities 1,899 1,899 2,652 81 2,652 81

The following methods and assumptions were used in estimating fair values:

1) Cash and cash equivalents, notes and accounts receivable/payable, income tax payable, accrued expenses and other current financial instrument: The carrying amounts reported in the balance sheets approximate fair values because of the short maturities of these instruments.

2) Short-term investments: Fair values are based upon quoted market prices.

3) Investments in shares of stock (with credit balance): Fair values are based upon quoted market prices, or, if quoted market prices are not available, on the equity in net assets.

4) Bonds payable: Fair values are based on the present value of expected cash flows discounted at interest rates for similar long-term debts.

5) Long-term bank loans: Fair values are based on the assumption that, the amounts of expected receivables or payables of the Consolidated Company’s related contracts on balance sheet date are those stated on the contracts.

6) Derivative financial instruments: Evaluated at the exchange rate on December 31, 2005, with contract amount as fair value.

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18. RELATED-PARTY TRANSACTIONS

a. Related parties were as follows:

Related Party Relationship with the Consolidated Company

Panwell Optical Machinery Co., Ltd. (“Panwell”)

The director is the Parent Company’s supervisor

Tai-ping Customs Broker Company (“Tai-ping”)

The principal owner is the Parent Company’s director

Guang Dong Nikon Camera Co., Ltd. (“Guang Dong Nikon”)

The vice-chairman is the Parent Company’s chairman

Dong-Guan Ricoh Eleme Office Machine Co., Ltd. (“Eleme”)


Dong Guan Dong Yang Optoelectronics Inc. (“Dong-Guan Dong Yang”)


Dong-Guan Xingfung Sintai Optical Co., Ltd. (“Xingfung Sintai”)


Dong-Guan Tailien Equity-method investee of Parent CompanyGreat Equity-method investee of Asia (B.V.I.)Winton Equity-method investee of Asia (B.V.I.)Shen Zhen Guofa Equity-method investee of Asia (B.V.I.) (Note)Shen Zhen Dong Yang Equity-method investee of Asia (B.V.I.)Dong-Guan Nikon Equity-method investee of Asia (B.V.I.)Sintai North Precision Equity-method investee of Winton (B.V.I.)Shang Hai Mobiling Equity-method investee of Asia (B.V.I.)Shang Hai Sintai Equity-method investee of Asia (B.V.I.)Pentax Sintai Equity-method investee of Asia (B.V.I.)Pentax Corporation (“Pentax”) Equity-method investee of Pentax SintaiWorldview Same chairman as the Parent Company’sMyanmar Asia Equity-method investee of Great

Note : Disposed of in December 2004.

b. Significant transactions with related parties

2004 2005 NT$ % NT$ US$ %

(Note 2)For the year

1) Sales

Shen Zhen Dong Yang $ 21,852 - $ 102,163 $ 3,110 -Xingfung Sintai 4,074 - 20,529 625 -Pentax Sintai - - 19,424 591 -Dong-Guan Tailien 94,179 1 - - -Myanmar Asia 36,425 - - - -Others 1,504 - 1,765 54 -

$ 158,034 1 $ 143,881 $ 4,380 -

Selling prices between the Consolidated Company and related parties were similar to those for third parties. The collection terms ranged from one month to six months, except those for Dong-Guan Tailien, Xinfung Sintai, Dong-Guan Dong Yang, Shen Zhen Dong Yang, Dong-Guan Nikon and Pentax Sinati, which were based on offsetting of receivables and payables.

- 34 -

2004 2005 NT$ % NT$ US$ %

(Note 2) 2) Purchases

Dong-Guan Nikon $ 9,820 - $ 23,298 $ 709 -Panwell 20,419 - 10,757 327 -Dong-Guan Tailien 99,544 1 - - -Shen Zhen Guofa 42,262 - 55,575 1,692 -Xingfung Sintai 59,245 - 145,930 4,442 1Myanmar Asia 7,416 - - - -Dong-Guan Dong Yang 3,351 - 1,349 41 -Shang Hai Sintai - - 26,548 808 -Others 2,506 - 930 29 -

$ 244,563 1 $ 264,387 $ 8,048 1

Purchases between the Consolidated Company and related parties included processing costs, and the payment of payables to Dong-Guan Nikon were offset against the receivables. The payables to Xingfung Sintai and Dong-Guan Dong Yang were offset against the receivables from these companies. Payment periods ranged from one month to six months.

2004 2005 NT$ % NT$ US$ %

(Note 2) 3) Operating expenses

Worldview $ 36,192 3 $ 32,262 $ 983 2Tai-ping 5,808 - 4,680 142 -Great 2,623 - - - -

$ 44,623 3 $ 36,942 $ 1,125 2

2004 2005 NT$ NT$ US$

(Note 2) 4) Nonoperating income and gains - rental (gross)

Pentax $ 633 $ 7,601 $ 231Xingfung Sintai 5,514 5,835 178Eleme 11,194 5,428 165Sintai-North Precision 2,796 3,758 114Guang Dong Nikon 4,856 3,358 102Dong-Guan Nikon 5,507 4,689 143Dong-Guan Dong Yang 1,393 223 7Dong-Guan Tailien 8,905 - -Others 373 309 10

$ 41,171 $ 31,201 $ 950

Rental income had been offset by the related cost and reported as nonoperating income.

