UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

| ¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR

| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

| ¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-51604

Actions Semiconductor Co., Ltd.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

Cayman Islands

(Jurisdiction of incorporation or organization)

No. 1, Ke Ji Si Road, Technology Innovation Coast of Hi-Tech Zone

Zhuhai, Guangdong, 519085

The People’s Republic of China

(Address of principal executive offices)

I-Hung (Nigel) Liu, Chief Financial Officer

Telephone: +86-756-339-2353

Facsimile: +86-756-339-2256

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each class |  | Name of each exchange on which registered
American Depositary Shares, each representing Six Ordinary Shares, par value US$0.000001 per share |  | NASDAQ—Global Market System
Ordinary Shares, par value US$0.000001 per share |  | NASDAQ—Global Market System*

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report. 516,000,000 Ordinary Shares.**

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ¨Yes xNo

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934. ¨ Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

x U.S. GAAP |  | ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board |  | ¨ Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

| * | Not for trading purposes, but only in connection with the registration of American Depositary Shares, or ADSs, pursuant to the requirements of the Securities and Exchange Commission, or the SEC.

| ** | The total number of Ordinary Shares outstanding as of December 31, 2012 includes 7,821,882, 22,676,244, 34,938,198, 24,212,718, 16,594,848 and 14,812,056 Ordinary Shares underlying the ADSs, that the Registrant repurchased during 2007, 2008, 2009, 2010, 2011 and 2012, respectively.

TABLE OF CONTENTS

CERTAIN DEFINED TERMS | 1
FORWARD-LOOKING STATEMENTS | 1
PART I | 2
| ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS | 2
| ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE | 2
| ITEM 3. KEY INFORMATION | 2
|  | A. | Selected Financial Data | 2
|  | B. | Capitalization and Indebtedness | 5
|  | C. | Reasons for the Offer and Use of Proceeds | 5
|  | D. | Risk Factors | 5
| ITEM 4. INFORMATION ON THE COMPANY | 25
|  | A. | History and Development of the Company | 25
|  | B. | Business Overview | 26
|  | C. | Organizational Structure | 37
|  | D. | Property, Plants and Equipment | 38
| ITEM 4A. UNRESOLVED STAFF COMMENTS | 38
| ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS | 38
|  | A. | Operating Results | 38
|  | B. | Liquidity and Capital Resources | 48
|  | C. | Research and Development, Patents and Licenses, etc. | 52
|  | D. | Trend Information | 53
|  | E. | Off-balance Sheet Arrangements | 55
|  | F. | Tabular Disclosure of Contractual Obligations | 55
|  | G. | Safe Harbor | 55
| ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES | 55
|  | A. | Directors and Senior Management | 55
|  | B. | Compensation | 57
|  | C. | Board Practices | 58
|  | D. | Employees | 59
|  | E. | Share ownership | 59
| ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS | 60
|  | A. | Major Shareholders | 60
|  | B. | Related Party Transactions | 60
|  | C. | Interests of Experts and Counsel | 60
| ITEM 8. FINANCIAL INFORMATION | 61
|  | A. | Consolidated Statements and Other Financial Information | 61
|  | B. | Significant Changes | 61
| ITEM 9. THE OFFER AND LISTING | 61
|  | A. | Offer and Listing Details | 61

i

|  | B. | Plan of Distribution | 62
|  | C. | Markets | 62
|  | D. | Selling Shareholders | 62
|  | E. | Dilution | 62
|  | F. | Expense of the Issue | 62
| ITEM 10. ADDITIONAL INFORMATION | 63
|  | A. | Share Capital | 63
|  | B. | Memorandum and Articles of Association | 63
|  | C. | Material Contracts | 71
|  | D. | Exchange Controls | 71
|  | E. | Taxation | 71
|  | F. | Dividends and paying agents | 74
|  | G. | Statement by experts | 75
|  | H. | Documents on display | 75
|  | I. | Subsidiary Information | 75
| ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 75
| ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES | 76
|  | A. | Debt Securities | 76
|  | B. | Warrants and Rights | 76
|  | C. | Other Securities | 76
|  | D. | American Depositary Shares | 76
PART II | 77
| ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES | 77
| ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS | 77
| ITEM 15. CONTROLS AND PROCEDURES | 77
| ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT | 78
| ITEM 16B. CODE OF ETHICS | 78
| ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES | 78
| ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES | 79
| ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS | 79
| ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT | 79
| ITEM 16G. CORPORATE GOVERNANCE | 79
| ITEM 16H. MINE SAFETY DISCLOSURE | 80
PART III | 80
| ITEM 17. FINANCIAL STATEMENTS | 80
| ITEM 18. FINANCIAL STATEMENTS | 80
| ITEM 19. EXHIBITS | 80

ii

CERTAIN DEFINED TERMS

References to “China” or “PRC” or “Mainland China” herein are references to the People’s Republic of China which, for the purposes of this annual report, exclude Hong Kong, Macau and Taiwan, and references to “Hong Kong” are references to the Hong Kong Special Administrative Region. References to “United States” or “U.S.” are to the United States of America. All references to the “Government” herein are references to the government of the People’s Republic of China.

All references herein to “we,” “us,” “our,” “Actions” and the “Company” are references to Actions Semiconductor Co., Ltd. and, unless the context otherwise requires, all such references include our subsidiaries.

References in this annual report to “U.S. dollars,” “$” and “US$” are to United States dollars, the lawful currency of the United States and references herein to “RMB” are to Renminbi, the lawful currency of the PRC. Certain figures (including percentages) have been rounded for convenience, and therefore indicated and actual sums, quotients, percentages and ratios may differ. Unless otherwise indicated, our financial information has been presented in United States dollars in accordance with the generally accepted accounting principles in the United States, or U.S. GAAP, and is presented on a consolidated basis U.S. GAAP, and is presented on a consolidated basis.

Solely for the convenience of the reader, certain RMB amounts have been translated into U.S. dollars at specified rates. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB were made based on the exchange rate as set forth in the H.10 statistical release of the U.S. Federal Reserve Board at each specified date. As of December 31, 2012 and April 19, 2013, the exchange rate for one U.S. dollar was RMB 6.2301 and RMB 6.1772, respectively. The table below indicates information concerning exchange rates between RMB and U.S. dollars for the applicable period. We make no representation that the RMB or U.S. dollar amounts referred to herein could have been or could be converted to U.S. dollars or RMB, as the case may be, at any particular rate.

Per U.S. Dollar |  |  |  |  |  |  |  |  |  |  |  |
|  | Period End |  |  | Average1 |  |  | High |  |  | Low |
2007 |  |  | 7.2946 |  |  |  | 7.5806 |  |  |  | 7.2946 |  |  |  | 7.8127 |
2008 |  |  | 6.8225 |  |  |  | 6.9193 |  |  |  | 6.7800 |  |  |  | 7.2946 |
2009 |  |  | 6.8259 |  |  |  | 6.8295 |  |  |  | 6.8176 |  |  |  | 6.8470 |
2010 |  |  | 6.6000 |  |  |  | 6.7603 |  |  |  | 6.6000 |  |  |  | 6.8330 |
2011 |  |  | 6.2939 |  |  |  | 6.4475 |  |  |  | 6.2939 |  |  |  | 6.6364 |
2012 |  |  | 6.2301 |  |  |  | 6.2990 |  |  |  | 6.2221 |  |  |  | 6.3879 |
October 2012 |  |  | 6.2372 |  |  |  | 6.2627 |  |  |  | 6.2372 |  |  |  | 6.2877 |
November 2012 |  |  | 6.2265 |  |  |  | 6.2338 |  |  |  | 6.2221 |  |  |  | 6.2454 |
December 2012 |  |  | 6.2301 |  |  |  | 6.2328 |  |  |  | 6.2251 |  |  |  | 6.2502 |
January 2013 |  |  | 6.2186 |  |  |  | 6.2215 |  |  |  | 6.2134 |  |  |  | 6.2303 |
February 2013 |  |  | 6.2186 |  |  |  | 6.2215 |  |  |  | 6.2134 |  |  |  | 6.2303 |
March 2013 |  |  | 6.2108 |  |  |  | 6.2154 |  |  |  | 6.2105 |  |  |  | 6.2246 |
April (through April 19, 2013) |  |  | 6.1772 |  |  |  | 6.1927 |  |  |  | 6.1720 |  |  |  | 6.2078 |

1 The annual average rates are calculated using the exchange rates on the last day of each month during the applicable year and the monthly average rates are calculated using the daily rates during the relevant period.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this Form 20-F, including those statements contained under the captions “Item 4—Information on the Company” and “Item 5—Operating and Financial Review and Prospects” that are not statements of historical fact, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements can be generally identified by the use of terms such as “may,” “will,” “could,” “would,” “plans,” “intends,” “believes,” “expects,” “projects,” “estimates” or “anticipates,” the negatives of such terms, or comparable terms. In addition to the statements contained in this Form 20-F, we (or our directors or executive officers authorized to speak on our behalf) from time to time may make forward-looking statements, orally or in writing, regarding Actions (including its subsidiaries) and its business, including in press releases, oral presentations, filings under the Securities Act, the Exchange Act or securities laws of other countries, and filings with NASDAQ, or other stock exchanges.

You should not rely upon forward-looking statements as predictors of future events. Such forward-looking statements represent our judgment or expectations regarding the future, and are subject to risks and uncertainties that may cause actual events and our future results to be materially different than expected by us or indicated by such statements. Such risks and uncertainties include in particular (but are not limited to) the risks and uncertainties related to: the risk that we may not be able to develop and successfully market new products; the risk that consumer preferences will shift away from the products manufactured by our customers; the risk that our rights to intellectual property used in our products may be challenged by our competitors; the risk that we will not be able to develop and implement additional operational and financial systems to manage our operations as they expand; intensifying competition in the market in which we operate; the outcome of legal proceedings in which we are currently engaged; the risk that we may be unable to retain or attract key personnel; governmental uncertainties; and the risk that our various relationships with our distributor and contract manufacturer customers will change in a way that adversely affects our business. See also the information under “Item 3.D Key Information—Risk Factors” and elsewhere in this Annual Report for a more complete discussion of these risks, assumptions and uncertainties and for other risks and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. We undertake no obligation, and specifically decline any obligation, to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Report might not occur.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The selected consolidated financial data presented below as of and for the years ended December 31, 2008, 2009, 2010, 2011 and 2012 have been prepared in accordance with U.S. GAAP. Our selected consolidated statements of operations data and cash flow data for the three years ended December 31, 2010, 2011 and 2012 and selected balance sheet data as of December 31, 2011 and 2012 have been derived from our audited consolidated financial statements included elsewhere in this document. Our selected consolidated statements of operations data and cash flow data for the years ended December 31, 2008 and 2009 and selected balance sheet data as of December 31, 2008, 2009 and 2010 have been derived from our audited consolidated financial statements not included elsewhere in this document. The historical results are not necessarily indicative of results to be expected in any future period. All amounts below are in U.S. dollars, except number of shares data.

2

CONSOLIDATED STATEMENTS OF OPERATIONS DATA

|  | For the year ended December 31, |
|  | 2008 |  |  | 2009 |  |  | 2010 |  |  | 2011 |  |  | 2012 |
|  | (thousands, except share and per share data) |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
System-on-a-chip products |  | US$ | 94,916 |  |  | US$ | 43,937 |  |  | US$ | 37,434 |  |  | US$ | 47,168 |  |  | US$ | 54,150 |
Semiconductor product testing services |  |  | 214 |  |  |  | 203 |  |  |  | 151 |  |  |  | 317 |  |  |  | 179 |
Total revenues |  |  | 95,130 |  |  |  | 44,140 |  |  |  | 37,585 |  |  |  | 47,485 |  |  |  | 54,329 |
Cost of revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
System-on-a-chip products |  |  | (47,248 | ) |  |  | (30,093 | ) |  |  | (22,846 | ) |  |  | (28,821 | ) |  |  | (35,007 | )
Semiconductor product testing services |  |  | (177 | ) |  |  | (117 | ) |  |  | (81 | ) |  |  | (176 | ) |  |  | (100 | )
Total cost of revenues |  |  | (47,425 | ) |  |  | (30,210 | ) |  |  | (22,927 | ) |  |  | (28,997 | ) |  |  | (35,107 | )
Gross profit |  |  | 47,705 |  |  |  | 13,930 |  |  |  | 14,658 |  |  |  | 18,488 |  |  |  | 19,222 |
Other operating income |  |  | 797 |  |  |  | 918 |  |  |  | 966 |  |  |  | 1,523 |  |  |  | 896 |
Gain on deemed disposal of a subsidiary |  |  | — |  |  |  | 1,736 |  |  |  | — |  |  |  | — |  |  |  | — |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Research and development |  |  | (19,477 | ) |  |  | (19,295 | ) |  |  | (17,325 | ) |  |  | (22,086 | ) |  |  | (23,739 | )
General and administrative |  |  | (10,399 | ) |  |  | (8,812 | ) |  |  | (8,125 | ) |  |  | (8,786 | ) |  |  | (8,573 | )
Selling and marketing |  |  | (1,694 | ) |  |  | (1,115 | ) |  |  | (1,208 | ) |  |  | (1,195 | ) |  |  | (1,281 | )
Impairment on goodwill and intangible assets |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (888 | ) |  |  | — |
Total operating expenses |  |  | (31,570 | ) |  |  | (29,222 | ) |  |  | (26,658 | ) |  |  | (32,955 | ) |  |  | (33,593 | )
Income (loss) from operations |  |  | 16,932 |  |  |  | (12,638 | ) |  |  | (11,034 | ) |  |  | (12,944 | ) |  |  | (13,475 | )
Other income |  |  | 1,213 |  |  |  | (654 | ) |  |  | 2,348 |  |  |  | 4,066 |  |  |  | 1,547 |
Dividend income from an other investment |  |  | 20 |  |  |  | 440 |  |  |  | — |  |  |  | 889 |  |  |  | — |
Investment income from an other investment |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 268 |  |  |  | — |
Fair value change in trading securities |  |  | 92 |  |  |  | 40 |  |  |  | (2 | ) |  |  | 4 |  |  |  | 2 |
Gain on disposal of an other investment |  |  | — |  |  |  | — |  |  |  | 137 |  |  |  | 195 |  |  |  | — |
Interest income |  |  | 11,912 |  |  |  | 10,977 |  |  |  | 9,608 |  |  |  | 12,668 |  |  |  | 13,240 |
Interest expense |  |  | (4 | ) |  |  | (57 | ) |  |  | — |  |  |  | (144 | ) |  |  | (250 | )
Other-than-temporary impairment loss on investments |  |  | — |  |  |  | (7,407 | ) |  |  | — |  |  |  | — |  |  |  | (2,543 | )
Income (loss) before income taxes, equity in net loss of equity method investees and non-controlling interest |  |  | 30,165 |  |  |  | (9,299 | ) |  |  | 1,057 |  |  |  | 5,002 |  |  |  | (1,479 | )
Income tax expense |  |  | (3,632 | ) |  |  | (537 | ) |  |  | (422 | ) |  |  | (879 | ) |  |  | (772 | )
Equity in net loss (income) of equity method investees |  |  | (576 | ) |  |  | (826 | ) |  |  | (781 | ) |  |  | (1,113 | ) |  |  | 41 |
Remeasurement gain on equity interest on acquisition of a subsidiary |  |  | — |  |  |  | — |  |  |  | 494 |  |  |  | — |  |  |  | — |
Net income (loss) |  |  | 25,957 |  |  |  | (10,662 | ) |  |  | 348 |  |  |  | 3,010 |  |  |  | (2,210 | )
Add: Net loss (income) attributable to non-controlling interest |  |  | 166 |  |  |  | 264 |  |  |  | 36 |  |  |  | (5 | ) |  |  | 8 |
Net income (loss) attributable to Actions Semiconductor Co., Ltd. |  | US$ | 26,123 |  |  | US$ | (10,398 | ) |  | US$ | 384 |  |  | US$ | 3,005 |  |  | US$ | (2,202 | )
Net income (loss) per share attributable to Actions Semiconductor Co., Ltd. shareholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | US$ | 0.052 |  |  | US$ | (0.023 | ) |  | US$ | 0.001 |  |  | US$ | 0.007 |  |  | US$ | (0.005 | )
Diluted |  | US$ | 0.052 |  |  | US$ | (0.023 | ) |  | US$ | 0.001 |  |  | US$ | 0.007 |  |  | US$ | (0.005 | )
Net income (loss) per ADS attributable to Actions Semiconductor Co., Ltd. shareholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | US$ | 0.312 |  |  | US$ | (0.138 | ) |  | US$ | 0.005 |  |  | US$ | 0.043 |  |  | US$ | (0.032 | )
Diluted |  | US$ | 0.312 |  |  | US$ | (0.138 | ) |  | US$ | 0.005 |  |  | US$ | 0.042 |  |  | US$ | (0.032 | )
Weighted-average shares used in computation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 501,763,805 |  |  |  | 460,812,477 |  |  |  | 438,401,072 |  |  |  | 418,499,545 |  |  |  | 412,706,341 |
Diluted |  |  | 501,763,805 |  |  |  | 460,812,477 |  |  |  | 454,568,850 |  |  |  | 433,983,105 |  |  |  | 412,706,341 |

3

CASH FLOW DATA

|  | For the year ended December 31, |
|  | 2008 |  |  | 2009 |  |  | 2010 |  |  | 2011 |  |  | 2012 |
|  | (thousands) |
Cash provided by (used in): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Operating activities |  | US$ | 9,930 |  |  | US$ | 27,637 |  |  | US$ | 2,763 |  |  | US$ | 7,265 |  |  | US$ | (3,296 | )
Investing activities |  |  | (30,683 | ) |  |  | 22,127 |  |  |  | (51,215 | ) |  |  | (26,658 | ) |  |  | 33,791 |
Financing activities |  |  | (8,423 | ) |  |  | (7,497 | ) |  |  | 2,619 |  |  |  | 7,131 |  |  |  | 6,936 |

BALANCE SHEET DATA

|  | As of December 31, |
|  | 2008 |  |  | 2009 |  |  | 2010 |  |  | 2011 |  |  | 2012 |
|  | (thousands) |
Cash and cash equivalents |  | US$ | 45,435 |  |  | US$ | 87,706 |  |  | US$ | 42,872 |  |  | US$ | 33,207 |  |  | US$ | 71,336 |
Time deposits |  |  | 61 |  |  |  | 62 |  |  |  | 34 |  |  |  | — |  |  |  | 10,000 |
Restricted cash |  |  | 440 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Marketable securities (NIL, NIL, $14,296, NIL and NIL carried at fair value as of December 31, 2008, 2009, 2010, 2011 and 2012, respectively) |  |  | 201,151 |  |  |  | 139,984 |  |  |  | 164,336 |  |  |  | 186,890 |  |  |  | 130,721 |
Trading securities |  |  | 19,299 |  |  |  | — |  |  |  | 535 |  |  |  | 530 |  |  |  | 76 |
Accounts receivable, net of allowance for doubtful accounts of NIL, $723, $621, $621 and NIL as of December 31, 2008, 2009, 2010, 2011 and 2012, respectively |  |  | 2,435 |  |  |  | 1,891 |  |  |  | 1,844 |  |  |  | 2,794 |  |  |  | 5,950 |
Amount due from a related party |  |  | 1,497 |  |  |  | 530 |  |  |  | 559 |  |  |  | 9 |  |  |  | 340 |
Amount due from an equity method investee |  |  | — |  |  |  | 492 |  |  |  | 104 |  |  |  | 64 |  |  |  | 79 |
Notes receivable |  |  | 74 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Inventories |  |  | 8,720 |  |  |  | 4,501 |  |  |  | 4,832 |  |  |  | 7,477 |  |  |  | 11,979 |
Prepaid expenses and other current assets |  |  | 1,532 |  |  |  | 1,258 |  |  |  | 3,242 |  |  |  | 1,675 |  |  |  | 4,288 |
Income tax recoverable |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 189 |
Deferred tax assets |  |  | 686 |  |  |  | 371 |  |  |  | 399 |  |  |  | 430 |  |  |  | 504 |
Total current assets |  |  | 281,330 |  |  |  | 236,795 |  |  |  | 218,757 |  |  |  | 233,076 |  |  |  | 235,462 |
Investment in equity method investees |  |  | 4,142 |  |  |  | 1,577 |  |  |  | 6,401 |  |  |  | 14,246 |  |  |  | 14,329 |
Other investments ($196, $420, NIL, NIL and NIL carried at fair value as of December 31, 2008, 2009, 2010, 2011 and 2012 respectively) |  |  | 7,044 |  |  |  | 3,258 |  |  |  | 2,764 |  |  |  | 17,334 |  |  |  | 16,305 |
Marketable securities |  |  | — |  |  |  | 23,773 |  |  |  | 24,831 |  |  |  | — |  |  |  | 11,239 |
Rental deposits |  |  | 39 |  |  |  | 46 |  |  |  | 40 |  |  |  | 49 |  |  |  | 49 |
Property, plant and equipment, net |  |  | 7,144 |  |  |  | 14,437 |  |  |  | 24,604 |  |  |  | 32,939 |  |  |  | 32,321 |
Land use right |  |  | 1,580 |  |  |  | 1,546 |  |  |  | 1,554 |  |  |  | 1,593 |  |  |  | 1,584 |
Acquired intangible assets, net |  |  | 4,197 |  |  |  | 3,625 |  |  |  | 4,318 |  |  |  | 9,859 |  |  |  | 10,819 |
Deposit paid for acquisition of intangible assets |  |  | 403 |  |  |  | — |  |  |  | 2,408 |  |  |  | — |  |  |  | — |
Deferred tax assets |  |  | 206 |  |  |  | 149 |  |  |  | 88 |  |  |  | 27 |  |  |  | 80 |
Goodwill |  |  | — |  |  |  | — |  |  |  | 468 |  |  |  | — |  |  |  | — |
Total assets |  | US$ | 306,085 |  |  | US$ | 285,206 |  |  | US$ | 286,233 |  |  | US$ | 309,123 |  |  | US$ | 322,188 |
Total current liabilities |  |  | 14,915 |  |  |  | 9,518 |  |  |  | 13,185 |  |  |  | 27,466 |  |  |  | 39,623 |
Other liabilities |  |  | 249 |  |  |  | 319 |  |  |  | 83 |  |  |  | 458 |  |  |  | 13 |
Payable for acquisition of intangible assets |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 153 |  |  |  | 603 |
Deferred tax liabilities |  |  | 1,750 |  |  |  | 2,058 |  |  |  | 2,286 |  |  |  | 2,840 |  |  |  | 3,189 |
Total liabilities |  |  | 16,914 |  |  |  | 11,895 |  |  |  | 15,554 |  |  |  | 30,917 |  |  |  | 43,428 |
Total equity |  |  | 289,171 |  |  |  | 273,311 |  |  |  | 270,679 |  |  |  | 278,206 |  |  |  | 278,760 |
Total liabilities & equity |  | $ | 306,085 |  |  | $ | 285,206 |  |  | $ | 286,233 |  |  | $ | 309,123 |  |  | $ | 322,188 |

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B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

We wish to caution the readers that the following important factors, and those important factors described in other reports submitted to, or filed with, the SEC, among other factors, could affect our actual results and could cause our actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. In particular, as we are a non-U.S. company, there are risks associated with investing in ADSs that are not typical with investments in shares of U.S. companies. If any of the following risks actually occurs, our business, financial condition and results of operations would likely suffer. In such case, the trading price of our ADSs could decline, and you could lose all or part of your investment.

Risks Related to Our Company

The majority of our revenues are derived from our Systems-on-a-Chip, or SoCs, for portable media players, and we cannot be sure that sales of these products will be successful.

We derive the majority of our revenues from the sales of our SoCs for portable media player applications. We cannot be sure that our SoCs will continue to be successful in the markets in which we compete, or that portable media players will continue to remain popular with retail customers. Our future success depends on our ability to develop successful new products in a timely and cost-effective manner; meanwhile, we attempt to exploit new application markets to bring us additional revenues. We are required to continually evaluate expenditures for planned product developments and choose among alternatives based upon our expectations of future market trends, which are difficult to predict. For example, the migration and adoption of smart phones have resulted in the increasing popularity of embedding portable media player functionality directly into smart phones. In addition, the rapid growth of smart phones and tablets has changed the market of higher end portable media players, so we are consolidating our SoCs for portable media players in mainstream and entry-level segments, and have added SoCs for tablets into our product portfolio in 2012, which contributed less than 5% to our 2012 revenues. However, even though we launched the latest multi-core tablet SoC at the end of 2012, we still may not be able to compete with SoC providers that target smart phone manufacturers by combining mobile phone and portable media player functionality into one SoC if such providers expand their product portfolio and compete with us in our target markets. We may also not be able to develop and introduce new or enhanced products in a timely and cost-effective manner, keep pace with market trends, or be sure that our new products will generate significant revenues. The development of our SoCs and total solutions is highly complex, and successful product development and market acceptance of our products depend on a number of factors, including:

| · | our accurate prediction of the changing requirements of our customers;

| · | our timely completion and introduction of new designs;

| · | the availability of third-party manufacturing, assembly, and testing capacity;

| · | the ability of our contract foundries to achieve high manufacturing yields for our products;

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| · | the quality, price, performance, power efficiency and size of our products relative to our competitors;

| · | our management of effective sales channels;

| · | our customer service capabilities and responsiveness;

| · | the success of our relationships with existing and potential customers; and

| · | changes in industry standards and trend.

The selling prices of existing products tend to decline over time, and if we are unable to develop successful new products in a timely manner, our operating results and competitive position could be harmed.

As is typical in the semiconductor industry, the selling prices of existing products tend to decline significantly over the life of the product. If we are unable to offset reductions in the selling prices of our products by introducing new products at higher prices or by reducing our costs, our revenues, gross margins and operating results will be adversely affected. We must continuously develop new SoCs or other products and enhancements for existing SoCs to keep pace with evolving industry standards and rapidly changing customer requirements. We may not have the financial resources necessary to fund future innovation. Even if we have sufficient financial resources, if our future innovation produces technology that is behind that of our competitors, we may lose customers. Similarly, if our new products are ahead of the current technological standards in our industry, our customers may be unwilling to invest in developing consumer electronics products that can utilize our products, or purchase our SoCs, until the consumer electronics market is ready to accept them. Further, we may be required to develop products that utilize technologies with which our engineers are not familiar. Our efforts to develop in-house capability to work with these technologies or to acquire such expertise through acquisitions or investments in businesses may not be successful. If we are unable to successfully define, develop and introduce competitive new SoCs or other products, we may not be able to compete successfully. In addition, if we, or our customers, are unable to manage product transitions, our business and results of operations would be negatively affected.

Our failure to manage adequately the fluctuation in our growth and expansion may adversely impact our results of operations and financial condition.

Fluctuations in our growth and expansion have presented, and may continue to present, a significant challenge to our management and administrative systems and resources and, as a result, to our results of operations and financial condition. Our future success will depend on, among other things, our ability to:

| · | effectively maintain and service our existing customer relationships while developing new value-added distributor, contract manufacturer and brand owner customers;

| · | continue training, motivating and retaining our existing employees and attract and integrate new technical, engineering and sales and marketing employees;

| · | identify and attract new management personnel to our company as we continue to expand;

| · | protect our intellectual property effectively;

| · | integrate new businesses, technologies, services and products that we acquire by way of acquisitions or investments into our operations;

| · | effectively manage our capital expenditures and working capital requirements;

| · | maintain and further improve our operational, financial, accounting and other internal systems and controls; and

| · | maintain adequate controls and procedures to ensure that our periodic public disclosure under applicable laws, including U.S. securities laws, is complete and accurate.

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Because of the lengthy product development periods for our products and the headcount driven nature of a significant portion of our expenses, we may incur substantial expenses before we earn associated revenues and may not ultimately achieve our forecasted sales for our products.

It may take nine to eighteen months for us to design, develop and commence production of our products, and commercial production of consumer end-products that use our SoCs may take an additional two to six months Product development cycles for our products are lengthy for a number of reasons:

| · | our customers usually complete an in-depth technical evaluation of our products before they place a purchase order;

| · | the commercial adoption of our products by value-added distributors, contract manufacturers and brand owners is typically limited during the initial release of their new products while they evaluate product performance and consumer demand;

| · | new product introductions often center around key trade shows or periods of time before the commencement of major sales seasons and failure to deliver a product prior to such events or design-in windows may seriously delay or cancel introduction of a product; and

| · | the development and commercial introduction of products incorporating new technology frequently are delayed or canceled.

Because most of our expenses are associated with our headcount or incurred in advance of anticipated sales, we may not be able to decrease our expenses in a timely manner to offset any shortfall in sales. To compete globally and take advantage of the rapid growth in the tablet market, we are currently expanding our staffing and increasing our expenditures to support future growth, which may increase our cost of revenues and operating expenses. If our growth does not materialize, our operating results would be adversely impacted.

As a result of the time it takes to begin commercial production and sales of a new product, the fact that the market demand for end products that incorporate our products may have changed by the time we complete our product development process and the fact that a significant portion of our operating expenses are driven primarily by personnel compensation or are incurred in advance of anticipated sales, we may incur substantial expenses in developing new products before we earn associated revenues. These factors could cause us to miss the sales targets we set for products when we commenced development activities, and we may not be able to decrease our operating expenses in a timely manner to offset additional short falls in sales, which could adversely affect our results of operations.

We currently rely on third-party contractors to manufacture almost all of our mass-produced SoC products; any event that prevents these foundries from producing our products, or our failure to successfully manage our relationship with these foundries, could damage our relationships with our customers, decrease our sales, and limit our growth.

We do not own or operate a semiconductor fabrication facility. Instead we rely on third-parties to manufacture our semiconductors. Presently, He Jian Technology Company, or He Jian, and United Microelectronics Corporation, or UMC, manufacture almost all of our semiconductors. As a result, if He Jian and UMC were to experience any catastrophic or other event that caused it to be unable to conduct manufacturing operations, or otherwise choose to discontinue manufacturing our products, it could have a significant adverse impact on our ability to sell our products. While we have in the past utilized, and continue to maintain relationships with, other contract foundries to have access to alternative manufacturing capabilities, we cannot be sure that these other contract foundries would be willing or have the capacity to produce our products. Even if such other foundries were willing to produce semiconductors for us, they may be unable to provide us with the same committed capacity, or be able to manufacture our semiconductors with the same yield rate, as we currently have with He Jian and UMC. As a result, we depend significantly on maintaining a strong relationship with He Jian and UMC, and these two companies’ continued ability to manufacture our semiconductor products, to maintain our revenues and customer relationships

We provide He Jian and UMC with monthly rolling forecasts of our production requirements; however, the ability of them to provide silicon wafers to us is limited by their available capacity. Moreover, the price of our silicon wafers fluctuates based on changes in available industry capacity. We do not have a long term supply contract with these two companies or any other contract foundry. Therefore, they could choose to prioritize capacity for other customers, reduce or eliminate deliveries to us on short notice or increase the prices they charge us. Accordingly, we cannot be certain that these two companies or any other contract foundry will allocate sufficient capacity to satisfy our requirements. If we are unable to obtain foundry capacity as required, we may experience delays in our ability to deliver our products, which would harm our relationships with our existing customers and result in decreased sales. There are additional risks associated with our reliance on third-party contractors, including:

| · | their inability to increase production and achieve acceptable yields on a timely basis;

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| · | their production shutdown due to earthquake, power shortage, fires or storms;

| · | reduced control over delivery schedules and product quality;

| · | increased exposure to potential misappropriation of our intellectual property;

| · | limited warranties on wafers or products supplied to us;

| · | shortages of materials that foundries use to manufacture our products;

| · | labor shortages or labor strikes; and

| · | actions taken by our third-party contractors that breach our agreements.

We currently rely on third-party contractors to package almost all, and to test a portion of, our mass-produced SoC products; the loss of the services of our independent testing, and packaging vendors could significantly disrupt our shipments, harm our customer relationships and reduce our sales.

We use a number of different independent vendors to carry out testing, and packaging functions, including Tian Shui Hua Tian Technology, Siliconware Technology, Nantong Fujitsu Microelectronics and Shen Zhen Hua Yu Semiconductor. As a result, we do not directly control our product delivery schedules or quality assurance and control. These vendors may also test and package products for other companies, including our competitors. We do not have long-term agreements with independent testing and packaging vendors that guarantee us access to capacity. We typically obtain services from our vendors on an order-by-order basis. Since we do not have long-term agreements with the independent testing and packaging vendors that we use, they may give priority to orders from other customers when demand for their service is high. If any of our vendors experiences capacity constraints or financial difficulties, raises its prices, suffers any damage to its facilities, gets acquired and restructures its business, or terminates its relationship with us, or if there is any other disruption of testing and packaging capacity, we may have to seek alternative services, which may not be available on commercially reasonable terms, or at all, or which may expose us to risks associated with qualifying new vendors. We currently estimate that it would take us six to nine months to locate and qualify a new testing and packaging vendor. Because of the amount of time that it takes us to qualify third-party testing and packaging vendors, we could experience significant delays in product shipments if we are required to find alternative vendors on short notice. In addition, we may be required to pay higher testing and packaging costs. Any problems that we may encounter with the delivery or quality of our products could damage our reputation, cause us to lose customers, and adversely affect our business and financial results.

Our business may be severely disrupted if we lose the services of our key executives and employees or fail to add new senior and mid-level managers to our management.

Our future success is heavily dependent upon the continued service of our board of directors and key executives. Our future success is also dependent upon our ability to attract and retain qualified senior and mid-level managers to our management team. If one or more of our key executives and employees are unable or unwilling to continue in their present positions, we may not be able to easily replace them, and our business may be severely disrupted. In addition, if any of these key executives or employees joins a competitor or forms a competing company, we could lose customers, suppliers and know-how, which may lead to a significant adverse impact on our business, and cause us to incur additional expenses to recruit and train personnel. Currently, we do not maintain life insurance for any of our key executives.

We also rely on a number of key technology and engineering staff for the operation of our company. Given the intense competition for the services of these personnel in the semiconductor industry, the risk of key technology and engineering staff leaving our company is high. In addition, we expect demand for skilled and experienced technology and engineering personnel in China to increase in the future as new semiconductor fabless design and other similar high technology businesses are established there. If we lose the services of key members of our technology and engineering staff, it could be difficult to locate, hire and integrate new staff with comparable semiconductor design experience and educational background. Our inability to retain our existing technology and engineering personnel, or to timely attract, assimilate and retain new qualified personnel in the future, could adversely affect our operations and delay or restrict the growth of our business.

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We may experience difficulties in transitioning to smaller process geometry technologies or in achieving higher levels of design integration, which may result in reduced manufacturing yields, delays in product deliveries and increased expenses.

We are currently transitioning our SoCs for portable media players from 0.11 micron to 55 nanometer processing technology in order to ensure we continue to satisfy our customers’ demands and to maintain our competitiveness. This transition requires us to redesign certain of our products and will require our contract foundries to modify the manufacturing processes they use to produce our products. In addition, we will incur significant engineering costs and the attention of our engineering personnel will be diverted from other product development efforts during this transition. In the past, we have experienced some difficulties in shifting to smaller process geometry technologies or new manufacturing processes, which resulted in periods of reduced manufacturing yields, delays in product deliveries and increased expenses. We may face similar difficulties, delays and expenses as we continue to transition our products to smaller micron process geometry.

In addition, we will depend on our contract foundries to transition to smaller process geometries successfully. Our contract foundries may not be able to effectively manage this transition. If our contract foundries or we experience significant delays in this transition or fail to efficiently implement this transition, we could experience reduced manufacturing yields, delays in product deliveries and increased expenses, all of which could harm our relationships with our customers and our results of operations. As smaller process geometries become more prevalent, we expect to continue to integrate greater levels of functionality, as well as customer and third-party intellectual property, into our products. However, we may not be able to achieve higher levels of design integration or deliver new integrated products on a timely basis, or at all. Further, we cannot be sure that integrating greater functionality into a SoC will result in a corresponding increase in selling price.

Because our customers are able to change or cancel orders on relatively short notice, we could unexpectedly lose anticipated sales.

The lengthy product development periods for our products make forecasting the volume and timing of orders difficult. In addition, the delays inherent in lengthy product development periods raise additional risks that customers may cancel or change their orders. Because industry practice allows contract manufacturers and brand owners to reschedule or cancel orders on relatively short notice, backlog and customer forecasts are not always good indicators of our future sales. If customers reduce or cancel their orders, it could result in the loss of anticipated sales without allowing us sufficient time to reduce our inventory and operating expenses. Further, because our sales are made by means of standard purchase orders rather than long term contracts, our customers may not continue to purchase our products at current levels, or at all.

Our reliance on value-added distributors for the sale of a substantial portion of our products subjects us to a number of risks.

Many of our key customers are value-added distributors, who integrate our products into a system platform and sell that system platform to contract manufacturers, although we also sell some of our products directly to contract manufacturers. Growth in our business will depend on our ability to maintain and expand our relationships with both value-added distributor customers and contract manufacturer customers. Our reliance on our value-added distributor customers subjects us to a number of risks. For example, if we were to lose a significant value-added distributor as a customer, our financial performance could be adversely affected in the short term before we were able to replace this distributor. In addition, some of our value-added distributor customers may also carry and sell product lines that are competitive with ours. As these customers are not required to maintain a specified minimum level of purchases from us, we cannot be sure that they will prioritize selling our products. As we continue to expand our sales capabilities, we will also need to manage the potential conflicts that may arise between us and our value-added distributor customers. Further, we rely on our value-added distributor customers to accurately and timely report to us their shipment forecasts and resale activity and to provide certain engineering support services to the brand owners who market and distribute the end products to consumers. Our inability to obtain accurate and timely reports and to successfully manage these relationships could adversely affect our business and financial results.

Failure to collect, or delayed collection of, trade receivables could affect our liquidity.

In order to promote our sales, we may be required to extend payment terms, provide additional financing or modify payment terms for some customers, in some cases without requiring collateral in some cases. In addition, payments may not be collected until a certain period of time after our customers receive their products. We perform ongoing evaluation of our customers’ financial conditions and generally experience little difficulty collecting their payments. However, if the financial condition of our customers deteriorates and results in an impairment of their ability to make timely payments, more allowance for doubtful accounts may be required. Furthermore, if any of our customers becomes insolvent or commences bankruptcy or similar proceedings, our receivables from such customers may become uncollectible, which may lead to additional bad debt expenses for us and may adversely affect our results of operations and cash flows.

If our products are not manufactured with satisfactory yields or quality, our sales could decrease, and our relationships with our customers and our reputation may be harmed.

Due to the complexity of SoC design and manufacturing process, even minor deviations in the semiconductor manufacturing process can cause substantial decreases in yields, and in some cases, cause production to be suspended. We establish a minimum yield with our foundries at the time our products are qualified. If actual yield at the foundry is below the minimum, the foundry assumes the cost of the wafers, and if actual yield is above the minimum, we assume the cost. However, the fact that a contract foundry is achieving minimum yields on a product does not mean that the yield is sufficient to allow us to maintain or increase our profits on that product. Further, even though a contract foundry is responsible for yield losses we incur on a particular shipment of SoCs, these yield losses could cause us to delay shipments to our customers and damage our relationship with them.

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The manufacturing yields for our new products tend to be lower initially and increase as the contract foundry achieves full production. Our product pricing is based on the assumption that increases in manufacturing yields will continue, even with the increasing complexity of our semiconductors. However, we may experience fluctuations in the manufacturing yield in some cases and thus be unable to sustain a high and improving yield level. Furthermore, shorter product life cycles require us to develop new products faster and require our contract foundry to manufacture these products in shorter periods of time. In some cases, these shorter manufacturing periods may not reach the high volume manufacturing periods conducive to higher manufacturing yields and declining costs. If our contract foundry fails to deliver fabricated silicon wafers of satisfactory quality in the volume and at the price required, we may be unable to meet our customers’ demand for our products or to sell those products at an acceptable profit margin, which would adversely affect our sales and margins and damage our customer relationships.

Our products are complex and may require modifications to resolve undetected errors or failures in our hardware and software, which could lead to an increase in our costs, a loss of customers or a delay in market acceptance of our products.

Our SoCs and total solutions are complex and may contain undetected hardware and software errors or failures when first introduced or as new versions are released. These errors could cause us to incur significant re-engineering costs, divert the attention of our engineering personnel from product development efforts and harm both our customer relations and business reputation. If we deliver products with errors, defects or bugs, our credibility and the market acceptance and sales of our products could be harmed. We provide warranties for product defects under which we must collect and replace defective goods upon receipt of notice from our customers. Increased claims under these warranties would increase our costs and adversely affect our profitability. Defects could also lead to liability as a result of lawsuits against us or against our customers.

Our products are manufactured across several sites throughout China and the Asia-Pacific region. Failure to deliver the work-in-process in time from one site to another may lead to higher operation costs, a decrease in sales and harm our reputation.

Our principal operation center and our third-party manufacturing partners such as foundry service providers, testing houses and packing subcontractors are all located throughout China and the Asia-Pacific region. The distance between manufacturing sites is long and the delivery of raw material, work-in-process, and finished goods relies on the land-carriage and air-express, which are restricted by the weather and transportation conditions. Any delay in delivery could have a negative effect on our operations and may lead to higher operating costs, a decrease in sales, and harm our reputation and customer relationships.

The worldwide economic downturn adversely affected, and could continue to adversely affect, the demand for our products, which directly impacted, and would directly impact, our business and results of operations.

The economic and financial downturn beginning in 2009 which affected the global business, banking and financial sectors adversely affected the consumer electronic market, especially in the United States and Europe in 2011. The Chinese economy is also facing certain challenges, such as inflation and the possibility of a soft landing, which may result in the suspension or decrease of consumer electronic market demand. Our customers have altered and may continue to alter their purchasing activities in response to lack of credit, economic uncertainty and concern about the stability of markets in general, and have reduced or delayed purchases of our products and services. There could also be a number of effects from such turmoil on our business, including continued decreases in orders from our customers; insolvency of key suppliers resulting in product delays; inability of customers to obtain credit to finance purchases of our products and/or customer insolvencies; and counter party failures negatively impacting our treasury operations. Current uncertainty in global economic conditions also poses a risk to the overall economy that could impact our ability to manage commercial relationships with our customers, suppliers and creditors. In addition, to the extent we offer credit to any customer and such customer experiences financial difficulties due to the economic slowdown, we could have difficulty collecting payment from such customer.

Our principal contract foundries, other subcontractors and many of our customers are located in the Pacific Rim, an area subject to significant risk of earthquakes, tsunamis, snowstorms, typhoons, and adverse consequences related to the outbreak of SARS (Severe Acute Respiratory Syndrome), avian influenza and other public health concerns as well as risk of regional conflicts due to territorial disputes.

The principal contract foundries that manufacture our products and all of the principal subcontractors that assemble, package, and test our products are located in China, Hong Kong or Taiwan. Many of our customers are also located in these areas. The risk of earthquakes, tsunamis, snowstorms, typhoons and other natural disasters in these Pacific Rim locations is significant. The occurrence of an earthquake or other natural disaster, such as the magnitude 9.0 earthquake and resulting tsunami in Japan in March 2011, near our principal contract foundries or subcontractors could result in damage, power outages, nuclear radiation pollution, and other disruptions that impair their production and assembly capacity and decrease the availability of raw materials or components from suppliers and manufacturers in Japan. In addition, the relationship between China and Japan, which is often strained due to historical reasons, in 2012 reached reportedly the lowest point since the end of World War II due to territorial disputes surrounding what are called by China as the Diaoyu Islands but known in Japan as the Senkaku Islands. If the tension between the two countries further escalates or even results in regional military conflicts, the availability of raw materials such as monocrystalline silicon from Japan could be materially disrupted. If Japan were to limit the export of, or China were to limit the import of, such raw materials from Japan, due to the political or military tension between the two countries, we and the entire semiconductor industry may encounter supply delays, disruptions and shortages.

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Any disruption resulting from the above events could cause significant delays in the production or shipment of our products until we are able to shift our raw material sourcing, manufacturing, assembling, packaging or production testing from the affected supplier or contractor to another third-party vendors. For example, in January and February of 2008, China’s worst snowstorm in more than half a century caused a significant adverse impact on the transportation industry and the economy of China. In May 2008, a major earthquake occurred with its epicenter in Sichuan, China, causing over 69,000 known deaths and estimated property damage in excess of US$20 billion. As a result of the earthquake, the economy of China was adversely affected. Also, the 2003 outbreak of severe acute respiratory syndrome, or SARS, curtailed travel to and from certain countries (primarily in the Asia-Pacific region) and limited travel and consumer activities within those countries, which had a significant adverse effect on the economies of many countries in this region. In addition, since 1997, certain Asian countries, including China, have, from time to time, encountered incidents of avian influenza that resulted in several confirmed human cases and deaths and significant disruption to worker productivity. Any future outbreaks of SARS, avian influenza or other public health concerns could result in a significant negative impact on the economy in China and the Asia-Pacific region, harming our business.

We may experience significant period-to-period quarterly and annual fluctuations in our revenues and operating results, which may result in volatility in our share price.

The industry in which we operate is highly cyclical. We have had in the past and may in the future experience significant period-to-period fluctuations in our revenues and operating results. It is possible that our revenues and operating results in some quarters may be below market expectations, which would cause the value of our ordinary shares and ADSs to decline. Our quarterly and annual operating results are affected by a number of factors, including:

| · | the unpredictable timing and volume of purchase orders and cancellations from our customers;

| · | the rate of acceptance of our products by our customers;

| · | the rate of growth of the market for portable media players and our SoCs;

| · | fluctuation and seasonality in demand for consumer electronics products;

| · | increases in prices charged by contract foundries and other third-party subcontractors;

| · | the availability of third-party foundry capacity;

| · | the availability and pricing of other components used in our customers’ products, including NAND Flash memory and TFT-LCD panels;

| · | fluctuations in our contract foundry’s manufacturing yields;

| · | the difficulty of forecasting and managing our inventory and production levels;

| · | our ability to successfully develop, introduce and sell new or enhanced products;

| · | additions or departures of key personnel;

| · | our involvement in litigation;

| · | natural disasters, particularly earthquakes, snowstorms or disease outbreaks affecting countries in which we conduct our business or in which our products are manufactured, assembled, or tested; and

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| · | the evolution of industry standards and introduction of new products by our competitors.

Because the markets in which we compete are highly competitive and many of our competitors have greater resources than us, we cannot be certain that our products will compete successfully and we may lose or be unable to gain market share.

We face competition from a relatively large number of competitors in China and internationally. In the portable media player market, our principal competitors include ALi, AllWinner, Amlogic, Anyka, BestRely, Buildwin, Freescale, General Plus, Infotmic, Ingenic, JieLI, MediaTek, MVSilicon, Rockchips, Vmicro and WonderMedia. As we diversify and expand our product categories, we may also face competition from other semiconductor companies and manufacturers of consumer electronics and mobile devices. We expect to face increased competition in the future from our current and emerging competitors. In addition, some of our customers have developed and other customers could develop technology or products internally that could replace their need for our products or otherwise reduce demand for our products. Our customers may also enter into strategic relationships with or acquire existing semiconductor design companies.

The consumer electronics market, which is the principal end market for our SoCs, has historically been subject to intense price competition. In many cases, low cost, high volume producers have entered markets and driven down profit margins. If a low cost, high volume producer should develop products that are competitive with our products, our sales and profit margins would suffer.

Some of our potential competitors may have longer operating histories, greater name recognition, access to larger customer bases and significantly greater financial, sales and marketing, manufacturing, distribution, technical and other resources than us. As a result, they may be able to respond more quickly to changing customer demands or to devote greater resources to the development, promotion and sales of their products than we can. Our current and potential competitors may develop and introduce new products that will carry lower prices, provide better performance or achieve greater market acceptance than our products. In addition, in the event of a manufacturing capacity shortage, these competitors may be able to obtain capacity when we are unable to do so. Furthermore, our current or potential competitors have established, or may establish, financial and strategic relationships among themselves or with existing or potential customers or other third-parties to increase the ability of their products to address the needs of our prospective customers. Accordingly, it is possible that new competitors or alliances among competitors could emerge and rapidly acquire significant market share, which would harm our business. If we fail to compete successfully, our business will suffer and we may lose or be unable to gain market share.

We may not be able to successfully execute future acquisitions or investments or manage or effectively integrate any acquired business, technologies or teams.

We seek to acquire or invest in businesses that are complementary to ours. This may require a significant commitment of management time, capital investment and other management resources. We cannot assure you that we will be successful in identifying and negotiating acquisitions or investments on terms favorable to us. If we are unable to execute, manage or integrate our acquisitions and investments effectively, our growth, operating results and financial condition may be materially and adversely affected.

We have limited business insurance coverage and may be subject to losses that might not be covered by existing insurance coverage.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. As a result, we only have limited business liability or disruption insurance coverage for our operations. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

We believe we are a “passive foreign investment company” or PFIC, for U.S. federal income tax purposes for calendar year 2012 and in future years. Assuming we are a PFIC, U.S. investors of our ADSs are subject to certain adverse U.S. federal income tax rules.

We believe we were a PFIC, as that term is defined in Section 1297 of the U.S. Internal Revenue Code of 1986, as amended, for calendar year 2012 and believe we will be a PFIC in 2013 and for the foreseeable future. Consequently, this classification may result in adverse tax consequences for U.S. holders. See the discussion about taxation in Item 10 of this Annual Report. U.S. shareholders and prospective holders of our ADSs are encouraged to consult their own tax advisers regarding the consequences of our PFIC status under U.S. federal income tax rules.

Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, results of operations and the market price of our ADSs.

We are subject to reporting obligations under the U.S securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of the company’s internal controls over financial reporting.

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Our management and independent registered public accounting firm have concluded that our internal controls as of December 31, 2012 were effective. However, we cannot assure you that in the future we or our independent registered public accounting firm will not identify material weaknesses during the Section 404 of the Sarbanes-Oxley Act audit process or for other reasons. In addition, because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. As a result, if we fail to maintain effective internal control over financial reporting or should we be unable to prevent or detect material misstatements due to error or fraud on a timely basis, investors could lose confidence in the reliability of our financial statements, which in turn could harm our business, results of operations and negatively impact the market price of our ADSs, and harm our reputation. Furthermore, we have incurred and expect to continue to incur considerable costs and to use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

Risks Related to Intellectual Property

We or our customers may be exposed to infringement claims on intellectual property rights by third-parties.

Third-parties, including our competitors, may in the future make claims or initiate litigation that assert patent, copyright, trademark and other intellectual property rights in technologies, related standards and product names that are relevant to us. As we continue to expand our operations and the number of products we manufacture, the risk of such claims may increase. In addition to making claims against us, third-parties may make claims against our customers that incorporate our SoCs into their products. Such actions could adversely affect our relationships with such customers and hurt our sales. The large number of patents in the semiconductor industry, the confidential treatment of some pending patent applications and the rapid rate of issuance of new patents make it neither economically feasible nor possible to determine conclusively in advance whether a product, any of its components, its method of manufacture or use, or its ornamental design, currently infringes or will in the future infringe upon the patent rights of others. Parties making infringement claims may be able to obtain an injunction that could prevent us from selling our products or using technology that contains the allegedly infringing intellectual property, which could have a material negative effect on our business. Third-parties making infringement claims may also be able to bring an action before the U.S. International Trade Commission that could result in an order stopping the importation into the United States of our products or bring similar actions in other parts of the world. Further, in addition to claims that may be made directly against us, we may be named in infringement actions made against our manufacturers, suppliers or customers. Some of our customer contracts provide that we indemnify the customer against claims of infringement based on our products. Regardless of the merit of these claims, they can be time-consuming, and result in costly litigation and divert the attention of our technical and management personnel.