- 35 -

2004 2005 NT$ NT$ US$

(Note 2) 5) Other transactions

a) Service income (gross) (see Note A below)

Guan Dong Nikon $ 2,094 $ 374 $ 11Eleme 29,580 15,323 466Winton 14,559 13,954 425Pentax Sintai 1,392 14,880 453Shang Hai Mobiling 3,430 152 5Dong-Guan Tailien 531 - -

Note A: Service income from management services had been offset by the related service cost and reported as nonoperating income and gains.

b) The Consolidated Company bought properties on behalf of related parties as follows:

2004 2005 NT$ NT$ US$

(Note 2)

Shang Hai Sintai $ 64,802 $ 103,504 $ 3,151Shen Zhen Dong Yang 1,693 11,660 355Xingfung Sintai - 924 28Myanmar Asia 17,729 - -Dong-Guan Dong Yang 851 - -

The receivables on the purchases were offset against the related payables, and the remainder was treated as accounts payable - related parties or accounts receivable - related parties.

2004 2005 NT$ % NT$ US$ %

(Note 2)End of year

6) Accounts receivable

Shang Hai Sintai $ 64,802 26 $ 157,741 $ 4,802 54Shen Zhen Dong Yang 4,946 2 108,835 3,313 37Dong-Guan Nikon 17,525 7 20,147 613 7Pentax Sintai 1,684 1 5,567 170 2Winton 1,150 - 1,192 37 -Dong-Guan Tailien 93,102 37 - - -Myanmar Asia 53,729 21 - - -Great 8,518 4 - - -Shen Zhen Guafa 3,027 1 - - -Others 1,779 1 23 - -

$ 250,262 100 $ 293,505 $ 8,935 100

(Continued)

- 36 -

2004 2005 NT$ % NT$ US$ %

(Note 2)7) Other financial assets - current

Sintai North Precision $ 15,804 4 $ 380 $ 12Dong-Guan Tailien 1,035 - - - -Eleme 962 - - - -Pentax 601 - - - -Myanmar Asia 4,221 1 - - -Others 1,979 - 1,620 49 1

$ 24,602 5 $ 2,000 $ 61 1

8) Notes payable

Panwell $ 5,236 2 $ 2,155 $ 66 1Others 351 - 370 11 -

$ 5,587 2 $ 2,525 $ 77 1

9) Accounts payable

Panwell $ 1,450 1 $ 817 $ 25 -Xingfung Sintai 111,751 51 133,941 4,077 54Dong-Guan Dong Yang 107,217 48 112,140 3,414 46Others 901 - 389 12 -

$ 221,319 100 $ 247,287 $ 7,528 100

10) Financing (Included in other financial assets)

Highest Interest Balance Ending Balance Interest Revenue NT$ NT$ US$ Rate NT$

(Note 2)Receivable from Related Parties2004

Winton $ 44,976 $ 41,641 $ 1,313 3% $ 1,426Great $ 193,221 $ 193,221 $ 6,093 - $ -

2005

Winton $ 42,146 $ 34,254 $ 1,043 3% $ 1,271

(Concluded)

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19. ASSETS PLEDGED OR MORTGAGED

The following assets were pledged or mortgaged as collateral to meet terms of various credit agreements and of hiring foreign labor:

2004 2005 NT$ NT$ US$

(Note 2)

Other financial assets - current $ 5,443 $ 3,652 $ 111Properties, net 135,781 - -

$ 141,224 $ 3,652 $ 111

20. COMMITMENTS AND CONTINGENCIES

The Consolidated Company’s unused letters of credit for the import of equipment amounted to NT$12,945thousand.

The Consolidated Company had commitments to pay NT$110,054 thousand under various machinery purchase contracts.

The Consolidated Company had rented land from the Economic Bureau Taichung Export Processing Zone (TEPZ) and others under operating lease agreements. The present value of minimum annual rental expense for future years is as follows:

Rent Payable Period NT$ US$

2006 $ 1,206 $ 372007 1,770 542008 1,334 412009 970 292010 2,484 75

$ 7,764 $ 236

21. ELIMINATED SIGNIFICANT INTERCOMPANY TRANSACTIONS

Table 1 (attached).

22. SEGMENT INFORMATION

a. Industry information:

The Consolidated Company’s principal business is manufacturing, processing and selling lenses and optical instruments.

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b. Geographic area:

1) 2004

AdjustmentDomestic And

Asia Europe Segments Elimination TotalNew Taiwan dollars

a) Revenue

Revenues from third-party customers $ - $ 20,701,792 $ 6,446,965 $ - $ 27,148,757Revenues from other segments of the group 2,671,170 1,314,082 1,003,883 (4,989,135 ) -

$ 2,671,170 $ 22,015,874 $ 7,450,848 $ (4,989,135 ) $ 27,148,757

b) Segment income $ 257,660 $ 1,792,175 $ 252,601 $ (46,460 ) $ 2,255,976Segment revenue 236,492Segment expense (162,394 )

Income before income tax $ 2,330,074

c) Identifiable assets $ 3,235,483 $ 1,223 $ 3,098,507 $ - $ 6,335,213Investments in shares of stock 640,434Assets of the group 12,547,519

$ 19,523,166

2) 2005

AdjustmentDomestic And

Asia Europe Segments Elimination TotalNew Taiwan dollars

a) Revenue

Revenues from third-party customers $ 2,350,969 $ 24,741,742 $ 6,501,281 $ - $ 33,593,992Revenues from other segments of the group 3,886,077 1,483,398 1,375,386 (6,744,861 ) -

$ 6,237,046 $ 26,225,140 $ 7,876,667 $ (6,744,861 ) $ 33,593,992

b) Segment income $ 785,980 $ 1,615,776 $ 506,507 $ (60,299 ) $ 2,847,964Segment revenue 249,612Segment expense (190,368 )

Income before income tax $ 2,907,208

c) Identifiable assets $ 4,138,332 $ 3,214 $ 2,851,070 $ (1,590 ) $ 6,991,026Investments in shares of stock 740,032Assets of the group 13,844,146

$ 21,575,204

U.S. dollars

a) Revenue

Revenues from third-party customers $ 71,567 $ 753,173 $ 197,908 $ - $ 1,022,648Revenues from other segments of the group 118,298 45,156 41,869 ( 205,323 ) -

$ 189,865 $ 798,329 $ 239,777 $ (205,323 ) $ 1,022,648

b) Segment income $ 23,926 $ 49,325 $ 15,419 $ (1,836 ) $ 86,834Segment revenue 7,460Segment expense (5,795 )

Income before income tax $ 88,499

c) Identifiable assets $ 125,977 $ 98 $ 86,790 $ (48 ) $ 212,817Investments in shares of stock 22,528Assets of the group 421,434

$ 656,779

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c. Information export sales

2004 2005Area NT$ NT$ US$ (Note 2)

Europe $ 2,680,092 $ 4,506,417 $ 137,182Asia 23,506,592 28,352,304 863,084America 601,326 707,084 21,525Australia 9,577 5,348 162

$ 26,797,587 $ 33,571,153 $ 1,021,953

d. Major clients

2004 2005 NT$ NT$ US$ (Note 2)

A Company $ 6,739,267 $ 5,853,029 $ 178,174B Company 780,801 4,067,105 123,808C Company 305,884 7,867,108 239,486D Company 3,077,736 3,526,803 107,361

23. ADDITIONAL DISCLOSURES REQUIRED FOR PUBLIC COMPANIES

Following are the additional disclosures made in compliance with the requirements of the Securities and Futures Bureau:

a. Financing provided to related parties: Table 2 (attached)

b. Endorsement/guarantee provided to related parties: Table 3 (attached)

c. Marketable securities held: Table 4 (attached)

d. Marketable securities acquired and disposed of, which exceeds NT$100 million or 20% of the issued capital: Table 5 (attached)

e. Acquisition of properties exceeding NT$100 million or 20% of issued capital: Table 6 (attached)

f. Disposal of properties exceeding NT$100 million or 20% of issued capital: None

g. Purchases from or sales to related parties amounting to more than NT$100 million or 20% of the issued capital: Table 7 (attached)

h. Receivables from related parties amounting to more than NT$100 million or 20% of the issued capital: Table 8 (attached)

i. Information (names and locations, etc.) of investees on which the Company exercises significant influence: Table 9 (attached)

j. Derivative transactions: Note 17 and Table 10 (attached)

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k. Information on investment in Mainland China

1) The name of the investee company in Mainland China, the main businesses and products, its issued capital, relationship with the Company, information on inflow or outflow of capital, ratio of ownership, gain or loss on investment, ending balance, gain or loss on amount received from investment, and the limitation on investment: Table 11 (attached)

2) Direct or indirect significant transactions with investee company, its prices and terms of payment, and unrealized gain or loss:

a) Amounts, percentage of purchases for the period ended December 31, 2005 and balance, percentage of related accounts payable as of December 31, 2005: None

b) Amounts, percentage of sales for the period ended December 31, 2005 and balance, percentage of related trade accounts receivable as of December 31, 2005: None

c) Sales of properties and related gain or loss incurred: None

d) Purposes and ending balance of collateral and guarantees provided: None

e) Maximum balance, ending balance, interest rate range, and interest expense for the period ended December 31, 2005 of financing provided: None

f) Other material transactions which will affect income of current period or financial health such as the provision or acceptance of service: Note 18 and Table 12 (attached)

- 41 -

TABLE 1


ELIMINATED SIGNIFICANT INTERCOMPANY TRANSACTIONS YEAR ENDED DECEMBER 31, 2005(In Thousands, Unless Stated Otherwise)

Transactions

Amounts Ratio of Consolidated Sales or Consolidated AssetsNumbers Company Name Counter-Party Nature of the

Relationship (Note) Account2004 2005

Terms2004 2005

0 Asia Optical Co., Inc. (“Parent Company”) Asia (B.V.I.) 1 Sales NT$ 575,935 NT$ 779,090 30-90 days 2 2Purchases 640,406 535,111 60-120 days 2 2Service income 12,425 129,134 30 days - -Accounts receivable 40,665 35,818 30-90 days - -Accounts payable 251,767 791,225 60-120 days 1 4Gain on disposal of properties - 3,313 - - -

Powerlink 1 Sales 173,852 175,053 30-90 days 1 1Purchases 43,124 39,626 30-180 days - -Service income 13,921 48,640 30 days - -Accounts receivable 6,124 11,921 30-90 days - -Accounts payable 2,896 11,538 30-180 days - -Gain on disposal of properties - 668 - - -

Taiwan Top 1 Sales 129,398 59,055 30-60 days - -Purchases 52,032 19,284 30-180 days - -Prepayment for equipment 378 1,590 - - -Notes receivable 19,930 6,656 30-60 days - -Accounts receivable 10,474 2,084 30-60 days - -Notes payable 3,796 2,353 30-180 days - -Accounts payable 560 2,688 30-180 days - -Deferred charge - 4,516 - - -

1 Asia (B.V.I.) Parent company 2 Sales 640,406 535,111 60-120 days 2 2Purchases 575,935 779,090 30-90 days 2 2Operating expenses 12,425 129,134 30 days - -Accounts receivable 211,102 755,407 60-120 days 1 4Machinery and equipment - 48,151 - - -Defferred charges - 864 - - -

Powerlink 3 Sales 39,802 15,958 30-90 days - -Purchases 296,145 337,128 30-60 days 1 1Accounts payable 248,265 215,981 30-60 days 1 1Defferred charges - 668 - - -

Dong-Guan Tailien 3 Sales - 18,896 30-180 days - -Purchases - 309,620 30-180 days - 1Accounts receivable - 43,951 30-180 days - -Other payables - 55,045 30-180 days - -

Taiwan Top 3 Sales 3,753 3,571 30-180 days - -Purchases 88,471 298,445 30-180 days - 1Operating expenses - 2,539 30 days - -Accounts payable - 33,446 30-180 days - -