To resolve any claim made against us, we may be required to develop alternative non-infringing technology or obtain a license for the relevant intellectual property, each of which could be costly and time consuming. Licenses may not be available to us on commercially reasonable terms and conditions, or at all. We might also be required to cease using the trademark or other intellectual property under which our products were being marketed and sold. If any infringement or other intellectual property-based claim made against us by any third-party is successful, or if we fail to develop non-infringing technology or license the proprietary rights on commercially reasonable terms and conditions, our business, financial condition and results of operations could be materially and adversely affected.

We rely upon third-party licensed technology to develop our products. If licenses of third-party technology do not continue to be available to us or become very expensive, our ability to develop and introduce new products could be negatively impacted.

We integrate third-party software or other licensed technology into almost all of our products. From time to time, we may be required to license additional technology from third-parties to develop new products or product enhancements. However, these third-party licenses may not be available to us on commercially reasonable terms or at all. Further, some of our existing licenses can be terminated without cause by the licensor. Our inability to maintain existing licenses on reasonable terms, or obtain additional licenses necessary to develop new products and product enhancements, could require us to obtain substitute technology at a greater cost or of lower quality or performance standards or delay product development. Any of these results may limit our ability to develop new products that utilize the latest technologies, which could harm our business, financial condition and results of operations.

Our products are designed for use in devices manufactured by our customers that comply with international standards. These international standards are often covered by patents or copyrights held by third-parties, which may include our competitors. Before we design our products, we discuss with our customers the proprietary technologies that we must incorporate into our SoCs and the international standards that our SoCs must meet to function in the targeted portable media player products. We then obtain licenses required to incorporate each of those proprietary technologies into SoCs that meet these standards. The combined costs of identifying and obtaining licenses from all holders of patents and copyrights essential to such international standards could be high and could reduce our profitability or increase our losses. The cost of not obtaining such licenses could also be high if a holder of such patent or copyrights brings a claim for patent or copyright infringement. Any claims for indemnification that may be made could have a material adverse effect on our business, financial condition and results of operations.

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Our rights to the intellectual property we develop may be difficult to enforce.

We generally rely on patent, copyright, trademark, trade secret and other intellectual property laws to establish and protect the proprietary rights in our know-how, technology, products, and product names. Our patent and trademark applications may not be granted, or if granted, may be challenged, invalidated, or circumvented by others. Further, we cannot be sure that any rights granted under patents, trademarks, copyrights or proprietary rights that are issued or registered will be sufficient to protect our technology or will in fact provide competitive advantages to us. As our revenue is not dependent on any particular patent, we believe the expiration or loss of any particular patent would not materially harm our business. However, if we are unable to protect the key intellectual property that we develop and use in our products, our ability to compete effectively may be diminished.

Our success also depends on our other rights in proprietary technology. We rely on a combination of copyright, trade secret, trademark and contractual protection to establish and protect our proprietary rights that are not protected by patents, and we also typically enter into confidentiality agreements with our employees and consultants. We require our customers to enter into confidentiality and nondisclosure agreements before we disclose any sensitive aspect of our platforms, technology or business plans. Despite our efforts to protect our proprietary rights through confidentiality agreements and/or licensing agreements, unauthorized parties may attempt to copy or otherwise obtain and use our platforms or technology. It is difficult to monitor unauthorized use of technology, particularly in China and other developing countries. Our precautions may not prevent misappropriation or infringement of our intellectual property.

From time to time, we may have to resort to litigation to enforce our intellectual property rights, which could result in substantial costs and diversion of our resources. Even where we take such actions, we cannot assure you that we will be successful or that our rights will be protected. Further, our headquarters, manufacturing operations and the principal market of most of our products are located in China. Our efforts to protect our proprietary rights could be ineffective in China where the laws may not protect proprietary rights as effectively as the laws do in other countries such as the United States.

Our intellectual property indemnification practices may adversely impact our business.

From time to time, we may be required to indemnify our customers for certain costs and damages of patent and copyright infringement in circumstances where our product is the factor creating the customer’s infringement exposure. This practice may subject us to significant indemnification claims by our customers and may adversely impact our business.

Risks Related to our Industry

Demand for our products is highly dependent on the consumer electronics market, which is characterized by short product life cycles and subject to risks related to product transitions and supply of other components.

We derive almost all of our revenues from a limited number of products that are used in consumer electronic devices. The consumer electronics market is characterized by intense competition, rapidly changing technology, and continuously evolving consumer preferences. These factors result in the frequent introduction of new products, short product life cycles and significant price competition. The dynamic nature of this market limits our, as well as our customers’ ability to accurately forecast quarterly and annual sales. If we or our customers are unable to manage product transitions, our business and results of operations could be negatively affected. In addition, we are subject to the risk of supply problems for other components, such as flash memory and TFT- LCD display, which our customers require for manufacturing the consumer end products. For example, if our customers are unable to obtain sufficient supplies of other key components in their portable media players, the sales of our products that are also used in such devices would be adversely affected. A decrease in demand for consumer electronics will also decrease demand for our products, which will adversely affect our business and results of operations.

We are subject to the highly cyclical nature of the semiconductor industry.

The semiconductor industry is highly cyclical. The industry has experienced periods of both increased demand and significant downturns, often in connection with, or in anticipation of, maturing product life cycles (of both semiconductor companies’ and their customers’ products) and declines in general economic conditions. The downturns have been characterized by production overcapacity, high inventory levels and accelerated erosion of average selling prices. For example, in early 2009, the semiconductor industry experienced a dramatic and unprecedented decline in demand for semiconductor devices due to the worldwide economic downturn. On the other hand, at times of increased demand, if we cannot meet such demand because of reasons such as production capacity constraints, insufficient inventory or untimely transportation, our business, financial condition and results of operations may also be materially adversely affected.

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The industry standards supported by our products are continually evolving, and our success depends on our ability to adapt our products to meet these changing industry standards.

Our ability to compete in the future will depend on our ability to ensure that our products comply with changing industry standards. The emergence of new industry standards could render our products incompatible with products developed by our customers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products do not comply with prevailing industry standards for a significant period of time, we could miss opportunities to make crucial product introductions. We may invest substantial effort and expense in developing or using new technologies or in developing new products or product enhancements, but such effort and expense may not result in market acceptance of our products.

U.S. regulations regarding the use of conflict minerals, may affect our, or our supply chain’s, ability to purchase or acquire certain raw materials at competitive prices.

Many industries rely on materials which are subject to regulation concerning certain minerals sourced from the Democratic Republic of Congo, or DRC, or adjoining countries. These minerals are commonly referred to as conflict minerals. Conflict minerals which may be used in the semiconductor industry or by our suppliers include Columbite-tantalite (derivative of tantalum [Ta]), Cassiterite (derivative of tin [Sn]), gold [Au], Wolframite (derivative of tungsten [W]), and Cobalt [Co]. The SEC has adopted regulations that will require companies such as ours to disclose, beginning in 2014, the use of conflict materials and to take certain steps to verify those disclosures with its suppliers. Although we expect that we and our suppliers will be able to comply with the requirements of these new regulations promulgated by the SEC, there can be no guarantee that we will be able to gather all the information required. In addition, there is increasing public sentiment that companies should avoid using conflict materials from the DRC and adjoining countries. There can be no guarantee that we are able to obtain adequate supplies of materials needed in our production from supply chains outside the DRC and adjoining countries. A failure to obtain necessary information or to maintain adequate supplies of materials from supply chains outside the DRC and adjoining countries may delay our production, increasing the risk of losing customers and business. Further, due to the complexity of our supply chain, we may not be able to trace all usage of conflict minerals and may face reputational harm resulting from making disclosure of the use of such conflict minerals.

Any new regulations or customer requirements related to climate change or environmental protection could negatively impact our operating results.

There is global concern that an increase in global average temperatures due to emissions of greenhouse gases (GHG) and other human activities have or will cause significant changes in weather patterns and increase the frequency and severity of natural disasters. Climate change, including the impact of global warming, creates physical and financial risk. Physical risks from climate change include an increase in sea level and changes in weather conditions, such as an increase in changes in precipitation and extreme weather events. Climate change could have a material adverse effect on our results of operations, financial condition, and liquidity by increasing our manufacturing costs or limiting the products we can manufacture.

We may become subject to legislation and regulation addressing climate change and Chinese air quality, and compliance with any new rules could be difficult and costly. Concerned parties, such as legislators and regulators, shareholders and non-governmental organizations, as well as companies in many business sectors, are considering ways to reduce GHG emissions. Legislative bodies have proposed various legislative and regulatory measures relating to climate change, regulating GHG emissions and energy policies. If such legislation is enacted, we could incur increased energy, environmental and other costs and capital expenditures to comply with the limitations. Due to the uncertainty in the regulatory and legislative processes, as well as the scope of such requirements and initiatives, we cannot currently determine the effect such legislation and regulation may have on our operations. Moreover, serious air pollution in Chinese cities where we operate could pose long-term health risks to our employees and increase the difficulty of recruiting and retaining key employees from overseas.

Further, we could face increased costs related to defending and resolving legal claims and other litigation related to climate change and the alleged impact of our operations on climate change.

Risks Related to Doing Business in China

The M&A rules establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in China.

Six PRC regulatory agencies promulgated the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, commonly referred to as the Merger & Acquisition Rules, or the M&A Rules, effective on September 8, 2006. In addition, on February 3, 2011, the General Office of the State Council promulgated the Notice on Launching the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Security Review Rule, which became effective on March 6, 2011. The M&A Rules establish procedures and requirements that could make some acquisitions of Chinese companies by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a Chinese domestic enterprise. The M&A Security Review Rule provides for certain circumstances under which foreign investors’ acquisition of Chinese companies shall be subject to national security review of the PRC government. Because we may expand our business in part by acquiring complementary businesses, complying with the requirements of the M&A Rules and the M&A Security Review Rule to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

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An unexpected slowdown in the growth of the Chinese economy may harm our growth and profitability.

Our business is primarily dependent upon the economy and the business environment in China. In particular, our growth strategy is based upon the assumption that demand in China for portable media players will continue to grow with the Chinese economy. While the Chinese economy has experienced significant growth in recent years, the growth of the Chinese economy has been uneven across geographic regions and economic sectors. The PRC government has implemented various economic and political policies and laws and regulations to encourage economic development and guide the allocation of resources. Any adverse changes to these policies of the PRC government or the laws and regulations of the PRC could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.

China’s legal system is characterized by uncertainty that could negatively impact our business and results of operations.

The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have limited value as precedent. Beginning in 1979, the PRC government promulgated a comprehensive system of laws and regulations governing economic matters, which has had the overall effect of significantly enhancing the protections afforded to foreign invested enterprises in China. However, these laws, regulations and legal requirements are relatively new and are evolving rapidly, and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to foreign investors. In addition, enforcement of existing laws, or contracts based on existing law, may be uncertain and sporadic, and it may be difficult to obtain swift and equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The relative inexperience of China’s judiciary in many cases creates additional uncertainty as to the outcome of any litigation. Furthermore, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of a violation of these policies and rules until some time after the violation.

Changes in China’s political and economic policies could negatively impact our business.

Substantially all of our business operations are conducted in China. Accordingly, our results of operations, financial condition and prospects are subject in a significant degree to the economic, political and legal developments in China. China's economy differs from the economies of most developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the Chinese economy has experienced significant growth in the past 30 years, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall Chinese economy, but may also have a negative effect on us. We cannot predict the future direction of these economic reforms or the effects these measures may have on our business, financial position or results of operations. Any adverse changes to these policies of the PRC government or the laws and regulations of the PRC could have a material adverse effect on the overall economic growth of China, which could adversely affect our business.

Restrictions on foreign currency exchange may limit our ability to receive and use our revenues effectively.

Any future restrictions on currency exchanges may limit our ability to use revenues generated in RMB to fund our business activities outside China or to make dividend or other payments in U.S. dollars or other foreign currencies. The PRC government has introduced regulations since 1996 to allow greater convertibility of the RMB, under which regulations RMB is freely convertible for current account transactions such as trade and service-related foreign exchange transactions, but not for capital account transactions such as direct investment, loan or investment in securities outside China unless the prior approval of the State Administration of Foreign Exchange, or SAFE, is obtained. These limitations could affect our ability to obtain foreign exchange for capital expenditures. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB, especially with respect to foreign exchange transactions.

Changes in the preferential tax treatments we currently enjoy in the PRC may have an adverse impact on our results of operations.

The PRC Enterprise Income Tax Law, or EIT Law, effective January 1, 2008, has imposed a single uniform income tax rate of 25% for most domestic enterprises and foreign-invested enterprises. It contemplates various transition periods and measures for existing preferential tax policies in favor of foreign-invested enterprises, including among others, a five-year transition period from its effective date for those companies which were established before the promulgation date of the EIT Law and which were entitled to a preferential tax treatment such as a reduced tax rate or a tax holiday.

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While the EIT Law equalizes the tax rates for foreign-invested enterprises and domestic enterprises, preferential tax treatment would continue to be given to companies in certain encouraged sectors and to entities classified as “High Technology Enterprises supported by the PRC government,” or High Technology Enterprises, whether foreign-invested enterprises or domestic enterprises. Each of our principal and major PRC subsidiaries, Actions Semiconductor Co., Ltd., or Actions Semiconductor (Zhuhai), and Artek Microelectronics Co., Ltd., or Artek Microelectronics (Shenzhen), is a foreign invested enterprise. According to the EIT Law, entities that qualify as High Technology Enterprises are expected to benefit from a tax rate of 15%, as compared to the uniform tax rate of 25%. In December 2008 and August 2011, Actions Semiconductor (Zhuhai) was certified as a High Technology Enterprise by the relevant tax authorities and became entitled to a preferential income tax rate of 15% until December 31, 2014. Artek Microelectronics (Shenzhen), was also certified as a High Technology Enterprise by the relevant tax authorities and became entitled to a preferential income tax rate of 15% from January 1, 2012 to December 31, 2014.

Due to a preferential tax policy that provides for tax exemption for two years starting from the first profitable year of operation after taking into account any tax losses brought forward from prior years and a 50% tax rate reduction for the succeeding three years, Actions Semiconductor (Zhuhai) benefited from an enterprise income tax, or EIT, rate of 9% for the year ended December 31, 2008, which was the fifth year after it had profits after offsetting its prior years’ tax losses, which EIT rate would otherwise have been 18% during the first year of the five-year EIT transition period. In addition, due to its certification as a High Technology Enterprise, Actions Semiconductor (Zhuhai) benefited from a 15.0% EIT rate for each of the years ended December 31, 2009, 2010, 2011 and 2012.

Due to a preferential tax policy that provides for tax exemption for the first two years starting from the first profitable year of operation after taking into account any tax losses brought forward from prior years, and a 50% tax rate reduction for the succeeding three years, Artek Microelectronics (Shenzhen) was exempted from income tax for the year ended December 31, 2008, which was the second year it had profits after offsetting its prior years’ tax losses, and benefited from a 10.0%, 11.0% and 12.0% EIT rate, which would otherwise be the interim 20.0%, 22.0% and 24.0% EIT rates during the five-year transition period, for the years ended December 31, 2009, 2010 and 2011, respectively. In addition, due to its certification as a High Technology Enterprise, Artek Microelectronics (Shenzhen) was entitled to a 15.0% EIT rate for the year ended December 31, 2012. There can be no assurances that any of our PRC subsidiaries will continue to qualify as High Technology Enterprises in the future and benefit from such preferential EIT rate. For more information regarding the impact of the EIT Law on us, see also “Item 5.A. Operating and Financial Review and Prospects—Operating Results—Taxation.”

We may be deemed a Chinese resident enterprise under the EIT Law and be subject to the PRC taxation on our worldwide income.

Under the EIT Law, if any enterprise incorporated outside the PRC has its “de facto management body” located within the PRC, such enterprise may be recognized as a PRC resident enterprise and be subject to the unified EIT rate of 25%. On December 6, 2007, the Implementation Rules of the EIT Law were promulgated, which rules defined the “de facto management body” as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. Further, on April 22, 2009, the PRC State Administration of Tax, or SAT, issued a Notice on Certain Issues regarding the Determination of Offshore Companies Controlled by PRC Companies as Resident Enterprises pursuant to “De Facto Management Bodies” Standard, or the April Notice, which took effect retrospectively on January 1, 2008. According to the April Notice, any company established pursuant to laws and regulations other than PRC laws but that is controlled by companies or company groups within China shall be deemed as a resident enterprise for PRC tax purposes if all the following conditions are met: (i) the senior management in charge of the daily operation and management of the company is based within China or the premises where the senior management performs its duties are located within China; (ii) the financial matters (such as raising funds, financing or financial risk management) and human resources matters (such as appointment and dismissal of employees or their payrolls) are decided by companies or individuals within China or require approval from companies or individuals within China; (iii) material assets, books and accounts, company seal and meeting minutes of board meetings or shareholder meetings are kept or placed within China; and (iv) half or more of the directors with voting rights or senior management habitually reside within China. According to this April Notice, in determining the location of de facto management, “substance over form” principle should be followed. Because this April Notice was issued to regulate PRC tax resident determination of companies established overseas and controlled by PRC companies, which is not applicable in our case, the criteria in the notice can only be used for reference purposes. The PRC tax authorities can determine whether or not certain offshore companies shall be deemed as resident enterprises for PRC tax purposes.

Currently no interpretation or application of the EIT Law and its implementing rules with respect to the resident enterprise determination is available for overseas companies like ours that are not established or controlled by PRC companies. Therefore, it is unclear whether PRC tax authorities would treat us as a PRC resident enterprise. If we or any of our subsidiaries that are not incorporated in the PRC are treated as a PRC resident enterprise, we or any such subsidiaries, as the case may be, will be subject to PRC EIT on our worldwide income, or on the worldwide income of such subsidiaries, as the case may be, at the 25% uniform tax rate, which could have an impact on our effective tax rate and an adverse effect on our net income and results of operations and increase our income tax expenses.

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Dividends we receive from our non-PRC resident subsidiaries and dividends payable by us to our foreign investors and gain on the sale of our Shares may become subject to withholding taxes under PRC tax laws.

According to the EIT Law, dividends received by a PRC resident enterprise from another PRC resident are exempted from EIT except for the dividends derived from publicly issued and traded shares of a resident enterprise that are held for less than 12 consecutive months. However, given the short history of the EIT Law and the subsequently issued circulars retroacting to January 1, 2009, it remains unclear whether we, Actions Semiconductor Co., Ltd., and/or our overseas holding companies will be treated as PRC resident enterprises or, if so, whether dividends declared and paid by our subsidiaries in the PRC to our overseas holding companies and by our overseas holding companies to us will be exempted from EIT. Under the EIT Law and implementation regulations issued by the State Council, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises” (and that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business) to the extent such dividends have their source within the PRC. Under PRC Individual Income Tax Law, individuals are generally liable for a 20% individual income tax on dividend income. Such individual income tax should apply to dividends received by a non-resident individual from a PRC resident enterprise. A reduced tax rate on dividends may be applicable for non-resident enterprise investors and non-resident individual investors under an applicable tax treaty or tax arrangement between the PRC and the investor’s resident country or region. Similarly, any gain realized on the transfer of shares by non-resident enterprise and individual investors is also subject to a 10% PRC EIT rate and a 20% individual income tax, respectively, if such gain is regarded as income derived from sources within the PRC unless otherwise exempted under PRC domestic regulations and applicable tax treaties or tax arrangements.

Our subsidiaries in China are foreign-invested enterprises directly held by our subsidiaries in Hong Kong or Mauritius. According to the tax treaties between China and Hong Kong and between China and Mauritius, dividends payable by a foreign-invested enterprise in China to a company in Hong Kong or to a company in Mauritius, which directly holds at least 25% of the equity interests in the foreign-invested enterprise, will be subject to a withholding tax of 5%. However, on February 20, 2009, the State Administration of Taxation promulgated the Notice on Relevant Issues of Implementing Dividend Clauses under Tax Treaties, or the 2009 February Notice, clarifying that no enterprise is entitled to the preferential treatment on dividend withholding tax rates pursuant to any tax treaties if such enterprise becomes qualified for such preferential tax rates through any transaction or arrangement whose major purpose is to obtain such preferential tax treatment. The tax authority in charge has the right to make adjustments to the applicable tax rates if it determines that any taxpayer has enjoyed preferential treatment under tax treaties as a result of such transaction or arrangement. Furthermore, on August 24, 2009, the State Administration of Taxation promulgated the Administrative Measures on Treatment of Non-residents under Tax Treaties (Trial Implementation), or 2009 August Notice, which became effective on October 1, 2009. According to the 2009 August Notice, any non-resident who wishes to enjoy tax treaty treatment under the following sections in the relevant tax treaties shall apply to the tax authorities with competent jurisdiction for approval: (i) dividend; (ii) interest; (iii) royalty; and (iv) property income. The relevant tax authorities shall have twenty to fifty working days, after an application is accepted, to decide whether to approve such application. If the relevant tax authorities do not notify the applicant of the approving result in writing within the above time frame, the relevant application shall be deemed to have been approved. We have not applied to the relevant tax authorities for the preferential withholding tax rate under the tax treaty between China and Hong Kong or the tax treaty between China and Mauritius so far. Since both the 2009 February Notice and the 2009 August Notice have been in effect for a relatively short period of time, it remains unclear how the PRC tax authorities will implement them in practice and to what extent they will affect the dividend withholding tax rates for dividends distributed by our subsidiaries in China to our Hong Kong subsidiaries or our Mauritius subsidiary. If the relevant tax authority determines that our Hong Kong subsidiaries and Mauritius subsidiary were set up to take advantage of the preferential tax rates on dividends, or our application for the preferential withholding tax rate under the tax treaty between China and Hong Kong or the tax treaty between China and Mauritius is rejected by the competent tax authorities, the higher 10% withholding tax rate may apply to such dividends.

If we are considered as a PRC “resident enterprise”, the dividends we pay with respect to our ADSs, or the capital gain you may realize from the transfer of our ADSs, could be treated as income derived from sources within the PRC and be subject to PRC withholding tax. If such dividends or capital gains are taxable in the PRC, the applicable income tax rate would be 10% for non-PRC institutional shareholders and 20% for non-PRC individual shareholders, unless they are able to claim a lower tax rate pursuant to applicable tax treaties. If we are required under the EIT Law to withhold PRC income tax on our dividends payable to our non-PRC resident shareholders, or if you are required to pay PRC income tax on the transfer of your ADSs, the value of your investment in our ADSs may be materially and adversely affected.

PRC regulations relating to offshore investment activities by PRC residents and employee stock options granted by overseas-listed companies may increase our administrative burden, restrict our overseas and cross-border investment activity or otherwise adversely affect the implementation of our acquisition strategy. If our shareholders who are PRC residents, or our PRC employees who are granted or exercise stock options, fail to make any required registrations or filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws.

SAFE promulgated regulations in October 2005 that require PRC residents and PRC corporate entities to register with local branches of SAFE in connection with their direct or indirect offshore investment activities. These regulations apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

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Under the SAFE regulations, PRC residents who make, or have previously made, direct or indirect investments in offshore companies, will be required to register with local branches of SAFE in connection with their establishment or control of the offshore company established for the purpose of overseas equity financing involving a roundtrip investment whereby the offshore company acquires or controls onshore assets or equity interests held by the PRC residents. In addition, such PRC residents are required to file or update the registration with the local branch of SAFE, with respect to that offshore company, any material change involving its round-trip investment, capital variation, such as an increase or decrease in capital, transfer or swap of shares, merger, division, long-term equity or debt investment or creation of any security interest. If any PRC shareholder fails to make the required SAFE registration or file or update the registration, the PRC subsidiaries of that offshore parent company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation, to their offshore parent company, and the offshore parent company may also be prohibited from injecting additional capital into their PRC subsidiaries. Moreover, failure to comply with the various SAFE registration requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.

We cannot provide any assurances that all of our shareholders who are PRC residents have made or obtained any applicable registrations or approvals required by these SAFE regulations. The failure or inability of our PRC resident shareholders to comply with the registration procedures set forth therein may subject us to fines and legal sanctions, restrict our cross-border investment activities, or limit our PRC subsidiaries’ ability to distribute dividends or obtain foreign-exchange-denominated loans to our company.

As it is uncertain how the SAFE regulations will be interpreted or implemented, we cannot predict how these regulations will affect our business operations or future strategy. For example, we may be subject to more stringent review and approval process with respect to our foreign exchange activities, such as remittance of dividends and foreign-currency-denominated borrowings, which may adversely affect our results of operations and financial condition. In addition, if we decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations required by the SAFE regulations. This may restrict our ability to implement our acquisition strategy and could adversely affect our business and prospects.

On March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas-Listed Company, or the Stock Option Rule. Under the Stock Option Rule, PRC citizens who are granted stock options by an overseas publicly-listed company are required, through a PRC agent or PRC subsidiary of such overseas publicly-listed company, to register with SAFE and complete certain other procedures. We and our PRC employees who have been granted stock options are subject to the Stock Option Rule. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and legal sanctions.

On February 15, 2012, SAFE promulgated the Circular on Certain Foreign Exchange Issues Relating to Domestic Individuals’ Participation in Stock Incentive Plan of Overseas Listed Company, or the New Stock Option Rule. Upon the effectiveness of the New Stock Option Rule on February 15, 2012, the Stock Option Rule became void, although the basic requirements and procedures provided under the Stock Option Rule remain unchanged in the New Stock Option Rule, i.e., the domestic employees participating in stock incentive plan of a overseas listed company shall appoint the PRC subsidiary of the overseas listed company or a domestic qualified agent to make the registration of the stock incentive plan with SAFE and handle all foreign exchange-related matters of the stock incentive plan through the special bank account approved by SAFE. The New Stock Option Rule clarifies that the domestic subsidiary of an overseas listed company shall include the limited liability company, partnership and the representative office directly or indirectly established by such overseas listed company in China and the domestic employees shall include the directors, supervisors, the senior management and other employees of the domestic subsidiary, including the foreign employees of the domestic subsidiary who continuously reside in China for at least one year.

Similar with the Stock Option Rule, the New Stock Option Rule requires that the annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises shall be subject to the approval of SAFE. The New Stock Option Rule further requires that the material amendments of the stock incentive plan shall be filed with SAFE within three months following the occurrence of the material amendments. The domestic agent shall also make a quarterly update to SAFE to disclose the information with respect to the stock option exercises, the stock holding and foreign exchange matters. If the domestic employees or the domestic agent fails to comply with the requirements of the New Stock Option Rule, SAFE may demand compliance and even impose administrative penalties that SAFE deems appropriate.

Prior to the effectiveness of the New Stock Option Rule, we completed the registration with SAFE for our Chinese employees who participate in our equity incentive plan and have maintained the update to SAFE in accordance with the Stock Option Rule. Under the New Stock Option Rule, we do not need to re-register but must comply with the requirements applicable to companies which have completed the registration, including the quarterly update to SAFE, registration for material amendments of our equity incentive plan and the registration for the foreign employees of our PRC subsidiaries who continuously reside in China for at least one year.

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We face uncertainty from China’s Circular on Strengthening the Administration of Enterprise Income Tax on Non-Resident Enterprises' Equity Transfer (“Circular 698”) that was released in December 2009 with retroactive effect from January 1, 2008.

The SAT released the Circular on Strengthening the Administration of Enterprise Income Tax on Non-resident Enterprises’ Equity Transfers, or Circular 698, on December 10, 2009 that addresses the transfer of equity interest in resident enterprises by nonresident companies. Circular 698, which was effective retroactively from January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China. Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an intermediate offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5% or where the offshore income of its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfers. If the intermediate holding company mainly serves as a tax avoidance vehicle and does not have any reasonable business purpose, the PRC tax authority may disregard the intermediate holding company and re-characterize the equity transfer by referring to its economic essence, and as a result, the foreign investor may be subject to a 10% PRC withholding tax for the capital gains realized from the equity transfer.

We do not believe that a transfer of our ordinary shares or ADSs by our non-PRC shareholders should be treated as an indirect transfer of equity interests in our PRC subsidiaries subject to Circular 698, as such share transfer is not carried out for the main purposes of avoiding PRC taxes. However, there is uncertainty as to the interpretation and application of Circular 698 by the PRC tax authorities in practice. If you are required to pay PRC withholding tax on the transfer of our ordinary shares or ADSs, your investment in us may be materially and adversely affected. In addition, we cannot predict how Circular 698 will affect our financial conditions or operations. For example, we may be required to expend valuable resources on complying with Circular 698 or establishing that we should not be taxed under Circular 698, any of which could have an adverse effect on our financial condition and results of operations.

We rely principally on dividends paid by our subsidiaries to fund any cash and financing requirements we may have, and any limitation on the ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on our ability to conduct our business.

We are a holding company and rely principally on dividends paid by our subsidiaries for cash requirements, including the funds necessary to service any debt we may incur. If any of our subsidiaries incurs debt in its own name in the future, the instruments governing the debt may restrict dividends or other distributions on its equity interest to us.

Furthermore, applicable PRC laws, rules and regulations permit payment of dividends by our PRC entities only out of their retained earnings, if any, determined in accordance with PRC accounting standards. Our PRC subsidiaries are required to set aside a certain percentage of their after-tax profit based on PRC accounting standards each year to their reserve fund in accordance with the requirements of relevant laws and provisions in their respective articles of associations. As a result, our PRC subsidiaries may be restricted in their ability to transfer a portion of their net income to us whether in the form of dividends, loans or advances. Any limitation on the ability of our subsidiaries to pay dividends to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.

Relations between Taiwan and China could negatively affect our business, financial condition and operating results and, therefore, the market value of our ADSs.

China does not recognize the sovereignty of Taiwan. Although significant economic and cultural relations have been established during recent years between Taiwan and China, relations have often been strained. Therefore, factors affecting the military, political or economic relationship between China and Taiwan could adversely affect our business, financial condition and operating results. For example, the Taiwan government may periodically adopt or amend its regulations and policies relating to investment and participation in investments in PRC companies by Taiwanese persons or entities established under the laws of Taiwan, referred to as Taiwanese Persons. In the past, the Taiwan government imposed restrictions on direct and indirect investments by Taiwanese Persons in certain industries in the PRC, including the semiconductor design industry and certain sectors of the semiconductor manufacturing industry, and provided that any Taiwanese Person with “control and influence” over a non-Taiwan entity that has investments in a PRC entity would be deemed to have made an indirect investment in such PRC entity. Because certain of our directors, senior management and employees are Taiwanese Persons, if these prior investment restrictions were reinstated, the Taiwan government may consider one or more of our directors, senior management and employees to have inappropriate control and influence. In this event, such director, senior management member or employee could be required to leave the company or be subject to sanctions by the Taiwan government.

Fluctuations in the value of the RMB could negatively impact our results of operations.

The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar so that the RMB is permitted to fluctuate within a managed band based on market supply and demand and by reference to a basket of certain foreign currencies. This change in policy has resulted in a 24.7% appreciation of the RMB against the U.S. dollar between July 21, 2005 and December 31, 2012. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which may result in a further and more significant appreciation of the RMB against the U.S. dollar. Although our reporting currency is the U.S. dollar and virtually all of our sales are denominated in U.S. dollar, our operating expenses and substantially all of our assets and liabilities are denominated in RMB. As a result, any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. Generally, if the RMB appreciates against the U.S. dollar, our operating expenses will increase and, as a consequence, our operating margins and net income will likely decline. However, this effect may partially offset by the fact that we also incur expenses and liabilities in U.S. dollar and other foreign currencies and have our major interest-generating financing activities in RMB.

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As we rely entirely on dividends paid to us by Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen) for, among other items, working capital, distributions to other subsidiaries and capital to make acquisition and investments, any significant devaluation of the RMB may have a material adverse effect on our financial condition.

Reduction in interest rates will result in a decrease in our interest income.

Our exposure to market risk for changes in interest rates relates primarily to the interest income generated by our RMB cash deposits in banks and other financial institutions. We have very limited derivative financial instruments in our investment portfolio to hedge interest rate risks. In 2010, 2011 and 2012, the rate of return on our RMB cash deposit was 4.4%, 6.1% and 6.2%, respectively. As a result of the Chinese government’s alternate efforts to curb inflation or stimulate economy, interest rates have often fluctuated. For example, China’s central bank raised interest rates three times in 2011 due to its relative high inflation in 2011 but then decreased interest rates twice in 2012, as a result of which China’s one-year RMB deposit rate reached 3.50% as of December 31, 2011 but then dropped by 7.1% to 3.25% as of December 31, 2012. Further, at the beginning of 2012, the China Banking Regulatory Commission imposed certain limitations on the amount of new loans to be granted by commercial banks in China to minimize the risk of defaults. This may have an adverse impact on the interest income generated from our financial investments in financial institutions. Further, if there is any future uncertainty in global economic and market conditions, a decreasing interest rate might adversely affect our interest income and in turn impact our net income.

The systematic credit risks among banking and financial institutions in China and worldwide may negatively impact our results of cash management and eventually shareholder’s equity.

As of December 31, 2012, we had marketable securities, current and non-current, of US$142 million. These marketable securities were principally investments with guaranteed high interest rates and mainly 3 to 24 month terms. Most of them were issued, managed or guaranteed by state-owned banks or financial institutions in China. The Chinese government has been closely supervising its state-owned banks and financial institutions since the global financial crisis in 2008 and does not allow any delinquencies in credit guaranteed by them. However, if the Chinese government relaxes its discipline on its banking and financial systems, the systematic credit risks may cause our investments in marketable securities or the returns on such investments to become uncollectible, impacting our results of cash management, and eventually deteriorating shareholder’s equity.

The audit report included in this annual report is prepared by auditors who are not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.

Our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the US Public Company Accounting Oversight Board (United States) (the “PCAOB”), is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.

Because we have substantial operations within the Peoples’ Republic of China and the PCAOB is currently unable to conduct inspections of the work of our auditors as it relates to those operations without the approval of the Chinese authorities, our auditors are not currently inspected fully by the PCAOB.

Inspections of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor’s audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

The inability of the PCAOB to conduct full inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

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Proceedings instituted recently by the SEC against five PRC-based accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Securities Exchange Act of 1934.

In December 2012, the SEC instituted proceedings under Rule 102(e)(1)(iii) of the SEC’s Rules of Practice against five PRC-based accounting firms, including our independent registered public accounting firm, alleging that these firms had violated U.S. securities laws and the SEC’s rules and regulations thereunder by failing to provide to the SEC the firms’ work papers related to their audits of certain PRC-based companies that are publicly traded in the United States. Rule 102(e)(1)(iii) grants to the SEC the authority to deny to any person, temporarily or permanently, the ability to practice before the SEC who is found by the SEC, after notice and opportunity for a hearing, to have willfully violated any such laws or rules and regulations. While we cannot predict the outcome of the SEC’s proceedings, if our independent registered public accounting firm were denied, temporarily or permanently, the ability to practice before the SEC, and we are unable to find another registered public accounting firm which can audit and issue a report on our financial statements, our financial statements could be determined to not be in compliance with the requirements for financial statements of public companies with a class of securities registered under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Such a determination could ultimately lead to the delisting of our ADSs from the NASDAQ Global Market, which event would effectively terminate the trading market for our ADSs in the United States, and/or to the SEC’s revoking the registration of our ADSs under the Exchange Act pursuant to Section 12(j) thereof, in which event broker-dealers thereafter would be prohibited from effecting transactions in, or inducing the purchase or sale of, our ADSs in the United States.

Risks Related to Our Corporate Structure and Our ADSs

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, there may be less protection of your shareholder rights than you would have under U.S. law.

Our corporate affairs are governed by our memorandum and articles of association, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, the rights of minority shareholders to institute actions, and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the latter of which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more developed and judicially interpreted bodies of corporate law than the Cayman Islands.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of our board of directors or controlling shareholders than they would as public shareholders of a U.S. company.

We may incur significant costs to avoid being considered an investment company under the Investment Company Act of 1940.

Generally, the Investment Company Act of 1940, or the 1940 Act, provides that a company is not an investment company and is not required to register under the 1940 Act as an investment company if the company is primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding or trading in securities or has investment securities that comprise less than 40% of its total assets (exclusive of U.S. government securities or cash items) on an unconsolidated basis.

We are a fabless semiconductor company that engages primarily in the businesses of designing, developing and marketing integrated platform systems, including SoCs, firmware, software development tools and reference designs, for manufacturers of portable multimedia players. While we believe that we qualify as a research and development company under rules promulgated under the 1940 Act, the SEC may not agree with our analysis. Specifically, even though, the value of our investment securities constituted approximately 53.6% of our total assets (exclusive of U.S. government securities or cash items) on an unconsolidated basis as of December 31, 2012, we do not believe that we are an investment company because we believe that we qualify as a research and development company under rules promulgated under the 1940 Act as a result of the following:

| (i) | our research and development expenses, for the last four fiscal quarters combined, account for 70.7%, a substantial percentage of our total expenses for the same period;

| (ii) | our net income derived from investments in securities, for the last four fiscal quarters combined, does not exceed twice the amount of our research and development expenses for the same period;

| (iii) | our expenses for investment advisory and management activities, investment research and custody, for the last four fiscal quarters, combined, do not exceed 5% of our total expenses for the same period;

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| (iv) | our investments in securities are capital preservation investments, except that no more than 25% of our total assets may consist of other investments, provided that at least 75% of such other investments are investments made pursuant to a collaborative research and development arrangement;

| (v) | we do not hold ourselves out as being engaged in the business of investing, reinvesting or trading in securities, and we are not a special situation investment company;

| (vi) | we are primarily engaged, directly, through majority-owned subsidiaries, or through companies which we control primarily, in a business or businesses other than that of investing, reinvesting, owning, holding, or trading in securities, as evidenced by

| a. | the activities of our officers, directors and employees;

| b. | our public representations of policies;

| c. | our historical development; and

| d. | a resolution adopted by our board of directors affirming that we are, and will continue to be, primarily engaged in an operating business, and not in the business of investing, reinvesting, owning, holding, or trading in securities; and

| (vii) | our board of directors has adopted a written investment policy with respect to our capital preservation investments.

Nevertheless, since a part of the determination of whether we are an investment company is based on facts and circumstances, the SEC may not agree with our position with respect to our historical business, while it is also possible that we may not satisfy the requirements of the exemption for research and development companies in the future. For example, we may not in the future satisfy the tests relating to the ratio of our research and development expenses to our total expenses, the ratio of our net income derived from investments in securities to our research and development expenses, the ratio of our expenses for investment advisory and management activities to our total expenses and the composition and value of our investments. Consequently, we could inadvertently become an investment company at some point in the future.

If we were to become subject to the requirements of the 1940 Act, we would be required to institute burdensome compliance requirements and our activities may be restricted, and consequently our operations and results would be negatively impacted in a significant manner, including among other possible effects, our inability to borrow money or raise capital through the offer and sale of our securities in the United States. We could also be subject to administrative or legal proceedings and, among other things, contracts to which we are a party might be rendered unenforceable or subject to rescission. Additionally, we would be unable to continue operating as we currently do and might need to acquire or sell assets that we would not otherwise acquire or sell in order to avoid becoming an “investment company” as defined under the 1940 Act. We may incur significant costs and management time to avoid being considered an investment company under the 1940 Act, as amended. Further, if we were deemed to be an investment company, we might also attempt to seek exemptive relief from the SEC, which could impose significant costs and delays on our business.

Your ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited because we are incorporated in the Cayman Islands, because we conduct substantially all of our operations in China and because the majority of our directors and officers reside outside of the United States.

We are incorporated in the Cayman Islands, and we conduct substantially all of our operations in China through Actions Semiconductor (Zhuhai), Artek Microelectronics (Shenzhen) and Shanghai Actions Semiconductor Co., Ltd., or Shanghai Actions. Most of our directors and officers reside, and substantially all of the assets of those persons are located, outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands or China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. In addition, there is uncertainty as to whether the courts of the Cayman Islands or China would recognize or enforce judgments of United States courts against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the United States or any state, and it is uncertain whether such Cayman Islands or Chinese courts would be competent to hear original actions brought in the Cayman Islands or China against us or our directors and officers predicated upon the securities laws of the United States or any state, on the ground that such provisions are penal in nature.

The price of our ADSs has been volatile and may continue to be volatile, which may make it difficult for holders to resell the ADSs when desired or at attractive prices.

The trading price of our ADSs has been and may continue to be subject to wide fluctuations. Since our ADSs became listed in November 2005, the closing price of our ADSs on the NASDAQ Global Market has ranged from US$12.24 to US$1.34 per ADS and the last reported sale price on April 22, 2013 was US$3.20. Our ADSs price may fluctuate in response to a number of events and factors. The financial markets in general, and the market prices for many ADS issuers with a majority of operations in China in particular, have experienced volatility that often has been unrelated to the operating performance of such companies.

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In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for specific business reasons, including those discussed in this Risk Factors section. Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will be traded. We cannot give any assurance that these factors will not occur in the future.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

We may from time to time distribute rights to holders of our ordinary shares, including rights to acquire our securities. We cannot offer to holders of our ADSs those rights unless the securities to which the rights relate are either registered under the U.S. Securities Act of 1933, which we refer to in this document as the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings. The depositary may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

Holders of ADSs may not be able to exercise the rights of shareholders, including the right to vote as a shareholder.

As a holder of our ADSs, you will not be recorded as a shareholder on the share register of the Company. Only registered holders of our ordinary shares are entitled as a matter of Cayman Islands law to exercise the rights of shareholders including voting their shares and receiving dividends and distributions. The depositary or its custodian will be the registered holder of all the ordinary shares represented by the ADSs and, thus, will be the only party entitled to exercise the rights of a shareholder with respect to those ordinary shares held by them. You will not be able to exercise the rights of a shareholder, including the right to vote, unless you withdraw the ordinary shares underlying the ADSs you hold. However, you may not be able to withdraw ordinary shares in time to be able to exercise your rights. For example, you may not know about shareholder meetings far enough in advance to withdraw those ordinary shares. If we ask for your instructions, the depositary will notify you of an upcoming vote and arrange to deliver our voting materials to you. You may not receive the voting materials in time to ensure that you can instruct the depositary to vote your ordinary shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote, and there may be little you can do if the ordinary shares underlying your ADSs are not voted as you requested.

Except in limited circumstances, the depositary for our ADSs, in the case of poll voting will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at a shareholders meeting, which could adversely affect your interests.

Under the deposit agreement for the ADSs, the depositary, in the case of poll voting will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings if you do not vote, unless we notify the depositary that:

| • | we do not wish to receive a discretionary proxy;

| • | we think there is substantial shareholder opposition to the particular proposal; or

| • | we think the particular proposal would have a material adverse impact on our shareholders.

The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

You may not receive dividends or other distributions on our ordinary shares or any value for them if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We have no obligation to take any other action to permit the distribution of our ADSs, ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us or the depositary to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

You may be subject to limitations on transfer of your ADSs.

Your ADSs represented by American Depositary Receipts, or ADRs, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

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You may be subject to limitations on transfers of our ordinary shares.

Our ordinary shares are transferable subject to restrictions in our articles of association. However, our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share without assigning any reasons therefor. In addition, the registration of transfers may be suspended as our board of directors may determine, for up to 45 days in any year.

ITEM 4. INFORMATION ON THE COMPANY

A. | History and Development of the Company

We, Actions Semiconductor Co., Ltd., or Actions Cayman, are an exempted company incorporated under the Companies Law (2012 Revision), as amended, of the Cayman Islands on July 27, 2005 for the purpose of becoming the sole shareholder of Actions Semiconductor Co., Ltd., originally established as a “category 2” global business company incorporated in the Republic of Mauritius, which we refer to as Actions Semiconductor (Mauritius). A category 2 global business license is issued by the Financial Services Commission of Mauritius to a private company carrying on a qualified global business in a currency other than the Mauritian currency with persons who are resident outside of Mauritius. In 2010, we switched Actions Semiconductor (Mauritius) to a “category 1” global business company to be qualified as a resident company in Mauritius. A preferential tax regime is applicable in Mauritius to a company holding a category 1 global business license. In August 2005, we issued 480 million shares to shareholders of Actions Semiconductor (Mauritius) in consideration for 100% of its share capital. By incorporating our company in the Cayman Islands, we believe that we may have additional flexibility to pursue future business opportunities or financing alternatives.

Actions Semiconductor (Mauritius) was initially organized on November 16, 2001 as Cristo Capital Inc. to become the holding company of the semiconductor design operations we established in Zhuhai, China. Cristo Capital Inc. changed its name to Actions Semiconductor Co., Ltd. on July 8, 2005. Actions Semiconductor (Mauritius) is the 100% shareholder of Actions Semiconductor (Zhuhai), a subsidiary incorporated on December 28, 2001 in Zhuhai, China. We conducted substantially all of our operations through Actions Semiconductor (Zhuhai) until Artek Microelectronics (Shenzhen), another wholly owned subsidiary in China with focus on the design, manufacturing, and marketing of SoCs for portable media players, was established on March 14, 2006. As our scale of operations and revenues increased, we determined that it would be advantageous to establish a Hong Kong company to conduct some of our sales and customer service activities. In January 2004, Actions Semiconductor (Mauritius) acquired for consideration of HK$1.00, Actions Technology (HK) Co., Ltd., or Actions Technology (HK), a trading company with limited ongoing operations incorporated in Hong Kong, through which we set up a sales and customer support center in Hong Kong. By making sales through our sales center in Hong Kong, we are able to utilize Hong Kong’s well developed and efficient customs, forwarding and logistic infrastructure. In addition, certain of our customers may be able to conduct global tax planning by making purchases through our Hong Kong subsidiary. In August 2007, Actions Semiconductor (Mauritius) transferred its ownership of Actions Technology (HK) to Actions Enterprises (HK) Co., Ltd., or Actions Enterprises (HK), an investment holding company incorporated in Hong Kong in 2007 and wholly owned by Actions Cayman. In July 2010, Actions Enterprises (HK) transferred all of its interest in Actions Technology (HK) to Actions Cayman. As described in more detail below, in July 2010, Actions Cayman sold Actions Enterprises (HK) to Nann Capital Corporation, or Nann Capital, for a nominal consideration of US$1.00, which reflected its zero net value.

On November 17, 2005, we established a subsidiary in the British Virgin Islands, Actions Microelectronics Co., Ltd., or Actions Microelectronics (BVI), which serves as a holding company of our research and development center. On December 19, 2005, Actions Microelectronics (BVI) established a subsidiary in Beijing, China, Beijing Actions North Microelectronic Co., Ltd., or Beijing Actions, which served as our research and development center for imaging and video technology. On February 13, 2006, Beijing Actions changed its English name into Actions Microelectronics Co., Ltd., which we continue to refer to as Beijing Actions. On September 22, 2009, Beijing Actions introduced a group of new shareholders and raised its registered capital from US$2.5 million to US$10.0 million. We further invested US$1.5 million in Beijing Actions in connection with such registered capital increase and subsequently invested an additional US$2.6 million in Beijing Actions on January 25, 2011. Our interest in Beijing Actions was diluted from 80% to 35% in 2009 but then increased to 46% in 2011 as a result of the above financing and investment activities. Our total investment in Beijing Actions reached US$6.1 million as of January 25, 2011. Beijing Actions has been deconsolidated and became an equity method investee effective September 30, 2009.

On December 28, 2005, we established a subsidiary in the British Virgin Islands, Artek Microelectronics Co., Ltd., or Artek Microelectronics (BVI), which served as a holding company for other subsidiaries we might establish in China later on. On January 16, 2006, Artek Microelectronics (BVI) established a subsidiary in Hong Kong, Artek Microelectronics Co., Ltd., (HK) or Artek Microelectronics (HK), which we originally planned to use as our second sales and customer support center in Hong Kong, but it never engaged in any substantial operation. On March 14, 2006, Artek Microelectronics (BVI) established another subsidiary in Shenzhen, China, Artek Microelectronics Co., Ltd., or Artek Microelectronics (Shenzhen), which serves as a part of our sales office and houses our technology service center. On February 10, 2006, we established a subsidiary in the British Virgin Islands, Actions Capital Investment, Inc., or Actions Capital, through which we may invest in or acquire technologies or companies complementary to our current operations. On January 13, 2009, Actions Capital established a subsidiary in Republic of Malaysia, Actions Capital Investment (Malaysia) Inc., or Actions Capital Malaysia, which serves as a tax-effective investment vehicle of Actions Capital.

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We determined that it is advantageous for us to adjust our investment structure to use Hong Kong companies to hold our interests in our PRC subsidiaries. On August 17, 2007 and September 6, 2007, we established two subsidiaries in Hong Kong, Actions Microelectronics Co., Ltd., or Actions Microelectronics (HK), and Actions Enterprises (HK), respectively, which serve as the holding companies of Beijing Actions and Actions Technology (HK), respectively. We wound up two BVI holding companies, Actions Microelectronics (BVI) and Artek Microelectronics (BVI), after the latter transferred its holding of Artek Microelectronics (Shenzhen) to Artek Microelectronics (HK), on December 1, 2007 and 2008, respectively. Before Artek Microelectronics (BVI) was dissolved, it transferred in 2008 its 100% ownership interest in Artek Microelectronics (HK) to Actions Cayman, which as a result became the sole shareholder of Artek Microelectronics (HK).

On March 27, 2008, Actions Semiconductor (Zhuhai) established Shanghai Actions, a subsidiary in Shanghai, China, which currently serves as our research and development center in Eastern China and may expand its operations into manufacturing and marketing for its own portable media player product lines in the future.

On August 20, 2009, Actions Enterprises (HK) established a 100%-owned subsidiary in Shanghai, China, Actions Technology (Shanghai), which acquired a land use right from Shanghai Zhangjiang Government for the purpose of constructing a new office building in Shanghai Zhangjiang High-Tech Park. However, considering our limited utilization of the new office building, we subsequently transferred our entire ownership interest in Actions Technology (Shanghai)’s holding company, Actions Enterprises (HK), to Nann Capital for US $1.00, which fairly reflected the zero net worth of Actions Enterprises (HK). Following the disposal of Actions Enterprises (HK), we made a capital injection of US$4.4 million to acquire 40% equity interest in Nann Capital in July 2010. In June 2011, we made a further capital injection of US$7.1 million to maintain our 40% equity interest in connection with Nann Capital’s fund raising.

On August 19, 2010, to expand our research and development capability, and explore the competitive potentials of our products, we acquired additional interest in one of our equity method investees, Mavrix Technology, Inc., or Mavrix, a Cayman Islands company, for approximately US$1.2 million. As a result, Mavrix, together with its wholly owned subsidiaries, Mavrix Technology (HK) Co., Ltd. and Shanghai Mavrix Technology Co., Ltd., or Shanghai Mavrix, became a 93.4% owned subsidiary subject to consolidation.

Our principal executive offices are located at No. 1, Ke Ji Si Road, Technology Innovation Coast of Hi-Tech Zone , Zhuhai, Guangdong, 519085, the People’s Republic of China, and our telephone number is (86-756) 339-2353. Our agent for service of process in the United States is Depositary Management Corporation, located at 570 Lexington Avenue, 44th Floor, New York, New York 10022. Our Internet address is www.actions-semi.com. The information on our web site is not a part of this document.

B. Business Overview

We are a fabless semiconductor company that designs, develops and markets integrated platform solutions, including SoCs, firmware, software development tools and reference designs, for manufacturers of portable media players and smart handheld devices such as tablets. We provide integrated platform solutions to portable media player and tablet manufacturers, brand owners and value-added distributors that enable them to accelerate the time-to-market for their products. Our integrated platform solutions incorporate the following features that enable our customers to rapidly bring portable media players and tablets to market with a minimum level of technology investment:

| • | Our integrated platform solutions, which comprise SoCs, firmware, software development tools and reference designs, obviate the need for our customers to invest in costly and time-consuming internal firmware and software development for their products, or to source them from multiple suppliers.

| • | Our network of third-party value-added distributors and applications developers enable our customers to quickly introduce products with differentiated features and to cost-effectively customize our solutions.

| • | Our mixed-signal design capabilities allow us to integrate analog and digital components using a compact system architecture in our portable media player SoCs, and enable our customers to reduce their overall costs and produce smaller, more power-efficient portable products.

| • | Our proximity to the China-based manufacturers of portable media players and tablets and presence in the rapidly evolving China market for portable media players and tablets enable us to better identify market trends and align our product development efforts with these market trends.