(Continued)

- 42 -

Transactions



Terms2004 2005

1 Asia (B.V.I.) Dong-Guan Sintai 3 Sales $ 142,933 $ 18,289 30-180 days 1 -Purchases 1,378,438 1,198,212 30-180 days 5 4Accounts payable 502,719 527,553 30-180 days 3 2

Shen Zhen Sintai 3 Sales 149,172 112,741 30-180 days 1 -Purchases 1,214,302 2,197,856 30-180 days 4 7Accounts receivable 1,219,302 1,872,711 30-180 days 7 9

Myanmar Asia 3 Sales - 38,079 30-180 days - -Purchases - 125,112 30-180 days - -Accounts receivable - 293,278 30-180 days - 1

Great 3 Accounts receivable - 1,343 30-180 days - -

2 Powerlink Parent company 2 Sales 41,871 39,731 30-180 days - -Purchases 172,599 174,918 30-90 days 1 1Operating expenses 13,921 48,640 30 days - -Accounts receivable 2,896 11,538 30-180 days - -Accounts payable 6,124 12,595 30-90 days - -

Asia (B.V.I.) 3 Sales 296,145 336,015 30-60 days 1 1Purchases 39,802 14,710 30-90 days - -Accounts receivable 248,265 215,846 30-60 days 1 1

Scopro 3 Manufacturing expenses 78,430 55,048 30 days - -Prepaid expenses 12,105 28,498 - - -

3 Dong-Guan Tailien Asia (B.V.I.) 3 Sales - 309,620 30-180 days - 1Purchases - 18,896 30-180 days - -Accounts payable - 42,272 30-180 days - -Other financial assets-current - 53,366 30-180 days - -

Dong-Guan Sintai 3 Rental expenses - 11,621 30 days - -Other payables - 1,044 30 days - -

4 Taiwan Top Parent company 2 Sales 45,498 14,182 30-180 days - -Purchases 122,977 58,815 30-60 days - -Nonoperating income and gains-others

163 947 30-180 days - -

Notes receivable 3,796 2,353 30-180 days - -Accounts receivable 560 3,205 30-180 days - -Notes payable 19,930 6,656 30-60 days - -Accounts payable 10,474 2,084 30-60 days - -Other current laibilities 378 1,509 - - -Deferred change - 4,516 - - -

Asia (B.V.I.) 3 Sales 79,254 298,445 30-180 days - 1Purchases 3,753 3,571 30-180 days - -Nonoperating income and gains - others

9,217 2,539 30-180 days - -

Accounts receivable 24,341 35,105 30-180 days - -Other receivable 373 105 30-180 days - -Accounts payable 23,968 1,772 30-180 days - -

(Continued)

- 43 -

Transactions



Terms2004 2005

5 Dong-Guan Sintai Asia (B.V.I.) 3 Sales $ 1,378,438 $ 1,198,212 30-180 days 5 4Purchases 142,933 18,289 30-180 days 1 -Accounts receivable - 527,553 30-180 days - 2

Dong-Guan Tailien 3 Rental income - 11,621 30 days - -Other financial assets-current - 1,044 - - -

Shen Zhen Sintai 3 Other financial assets-current 17,528 97,136 - - -

6 Shen Zhen Sintai Asia (B.V.I.) 3 Sales 1,214,302 2,197,856 30-180 days 4 7Purchases 149,172 112,741 30-180 days 1 -Accounts payable 1,291,320 1,872,715 30-180 days 7 9

Dong-Guan Sintai 3 Other payables 17,528 97,136 30-180 days - -

7 Great Asia (B.V.I.) 3 Accounts payable - 1,343 30-180 days - -Myanmar Asia Accounts receivable - 330,693 30-180 days - -

8 Scopro Powerlink 3 Sales 78,430 55,277 30 days - -Other advance receipts 12,105 28,498 - - -

9 Myanmar Asia Asia (B.V.I.) 3 Sales - 125,112 30-180 days - -Purchases - 38,079 30-180 days - -Accounts payable - 293,182 30-180 days - 1

Great Accounts payable - 330,700 30-180 days - -

Note 1: The Parent company to subsidiaries.

Note 2: Subsidiaries to the Parent company.

Note 3: Among subsidiaries.

- 44 -

TABLE 2


FINANCING PROVIDED TO RELATED PARTIESYEAR ENDED DECEMBER 31, 2005(In Thousands of New Taiwan Dollars)

Collateral

Financier Counter-party

Financial Statement Account

Highest Balance for the

PeriodEnding Balance Interest

Rate Type of the FinancingBusiness

Transaction Amount

Purpose of the Short-term Financing

Allowance for Bad Debt Item Value

Limitation on Financing(Note 1)

Maximum Amount that

Can Be Financed by the Financier

(Note 2)

Asia (B.V.I.) Winton Receivable from affiliates NT$ 42,146(US$ 1,313)

NT$ 34,254(US$ 1,043)

3% Short-term financing - For working capital - None - NT$ 688,222 NT$ 1,147,037

Great (Note 3) Receivable from affiliates NT$ 399,920(US$6,784 and JPY$597,852)

- - Short-term financing - For working capital - None - NT$ 688,222 NT$ 1,147,037

Great Myanmar Asia (Note 3) Receivable from affiliates NT$ 271,877(US$8,276)

NT$ 171,220(US$ 5,212)

- Short-term financing - For working capital - None - NT$ 688,222 NT$ 1,147,037

Note 1: Based on 30% of the paid-in capital of the financier as shown in its latest financial statements.

Note 2: Based on 50% of the paid-in capital of the financier as shown in its latest financial statements.

Note 3: Transactions have been eliminated, for related transactions, please see Table 1 to the consolidated financial statements.

- 45 -

TABLE 3


ENDORSEMENT/GUARANTEE PROVIDED TO RELATED PARTIESYEAR ENDED DECEMBER 31, 2005(In Thousands of New Taiwan Dollars)

Counter-party

Endorser/GuarantorName Nature of

Relationship

Maximum Amount Allowable to

Individual Endorsee (Note 2)

Highest Amount Endorsed for the Year

Ending Balance of the Guarantee/Endorsement

Value of Properties Used as Collateral by

the Counter Party

Ratio of Accumulated Amount of

Endorsement to Net Equity Shown in the

Latest Financial Statements of the

Guarantor

Maximum Amount of the Endorsement/

Guarantee Allowable (Note 3)

Parent Company Asia (B.V.I.) Note 1 NT$ 5,252,695 NT$ 2,158,245 NT$ - - - NT$ 6,565,869(US$ 65,700 )

Note 1: See Note 2 to the Consolidated financial Statements.

Note 2: Based on 40% net assets of the Company as shown in its latest financial statements.

Note 3: Based on 50% net assets of the Company as shown in its latest financial statements.

- 46 -

TABLE 4


MARKETABLE SECURITIES HELDDECEMBER 31, 2005(In Thousands of New Taiwan Dollars)

December 31, 2005Corporate Stockholder’s Name Marketable Securities Type and Name Relationship with the Investor Financial Statements Account

Shares/Units Carrying Value Percentage ofOwnership

Market Value or Net Asset Value

Share certificateParent Company Dong-Guan Tailien (Note) Equity-method investee Investments in shares of stock - $ 70,152 24 $ 70,152

StockRichman (Note) Equity-method investee Investments in shares of stock 700 47,259 100 47,259Asia (B.V.I.) (Note) Equity-method investee Investments in shares of stock 13,500 7,445,726 100 7,593,953Powerlink (Note) Equity-method investee Investments in shares of stock 50 726,958 100 747,850Taiwan Top (Note) Equity-method investee Investments in shares of stock 16,416 357,819 86 363,495Asia Photonics Equity-method investee Investments in shares of stock with credit balance 2,000 (75,366 ) 33 (107,503 )Altek Corporation None Short-term investments 170 2,613 - 9,687

ASIA (B.V.I.) StockWinton Equity-method investee Investments in shares of stock 77 3,087 60 3,087

Share certificateDong-Guan Sintai (Note) Equity-method investee Investments in shares of stock - 904,167 100 904,167Hang-Zhou Nikon Equity-method investee Investments in shares of stock - 8,724 35 8,724Dong-Guan Nikon Equity-method investee Investments in shares of stock - 10,157 40 10,157Pioneer None Investments in shares of stock - 145,656 13 -Shen Zhen Sintai (Note) Equity-method investee Investments in shares of stock - 1,454,484 100 1,454,484Shen Zhen Dong Yang Equity-method investee Investments in shares of stock - 41,948 100 41,948Shang Hai Mobiling Equity-method investee Investments in shares of stock - 21,352 33 21,352Pentax Sintai Equity-method investee Investments in shares of stock - 62,985 40 62,985

Shang-Hai Sintai Equity-method investee Investments in shares of stock - 197,090 100 197,090Great (Note) Equity-method investee Investments in shares of stock - 268,007 99 268,007

OthersInterest rate linked deposit ─ Other financial assets - current - 49,275 - 37,482

(Continued)

- 47 -

December 31, 2005Corporate Stockholder’s Name

Marketable SecuritiesType and Name Relationship with the Investor Financial Statements Account

Shares/Units Carrying Value Percentage ofOwnership

Market Value or Net Asset Value

Powerlink StockScopro (Note) Equity-method investee Investments in shares of stock

with credit balance2,200 $ (3,981 ) 55 $ (3,981 )

Optorun Co., Ltd. None Investments in shares of stock 1 59,136 3 -Kotura, Inc. None Investments in shares of stock 1 69,040 1 -Match Lab, Inc. None Investments in shares of stock 4,375 120,855 5 -

OthersInterest rate linked deposit None Other financial assets - current - 49,275 - 43,461

Richman Share certificateDong-Guan Tailien (Note) Equity-method investee Investments in shares of stock - 42,258 16 42,258

Winton Share certificateSintai North Precision Equity-method investee Investments in shares of stock - 137,528 100 137,528

Great Share certificateMyanmar Asia (Note) Equity-method investee Investments in shares of stock - 100,768 100 100,768

Pentax Sintai Share certificatePentax Corporation Equity-method investee Investments in shares of stock - 50,573 100 50,573

Note: Transactions have been eliminated, for related transactions, please see Table 1 to the consolidated financial statements.

- 48 -

TABLE 5


MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF EXCEEDING NT$100 MILLION OR 20% OF THE ISSUED CAPITALYEAR ENDED DECEMBER 31, 2005(In Thousands of New Taiwan Dollars)

Beginning Balance Acquisition Disposal Ending BalanceCompany Name Marketable Securities Type and

Name Account Counter-partyRelationshipwith Holding

Company Shares Amount Shares Amount Shares Selling Price Book Value Gain (Loss) on Disposal Shares Amount

Parent Company Beneficiary certificateNAM Short-term Fixed Income Fund Short-term investments SinoPac Asset Management

(Asia) Ltd.None - - 3,210 $ 410,559 3,210 $ 413,760 $ 410,559 3,201 - -

GC Dollar Fund Short-term investments Grand Cathay holding Limited

None - - 8,590 273,055 8,590 274,543 273,055 1,488 - -

- 49 -

TABLE 6


ACQUISITION OF PROPERTIES EXCEEDING NT$100 MILLION OR 20% OF THE ISSUED CAPITALYEAR ENDED DECEMBER 31, 2005(In Thousands of New Taiwan Dollars)

Counter-party’s Transactions with Related PartyCompany Name Property Name Transaction

Date Amount Payment Condition Counter-party

Relationship with AcquiringCompany Owner Nature of the

Relationship Transfer Date Amount

Basis of Transaction

Price

Purpose of Acquisition

Other Transaction

Terms

Parent Company Plant construction September 2003 $ 111,685 $111,685 paid Ji-Yuan Construction Co., Ltd. None - - - - - Production None(Note)

Note: The original cost of the contract was $97,922 thousand, and actual payment was $97,306 and the Parent Company increased the cost by $14,379 thousand, as agreed upon with the counter-party in 2004 and 2005.