We believe that our integrated platform solution approach provides a high level of value for our customers and creates a successful business model for us. We seek to extend our market leadership in SoC products and platform solutions for the development of portable media players and tablets through investing in technology development, extending our network of independent software developers and value-added distributors, incorporating high-end features into products for the mass-market, and improving the functionality-to-price ratio of our products.

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Industry Background

Portable media players and tablets are both battery-powered, portable consumer electronic devices that can capture, store and play digital media files such as compressed audio, image and video files.

Portable media players are featured with a wide range of industry audio compression technologies, the most popular of which include AAC, APE, FLAC, MP3, Ogg Vorbis and WMA, and video compression technologies such as AMV, FLV, H.264, MPEG2/4 and WMV. Portable media players are popular consumer electronics products, with dedicated audio players and integrated digital audio/video players currently being the two most popular products in this category. We believe that several factors will continue to help maintain the demand for portable media players:

| • | Transition from traditional consumer electronic devices to digital. Digital portable media players have several advantages over traditional devices, such as CD and DVD players, including reduced size, greater capacity and longer battery life;

| • | Proliferation of digital media content. The availability and adoption of digital media content continue to grow rapidly driven by the increasing penetration of broadband Internet and growing acceptance of digital media distribution channels on the Internet such as Apple iTunes, Yahoo, Music Match and Napster;

| • | Demand growth in emerging markets. High economic growth in emerging economies such as China, India, Russia and Brazil has resulted in increased per capita disposable income, which has stimulated strong demand for consumer electronics products such as portable media players;

| • | Advancing functionality. Beginning with dedicated audio players, digital portable media devices have increasingly integrated video functionality, and gradually adopting additional features such as advanced video game, image and video capture, digital audio and video broadcast reception, and wireless connectivity over time;

| • | Embedding of portable media player functions in new products . The expansion of entry-level portable media capability—based on solutions such as ours that achieve highly attractive price points—into high-volume embedded markets, such as fashion accessories, toys, audio visual products, automotive, and boom box, is expected to further increase demand; and the fast growth of Android-based tablets, which is considered as a higher-end portable media player, also brings lots of new opportunity.

| • | Decline in cost of commodity components. As prices of commodity components such as memory and displays used in portable media players continue to decline, consumers are able to purchase products with superior memory capacity and resolutions at an equivalent or lower price, which stimulates the growth in the overall market

Compared with portable media players whose functions are traditionally limited to playing digital media files, tablets have become increasingly popular because they further equip consumers with the capability of browsing the internet or downloading software applications through, for example, WiFi, 3G or 4G networks with the help of operation systems such as the Android and iOS operating systems. In order to provide better web-browsing user experience, tablets are usually equipped with touchscreen displays that are larger than displays of the average portable media players.

While we still gained steadily a majority of our revenue and profit from the portable media player market in 2012, this market has witnessed a decrease in demand since 2009. On the other hand, the tablet market has recently entered a period of rapid growth, and we believe that several factors will continue to drive this growth in demand for tablets, including:

| · | Product Awareness: Due to the promotional and marketing efforts of internationally recognized manufacturers such as Apple and Samsung, consumers worldwide have started to recognize the concept and benefit of tablets. We believe this influence has only begun to expand from the U.S. and European Union markets to various emerging markets, and that this will drive significant increased demand for tablets in the near future.

| · | Software Applications: The rapid growth of tablets and smartphones has resulted in the development of a rapidly growing ecosystem of software applications geared towards this market, with an increasing amount of software companies entering and developing their own software applications. We believe that the tablets’ ability to download and utilize software applications coupled with a rapidly developing software application ecosystem will continue to stimulate consumer demand for tablets.

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| · | Supply Chain and Price Point: The components used in tablets are in many respects similar to those used in portable media players, with the major difference being the tablets’ larger screen size, touch panel and WiFi/3G RF module. While the tablets do require more precise production quality, this supply chain has been rapidly developing, particularly in Southern China, since the second half of 2011, and is maturing rapidly. With a mature supply chain, the industry is able to deliver 7-inch tablets at a retail price point below US$100 each with good performance and stable quality. Together with the above two factors, this price point has stimulated increasing user demand from consumers who cannot afford higher-end tablets produced by manufacturers such as Apple and Samsung, especially in the emerging markets.

In order to keep up with the trend in the current market, in 2012 we started to add SoCs for tablets to our product line. In the first quarter of 2012, we launched the first single-core tablet SoC (ATM7013) and, to quickly catch up with the multi-core trend in the tablet market, we also designed and launched the first multi-core tablet SoC (ATM7029) before the end of 2012.

Portable Media Player and Tablet Design and Manufacturing Value Chain

The portable media player and tablet industry, like many other segments of the consumer electronics industry, is increasingly centered in China. Portable media players and tablets manufactured by China-based manufacturers are often rebranded and sold across the world by importers, retailers, and consumer electronics companies. China’s low cost design and manufacturing capabilities are an increasingly important competitive advantage, as consumers increasingly demand more functionality at a lower price in each successive generation of portable media players and tablets. Contract manufacturers and brand owners also increasingly rely on SoC platform providers and value-added distributors to provide integrated platform solutions that enable them to accelerate their products’ time-to-market. The following chart illustrates the typical portable media player and tablet design and manufacturing value chain:

In order to differentiate their products, brand owners of portable media players and tablets must equip their products with unique designs and features. Often, brand owners and contract manufacturers lack comprehensive in-house design capabilities required to address the market trend towards increased functionality and short product life cycles. Since it is generally time-consuming and cost-prohibitive to create an entirely new system for each new function added, brand owners rely on value-added distributors to work closely with an integrated platform provider to not only provide the required features and functions but also provide total, integrated solutions that deliver the correct combination of features, cost, processing speed and power consumption. We believe we are one of the few integrated platform providers to have the capability to provide total solutions directly to the contract manufacturers and brand owners based on a standard reference design.

Products and Technology

We provide a variety of solutions along the portable media player and tablet design and manufacturing value chain. For most of our value-added distributor customers and certain more sophisticated contract manufacturer and brand owner customers, we provide our SoCs and solution development kits, or SDKs. For less sophisticated customers, we provide our total solutions that consist of our SoCs, SDKs as well as reference designs that include detailed specifications of other required components and references to the providers of those components, which together allow these customers to assemble a complete portable media player or tablet.

Our capability to provide total solutions is the result of our detailed knowledge of the manufacturing technology along the different points of the design and manufacturing value chain. By applying that knowledge, we can mix, match and combine our solutions to fit the diverse needs of our customer base.

System-on-a-Chip (SoC)

The functionality of both portable media players and tablets are largely determined by the SoC controller, which together with memory components constitute a significant portion of a portable media player’s or a tablet’s total cost. The slim size and the drive to minimize cost for portable media players and tablets usually require the manufacturers to use as few SoCs as possible. In addition, the entire system still requires other digital components such as a processor, embedded memory and peripheral connections as well as analog components including codec, power management and audio signal amplifiers. We are one of the few fabless SoC design companies who owns mixed mode and power management unit, or PMU, design capability. Our SoCs for portable media players are integrated circuits that incorporate a digital signal processor, a micro controller unit, embedded memory, codec, a PMU and other components all within one chip. With respect to SoCs for the tablet market, we provide a primary SoC and a companion chip which integrates audio codecs and a PMU as a bundled set. By providing this bundled set, we are able to provide customers with slim and cost effective products, while maintaining good performance and low power consumption.

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Our SoCs are manufactured using industry-standard, mixed-mode, complementary metal-oxide semiconductor, or CMOS, processes and are designed to help our customers lower the number of components required to manufacture their finished products and reduce their overall cost. Our multi-voltage SoC design results in lower noise and lower power consumption and supports audio encoders, digital rights management, USB and Bluetooth connectivity and audio post-processing effects, such as equalization and stereo expansion. Our SoC products also include on-chip memory, controllers for color liquid crystal display, and analog components, including digital-to-analog converters, phase lock loops and USB transceivers.

The following table sets forth major SoCs we have introduced and shipped from 2010 to the first quarter of 2013.

Targeted Application |  | Product No. |  | Key Features |  | Month Introduced
MP4 |  | ATJ2273C |  | 720P Video Decoder, CPU / RGB LCD + AV/YPbPr, 60bit ECC NAND Flash supporting, LQFP128 packaging |  | December 2012
|  | ATJ2283A |  | 1080P Video Decoder, AV/YPbPr, 40bit ECC (Error Correcting Code), LQFP128 packaging |  | April 2011
|  | ATJ2285A |  | 1080P Video Decoder, AV/YPbPr/HDMI TV Out, Flash UI (User Interface), Flash Game, USB Host, TP (Transport Program), 40bit ECC, LQFP176 packaging |  | March 2011
|  | ATJ2289B |  | 1080P Video Decoder, AV/YPbPr/HDMI TV Out, CMOS Sensor, Flash UI, Flash Game, USB Host, TP, 40bit ECC, LQFP176 packaging |  | September 2011
|  | ATJ2273B |  | 720P Video Decoder, CPU / RGB LCD + AV/YPbPr, 40bit ECC, LQFP128 packaging |  | February 2011
|  | ATJ2275B |  | 720P Video Decoder, CPU/RGB LCD + YPbPr + HDMI, Flash UI, Flash game, USB Host, TP, 40bit ECC, LQFP176 packaging |  | October 2010
|  | ATJ2279B |  | 720P Video Decoder/Encoder, AV/YPbPr/HDMI TV Out, CMOS Sensor, Flash UI, Flash Game, USB Host, TP, 40bit ECC, LQFP176 packaging |  | October 2010
|  | ATJ2257 |  | VGA Decoder & Encoder, up to VGA 25fps, Sensor, TV Out, 24bit ECC, LQFP144 packaging |  | September 2010
|  | ATJ2255C |  | D1 video decoder, USB Host, Flash UI, Flash game, LQFP128 packaging |  | June 2010
|  | ATJ2237K |  | TV Out, CMOS Sensor, 8/16bit Game Simulator, 24Bit ECC, LQFP128 packaging |  | June 2010
|  | ATJ2237D |  | TV Out, CMOS Sensor, CPU LCD , 8/16bit Game Simulator, 60Bit ECC, LQFP128 packaging |  | June 2011
|  | ATJ2257D |  | VGA Decoder & Encoder, CPU/RGB LCD, TP, up to VGA 25fps, Sensor, TV Out, 60bit ECC, LQFP144 packaging |  | October 2011
Tablet |  | ATM7029 |  | 1.3GHz Multi-core CPU&GPU, Android OS, 1080P video decoder/encoder |  | December 2012
|  | ATM7013 |  | 1.2G CPU+3D graphic, Android OS, 1080P video decoder/encoder, AVOUT/HDMI, CMOS sensor, 60bit ECC, LQFP216 packaging |  | March 2012
MP3 |  | ATJ2127 |  | Full Audio format decode, 60bit ECC NAND Flash support |  | November 2012
|  | ATJ3315 |  | LQFP64 (7*7mm), 4wire-card, Nor flash, 24bit ECC flash, Li-ion/AAA battery |  | June 2010
|  | ATJ3310 |  | MP3, WMA, USB high speed, LQFP48 (7*7mm), 24 bit ECC flash |  | June 2010
|  | AK2117 |  | MP3, WMA, FM Radio, Voice Recording, SRS, Picture browse, AMV, AVI (MJPEG), LQFP64 (7*7mm), 4wire-card, 24bit ECC flash |  | August 2010
|  | AK2057C |  | MP3, WMA, OGG, APE, FLAC, SRS, DRM 10, FM Radio, Voice Recording, AMV. |  | March 2010
Car Audio Dongle |  | AK3027T |  | MP3, WMA, OGG, APE, DRM 10, FM Radio, Voice Recording, SRS, Picture browse, AMV, AVI (MJPEG), FM Transmit integrated, LQFP64, 4wire-card, 24bit ECC |  | March 2011
|  | ATJ3003S |  | MP3, WMA, FM Transmit I/F, Host, Nand flash, Card, 24Bit ECC, LQFP48 |  | June 2010
|  | ATJ3003T |  | MP3, WMA, FM Transmit integrated, Host, Card, 24Bit ECC, LQFP64 |  | July 2010
Boom-Box |  | ATS2500 |  | MP3, WMA, FM Receiver I/F, RTC (Real-Time Clock), REC (Record), Nor Flash, Host, 4wire-card, LQFP48 packaging, Karaoke & TTS function |  | April 2012
|  | ATS2506 |  | MP3, WMA, FM Receiver I/F, RTC (Real-Time Clock), REC (Record), Nor Flash, Host, 4wire-card, LQFP64 packaging, Karaoke & TTS function |  | January 2012
|  | ATS2503 |  | MP3, WMA, FM Receiver I/F, RTC (Real-Time Clock), REC (Record), Nor Flash, Host, 4wire-card, LQFP64 packaging |  | January 2011

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Solution Development Kits

Our solution development kits, or SDKs, include the embedded firmware code, software tools and documentation necessary to utilize our SoCs in portable media players and tablets. Our firmware utilizes an embedded structure design with standard interface that allows our customers to pick and choose functionalities and add new device drivers, which in turn lowers the complexity they face in developing their new products and accelerates the time-to-market for their products. Our manufacturing software tools also allow our customers to quickly mass produce their products based on our turnkey process. The principal features of our SDKs include the capability to:

| • | enable high-quality audio, image and video playback and encoding through optimized implementation of digital media compression and decompression functions;

| • | support a range of file types, audio, images, text and video through a flexible format management system;

| • | support firmware upgrades that would allow the addition of new features;

| • | incorporate a standard library function such as digital music file decoder, voice recorder, file system management and data storage functions;

| • | actively scale the processor speed depending on required function at the time, resulting in lower power consumption; and

| • | reduce the required data movement and associated power drain through advanced memory allocation techniques.

Reference Designs

Our total solutions include our SoCs, SDKs and reference designs that include detailed specifications of other required components and references to the providers of those components, which, together, allow those customers to assemble a complete portable media player or tablet. Our total solutions enable our customers to minimize the time and effort associated with design, development and production of new products.

Customers and Sales

We sell our products in China and world-wide through distribution arrangements and through our direct sales force to value-added distributors, contract manufacturers and brand owners. Though the substantial majority of our sales are made directly to value-added distributors, we consider all members of the portable media player and tablet design and manufacturing chain, including the brand owners and contract manufacturers, to be important customers as they may also be involved in the system design and the selection of the integrated platform provider. Brand owners and contract manufacturers often lack the comprehensive in-house design capabilities required to address the market need for increased functionality and the industry trend towards shorter product life cycles. As a result, they generally depend on value-added distributors and integrated platform providers like us to provide total solutions.

We do not typically enter into long-term contracts with our customers. Most of our value-added distributor customers provide us with a three-month non-binding rolling forecasts each month and typically place purchase orders shorter than one month before expected delivery, although such purchase orders are still subject to adjustments or cancellations by such customers. Our customers are generally invoiced at the time of delivery. We also provide limited credit terms for our key customers.

In 2011, our top five customers included TCH (HK) Technology, LeeYin (HK) Tech (and Boton-Tech), GMI Technology, KSD Tech (Junjia Digital Technology), and Lingxin Tech, all of which are value-added distributors and collectively accounted for approximately 62% of our revenues. In 2012, our top five customers included LXD (HK) Technology, TCH (HK) Technology, LeeYin (HK) Tech, LingXin Tech and XinLianXin Tech, all of which are value-added distributors and collectively accounted for approximately 64% of our revenues.

Our sales to customers in the PRC accounted for approximately 2.1%, 4.6% and 13% of our revenues in 2010, 2011 and 2012, respectively. Export sales to our customers in Hong Kong accounted for approximately 97.9%, 95.4% and 87% of our revenues in 2010, 2011 and 2012, respectively. We anticipate that a significant majority of our revenue will continue to be represented by sales to customers in Hong Kong and the PRC.

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Marketing

Our marketing group focuses its efforts on product strategy, new product introduction, demand assessment and competitive analysis. Our marketing group works closely with our value-added distributors and contract manufacturer customers to better align our product development efforts with the requirements of the brand owners. We also hold product introduction seminars with our value-added distributor, contract manufacturers and brand owner customers whenever we have a major breakthrough in product development. Our marketing group monitors our sales and the inventory levels of our customers to allocate our shipments. In addition, our marketing group collaborates with our customers in product development strategies and strategic marketing. We have been able to leverage our position at the beginning of the portable media player and tablet design and manufacturing value chain to organize group purchases and negotiate volume discounts for our downstream customers who require other portable media player or tablet components, such as flash memory, LCD or OLED displays, touch panels, WiFi/3G modules to build their end-products. Our marketing group also coordinates our product development activities, product launches and ongoing demand and supply planning with our research and development department as well as with our brand owner customers.

As of December 31, 2012, we had a total of 22 direct sales and marketing employees, most of whom have a background in engineering, which enables them to better communicate with our customers and work with them in designing portable media players and tablets to meet their changing demands.

Technology Service Center

We have created a technology service center to quickly customize our platform and total solutions based on our customers’ needs, including changes in specifications of a current product or requests to add new product features. The field application engineers at our technology service center assist our customers with pre-sale consultation, jointly design product specifications, develop system solutions and monitor and assist the manufacturing process in cooperation with value-added distributors, contract manufacturers and brand owners. They also provide after sale services when mass production commences. We believe that our geographical proximity to our customers who, for the most part, have operations located in the Pearl River Delta region in southern China, allows us to respond to their needs in a shorter period of time and accelerate their product time-to-market. At the same time, timely feedback from our customers allows us to identify market trends and demands ahead of our competitors. As of December 31, 2012, our technology service center employed 356 field application engineers, 244 of whom were located in Zhuhai, 76 of whom were located in Shanghai, and 36 of whom were located in Shenzhen. We plan to increase the number of our application engineers as we continue to grow our business.

Information Technology

We believe that we have a well-developed information technology infrastructure. Our information technology systems are based on Information Technology Infrastructure Library, or ITIL. As one of the most widely accepted approaches to information technology service management, ITIL provides a cohesive set of international best practices, drawn from public and private sector companies. It is supported by a comprehensive qualifications scheme, accredited training organizations, and implementation and assessment tools.

We have implemented an ERP (Oracle E-Business Suite) system so that we can successfully conduct data mining on marketing information from our customers’ orders, our own research and development efforts and product delivery status. We use control objectives for information and related technology, or COBIT, as guidance and a framework for our information technology governance. We believe our well-developed information technology system is one of the key factors in allowing us to identify market trends and demands ahead of our competitors.

Manufacturing

Our SoCs are manufactured by third-party foundries that process silicon wafers and produce the SoCs. Presently, He Jian and UMC manufacture almost all of our semiconductors in mass production stage. We also maintain relationships with other contract foundries to help ensure we have alternative manufacturing capabilities in various processing technologies.

The major raw materials in use are silicon wafers, which are procured by our third-party foundries and are widely available commodity in the semiconductor supply chain. However, the processing capacity in certain technology nodes may significantly fluctuate due to market demands and contract foundries’ capital investment plans. If the capacity is tied up and in high demand, fabricated wafer price will increase and the lead time will be prolonged. During the financial downturn in late 2008 through early 2009, when the market demands were extremely light and foundry utilizations were at record low, we enjoyed competitive wafer pricing. In the second half of 2009, the market demands recovered and foundry capacity become short, and as a result wafer prices had limited flexibility. In addition, starting from 2010, certain international Integrated Device Manufacturers (IDMs) released large orders to foundries, which resulted in foundry capacity being tied up and little flexibility in wafer prices.

We manage much of our manufacturing logistics internally, including pre-production hardware testing, test program development, characterization and qualification testing, production scheduling, capacity planning, work-in-progress tracking, yield management, shipping logistics, supplier management and quality support functions, such as failure analysis.

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Our SoCs are designed to use low-cost, industry standard packages and are to be tested with widely available automatic testing equipment. Following processing, silicon wafers that are manufactured for our SoCs are either tested by us internally or by third-party testing houses such as Siliconware Technology and Tian Shui Hua Tian Technology. Thereafter, these wafers are shipped to third-party packaging subcontractors such as Tian Shui Hua Tian Technology, Siliconware Technology and Nantong Fujitsu Microelectronics, where they are sliced into individual die, assembled into finished semiconductor packages and then tested. Final products testing may also be conducted by another testing service provider or by us.

We manufacture or purchase the testing equipment we use under strict cost-efficiency criteria. We enter into contracts with third-party testing houses whenever our production volume outpaces our testing capacity. We also develop and control almost all product testing programs used by us internally and by the testing and packaging subcontractors. These testing programs are developed based on our product specifications, thereby maintaining our ownership of the functional and parametric performance of our semiconductors. By conducting many of the testing programs internally, we are able to maintain a fabless business model, yet also gain first-hand knowledge of the manufacturing process. We conducted approximately 100%, 98% and 97% of the testing of our silicon wafers internally in 2010, 2011 and 2012, respectively, and approximately 100%, 80% and 70% of the testing of our final SoC products internally in 2010, 2011 and 2012, respectively. We will closely evaluate our in-house testing capacity to ensure the most cost-effective combination between on-site and out-sourced testing.

Quality and Reliability Assurance

We have designed and implemented a quality management system that provides the framework for continual improvement of our products, processes and customer service. We apply established design rules and practices for devices through standard design, layout and testing processes. We also rely on in-depth simulation studies and practical application testing to validate and verify our SoCs. We strive to achieve best-in-class quality and reliability performance on all of our products through a systematic approach that emphasizes quality at every phase of product development and manufacturing. From initial design conception to fabrication, testing, and assembly, we strive to assure quality by fabrication and assembly process monitoring, materials inspections, wafer level reliability, testing, new product qualification testing and reliability monitoring of finished products. We emphasize a strong supplier quality management practice in which the independent suppliers that are used by our manufacturing logistics partners are pre-qualified by our operations and quality teams. We also require that the independent suppliers used by our manufacturing logistics partners have a quality management system and are certified to the ISO9000 series standard. All our products are in compliance with the requirements from ROHS (The Restriction of the use of Certain Hazardous Substances in Electrical and Electronic Equipment) and REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) issued by the European Union. In addition, our suppliers and we actively comply with the requirements of the applicable laws and regulations related to environment control and protection. To ensure consistent product quality, reliability and yield, we work together with our contract manufacturers to closely monitor the production cycle by reviewing manufacturing process data from each wafer foundry, testing house and assembly subcontractor.

Intellectual Property

As of December 31, 2012, we held 134 issued patents and had 85 pending patent applications in PRC, 5 issued patents and 10 pending patent applications in the United States, and 15 pending patent applications in the European Union. We intend to continue to assess appropriate occasions for seeking patent protection for those aspects of our technology that we believe provide significant competitive advantages. In addition, we owned 21 registered layout designs and 22 registered computer software copyrights in the PRC.

We held 49 registered trademarks and 8 pending trademark applications in the PRC as of December 31, 2012. In addition, we also held 4 registered trademarks in Hong Kong, 4 in Taiwan, 4 in the United States, 4 in the European Union, 3 in Australia, 3 in Russia, 2 in Brazil, 3 in Korea, 3 in Singapore, 2 in Japan, 3 in Canada and 1 in India and 3 pending trademark applications in India and 1 in Brazil as of December 31, 2012. Our trademarks include Actions, Actions Semiconductor, and the Actions Semiconductor logo. These trademarks remain valid while we continue to use and renew them.

We have established an intellectual property rights, or IPR, department which serves our entire organization and undertakes patent application, trademark registration, integrated circuit layout design registration, software copyright registration, and related legal affairs. As of December 31, 2012, we had 2 in-house intellectual property legal counsels and engineers who worked closely with all departments including marketing, research and development and had extensive connections with external law firms and intellectual property offices.

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Competition

The market for SoCs for portable media players and tablets is competitive and rapidly evolving. Increased competition may result in industry-wide price reductions or reduced margins. In particular, we face competition from SoC platform providers such as ALi, AllWinner, Amlogic, Anyka, BestRely, Buildwin, Freescale, General Plus, Infotmic, Ingenic, JieLI, MVSilicon, Rockchips, Vmicro and WonderMedia. As we diversify and expand our product categories, we may also face competition from other semiconductor companies and manufacturers of consumer electronics and mobile devices. Many of these companies have significantly greater financial, technical, manufacturing, marketing, sales and other resources than us. These companies may offer high-level performance semiconductors for certain segments of the consumer electronics market that may include portable media player functionality in addition to other functions. We may also face competition from some of our customers who may develop products or technologies internally that are competitive with our SoCs, or who may enter into strategic relationships with or acquire existing semiconductor providers. In addition, some of our competitors manufacture SoCs using smaller process geometries than we use in our production process, and produce products that offer functions that are different from the functions of our SoCs. However, we believe that our semiconductor chip architecture allows our SoCs to offer very competitive performance compared with chips produced by our competitors. Further, we believe that the location of our facilities in China provides us with access to lower cost research and development and other engineering personnel, and provides significant benefits to our overall cost structure. This in turn allows us to produce SoCs that combine functionality with aggressive pricing, or high functionality-to-price ratios.