- 50 -

TABLE 7


PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO MORE THAN NT$100 MILLION OR 20% OF THE ISSUED CAPITALYEAR ENDED DECEMBER 31, 2005(In Thousands of New Taiwan Dollars)

Transaction Details Extraordinary Terms Accounts Receivable(Payable)Company Name Related Party Nature of the Relationship Purchase

or Sale Amount % Collection Terms Unit Price Collection Terms Ending Balance %Note

Parent Company Asia (B.V.I.) Note 1 Purchase $ 535,111 10 60-120 days Note 3 Note 4 NT$ (791,225 ) (80 ) Notes 2 and 5Sale (779,090 ) (11 ) 30-90 days Note 3 Note 4 35,818 4 Note 5

Powerlink Note 1 Sale (175,053 ) (2 ) 30-90 days Note 3 Note 4 11,921 1 Note 5

Asia (B.V.I.) Parent Company Note 1 Sale (535,111 ) (2 ) 60-120 days Note 3 Note 4 755,407 12 Note 5Purchase 779,090 2 30-90 days Note 3 Note 4 - - Note 5

Powerlink Note 1 Purchase 337,128 1 30-180 days Note 3 Note 4 (215,981 ) (6 ) Note 5Dong-Guan Tailien Note 1 Purchase 309,620 1 30-180 days Note 3 Note 4 43,951 1 Note 5Taiwan Top Note 1 Purchase 298,445 1 30-180 days Note 3 Note 4 (33,446 ) (1 ) Note 5Dong-Guan Sintai Note 1 Purchase 1,198,212 3 30-180 days Note 3 Note 4 (527,553) (14 ) Note 5Shen Zhen Sintai Note 1 Sale (112,741 ) - 30-180 days Note 3 Note 4 1,872,711 29 Note 5

Purchase 2,197,856 7 30-180 days Note 3 Note 4 - - Note 5Myanmar Asia Note 1 Purchase 125,112 - 30-180 days Note 3 Note 4 293,278 5 Note 5Shen Zhen Dong Yang Note 1 Sale (102,163 ) - 90-180 days Note 3 Note 4 108,835 2 Note 5

Powerlink Parent Company Note 1 Purchase 175,053 92 30-90 days Note 3 Note 4 (11,921 ) (91 ) Note 5Asia (B.V.I.) Note 1 Sale (336,015 ) ( 86 ) 30-180 days Note 3 Note 4 215,846 95 Note 5

Taiwan Top Asia (B.V.I.) Note 1 Sale (298,445 ) ( 44 ) 30-180 days Note 3 Note 4 35,105 37 Note 5

Dong-Guan Tailien Asia (B.V.I.) Note 1 Sale (309,620 ) ( 12 ) 30-180 days Note 3 Note 4 (42,272 ) (27 ) Note 5

Dong-Guan Sintai Asia (B.V.I.) Note 1 Sale (1,198,212 ) ( 100 ) 30-180 days Note 3 Note 4 527,553 100 Note 5

Shen Zhen Sintai Asia (B.V.I.) Note 1 Sale (2,197,856 ) ( 100 ) 30-180 days Note 3 Note 4 - - Note 5Purchase 112,741 45 30-180 days Note 3 Note 4 (1,872,715 ) ( 93 ) Note 5

Myanmar Asia Asia (B.V.I.) Note 1 Sale (125,112 ) (100) 30-180 days Note 3 Note 4 (293,182 ) (47 ) Note 5

Shen Zhen Dong Yang Asia (B.V.I.) Note 1 Purchase 102,163 100 90-180 days Note 3 Note 4 (72,900 ) (100) Note 5

Note 1: See Notes 2 and 18 to the consolidated financial statements.

Note 2: Asia (B.V.I.) bought materials on the Parent Company’s behalf for NT$4,078,006 thousand.

Note 3: The selling and purchasing prices for related parties were similar to those for third parties.

Note 4: The periods for collecting receivables and settling payables for related parties were simlar to those for third parities.

Note 5: Transactions have been eliminated, for related transactions, please see Table 1 to the consolidated financial statements.

- 51 -

TABLE 8


RECEIVABLE FROM RELATED PARTIES AMOUNTING TO MORE THAN NT$100 MILLION OR 20% OF THE ISSUED CAPITALDECEMBER 31, 2005(In Thousands of New Taiwan Dollars)

OverdueCompany Name Counter-party Nature Of the Relationship Ending Balance

(Note 1)Turnover

(Time) Amount Collection Policy

Subsequent Period Amounts

Received

Allowance for Bad Debts

ASIA (B.V.I.) Parent Company (Note 4) Note 1 NT$ 755,407 Note 3 NT$ - - NT$ - NT$ -Shang Hai Sintai Equity-method investee 157,741 Note 2 - - - -Shen Zhen Sintai (Note 4) Equity-method investee 1,872,711 Note 2 - - - -Myanmar Asia (Note 4) Great’s equity-method investee 293,278 Note 2 - - - -Shen Zhen Dong Yang Same chairman as Asia (B.V.I.)’s 108,835 1.80 108,835 Intensified collection of receivables - -

Powerlink Asia (B.V.I.) (Note 4) Note 1 215,846 1.45 204,449 Intensified collection of receivables 11,397 -

Dong-guan Sintai Asia (B.V.I.) (Note 4) Equity-method investee 527,553 Note 2 - - - -

Note 1: See Notes 2 and 18 to the consolidated financial statements.