As tablets and portable media players become a mass produced consumer item, consumers become more sensitive to the design, size, functionality and price of the devices they purchase. In turn, brand owners have responded by quickly introducing more models with varying price, functions and features, such as embedding portable media player functionality of audio and video into mobile phones, global positioning systems (GPS), mobile digital TVs, digital photo frames, gaming devices, automotive stereos, boom boxes, MPEG readers, eyewear, watches, Bluetooth earphones, gifts, toys and other fashion items. As a result, we believe that the key competition for SoC platform providers like us will be in the design and manufacturing technology. To be successful, we must compete on the basis of:

| • | ability to deliver integrated platforms solutions that support a wide variety of industry standards;

| • | design flexibility that allows customers to differentiate their products;

| • | strong customer support that decreases the length of product design cycles and accelerates product time-to-market;

| • | power efficiency that offsets the increased power requirements of color displays and graphics processing;

| • | competitive pricing; and

| • | intellectual property position and know-how.

We believe we are well positioned to compete in the design and manufacturing technology areas against our competitors because of our ability to provide total solutions cost-efficiently to our customers that allow them to quickly roll out new and differentiated products while reducing the overall system cost and size.

Regulations

This section sets forth a summary of the most significant regulations or requirements that affect our business activities in China or our shareholders’ rights to receive dividends and other distributions from us.

Foreign Investment

Pursuant to the Foreign Investment Industrial Guidance Catalogue,or the Guidance Catalogue, issued on December 24, 2011 by the PRC Ministry of Commerce and the PRC State Development and Reform Commission, or the SDRC, and went effective on January 30, 2012, digital audio and video codec equipment, integrated circuit design and software development and production are classified as industrial sectors in which foreign investments are encouraged. The Guidance Catalogue does not exert any limitation of foreign ownership in the above-mentioned business activities currently conducted by Actions Semiconductor (Zhuhai) and our other subsidiaries within the PRC.

Integrated Circuit Design and Software Development

Pursuant to the Several Policies on Encouragement of Development of Software and Integrated Circuit Industries, or the Encouragement Policies, promulgated by the PRC State Council on June 24, 2000 and effective as of the same date, certified software enterprises can enjoy various incentive polices available to the software enterprises under the Encouragement Policies such as incentive policies relating to investment and financing, taxation, industrial technologies, exports, income distribution and protection of intellectual property rights. For example, certified software enterprises are exempt from tariffs on their imported manufacturing equipment for self-use. Certified integrated circuit design enterprises are treated in the same manner as certified software enterprises and therefore can enjoy the incentive polices available to certified software enterprises under the Encouragement Policies.

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Certification of software enterprises is governed by the Tentative Standards and Administrative Measures on Certification of Software Enterprises, or the Software Certification Measures, issued by the PRC Ministry of Industry and Information Technology, or MIIT, which was formerly called Ministry of Information and Industry prior to June 29, 2008, the PRC Ministry of Education, the PRC Ministry of Science and Technologies and the SAT on October 16, 2000 and effective as of the same date. Pursuant to the Software Certification Measures, software products are defined as software embedded in computer software, information systems or equipment provided to users or computer software provided in conjunction with the provision of computer information system integration or application services or other technical services. The MIIT is responsible for the nationwide administration of such certification, and relevant software industrial associations or other associations authorized by the MIIT are the certification organizations of software enterprises. Actions Semiconductor (Zhuhai) has been certified as a software enterprise from 2003 to 2012, and is subject to annual inspection.

The Administrative Measures on Certification of Software Enterprises, or the New Software Certification Measures, was issued by the MIIT, PRC National Development and Reform Commission, or NDRC, the PRC Ministry of Finance and the State Administration of Taxation, or SAT, on February 26, 2013 and became effective on April 1, 2013. The New Software Certification Measures included, among other things, changes to the definition of software enterprises and the removal of software industrial associations as certification authorities. The Software Certification Measures remain effective, provided that the New Software Certification Measures shall prevail to the extent there is any inconsistency with the Software Certification Measures.

Certification of integrated circuit design enterprises and products is governed by the Administration Measures on Certification of Integrated Circuit Design Enterprises and Products, or the IC Design Certification Measures, issued by the MIIT and the SAT on March 7, 2002 and effective as of the same date. Pursuant to the IC Design Certification Measures, integrated circuit products are defined as integrated circuit design software and circuits (including products designed by Chinese companies that cannot be produced in China and should be processed by foreign companies) and integrated circuit design enterprises are defined as independent legal person entities established in China engaged in the design of integrated circuit products (including development of integrated circuit software). Pursuant to a joint notice regarding adjustment of administration of certification of integrated circuit design enterprises and products issued by the MIIT and the SAT effective as of July 1, 2004, applications for such certification are subject to preliminary review by certification organizations duly authorized by the MIIT. Final verification and approval must be given by the MIIT in accordance with the procedures and requirements set forth in the IC Design Certification Measures, and a copy of such approvals must be provided to the SAT. Actions Semiconductor (Zhuhai) has been certified as an integrated circuit design enterprise from 2005 to 2012, and is subject to annual inspection.

China’s State Council publicly issued a circular on January 28, 2011 that provides various incentives for the software and integrated circuit industries. Specifically, the Notice on Certain Policies to Further Encourage the Development of the Software and Integrated Circuit Industries (Guo Fa [2011] No. 4), or Circular 4, contains tax, investment and financing, and R&D incentives. In addition to existing incentives, Circular 4 confirms that certain new tax incentives will be introduced. For example, the certified software enterprises and certified integrated circuit design enterprises may be exempt from business tax and simplified application procedures will apply to the following activities: (1) software development and testing; (2) information system integration, consulting and maintenance; and (3) IC design. In order to implement Circular 4, the PRC General Administration of Customs, or GAC, has promulgated an announcement and released policies and measures to support the development of software industry and integrated circuit industry. According to such announcement, policies and measures of GAC, the imported materials and parts of certified integrated circuit design enterprises and qualified software enterprises which meet requirements of current laws, regulations and policies may enjoy exemption of import duties.

Intellectual Property Rights

China has adopted comprehensive legislation governing intellectual property rights, including trademarks, patents, copyrights and other intellectual property rights. China has adhered to the main international conventions on intellectual property rights and became a member of the Agreement on Trade Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in December 2001.

Integrated circuit diagram designs are specifically protected under the Protection Regulations for Integrated Circuit Diagram Design promulgated by the State Council on April 2, 2001 and effective as of October 1, 2001 and their Implementation Rules issued by the PRC State Intellectual Property Office, or the SIPO, on September 18, 2001 and effective as of October 1, 2001. Integrated circuit diagram designs are entitled to proprietary rights for a ten-year period upon registration with the SIPO.

Registered trademarks are protected under the Trademark Law amended by the Standing Committee of National People’s Congress, or the SCNPC, on October 27, 2001 and effective as of December 1, 2001. Trademarks can be registered with the Trademark Office for renewable ten-year periods.

Registered patents are protected under the Patent Law amended by SCNPC on December 27, 2008 and effective as of October 1, 2009. Under the Patent Law, patents are divided into three categories: specifically inventions, utility models and exterior designs, which can be registered with the SIPO. The protection period for inventions is 20 years, and the protection periods for utility models and exterior designs are 10 years.

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The SCNPC amended the Copyright Law on February 26, 2010, which amendment went effective as of April 1, 2010, pursuant to which certain engineering and product designs and software are eligible for copyright protection. In addition, copyrights for computer software are specifically protected under the Protection Regulations issued by the State Council on December 20, 2001 and effective as of January 1, 2002. There is also a voluntary registration system for computer software copyrights, which is administered by the China Copyright Protection Center.

Taxation in the PRC

The EIT Law, and the implementation regulations for the EIT Law issued by the PRC State Council, became effective as of January 1, 2008. Under the EIT Law, foreign invested enterprises and domestic enterprises are subject to a uniform tax rate of 25%. The EIT Law provides a five-year transition period starting from its effective date for those enterprises which were established before the promulgation date of the EIT Law and which were entitled to a preferential lower tax rate under the then effective tax laws or regulations. In accordance with regulations issued by the State Council, the tax rate of such companies may gradually transition to the 25% uniform tax rate during such five-year period. For those companies which are enjoying tax holidays, such tax holidays may continue until its expiration in accordance with the regulations issued by the State Council, but where the tax holiday has not yet started because of losses, such tax holiday shall be deemed to commence from the first effective year of the EIT Law, i.e., 2008. While the EIT Law equalizes the tax rates for foreign invested enterprises and domestic enterprises, preferential tax treatment would continue to be given to companies in certain encouraged sectors and to entities classified as High Technology Enterprises, whether foreign invested enterprises or domestic enterprises. For the potential effects of the EIT Law on our preferential tax treatment, see also “Item 3.D. Risk Factors – Risks Related to Doing Business in China – Changes in the preferential tax treatments we currently enjoy in the PRC may have an adverse impact on our results of operations.”

The EIT Law provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are generally subject to the uniform 25% EIT rate as to their worldwide income. Under the implementation regulations for the EIT Law issued by the PRC State Council, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. Currently no interpretation or application of the EIT Law and its implementing rules with respect to the resident enterprise determination is available for overseas companies such as ours that are not established or controlled by PRC companies. Therefore, it is unclear whether PRC tax authorities would treat us as a PRC resident enterprise. Please also see “Item 3.D. Risk Factors – Risks Related to Doing Business in China – We may be deemed a Chinese resident enterprise under the PRC Enterprise Income Tax Law and be subject to the PRC taxation on our worldwide income.”

According to the EIT Law, dividends received by a PRC resident enterprise from another PRC resident are exempted from EIT except for the dividends derived from publicly issued and traded shares of a resident enterprise that are held for less than 12 consecutive months. However, given the short history of the EIT Law and its subsequently issued circulars retroacting to January 1, 2009, it remains unclear whether we, Actions Semiconductor Co., Ltd., and/or our overseas holding companies will be treated as PRC resident enterprises or, if so, whether dividends declared and paid by our subsidiaries in the PRC to our overseas holding companies and by our overseas holding companies to us will be exempted from EIT. Under the EIT Law and implementation regulations issued by the State Council, PRC income tax at the rate of 10% is applicable to dividends payable to investors that are “non-resident enterprises” (and that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business) to the extent such dividends have their source within the PRC. Under PRC Individual Income Tax Law, individuals are generally liable for a 20% individual income tax on dividend income. Such individual income tax should apply to dividends received by a non-resident individual from a PRC resident enterprise. A reduced tax rate on dividends may be applicable for non-resident enterprise investors and nonresident individual investors under an applicable tax treaty or tax arrangement between the PRC and the investor’s resident country or region. Similarly, any gain realized on the transfer of shares by non-resident enterprise and individual investors is also subject to a 10% PRC EIT rate and a 20% individual income tax, respectively, if such gain is regarded as income derived from sources within the PRC unless otherwise exempted under PRC domestic regulations and applicable tax treaties or tax arrangements. Please also see “Item 3.D. Risk Factors – Risks Related to Doing Business in China – Dividends we receive from our non-PRC resident subsidiaries and dividends payable by us to our foreign investors and gain on the sale of our Shares may become subject to withholding taxes under PRC tax laws.”

Foreign Currency Exchange

Pursuant to the Administrative Regulations on Foreign Exchange amended by the State Council on August 5, 2008 and effective as of the same date and various further regulations issued by SAFE, RMB can be freely converted into foreign currency and remitted out of China through a designated foreign exchange bank for current account transactions, such as payment for purchase of goods and services as long as such payment is supported by bona fide legal transactions, which will be examined by the responsible bank. For capital account transactions, such as equity investments and loans, conversion of foreign currency into RMB, or RMB into foreign currency, and remittance thereof into or out of China requires approval or registration by SAFE or its local counterparts.

Within China, unless otherwise approved, all payments must be made in RMB. Pursuant to the newly amended regulation, Chinese companies may repatriate foreign currency payments received from abroad into China or retain them abroad, the conditions and terms thereof shall be provided by SAFE, in accordance with the balance of payments and the need of foreign currency administration. Foreign invested enterprises, such as Actions Semiconductor (Zhuhai), are allowed to retain foreign currency in accounts with designated foreign exchange banks, subject to a maximum amount set by SAFE.

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SAFE Regulations on Employee Stock Options

On March 28, 2007, SAFE promulgated the Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plan or Stock Option Plan of Overseas Listed Company, or the Stock Option Rule. The purpose of the Stock Option Rule is to regulate foreign exchange administration of PRC domestic individuals who participate in employee stock holding plans and stock option plans of overseas listed companies. According to the Stock Option Rule, if a PRC domestic individual participates in any employee stock holding plan or stock option plan of an overseas listed company, a PRC domestic agent or the PRC subsidiary of such overseas listed company shall, among others things, file, on behalf of such individual, an application with SAFE to obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises as PRC domestic individuals may not directly use overseas funds to purchase stock or exercise stock options. Concurrent with the filing of such application with SAFE, the PRC subsidiary shall obtain approval from SAFE to open a special foreign exchange account at a PRC domestic bank to hold the funds required in connection with the stock purchase or option exercise, any returned principal or profits upon sales of stock, any dividends issued upon the stock and any other income or expenditures approved by SAFE. The PRC subsidiary also is required to obtain approval from SAFE to open an overseas special foreign exchange account at an overseas trust bank to hold overseas funds used in connection with any stock purchase.

All proceeds obtained by PRC domestic individuals from sales of stock shall be fully remitted back to China after relevant overseas expenses are deducted. The foreign exchange proceeds from these sales can be converted into RMB or transferred to such individuals’ foreign exchange savings account after the proceeds have been remitted back to the special foreign exchange account opened at the PRC domestic bank. If the stock option is exercised in a cashless exercise, the PRC domestic individuals are required to remit the proceeds to the special foreign exchange account.

We and our PRC employees who have been granted stock options became subject to the Stock Option Rule commencing from the date on which we became an overseas listed company. If we or our PRC employees fail to comply with the Stock Option Rule, we and/or our PRC employees may face sanctions imposed by foreign exchange authority or any other PRC government authorities.

On February 15, 2012, SAFE promulgated the Circular on Certain Foreign Exchange Issues Relating to Domestic Individuals’ Participation in Stock Incentive Plan of Overseas Listed Company, or the New Stock Option Rule. Upon the effectiveness of the New Stock Option Rule on February 15, 2012, the Stock Option Rule became void, although the basic requirements and procedures provided under the Stock Option Rule are kept unchanged in the New Stock Option Rule, i.e., the domestic employees participating in a stock incentive plan of an overseas listed company shall appoint the PRC subsidiary of such overseas listed company or a domestic qualified agent to make the registration of such stock incentive plan with SAFE and handle all foreign exchange-related matters of the stock incentive plan through the special bank account approved by SAFE. The New Stock Option Rule clarifies that the domestic subsidiary of an overseas listed company shall include any limited liability company, partnership and the representative office directly or indirectly established by such overseas listed company in China and the domestic employees shall include the directors, supervisors, senior management and other employees of the domestic subsidiary, including the foreign employees of the domestic subsidiary who continuously reside in China for at least one year.

Similar to the Stock Option Rule, the New Stock Option Rule requires that the annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises be subject to the approval of SAFE. The New Stock Option Rule further requires that the material amendments of the stock incentive plan shall be filed with SAFE within three months following the occurrence of the material amendments. The domestic agent shall also make a quarterly update to SAFE to disclose the information with respect to the stock option exercises, the stock holding and foreign exchange matters. If the domestic employees or the domestic agent fails to comply with the requirements of the New Stock Option Rule, SAFE may require remedy and even impose administrative penalties that SAFE deems appropriate.

In addition, on March 28, 2005, the PRC Ministry of Finance and the SAT issued the Circular on Issues Regarding Assessment of Individual Income Tax in respect of Stock Options Granted to Individuals. On September 30, 2006, the SAT issued the Supplemental Circular on Issues Regarding Assessment of Individual Income Tax in respect of Stock Options Granted to Individuals. Under these circulars, our employees working in China who exercise stock options will be subject to PRC individual income tax. Our PRC subsidiaries have obligations to file documents related to employee stock options with relevant tax authorities and withhold individual income taxes of those employees who exercise their stock options. If our employees fail to pay and we fail to withhold their income taxes, we may face sanctions imposed by tax authorities or any other PRC government authorities.

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M&A Rules

On August 8, 2006, the Ministry of Commerce, the CSRC and four other PRC authorities at the state level promulgated the M&A Rules, which came into effect on September 8, 2006.

Under the M&A Rules, equity or assets merger and acquisition of PRC enterprises by foreign investors shall be subject to the approval from the Ministry of Commerce or its competent local branches. In particular, a share swap between a foreign investor and a PRC enterprise shall be subject to the approval of the Ministry of Commerce, and the share swap would not be approved unless such foreign investor is a listed company or an offshore special purpose vehicle, or SPV. As defined in the M&A Rules, an SPV is an offshore company that is directly or indirectly, established or controlled by PRC entities or individuals for the purposes of an overseas listing. In addition, the listing of the SPV shall be completed within one year after the issuing date of the business license of the PRC enterprise acquired by the SPV.

On February 3, 2011, the General Office of the State Council promulgated the M&A Security Review Rule, which became effective on March 6, 2011. The M&A Security Review Rule provides for certain circumstances under which foreign investors’ acquisition of domestic enterprises shall be subject to security review of the PRC governments. The security review assesses the impact of the acquisition on national security, stable operation of national economy, basic livelihood of the people, and research and development capacity for key technologies related to the national security.

Dividend Distribution

The principal regulations governing distribution of dividends by wholly foreign owned enterprises include the Wholly Foreign-owned Enterprise Law amended by SCNPC on October 31, 2000 and effective as of the same date, and its Implementing Rules amended by the State Council on April 12, 2001 and effective as of the same date.

Under these regulations, a foreign-invested enterprise in China may pay dividends only out of its accumulated distributable profits, if any, determined in accordance with its articles of association, and the accounting standards and regulations in China. In particular, each of our principal PRC subsidiaries, Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), as wholly foreign owned enterprises, is required to set aside at least 10% of their respective after-tax profits each year, if any, to fund certain reserve funds until such reserves have reached at least 50% of their respective registered capital. These reserves are not distributable as cash.

Regulations on Labor

On June 29, 2007, the National People’s Congress of China enacted the Labor Contract Law, which became effective on January 1, 2008. The Labor Contract Law imposes greater liabilities on employers and significantly affects the cost of an employer’s decision to reduce its workforce. The regulations include specific provisions related to fixed-term employment contracts, temporary employment, probation, consultation with the labor union and employee assembly, employment without a contract, dismissal of employees, compensation upon termination and overtime work, and collective bargaining. According to the Labor Contract Law, an employer is obliged to sign a labor contract with unlimited term with an employee if the employer continues to hire the employee after the expiration of two consecutive fixed-term labor contracts. The employer has to compensate the employee upon the expiration of a fixed-term labor contract that is not renewed, unless the non-renewal is due to the employee’s refusal to renew such contract on terms the same as or better than those contained in the expired contract. The employer also has to compensate an employee if the employer terminates a labor contract without a cause permitted by law. In addition, under the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008, employees who have served more than one year for an employer are entitled to a paid vacation ranging from 5 to 15 days, depending on their length of service. Employees who waive such vacation time at the request of employers shall be compensated for three times their regular salaries for each waived vacation day. On November 30, 2011, the PRC Ministry of Human Resources and Social Security issued the Rules on Labor Dispute and Mediation of Enterprises, which became effective on January 1, 2012. These rules encourage large and medium-size enterprises to establish a mediation committee to deal with the employer-employee disputes. We are considered a large-size enterprise under these rules, and presently we have not established such a mediation committee.

Seasonality

For a discussion of the seasonal factors affecting our business, see “Item 5. Operating and Financial Review and Prospects – D. Trend Information – Seasonality of the demand for our products.”

C. | Organizational Structure

The following chart indicates the equity ownership structure and jurisdiction of incorporation of each of our subsidiaries as of March 31, 2013.

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D. | Property, Plants and Equipment

With support from subsidiaries in Shanghai and Shenzhen, China, our corporate headquarters facilitate the majority of our semiconductor design operation, including our semiconductor testing operations. We entered into a Land Use Right Grant Agreement on December 21, 2005 with the Bureau of Land Resources, Zhuhai for 52,250 square meters of land on which to set up our new corporate headquarters. The construction of our new headquarters at this location began in June 2008 and was completed in May 2011. The total construction cost was approximately US$30 million. We believe our current facilities are adequate and that additional space will be available on commercially reasonable terms for the foreseeable future.

Our other principal locations, their purposes and the expiration dates for leases on facilities at those locations are shown in the table below.

Location |  | Purpose |  | Approximate square feet |  | Lease expiration
Hong Kong |  | Export trade office and warehouse |  | 2,046 |  | December 2014
Shenzhen, PRC |  | Sales office and technology service center |  | 145,807 |  | June 2014
Shanghai, PRC |  | Research and development and management service center |  | 15,441 |  | March 2014

On March 19, 2010, Actions Technology (Shanghai) won the bid to purchase from the local government the land use right for 50 years of a parcel of land of approximately 11,000 square meters in size located in Zhangjiang Hi-Tech Park, Pudong District, Shanghai, for a purchase price of RMB 61.2 million and entered into a land transfer contract with the Pudong District government after paying the full bidding price on July 23, 2010. After Actions Cayman transferred Actions Enterprise (HK), the holding company of Actions Technology (Shanghai), to Nann Capital and invested in 40% of Nann Capital, Actions Technology (Shanghai) has become one of our indirect equity method investments. Actions Technology (Shanghai) plans to construct a research and development center, or R&D Center, on this parcel of land and expects to fund the bulk of the construction with capital injection from its shareholders, including us. In May 2012, Actions Technology (Shanghai) obtained the approval for the construction plan and commenced construction work. The total cost of the R&D Center is estimated to be approximately RMB 320 million and, as of December 31, 2012, expenditures for the construction totaled approximately RMB 110 million. The construction of the R&D Center is expected to be completed in July 2015.

ITEM 4A. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A. | Operating Results

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Overview

We are a fabless semiconductor company that designs, develops and markets integrated platform solutions, including SoCs, firmware, software development tools and reference designs, for manufacturers of portable media players and tablets. We provide integrated platform solutions to portable media player and tablet manufacturers, brand owners and value-added distributors that enable them to accelerate the time-to-market for their products. We believe that our integrated platform solution approach provides a high level of value for our customers and creates a successful business model for us. We seek to extend our market position through investing in technology leadership, extending our network of independent software developers and value-added distributors, incorporating high-end features into products for the mass-market, and improving the functionality-to-price ratio of our products.

Financial Operations Overview

The following describes key components of our statements of operations:

Revenues

We generate revenues primarily from sales of SoCs for portable media players. We generally sell our SoCs together with solution development kits, or SDKs, or together with SDKs and reference designs, which we sometimes refer to as our total solutions.

We have also generated limited revenues from sales of SoCs for tablets and providing semiconductor product testing services to our investee companies, such as Actions Beijing and Hi-Trend Technology (Shanghai), or Hi-Trend, which is an investee we have accounted for using the cost method, at times when we had excess capacity in our semiconductor testing operations.

Revenues from our SoCs for portable media players and tablets are affected by the volume of units shipped and the average selling price, which are in turn influenced by our product mix and selling prices for individual products. Our selling prices are principally determined by our products’ features and functionality, and by market conditions. As our SoCs for portable media players and tablets mature in the market, their selling prices tend to decline over time. We have been able to limit the decline in our average selling prices by introducing new products with additional features and functions with higher initial selling prices. In 2010, 2011 and 2012, sales of SoCs for portable media players and tablets accounted for approximately 99.6%, 99.3% and 99.7% of our total revenues, respectively.

Cost of Revenues

Our cost of revenues are comprised of costs for our SoC products and have historically also included costs for semiconductor product testing services, which consist of depreciation expenses for product testing equipment and costs associated with operating such equipment.

SoCs: Cost of revenues for our SoC products primarily consists of cost of wafers, external testing and packaging fees, royalty payment, and personnel and occupancy expenses associated with our operations. In addition, we include inventory handling costs, inventory write-downs and transportation costs in our cost of revenues. The inventory write-downs are generally immaterial. There can be no assurance, however, that a decrease in the average selling price of our products in the future would not require us to make write-downs in future periods.

In general, our per unit costs, including wafer cost and external testing and packaging fees, declined for the majority of our SoC products beginning from the second quarter of 2004 through the second quarter of 2006 as we increased the volume of our orders and experienced economies of scale. From 2007 to 2012, our per unit costs declined further due to design improvements, wafer processing technology migration, and a decrease in wafer prices, notwithstanding that the volume of orders decreased from 2007 to 2012.

Wafer Pricing: We outsource the manufacturing of our SoC products to contract foundries. Wafer cost, which include both the purchase of raw silicon wafers and the foundries’ processing charges, are the largest component of our cost of revenues. We expect that wafer cost will continue to comprise the largest portion of our cost of revenues for the foreseeable future.

Royalty Payments: We have entered into license agreements with respect to third-party technologies that we use in our products. We generally pay license fees at the time we enter into the license agreement with a technology licensor. In addition, we pay royalty fees to the technology licensors based on a percentage of net revenue generated from sales of the chips incorporating the licensed technologies, which percentage royalty rate varies depending upon the tiers of cumulative unit volume of all chips shipped, subject to an applicable floor.

External Testing and Packaging: We test the silicon wafers used in the production of our SoCs internally or outsource testing operations to third-party testing houses. We manufacture or purchase the testing equipment we use under strict cost-efficiency criteria. We enter into contracts with third-party testing houses whenever our production volume exceeds our testing capacity. After testing, we employ third-party subcontractors to slice wafers into individual die and to assemble and package the die into finished semiconductor packages, which processes are collectively referred to as “packaging”.

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Gross Profit

As the industry in which we compete is characterized by intense competition, integrated platform providers, including our company, must continuously invest in research and development to update and improve product features and functions. As a result, selling prices for products with less advanced features and functions generally decline over time as newer products are introduced. This aspect of the portable media player and tablet market means that in order to maintain our competitiveness and overall gross profit margin, we are required to continue to develop and offer products with improved features and additional functionality. We expect that our overall gross profit, as a percentage of revenues, may fluctuate from period to period as a result of shifts in product mix, changes in demand by consumers, changes in our pricing policies and those of our competitors, and new product introductions by us and our competitors.

Other Operating Income

Our other operating income has principally been comprised of subsidies and miscellaneous items. Subsidies include a rent subsidy provided by the Zhuhai municipal government for our headquarters and research facilities, and project awards we have received from the Zhuhai and Shenzhen municipal governments for having undertaken research projects that advance areas of technology favored by the PRC government.

Operating Expenses

Our operating expenses include research and development expenses, selling and marketing expenses and general and administrative expenses.

Research and development expenses: Research and development expenses consist primarily of engineering expenses, costs associated with our electronic design automation software, depreciation on research and development equipment, and the cost of parts and materials for prototypes, as well as salaries, employee benefits and related expenses of employees engaged in research, design and development activities, including certain employees staffing our technology service center. We allocate the salaries, share-based compensation, employee benefits and expenses attributable to field application engineers employed in our technology service center to research and development expenses, as the primary duty of these engineers is to provide customization services to our customers as a part of our integrated platform solutions. Such services are provided to our customers free of charge and prior to our receipt of purchase orders. As such, customers are under no obligation to reimburse us for costs incurred during this process or to actually purchase products from us. We expense all research and development costs as they are incurred.

Research and development expenses comprised 65.0%, 67.0% and 70.7% of our operating expenses in 2010, 2011 and 2012, respectively. We believe that continued investment in research and development is critical to our ability to meet the changing requirements of our customers and to our overall long-term success. Accordingly, we expect that our research and development expenses will continue to grow both on an aggregate basis and as a percentage of our revenues as we employ additional research and development personnel, and as we seek to introduce more products and as the life cycles of our products shorten.

General and administrative expenses: Our general and administrative expenses consist primarily of salaries, share-based compensation, employee benefits, and related expenses for information technology, human resources, finance, legal, other administration functions, and senior management. General and administrative expenses comprised 30.5%, 26.7% and 25.5% of our operating expenses in 2010, 2011 and 2012, respectively. We have managed since 2008, and expect to continue in the future, to control our general and administrative expenses in a cost effective manner, which includes a pay cut on executives and high-level management personnel and a hiring freeze of non-engineering employees we instituted in January 2009 that currently remain in effect. In addition, we have continued to improve our working processes and efficiency to lower general and administrative expenses. Our general and administrative expenses may increase in the future to further expand our business and as we incur additional professional service fees, such as legal and accounting fees, in connection with our obligations as a public company.

Sales and marketing expenses: Our sales and marketing expenses consist primarily of salaries, share-based compensation, employee benefits and related expenses for our sales and marketing department. They also include the direct costs attributable to our sales and marketing activities, such as travel, entertainment and advertising expenses. Sales and marketing expenses comprised 4.5%, 3.6% and 3.8% of our operating expenses in 2010, 2011 and 2012, respectively. We intend to expand our sales and support network to better serve our customer base. As a result, we expect our sales and marketing expenses to increase in the future.

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Interest income

We earn interest income from our demand deposit accounts and marketable securities as a part of our cash management activities.

Other (loss) income

Our other income is principally comprised of income related to certain foreign exchange gains or losses.

Taxation

.The Cayman Islands currently does not levy taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to our company or Mavrix levied by the government of the Cayman Islands, except for stamp duties that may be applicable on instruments executed in, or after execution brought within the jurisdiction of, the Cayman Islands. The Cayman Islands is not a party to any double taxation treaties that are applicable to any payments made to or by our company or Mavrix. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Under the current Mauritius law and Hong Kong Inland Revenue Ordinance, Actions Semiconductor Mauritius' and Artek Microelectronics (HK)'s income are subject to taxation in Macuritius and Hong Kong, respectively; however, up to and as of December 31, 2012, both entities have not had any taxable profits. Shanghai Actions, Actions Microelectronics (HK), Actions Capital Investment Inc. and Actions Malaysia have been loss making since their incorporation. Mavrix HK and Mavrix Shanghai have been loss making since the date of acquisition.

Effective January 1, 2008, the EIT Law was implemented. Under the law:

| 1. | all resident enterprises, domestic or foreign, are subject to the unified EIT rate of 25%.

| 2. | companies that are categorized as High Technology Enterprises are entitled to a reduced tax rate of 15%.

3. Companies which were established before the promulgation date of the EIT Law and which were entitled to a preferential tax treatment such as a reduced tax rate or a tax holiday have a five-year period transitioning to the new unified EIT rate. In addition, on December 26, 2007, the State Council issued the Notice of the State Council Concerning Implementation of Transitional Rules for Corporate Income Tax Incentives, or Circular 39, based on which certain specifically listed categories of companies which enjoyed a preferential tax rate of 15% are eligible for a graduated rate increase to 25% over the 5-year period beginning from January 1, 2008 which means such companies would be subject to tax rates of 18%, 20%, 22%, 24% and 25% for the years ended December 31, 2008, 2009, 2010, 2011 and 2012, respectively. Where transitional rules overlap with preferential policies provided by the EIT Law, a company may choose to implement the more favorable policy, and shall not enjoy both simultaneously. Also the policy cannot be changed once determined.

The new law allows the preferential tax treatment to be continued to be enjoyed by companies up until the year when such preferential tax treatment expires. For those companies whose tax holiday has not yet started because of losses, such tax holiday shall be deemed to commence from the first effective year of the EIT Law, i.e., 2008.

Actions Semiconductor (Zhuhai)

As at December 31, 2007, foreign-invested enterprises in the PRC were generally entitled to various preferential tax treatment which led to their effective EIT rate being significantly lower than the otherwise applicable total tax rate of 33%, the sum of a 30% national tax rate and a 3% local tax rate. Actions Semiconductor (Zhuhai) was entitled to a reduced national tax rate of 15% as a foreign-invested enterprise established in the Zhuhai Special Economic Zone of China, or Zhuhai Economic Zone, principally conducting its business operations in this Zhuhai Economic Zone. In addition, as a production-oriented enterprise, Actions Semiconductor (Zhuhai) was further exempted from the EIT for two years since its first year of profitable operations , which were 2004 and 2005, after offsetting prior years' tax losses and entitled to a 50% reduction in its EIT rate for the following three years, which were 2006, 2007 and 2008, as approved by the tax authorities in accordance with the China Income Tax Law for Enterprises with Foreign Investment and Foreign Enterprises and its Implementation Rules issued in 1991. Actions Semiconductor (Zhuhai) is exempt from the 3% local income tax during the preferential tax treatment period of five years commencing from 2004 pursuant to the Rules Concerning Exemption or Reduction of Local Income Tax for Foreign Invested Enterprises issued by the People’s Government of Guangdong Province issued in 1992.

With a then-effective 15% tax rate, Actions Semiconductor (Zhuhai) was eligible for an 18% transitional EIT rate for the year ended December 31, 2008. Because Actions Semiconductor (Zhuhai) was also enjoying the further 50% reduction in its EIT rate for a last year in 2008, its effective EIT rate became 9% for the year ended December 31, 2008.

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On December 16, 2008, a certificate of "High Technology Enterprise" was granted to Actions Semiconductor (Zhuhai), as a result of which the applicable tax rate of Actions Semiconductor (Zhuhai) was 15% for the years ended December 31, 2009, 2010 and 2011, respectively, and 25% thereafter, unless it continues its status and receives certification as a "High Technology Enterprise" by the end of 2011.

On August 23, 2011, Actions Semiconductor (Zhuhai) successfully renewed its certificate of "High Technology Enterprise" effective from January 1, 2011. As a result, the applicable tax rate continues to be 15% for the years ended December 31, 2012 and 2013 and the year ending December 31, 2014, respectively, and 25% thereafter unless Actions Semiconductor (Zhuhai) continues its status and receives certification as a "High Technology Enterprise" by the end of 2014.

Artek Microelectronics (Shenzhen)

Artek Microelectronics (Shenzhen) was established in the Shenzhen Special Economic Zone, or Shenzhen Economic Zone, of China as a foreign-invested enterprise that principally conducts its business operations in the Shenzhen Economic Zone. Therefore, it was subject to a reduced EIT rate of 15% and was exempted from the EIT in the years ended December 31, 2007 and 2008, which were the first and second years Artek Microelectronics (Shenzhen) had profits after offsetting its prior years' tax losses. From 2009 to 2011, during which the EIT rate had initially been changed to the unified transitional rates of 20%, 22% and 24%, respectively, Artek Microelectronics (Shenzhen)was in addition entitled to a 50% tax rate reduction pursuant to the same preferential tax treatment, as in the case of Actions Semiconductor (Zhuhai), as a result of which the effective income tax rate became 10%, 11% and 12% for the years ended December 31, 2009, 2010 and 2011, respectively. Artek Microelectronics (Shenzhen) was no longer entitled to a 50% reduction to the EIT rate in 2012 but it successfully obtained a certificate of "High Technology Enterprise" in 2012, resulting in an income tax rate of 15% being applied for the year ended December 31, 2012 and the years ending December 31, 2013 and 2014.

Tax Residency

Uncertainties exist with respect to how the EIT Law applies to our overall operations, and more specifically, with regard to our tax residency status. The EIT Law became effective January 1, 2008 and provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are generally subject to the uniform 25% EIT rate as to their worldwide income. Under the implementation regulations for the EIT Law issued by the PRC State Council, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. Additional guidance is expected to be released by the Chinese government in the near future that may clarify how to apply this standard to taxpayers. Despite the current uncertainties resulting from the limited PRC tax guidance on the issue, except Mavrix whose place of effective management is in Shanghai, we determined that our legal entities organized outside of the PRC should not be treated as PRC tax residents for EIT Law purposes as the places of effective management of such entities are outside of China. If one or more of our legal entities organized outside of the PRC were characterized as a PRC tax resident, then the additional tax cost might be significant. See also “Item 3.D. Key Information — Risk Factors —Risks Related to Doing Business in China— We may be deemed a Chinese resident enterprise under the PRC Enterprise Income Tax Law and be subject to the PRC taxation on our worldwide income.”

Our calculation of income taxes generally reflects our status as a non-PRC tax resident company. An additional consequence of us and/or our non-PRC subsidiaries being treated as tax residents in the PRC would be the taxability in the PRC of certain payments we make to the non-PRC tax resident recipients. This may include dividends, interest, and royalties.

We have subsidiaries that are tax residents in the PRC so we will be subject to the PRC dividend withholding tax of 5% when and if undistributed earnings are declared to be paid as dividends commencing on January 1, 2008 to the extent those dividends are paid out of profits that arose on or after January 1, 2008. Our tax provision includes $3,189,383 of income tax expense for the 5% dividend withholding tax on the balance of distributable profits that arose on or after January 1, 2008 within our PRC subsidiaries as of December 31, 2012.

Actions Technology (HK) and Artek Microelectronics (HK) were subject to Hong Kong Profits Tax at a rate of 16.5% for the years ended December 31, 2010, 2011 and 2012, respectively.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Our most critical policies include: (a) revenue recognition; (b) allowance for doubtful accounts; (c) write-downs for obsolete inventory; (d) provision for litigation claims; (e) share-based compensation expense; (f) valuation allowance against deferred tax assets; (g) impairment of long-lived assets; and (h) impairment of investments The following is a discussion of our most critical policies, as well as the estimates and judgments involved.

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Revenue Recognition. Our revenues are primarily derived from the sale of SoC products that we design and develop at our own expense. We recognize revenue based on firm customer orders with fixed terms and conditions, including the selling price net of discount and commissions, if any. We recognize revenue when delivery has occurred and collectability is determined to be reasonably assured. Since all of our product sales have destination shipping terms and no rights of return, we determine that delivery has occurred when the goods are delivered to the customers and we receive acknowledgment of receipt, which occur simultaneously. We further determine that collectability is reasonably assured by performing an assessment of credibility of our customers based on their operating results and past payment records. We only sell products to customers that are determined to have the ability to make payments and have not had material collectability defaults in the past. We also provide semiconductor product testing, and revenue is recognized when the services are rendered. We do not provide our customers with price protection and only provide the right of return for defective goods in connection with our warranty policy. To date, the costs of our warranty policy have been insignificant.

Allowance for Doubtful Accounts. We conduct credit evaluations of customers and analyze the payment history of customer accounts, including recent customer purchases. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we will record an allowance against amounts due to reduce the net recognized receivable to the amount we reasonably believe will be collected. We recorded provision of allowance for doubtful accounts in the amount of US$0.1 million, US$0.1 million and nil for the years ended December 31, 2010, 2011 and 2012, respectively.

Write-down for Obsolete Inventories. We value our inventory at the lower of the actual costs of our inventory or its current estimated market value based on the selling prices of our SoCs. We record inventory provisions for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Provision for Litigation Claims. We have been subject to legal proceedings and claims with respect to matters such as patents. Our success and future revenue growth will depend, in part, on our ability to protect our intellectual property.

It is possible that other companies might pursue litigation with respect to any claims such companies purport to have against us. The results of litigation are inherently uncertain. In the event of an adverse result in any litigation with respect to intellectual property rights relevant to our products that could arise in the future, we could be required to obtain licenses to use the technology, pay substantial damages under applicable law, cease the use and sale of infringing products or expend significant resources to develop non-infringing technology. Litigation frequently involves substantial expenditures and can require significant management attention, even if we ultimately prevail.

Periodically, we review the status of each significant matter, if any, and assess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be estimated, we accrue a liability for the estimated loss. If we estimate that loss will be within a range, and no amount within the range is considered a better estimate than any other amount, we would record the minimum estimated liability.

Share-based Compensation Expense. We approved our share-based compensation plan and its amendment in May 2007 and on May 21, 2008, pursuant to which we granted options to purchase 8,000,000 of our ADSs, representing 48,000,000 ordinary shares, to employees at exercise prices of US $3.30 per ADS in exchange for their continuous employment of 4 years after the grant date. The exercise prices of the options were reduced to US$1.40 on February 26, 2009, and the first exercise date was postponed to the second anniversary of grant date. On November 12, 2010 and April 1, 2013, we further amended the plan to increase the number of shares available for grant by 1,400,000 ADSs, representing 8,400,000 ordinary shares, and 2,000,000 ADSs, representing 12,000,000 ordinary shares, respectively. We accounted for share-based compensation for employees based on the grant-date fair value of the award determined options using the Black-Scholes option pricing model. For any awards that are modified, we calculate the incremental fair value of the award resulting from the modification. Such incremental value is calculated as the excess of the fair value of the modified award over the fair value of the original award immediately before its terms are modified and it is further amortized over the remaining vesting period of the award. That cost will be recognized over the period during which our employees provide services in exchange for the award, which is typically four years. If factors change and we employ different assumptions for estimating share-based compensation expense in future periods or if we decide to use a different valuation model, our share-based compensation in future periods may differ significantly and could materially affect our operating results. For example, we reviewed our actual employee terminations in the past two years and changed the estimated employee forfeiture rate from original 5% to 10%, and further to 15% to reflect the current competitive environment of talent recruiting and sustaining in China. We estimated forfeitures at the time of grant based on our historical experiences and record share-based compensation expenses only for those awards that are expected to vest. Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of share-based compensation expenses to be recognized in future periods.

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On April 1, 2013, we granted certain performance-based options the underlying ADSs of which will vest in accordance with performance milestones. We recognize share-based compensation expense associated with such options after an evaluation on the likelihood of achieving the performance milestones.

Income Taxes. We record a valuation allowance against deferred tax assets based on taxable income in the future. A deferred tax asset is recognized for temporary differences that will result in deductible amounts in future years and for net operating loss carry forwards. If, based on the weight of available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized, we will record a valuation allowance to reduce the net deferred tax asset to the amount that we reasonably believe will be realized.

Uncertainties exist with respect to how the EIT Law applies to our overall operations, and more specifically, our tax residency status. The EIT Law provides that enterprises established outside of China whose “de facto management bodies” are located in China are considered “resident enterprises” and are generally subject to the uniform 25% EIT rate as to their worldwide income. Under the implementation regulations for the EIT Law issued by the PRC State Council, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. Currently no interpretation or application of the EIT Law and its implementing rules with respect to the resident enterprise determination is available for overseas companies like ours that are not established or controlled by PRC companies. Despite the current uncertainties resulting from the limited PRC tax guidance on the issue, we do not believe that our legal entities organized outside of the PRC should be treated as residents for the EIT Law’s purposes. If one or more of our legal entities organized outside of the PRC were characterized as PRC tax residents, there would be adverse impact on our results of operation. See also “Item 3.D. Key Information — Risk Factors —Risks Related to Doing Business in China— We may be deemed a Chinese resident enterprise under the PRC Enterprise Income Tax Law and be subject to the PRC taxation on our worldwide income.”

Goodwill and Other Intangible Assets. We record goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. In-process research and development, or IPR&D is recognized separately from goodwill at fair value of acquisition date. IPR&D is not subjected to amortization until research and development efforts are completed and assets are ready for their intended use. Goodwill is tested for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. IPR&D is tested for impairment annually, or more frequently when events or changes in circumstances indicate that the carrying amount of the IPR&D may no longer be recoverable. For the year ended December 31, 2012, we identified only one reporting unit.

Impairment of Long-lived Assets. The valuation of long-lived assets is tested whenever events or changes in circumstance indicate that the carrying amount of an asset may not be recoverable. An impairment assessment has been made on the comparison of the estimated undiscounted future cash flows generated by long-lived assets and their current carrying amounts, and no impairment loss was recognized. If the future economic situation deteriorates and actual cash flows generated from long-lived assets are less than the projected cash flows, impairment loss would be recognized and would adversely impact our future operating results.

Impairment of Investments. Investments in equity method investees and other unlisted equity securities are reviewed for impairment when there is evidence of a loss in value and we prepare annual updates to corporate planning assumptions. Such evidence of a loss in value might include our inability to recover the carrying amount, the lack of sustained earnings capacity which would justify the current investment amount, or a current fair value less than the investment’s carrying amount. When it is determined such a loss in value is other than temporary, an impairment loss is recognized for the difference between the investment’s carrying value and its estimated fair value. When determining whether a decline in value is other than temporary, management considers factors such as the length of time and extent of the decline, the investee’s financial condition and near-term prospects, and our ability and intention to retain our investment for a period that will be sufficient to allow for any anticipated recovery in the market value of the investment. When quoted market prices are not available, the fair value is usually based on the present value of expected future cash flows using discount rates believed to be consistent with those used by principal market participants, plus market analysis of comparable assets owned by the investee, if appropriate. Differing assumptions could affect the timing and the amount of an impairment of an investment in any period.

In 2012, the Group recorded other-than-temporary impairment losses related to two unlisted equity securities issued by two private entities ("Investees"). The management of the Group has assessed that the decline in value is other-than-temporary, thus impairment losses of approximately $803 and $1,740 have been recognized respectively and the investments in these unlisted equity securities are written down to approximately $1,500 and nil as of December 31, 2012.

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Inflation

Inflation in China has not had a material impact on our results of operations in recent years. According to the National Bureau of Statistics of China, China’s overall inflation rate, as represented by changes in the Consumer Price Index, was approximately 3.3% in 2010, 5.4% in 2011 and 2.6% in 2012.

Foreign Currency Risk

See “Item 11. Quantitative and Qualitative Disclosures About Market Risk— Foreign Exchange Risk” and “Item 3.D Risk Factors—Risks Related to Doing Business in China —Fluctuations in the value of RMB could negatively impact our results of operations” for information regarding the impact of foreign currency fluctuations on the company.

Government Policies

For information regarding governmental economic, fiscal, monetary or political policies or factors that have materially affected, or could materially affect, our operations or our shareholders’ investments, see “Item 3.D Risk Factors—Risks Related to Doing Business in China,” “Item 4.B Information on the Company—Business Overview—Regulations,” “Item 5.A Operating and Financial Review and Prospects–Taxation” and “Item 10.E Additional Information—Taxation.”

Recently Issued Accounting Pronouncements

In December 2011, the FASB has issued Accounting Standard Update ("ASU") 2011-11, Disclosures about Offsetting Assets and Liabilities, an authoritative pronouncement related to Disclosures about Offsetting Assets and Liabilities. The guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.

In July 2012, the FASB has issued Accounting Standard Update ("ASU") 2012-12, Testing Indefinite-Lived Intangible Assets for Impairment, an authoritative pronouncement related to testing indefinite lived intangible assets, other than goodwill, for impairment. Under the pronouncement, entities testing indefinite-lived intangible assets for impairment would have the option of performing a qualitative assessment before calculating the fair value of the asset. If an entity determines, on the basis of qualitative factors, that the indefinite-lived intangible asset is not more likely than not impaired, a quantitative fair value calculation would not be needed. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted.

Results of Operations

The following tables set forth selected results of operations data derived from our consolidated financial statements, expressed in thousands of U.S. dollars and as a percentage of revenues, for the periods indicated. Our historical results of operations are not necessarily indicative of the results for any future period.

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|  | For the year ended December 31, |
|  | 2010 |  |  | % |  |  | 2011 |  |  | % |  |  | 2012 |  |  | % |
|  | (thousands) |  |  |  |  |  | (thousands) |  |  |  |  |  | (thousands) |  |  |  |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
System-on-a-chip products |  | US$ | 37,434 |  |  |  | 99.6 | % |  | US$ | 47,168 |  |  |  | 99.3 | % |  | US$ | 54,150 |  |  |  | 99.7 | %
Semiconductor product testing services |  |  | 151 |  |  |  | 0.4 | % |  |  | 317 |  |  |  | 0.7 | % |  |  | 179 |  |  |  | 0.3 | %
Total revenues |  |  | 37,585 |  |  |  | 100.0 | % |  |  | 47,485 |  |  |  | 100.0 | % |  |  | 54,329 |  |  |  | 100.0 | %
Cost of revenues: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
System-on-a-chip products |  |  | (22,846 | ) |  |  | -60.8 | % |  |  | (28,821 | ) |  |  | -60.7 | % |  |  | (35,007 | ) |  |  | -64.4 | %
Semiconductor product testing services |  |  | (81 | ) |  |  | -0.2 | % |  |  | (176 | ) |  |  | -0.4 | % |  |  | (100 | ) |  |  | -0.2 | %
Total cost of revenues |  |  | (22,927 | ) |  |  | -61.0 | % |  |  | (28,997 | ) |  |  | -61.1 | % |  |  | (35,107 | ) |  |  | -64.6 | %
Gross profit |  |  | 14,658 |  |  |  | 39.0 | % |  |  | 18,488 |  |  |  | 38.9 | % |  |  | 19,222 |  |  |  | 35.4 | %
Other operating income |  |  | 966 |  |  |  | 2.6 | % |  |  | 1,523 |  |  |  | 3.2 | % |  |  | 896 |  |  |  | 1.6 | %
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Research and development |  |  | (17,325 | ) |  |  | -46.1 | % |  |  | (22,086 | ) |  |  | -46.1 | % |  |  | (23,739 | ) |  |  | -43.7 | %
General and administrative |  |  | (8,125 | ) |  |  | -21.6 | % |  |  | (8,786 | ) |  |  | -18.5 | % |  |  | (8,573 | ) |  |  | -15.8 | %
Selling and marketing |  |  | (1,208 | ) |  |  | -3.2 | % |  |  | (1,195 | ) |  |  | -2.5 | % |  |  | (1,281 | ) |  |  | -2.4 | %
Impairment on goodwill and intangible assets |  |  | — |  |  |  | — |  |  |  | (888 | ) |  |  | -1.9 | % |  |  | — |  |  |  | — |
Total operating expenses |  |  | (26,658 | ) |  |  | -70.9 | % |  |  | (32,955 | ) |  |  | -69.4 | % |  |  | (33,593 | ) |  |  | -61.8 | %
Loss from operations |  |  | (11,034 | ) |  |  | -29.4 | % |  |  | (12,944 | ) |  |  | -27.3 | % |  |  | (13,475 | ) |  |  | -24.8 | %
Other income |  |  | 2,348 |  |  |  | 6.2 | % |  |  | 4,066 |  |  |  | 8.6 | % |  |  | 1,547 |  |  |  | 2.8 | %
Dividend income from an other investment |  |  | — |  |  |  | — |  |  |  | 889 |  |  |  | 1.9 | % |  |  | — |  |  |  | — |
Investment income from an other investment |  |  | — |  |  |  | — |  |  |  | 268 |  |  |  | 0.6 | % |  |  | — |  |  |  | — |
Fair value change in trading securities |  |  | (2 | ) |  |  | -0.1 | % |  |  | 4 |  |  |  | 0.0 | % |  |  | 2 |  |  |  | 0.0 | %
Gain on disposal of an other investment |  |  | 137 |  |  |  | 0.4 | % |  |  | 195 |  |  |  | 0.4 | % |  |  | — |  |  |  | — |
Interest income |  |  | 9,608 |  |  |  | 25.6 | % |  |  | 12,668 |  |  |  | 26.7 | % |  |  | 13,240 |  |  |  | 24.4 | %
Interest expense |  |  | — |  |  |  | — |  |  |  | (144 | ) |  |  | -0.3 | % |  |  | (250 | ) |  |  | -0.5 | %
Other-than-temporary impairment loss on investments |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (2,543 | ) |  |  | -4.7 | %
Income (loss) before income taxes, equity in net loss of equity method investees and non-controlling interest |  |  | 1,057 |  |  |  | 2.8 | % |  |  | 5,002 |  |  |  | 10.5 | % |  |  | (1,479 | ) |  |  | -2.7 | %
Income tax expense |  |  | (422 | ) |  |  | -1.1 | % |  |  | (879 | ) |  |  | -1.9 | % |  |  | (772 | ) |  |  | -1.4 | %
Equity in net loss (income) of equity method investees |  |  | (781 | ) |  |  | -2.1 | % |  |  | (1,113 | ) |  |  | -2.3 | % |  |  | 41 |  |  |  | 0.1 | %
Remeasurement gain on equity interest on acquisition of a subsidiary |  |  | 494 |  |  |  | 1.3 | % |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Net income (loss) |  |  | 348 |  |  |  | 0.9 | % |  |  | 3,010 |  |  |  | 6.3 | % |  |  | (2,210 | ) |  |  | -4.1 | %
Add: Net loss (income) attributable to non-controlling interest |  |  | 36 |  |  |  | 0.1 | % |  |  | (5 | ) |  |  | 0.0 | % |  |  | 8 |  |  |  | 0.0 | %
Net income (loss) attributable to Actions Semiconductor Co., Ltd. |  | US$ | 384 |  |  |  | 1.0 | % |  | US$ | 3,005 |  |  |  | 6.3 | % |  | US$ | (2,202 | ) |  |  | -4.1 | %

Year ended December 31, 2012 and 2011

Revenues. Revenues increased by US$6.8 million, or 14.4%, from US$47.5 million in 2011 to US$54.3 million in 2012. The increase was primarily due to an approximately 20% increase in units shipped compared to 2011 which was partially offset by an approximately 4% decrease in the average selling price of our SoCs for portable media players in 2012 compared to 2011. The decrease in the average selling price was primarily the result of our product mix adjustment in 2012. The increase in units shipped was mainly due to the recovery of market demand, which had decreased after the global financial crisis started in 2008.