Note 2: Asia (B.V.I.) bought materials and properties on behalf of Shang Hai Sintai, Shen Zhen Sintai, Myanmar Asia and Dong-Guan Sintai; thus, turnover analysis was not suitable.

Note 3: Asia (B.V.I.) bought materials and merchandise inventories on behalf of the company; thus, turnover analysis was not suitable.

Note 4: Transactions have been eliminated; for related transactions, please see Table 1 to the consolidated financial statements.

- 52 -

TABLE 9


INFORMATION ON INVESTEE ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCEYEAR ENDED DECEMBER 31, 2005(In Thousands of New Taiwan Dollars)

Investment Amount Balance as of December 31, 2005Investor Company Investee Company Location Main Businesses and Products December 31,

2005January 1,

2005 Shares Percentage of Ownership

Carrying Value

Net Income (Loss) of the

Investee

Recognized Gain (Loss)

on InvestmentNote

Parent Company Dong-Guan Tailien (Note) Dong-Guan, China

Manufacture and processing of cameras and its’parts.

NT$ 11,163 NT$ 11,163 - 24% NT$ 70,152 NT$ 77,494 NT$ 18,521 Subsidiary

Taiwan Top (Note) Changhua, ROC Manufacture and sale of cameras, copy machines, printers and facsimile machines.

472,781 472,781 16,416 86% 357,819 6,980 6,678 Subsidiary

Richman (Note) British Virgin Islands (B.V.I.)

Holding company 22,614 22,614 700 100% 47,259 12,477 12,477 Subsidiary

Asia (B.V.I.) (Note) B.V.I. Sale of riflescopes, lenses and optical components. 1,401,520 1,401,520 13,500 100% 7,445,726 2,049,384 2,080,374 SubsidiaryPowerlink (Note) B.V.I. Sale of riflescopes, lenses and optical components. 14,000 14,000 50 100% 726,958 95,358 102,133 SubsidiaryAsia photonics Taichung, ROC Research and development of photonic products 20,000 20,000 2,000 33% (75,366 ) (96,417 ) - Subsidiary

Asia (B.V.I.) Dong-Guan Sintai (Note) Dong-Guan, China

Manufacture of optical components and finished products.

262,056 262,056 - 100% 904,167 303,411 303,411 Indirect subsidiary

Shen Zhen Sintai (Note) Shen Zhen, China Manufacture of laser printers, scanners and plastic products.

1,005,383 293,666 - 100% 1,454,484 298,222 298,222 Indirect subsidiary

Shen Zhen Dong Yang Shen Zhen, China Manufacture and sale of projectors 23,133 13,632 - 100% 41,948 1,796 1,796 Indirect subsidiary

Winton B.V.I. Sale of precision instruments, testing machines for electronic use and print device

2,650 2,650 77 60% 3,087 4,405 2,648 Indirect subsidiary

Great (Note) Hong Kong Holding company 412,183 413 - 99% 268,007 (68,165 ) (67,484 ) Indirect subsidiary

Shang Hai Sintai Shang Hai, China Manufacture and sale of DV, digital cameras and parts.

204,623 - - 100% 197,090 (19,630 ) (19,630 ) Indirect subsidiary

Hong-Zhou Nikon Hang-Zhou, China

Manufacture of camera components 5,386 5,386 - 35% 8,724 3,439 1,204 Indirect subsidiary

Powerlink Scopro (Note) Philippines Manufacture of riflescopes 3,900 3,900 2,200 55% (3,981 ) (22,931 ) (12,612 ) Indirect subsidiary

Winton Sintai North Precision Dong-Guan, China

Manufacture of precision instruments, testing machines for electronic use, print device and parts.

56,495 56,495 - 100% 137,528 11,246 11,246 Indirect subsidiary

Great Myanmar Asia (Note) Myanmar Manufacture of lens and related products. 244,062 2,614 - 100% 100,768 (62,153 ) (61,020 ) Indirectsubsidiary

Note: Transactions have been eliminated; for related transactions, please see Table 1 to the consolidated financial statements.

- 53 -

TABLE 10


DERIVATIVE TRANSACTIONSYEAR ENDED DECEMBER 31, 2005(In Thousands, Unless Stated Otherwise)

The investees held derivative financial instruments for nontrading purposes to i.e., hedge risks on interest rate fluctations. As of December 31, 2005, derivative financial instruments are as follows:

Investee’s Name Derivative Financial Instruments Nominal Amount Fair Value Maturity Date Credit Risk

ASIA (B.V.I.) Interest Rate Linked Deposit US$ 1,000 US$ 685 2013.12.23 -Interest Rate Linked Deposit US$ 500 US$ 456 2010.04.30 -

POWERLINK Interest Rate Linked Deposit US$ 500 US$ 406 2010.07.12 -Interest Rate Linked Deposit US$ 1,000 US$ 917 2009.12.10 -

- 54 -

TABLE 11


INFORMATION ON INVESTMENT IN MAINLAND CHINAYEAR ENDED DECEMBER 31, 2005(In Thousands, Unless Stated Otherwise)

Outflow or Inflow of Capital Investment

Investee Company Main Businesses and Products Issued Capital Investment Method

Accumulated Outflow of

Capital Investment as of

Jan. 1, 2005Outflow Inflow



December 31, 2005

Ownership of Direct or Indirect

Investment

RecognizedGain (Loss) on

Investment

Carrying Value as of

December 31, 2005

Investment Income as ofDecember 31,

2005

Dong-Guan Tailien Manufacturing and processing cameras and parts

US$ 2,260 1. The investment was made through a subsidiary incorporated in a third area, which in turn, made direct investments in companies in China

2. Direct investment in companies by entrusting subsidiary.

NT$ 11,163( US$ 420 )

NT$ 22,614( US$ 700 )

-

-

-

-

NT$ 11,163( US$ 420 )

NT$ 22,614( US$ 700 )

24

16

NT$ 18,521

12,477

NT$ 70,152

47,258

-

-

Dong-Guan Sintai Manufacture of optical components and finished products

US$ 7,900 The investment was made through a subsidiary incorporated in a third area, which in turn, made direct investments in companies in China

NT$ 1,212,127( US$ 35,237 )

- - NT$ 1,212,127( US$ 35,237 )

100 303,411 904,167 -

Hang-Zhou Nikon Manufacture of camera components US$ 500 The investment was made through a subsidiary incorporated in a third area, which in turn, made direct investments in companies in China

NT$ 5,386( US$ 175 )

- - NT$ 5,386( US$ 175 )

35 1,204 8,724 -

Pioneer Manufacture of DVD player and DVD pick-up heads


NT$ 145,656( US$ 4,200 )

- - NT$ 145,656( US$ 4,200 )

13 - 145,656 -

Sintai-North-Precision Manufacture of precision instruments, testing machines for electronics, print device and parts.


NT$ 56,495( US$ 1,623 )

- NT$ 56,495( US$ 1,623 )

60 6,748 82,517 -

Dong-Guan Nikon Research and manufacture of equipments for electronics use


NT$ 27,772( US$ 800 )

- - NT$ 27,772( US$ 800 )

40 (2,339 ) 10,157 -

Shen Zhen Sintai (Note 4) Manufacture of laser printers, scanners and plastic products


NT$ 293,666( US$ 8,500 )

711,717( US$ 21,500 )

- NT$ 1,005,383( US$ 30,000 )

100 298,222 1,454,484 -

Shen Zhen Dong Yang Manufacture and sales of projecters US$ 700 The investment was made through a subsidiary incorporated in a third area, which in turn, made direct investments in companies in China

NT$ 13,632( US$ 400 )

9,501( US$ 300 )

- NT$ 23,133( US$ 700 )

100 1,796 41,948 -

(Continued)

- 55 -

Outflow or Inflow of Capital Investment

Investee Company Main Businesses and Products Issued Capital Investment Method



Jan. 1, 2005Outflow Inflow



December 31, 2005

Ownership of Direct or Indirect

Investment

RecognizedGain (Loss) on

Investment(Note 5)

Carrying Value as of

December 31, 2005

Investment Income as ofDecember 31,

2005

Shang Hai Mobiling Manufacture and sale of optical components US$ 2,300 The investment was made through a subsidiary incorporated in a third area, which in turn, made direct investments in companies in china

NT$ 24,847( US$ 759 )

$ - $ - NT$ 24,847( US$ 759 )

33 NT$ (3,169 ) NT$ 21,352 -

Pentax (Note 1) Manufacture and sale of optical instruments RMB$ 2,228 The investment was made through a subsidiary incorporated in a third area, which in turn, made direct investments in companies in china

NT$ 3,665( HK$ 839 )

- - NT$ 3,665( HK$ 839 )

40 17,405 20,229 -

Shang Hai Sintai (Note 2) Manufacture and sale of DV, digital cameras and its’ parts.

US$ 6,454 The investment was made through a subsidiary incorporated in a third area, which in turn, made direct investments in companies in china

NT$ 52,786( US$ 1,638 )

NT$ 151,837( US$ 4,816 )

- NT$ 204,623( US$ 6,454 )

100 (19,630 ) 197,090 -

Note 1: The investment US$660 thousand, was approved by the Investment Commission of the Ministry of Economic Affairs. As of the balance sheet date, the investor remitted only HK$839 thousand.

Note 2: The investment US$18,500 thousand, was approved by the Investment Commission of the Ministry of Economic Affairs. As of the balance sheet date, the investor remitted only US$6,454 thousand.

Accumulated Outflow of Capital Investment as of December 31, 2005

Investment Amounts Authorized by Investment Commission, MOEA

Maximum Amount of the Investment Allowed by the Investment Commission, MOEA (Note 6)

$ 2,742,864 $ 3,801,464 4,126,347(US$ 81,068 and HK$839) (US$ 112,124)

Note 3: The regulation refers to the “Regulations for Screening of Application to Engage in Technical Cooperation in Mainland China” dated November 20, 2001, issued by the Investment Commission of the Ministry of Economic Affairs.

(Concluded)

- 56 -

TABLE 12


SIGNIFICANT DIRECT OR INDIRECT TRANSACTIONS WITH THE INVESTEE COMPANY IN CHINAYEAR ENDED DECEMBER 31, 2005(In Thousands of New Taiwan Dollars)

Terms of Transactions Accounts (Notes) Receivable (Payable)Investor Investee Nature Of the Relationship Transaction Type Amount

Prices Payment Terms Compared with Terms for Third Parties Balance %

Unrealized Gain or Loss

Asia (B.V.I.) Dong-Guan Sintai See Note 1 to the consolidated financial statements (Note)

Entrust process cost NT$1,198,212 Negotiated price Accounts receivable are offset against payable

Similar - - -

Shen Zhen Sintai See Note 1 to the consolidated financial statements (Note)

Entrust process cost 2,197,856 Negotiated price Accounts receivable are offset against payable

Similar - - -

Note: Transactions have been eliminated; for related transactions, please see Table 1 to the consolidated financial statements.

asia optical co., inc. and subsidiaries · asia optical co., inc. and subsidiaries consolidated...

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