Revenues from sales of SoCs for tablets, our new products launched in 2012, contributed less than 5% of our total revenue in 2012.

Revenues from providing semiconductor products testing services comprised of 0.7% and 0.3% of our total revenue in 2011 and 2012, respectively.

Cost of Revenues. Cost of revenues increased by US$6.1 million, or 21.1%, from US$29.0 million in 2011 to US$35.1 million in 2012, primarily due to the increase in sales volume.

Gross Profit. Our gross profit increased by US$0.7 million, or 4.0%, from US$18.5 million in 2011 to US$19.2 million in 2012. Our gross profit margin was 35.4% in 2012, compared to 38.9% in 2011. The increase in gross profit was due to the increase in sales volume. The decrease in gross profit margin was due to the increased average unit cost compared with that of 2011.

Other Operating Income. Other operating income including subsidies from PRC government authorities, royalty income, and intellectual property transfer income decreased by US$0.6 million, or 41.2%, from US$1.5 million in 2011 to US$0.9 million in 2012.

Operating Expenses. Total operating expenses increased by US$0.6 million, or 1.9%, from US$33.0 million in 2011 to US$33.6 million in 2012.

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• Research and development. Research and development expenses increased by US$1.7 million, or 7.5%, from US$22.1 million in 2011 to US$23.7 million in 2012 due primarily to an increase of US$1.2 million in the amortization of intangible assets and an increase of US$0.5 million in salary, bonus and social insurance contribution for research and development personnel.

• General and administrative expenses. General and administrative expenses decreased by US$0.2 million, or 2.4%, from US$8.8 million in 2011 to US$8.6 million in 2012 due primarily to a decrease of US$0.3 million in consulting expenses which was partially offset by other increases in the general and administrative expenses.

• Selling and marketing expenses. Selling and marketing expenses increased by US$0.1 million, or 7.2%, from US$1.2 million in 2011 to US$1.3 million in 2012.

Impairment on goodwill and intangible assets. On September 30, 2011, we recorded an impairment charge of US$468 thousand and US$420 thousand, respectively, for goodwill and IPR&D technology related to the acquisition of Mavrix in August 2010.

Loss from Operations. As a result of the foregoing, our loss from operations increased by US$0.6 million, or 4.1%, from a loss of US$12.9 million in 2011 to a loss of US$13.5 million in 2012.

Interest Income. The amount of our cash, cash equivalents and time deposit increased to US$81.3 million as of December 31, 2012, compared to US$33.2 million as of December 31, 2011. Our investment in marketable securities has decreased to US$142.0 million as of December 31, 2012 compared to US$186.9 million as of December 31, 2011. As we acquired certain financial products, with higher interest rate, prior to the decrease in interest rates in June and July 2012, we were able to avoid the decrease in interest income. As a result, our interest income increased by US$0.6 million, or 4.5%, from US$12.7 million in 2011 to US$13.2 million in 2012.

Other Income. Other income from operations was US$1.5 million in 2012 compared to other income from operations of US$4.1 million in 2011 due primarily to foreign exchange gain as a result of the 1.0% appreciation of the RMB against the US dollar in 2012 compared to the 4.6% appreciation of the RMB against the US dollar in 2011.

Income Tax Expense. Our subsidiaries incorporated in the PRC are subject to EIT in the PRC. Our income tax expense were approximately $0.9 million and $0.8 million in 2011 and 2012, respectively.

Year ended December 31, 2011 and 2010

Revenues. Revenues increased by US$9.9 million, or 26.3%, from US$37.6 million in 2010 to US$47.5 million in 2011. The increase was due to an approximately 3% increase in the average selling price of our SoCs for portable media players in 2011 compared to 2010 as well as an approximately 23% increase in units shipped compared to last year. The increase in average selling price was primarily the result of our product mix adjustment in 2011. The increase in units shipped was mainly due to the rebound of market demand, which had dropped after the global financial crisis started in 2008.

Revenues from providing semiconductor products testing services comprised of 0.4% and 0.7% of our total revenue in 2010 and 2011, respectively.

Cost of Revenues .. Cost of revenues increased by US$6.1 million, or 26.5%, from US$22.9 million in 2010 to US$29.0 million in 2011, corresponding to the increase in sales volume.

Gross Profit. Our gross profit increased by US$3.8 million, or 26.1%, from US$14.7 million in 2010 to US$18.5 million in 2011. Our gross profit margin was 38.9% in 2011, compared to 39.0% in 2010. The increase in gross profit was due to the increase in sales volume. The minor fluctuation in gross profit margin was due to the change of product mix in 2011.

Other Operating Income. Other operating income including subsidies from PRC government authorities, royalty income, and intellectual property transfer income increased by US$0.5 million, or 57.7%, from US$1.0 million in 2010 to US$1.5 million in 2011.

Operating Expenses. Total operating expenses increased by US$6.3 million, or 23.6%, from US$26.7 million in 2010 to US$33.0 million in 2011.

• Research and development. Research and development expenses increased by US$4.8 million, or 27.5%, from US$17.3 million in 2010 to US$22.1 million in 2011 due primarily to an increase of US$3.3 million in salary, bonus and social insurance contribution for research and development personnel , US$0.4 million in compensation expenses in connection with stock options granted to research and development personnel and US$0.4 million in mask expense.

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• General and administrative expenses. General and administrative expenses increased by US$0.7 million, or 8.1%, from US$8.1 million in 2010 to US$8.8 million in 2011 due primarily to increases of US$0.3, US$0.3 and US$0.2 million in staff salary and related welfare, foreign exchange and depreciation expense, respectively.

• Selling and marketing expenses. Selling and marketing expenses remains the same at US$1.2 million in 2011 as in 2010.

Impairment on goodwill and intangible assets. On September 30, 2011, we recorded an impairment charge of US$468 thousand and US$420 thousand, respectively, for goodwill and IPR&D technology related to the acquisition of Mavrix in August 2010.

In 2011, for Mavrix reporting unit, we compared its carrying value, inclusive of assigned goodwill, to its respective fair value - step 1 of the twostep impairment test. We estimated the fair value of these reporting units by the income approach. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, prospective financial information, terminal value, and discount rates. Based on this quantitative test, we determined that the fair value of Mavrix reporting unit tested in 2011 was lower than its carrying amount because the management decided to cease the entire research and development project of the application for Android, which is the primarily line of business of Mavrix reporting unit, due to of technological failure and, therefore, step 2 of the two-step goodwill impairment test was performed. Under step 2 of the two-step goodwill impairment test, we estimated the impairment loss of goodwill by comparing the implied fair value of the Mavrix reporting unit's goodwill to the carrying amount of the Mavrix reporting unit’s goodwill, which implied fair value of the Mavrix reporting unit’s goodwill was calculated in a manner similar to a purchase price allocation. Based on the two-step goodwill impairment test, we recognized an impairment loss of US$468 thousand on the goodwill of Mavrix reporting unit.

In 2011, we compared the IPR&D’s carrying value to its fair value. We estimated the fair value of the IPR&D by the income approach. Significant assumptions inherent in the valuation methodologies for IPR&D were employed and included, but were not limited to, prospective financial information and discount rates. Based on this quantitative test, we determined that the fair value of the IPR&D tested in 2011 was lower than its carrying amount because the management decided to cease the entire Android application research and development project, which is the primary line of business of Mavrix reporting unit, due to technological failure. Accordingly, we recognized an impairment loss of US$420 thousand on the IPR&D.

(Loss) Income from Operations. As a result of the foregoing, our loss from operations increased by US$1.9 million, or 17.3%, from a loss of US$11.0 million in 2010 to a loss of US$12.9 million in 2011.

Interest Income. The amount of our cash, cash equivalents and time deposits decreased to US$33.2 million as of December 31, 2011, compared to US$42.9 million as of December 31, 2010. Our investment in marketable securities has decreased to US$186.9 million as of December 31, 2011 compared to US$189.2 million as of December 31, 2010. Due to PRC’s monetary policy, interest rates increased in 2011, and, as a result, our interest income increased by US$3.1 million, or 31.8%, from US$9.6 million in 2010 to US$12.7 million in 2011.

Other (Loss) Income. Other income from operations was US$4.1 million in 2011 compared to other income from operations of US$2.3 million in 2010 due primarily to foreign exchange gain as a result of the rapid appreciation of the RMB against the US dollar in 2011.

Income Tax Expense. Our subsidiaries incorporated in the PRC are subject to EIT in the PRC. Our income tax expense were approximately $0.4 million and $0.9 million in 2010 and 2011, respectively.

| B. | Liquidity and Capital Resources

The following table sets forth the summary of our cash flows for the periods indicated:

|  | For the year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
|  | (thousands) |
Net cash provided by operating activities |  | US$ | 3,230 |  |  | US$ | 7,265 |  |  | US$ | (3,296 | )
Net cash (used in) provided by investing activities |  |  | (51,685 | ) |  |  | (26,658 | ) |  |  | 33,791 |
Net cash provided by (used in) financing activities |  |  | 2,619 |  |  |  | 7,131 |  |  |  | 6,936 |
Net increase (decrease) in cash and cash equivalents |  |  | (45,836 | ) |  |  | (12,262 | ) |  |  | 37,431 |
Cash and cash equivalents, beginning of year |  |  | 87,706 |  |  |  | 42,872 |  |  |  | 33,207 |
Effect of exchange rate changes on cash |  |  | 1002 |  |  |  | 2,597 |  |  |  | 698 |
Cash and cash equivalents, end of year |  | US$ | 42,872 |  |  | US$ | 33,207 |  |  | US$ | 71,336 |

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On December 31, 2012, we had US$223.3 million of cash, cash equivalents, time deposit and marketable securities. In general, our primary uses of cash were for operating and investment activities, such as the purchase of inventory and financing of construction related to our expansion plans. Our largest source of cash was cash collections from our customers. We have been able to meet our cash needs principally by using cash on hand, a portion of which was generated from our initial public offering in November 2005 and a portion of which was generated by cash from operations. Although we believe that cash generated from operations will be sufficient to fund our expected cash requirements and planned capital expenditure for at least the next 12 months, any worldwide financial market disruption could have a negative impact on our available resources in the future. Our minimum projected obligations for fiscal year 2013 and beyond are set forth below under “contractual obligations.”

Operating Activities

In 2012, net cash used in operating activities amounted to US$3.3 million while we suffered a net loss during this period of US$2.2 million. We recorded a net purchase of inventory of US$4.5 million, a decrease of accrued expenses and other current liabilities of US$3.5 million, an increase of prepaid expenses and other current assets of US$2.5 million, an increase of accounts payable of US$3.6 million, an increase of accounts receivable of US$3.2 million, impairment loss recognized in respect of other investments of US$2.5 million, depreciation of property, plant and equipment of US$2.3 million, amortization of acquired intangible assets of US$3.1 million and an increase of share-based compensation expense of US$1.5 million.

In 2011, net cash provided by operating activities amounted to US$7.3 million. We generated net income during this period of US$3.0 million. We recorded a net purchase of inventory of US$2.6 million, a decrease of accrued expenses and other current liabilities of US$3.0 million, a decrease of prepaid expenses and other current assets of US$1.7 million, an increase of accounts payable of US$1.3 million, share of net loss of an equity method investee of US$1.1 million, depreciation of property, plant and equipment of US$2.1 million, amortization of acquired intangible assets of US$1.8 million and an increase of share-based compensation expense of US$1.9 million.

In 2010, net cash provided by operating activities amounted to US$2.8 million. We generated net income during this period of US$0.3 million. We recorded a net purchase of trading securities of US$0.5 million, a decrease of accrued expenses and other current liabilities of US$1.7 million, including $0.7 million in connection with the construction of our new corporate headquarters in Zhuhai and $0.9 million in connection with our investment in Hi-Trend, an increase of prepaid expenses and other current assets of US$1.3 million, a remeasurement gain on the equity interest acquired in a subsidiary of US$0.5 million, share of net loss of an equity method investee of US$0.8 million, depreciation of property, plant and equipment of US$1.9 million, amortization of acquired intangible assets of US$1.9 million, an increase in share-based compensation expense of US$1.5 million, and a write-down of inventories of US$0.4 million.

Mavrix, a fabless semiconductor company developing SoC solutions for the emerging mobile digital TV market, became one of our equity method investments due to our holding of 19.8% of its shares in 2008. We made another investment of US$3.0 million in Actar, a value added service provider that bridges entertainment with technology, in 2008. Our 6.8% investment in Actar was accounted for under the cost method. Both Mavrix and Actar experienced various fatal and unexpected business challenges during February and March 2010. As a result of these unexpected business challenges, we determined that our investments in Mavrix and Actar were impaired and that those impairments were other than temporary. As a result, we wrote off our entire investment in these two entities effective as of December 31, 2009 and recognized a $7.4 million impairment loss. In August 2010, to expand our research and development capability and explore the competitive potential of our products in the mobile digital TV market, we acquired substantially all of the outstanding shares of Mavrix pursuant to a tender offer for all of the outstanding shares of Mavrix, for a total consideration equal to approximately US$1.2 million, as a result of which we now hold 93.4% of the outstanding shares of Mavrix.

Investing Activities

In 2012, net cash provided by investing activities was US$33.8 million. We recorded a net decrease of marketable securities of US$46.6 million, investment in cost method investee of US$1.5 million, and purchase of intangible assets of US$1.1 million, purchase of property, plant, and equipment of US$0.2 million, and an increase in time deposits of US$10.0 million.

In 2011, net cash used in investing activities was US$26.7 million. We recorded a net decrease of marketable securities of US$6.3 million, investment in equity method investees of US$9.7 million, and purchase of intangible assets of US$2.6 million, purchase of property, plant, and equipment of US$7.5 million.

In addition, in January 2011, we made an investment of approximately US$13.7 million in OCTT Holding Co., Ltd, or OCTT, a private equity fund incorporated in Mauritius for the purpose of investing in fabless semiconductor design companies in Taiwan. As of December 31, 2011, the total size of the fund is approximately US$70 million, approximately US$30.6 million of which had been invested in Realtek Semiconductor Corporation, or Realtek, which investment represents less than 5% of the total outstanding shares of Realtek. The chairman of the board of directors of Realtek is Mr. Yeh, Nan-Horng, one of our directors and our former chief executive officer. We are a passive investor in OCTT and do not possess any control over, or participate in, any of the voting or investment decisions OCTT makes and do not possess a right to appoint any director of OCTT. We also do not possess a right to appoint any director of Realtek, nor do we possess any control or influence over Realtek.

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In 2010, net cash used in investing activities was US$51.2 million. We recorded an increase in the value of marketable securities of US$22.8 million, a decrease in net cash and cash equivalent of US$10.1 million due to the disposition and resulting deconsolidation of a subsidiary, an increase of investment in equity method investees of US$5.6 million, an increase in the purchase of intangible assets of US$1.8 million, an increase in the purchase of property, plant, and equipment of US$8.9 million, an increase in deposits paid for acquisition of intangible assets of US$2.4 million, a decrease in net cash and cash equivalent of US$0.9 million in connection with the acquisition of a subsidiary. These cash outflows were partly offset by proceeds from the disposal of other investments of US$1.3 million.

The purchases of additional marketable securities in 2010, 2011 and 2012 mainly included money market deposits and trust financial products issued by PRC commercial banks and financial institutions with maturities between three and twelve months. The money market deposits are foreign currency deposits which have market-based interest rates with principal that is protected. The trust financial products are investments in individual funds or in pools of funds held by financial institutions, which in turn use the funds to invest in debt instruments. The underlying debt securities have favorable fixed interest rates and maturities between three to twenty-four months when purchased. Such marketable securities are classified as held to maturity because we have the intention and the ability to hold the securities to maturity. The percentage of our assets held as money market deposits and trust financial products was 66.3%, 60.6% and 44.1% in 2010, 2011 and 2012, respectively. Because we have sufficient cash on hand to meet the demands from our day-to-day operations, we chose to hold a portion of our cash assets in the form of money market deposits and trust financial products to ensure the security and appreciation of our cash assets. Such investments are low risk capital preservation investments that are liquid and are issued and managed by well-regarded state-owned banks or independent financial institutions with high credit ratings in the PRC. The fair value of the investments may fluctuate depending on the applicable interest rate, which is determined primarily by the monetary policies adopted by the Chinese government. In the past, the Chinese government has closely supervised its state-owned banks and financial institutions and minimized delinquencies in their credit portfolios. We did not have any material exposure to the changes in the fair value of our investment portfolio as a result of changes in interest rates in 2010, 2011 and 2012. Future changes in Chinese monetary policy may affect the value of our investments and could have a material impact on our financial condition. However, due to the nature of these investments and relatively short maturity periods of three to twenty-four months from the time of purchase, we believe that we will remain free of any material exposure to changes in the fair value of our investment portfolio as a result of changes in interest rates.

In addition, the increase of investments in equity method investees in 2010 consisted of strategic investments of US$4.4 million in Nann Capital and US$1.2 million in Grand Choice Investment Limited.

Financing Activities

Net cash generated by financing activities was US$6.9 million in 2012, primarily consisting of a short-term bank loan of US$8.5 million obtained from EFG BANK AG, Hong Kong Branch, advance subsidies of US$0.3 million from local authorities of Zhuhai, the PRC, proceeds of US$2.3 million from exercises of stock options, and ordinary shares repurchases under our repurchase program in the amount of US$4.2 million.

Net cash generated by financing activities was US$7.1 million in 2011, primarily consisting of a short-term bank loan of US$6.0 million obtained from E. SUN Bank -Hong Kong Branch and a short-term loan of US$6.0 million from China Trust Commercial Bank, advance subsidies of US$0.7 million from local authorities of Zhuhai, the PRC, proceeds of US$0.7 million from exercises of stock options, and ordinary shares repurchases under our repurchase program in the amount of US$6.3 million.

Net cash generated by financing activities was US$2.6 million in 2010, primarily consisting of receipt of amount due from Action Enterprises (HK) of US$11.0 million, which was a former subsidiary, advance subsidy US$0.3 million from local authorities of Zhuhai, the PRC, proceeds from exercise of stock options of US$0.3 million. Share repurchases under our repurchase program of ordinary shares in the amount of US$9.0 million.

Capital Expenditures

We made capital expenditures of US$16.3 million, US$33.5 and US$2.8 million in 2010, 2011 and 2012, respectively. Our capital expenditures in 2012 consisted principally of US$0.2 million for the purchase of property, plant and equipment, US$1.1million for the acquisition of intangible assets and US$1.5 million for investment in cost method investee.

After moving into our new corporate headquarters in Zhuhai in response to our anticipated growth, we may also establish additional offices in other cities in China, such as Shanghai, to better serve our existing and future customers or establish larger research and development facilities in those areas. We anticipate continuing to invest in improving and upgrading our technology infrastructure, including acquiring additional engineering tools, software and other intangible assets. We continuously evaluate our need to expand our internal testing capacity to fulfill market demands and long-term investments strategies in companies or technologies consistent with our business objectives. Based on the existing plans, we expect to make additional capital expenditures totaling approximately US$8.75 million in 2013 in connection with such efforts. We will fulfill these additional capital expenditures with our existing RMB cash or obtain US dollar loan(s), which will allow for lower interest rates, for expenditures in China.

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Capital Requirements

Our capital requirements depend on numerous factors, including:

| • | market acceptance of our products;

| • | our expenditures on our planned new offices and facilities at multiple sites;

| • | our expenditures on research and development activities;

| • | our expenditures on workstations, testing equipment, licenses and royalty payments and electronic design automation tools;

| • | the resources we devote to marketing, selling and supporting our products;

| • | the payment terms we negotiate with our customers;

| • | market prices for our products; and

| • | other working capital requirements.

We expect to devote substantial capital resources to support our research and development efforts, hire and expand our sales and marketing resources, and for other corporate activities. We believe that our current cash and cash equivalents, cash flow from operations, and the proceeds from the sale of our equity and marketable securities will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for at least the next 12 months. We may, however, apply for bank loans in specific currencies or for specific purposes to maximize our cash flow flexibility and yields, or engage in other capital raising transactions if additional cash resources are needed or appropriate due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. We cannot assure you that additional capital will be available to us on acceptable terms or at all.

Restricted Net Assets

Relevant PRC laws and regulations permit payments of dividends by our PRC subsidiaries only out of its retained earnings, if any, as determined in accordance with PRC regulations and accounting standards. For example, our principal subsidiaries, Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), as wholly foreign owned enterprises, are required to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of their after-tax profits each year as a statutory reserve fund and to provide for a staff and workers’ bonus fund at the discretion of their boards of directors. Retained earnings calculated under PRC regulations and accounting standards may differ from retained earnings calculated in accordance with U.S. GAAP. In addition to those reserves, our PRC subsidiaries are also not permitted to distribute their registered capital as dividends. As a result of these and other restrictions under PRC laws and regulations, Actions Semiconductor (Zhuhai), Artek Microelectronics (Shenzhen), Shanghai Actions, and Shanghai Mavrix are restricted in their ability to transfer a portion of their net assets to us in the form of dividends, loans or advances, which restricted portion amounted to approximately US$113.9 million, or 42.1%, and US$118.2 million, or 42.5 %, of our total consolidated net assets, which included approximately US$12.5 million, or 4.6%, and US$13.2 million, or 4.7%, of our total consolidated net assets associated with the statutory reserves as of December 31, 2010 and 2011, respectively.

As of December 31, 2012, the restricted net assets associated with the statutory reserves of Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen) totaled approximately US$13.7 million, or 4.9% of our total consolidated net assets. In addition to those reserves, the registered capital of the Company’s PRC subsidiaries is also restricted in that it cannot be used to pay dividends. As of December 31, 2012, the total amount of the registered capital and reserves of the Company’s PRC subsidiaries reached US$124.1 million, or 44.5% of our total consolidated net assets.

Pursuant to the Interim Regulations on Value-added Tax and its Implementation Rules issued in 1993, all entities and individuals that are engaged in the sale of goods, the provision of repairs and replacement services and the importation of goods in China are generally required to pay value-added tax, or VAT, at a rate of 17% of the gross sales proceeds received. We received a full rebate of the VAT on most of our export sales since the establishment of Actions Semiconductor (Zhuhai) through December 31, 2003. Due to changes in PRC regulations, from January 1, 2004 through October 31, 2004 we received a rebate of approximately 76% of our VAT payments. Beginning November 1, 2004 we resumed receiving a full rebate on our VAT payments. As most of our sales made by Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen) consist of exports, historically we have not incurred significant VAT expense.

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We have historically had minimal taxable income in jurisdictions other than China.

Reconciliation between the benefits for EIT computed by applying the EIT rate to profit before income taxes is as follows:

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
PRC tax rate |  |  | 25 | % |  |  | 25 | % |  |  | 25 | %
Tax provision (credit) at PRC enterprise income tax rate |  | $ | 264 |  |  | $ | 1,251 |  |  | $ | (370 | )
Expenses not deductible for tax purposes |  |  | 260 |  |  |  | 717 |  |  |  | 1,224 |
Share-based compensation not deductible for tax purposes |  |  | 1,532 |  |  |  | 420 |  |  |  | 366 |
Income not taxable for tax purposes |  |  | (981 | ) |  |  | (706 | ) |  |  | (599 | )
Net change in valuation allowance |  |  | 342 |  |  |  | 910 |  |  |  | 1,623 |
Effect of tax exemption and preferential income tax rate granted to PRC subsidiaries |  |  | (473 | ) |  |  | (1,081 | ) |  |  | (911 | )
Effect of the different income tax rates in other jurisdictions |  |  | (145 | ) |  |  | (34 | ) |  |  | 21 |
Effect of withholding tax on undistributed earnings |  |  | 229 |  |  |  | 554 |  |  |  | 349 |
Effect of withholding tax on American Depository Shares ("ADS") reimbursement income |  |  | - |  |  |  | 150 |  |  |  | 150 |
Utilization of tax loss previously not recognized |  |  | (341 | ) |  |  | (1,053 | ) |  |  | (979 | )
Overprovision in prior year |  |  | (264 | ) |  |  | (236 | ) |  |  | (81 | )
Others |  |  | (1 | ) |  |  | (13 | ) |  |  | (21 | )
Income tax expense |  | $ | 422 |  |  | $ | 879 |  |  | $ | 772 |

| C. | Research and Development, Patents and Licenses, etc.

Research and Development

We devote a substantial portion of our resources to the development of our SoCs and our ability to provide SDKs and reference designs. We make continuous investments in our design technologies to improve design, fabrication and verification of our products. As of December 31, 2012, we had 473 research and development engineers, who work closely with value-added distributors, contract manufacturers and brand owners in adding new features and functions to our existing products or developing new products.

Our mixed-signal integration expertise enables us to reduce the size and cost of our SoC products. For example, we incorporate standard digital components in these products, including a processor, embedded memory, certain peripheral connections such as a universal serial bus, TV encoder, and analog components, such as analog-to-digital and digital-to-analog converters, audio signal power amplifiers, low dropout regulators (LDOs) and DC-DC regulators. Because we are able to integrate several analog and digital components on the same integrated circuit, our customers can avoid significant design challenges when they use our SoCs and benefit from the competitive BOM cost and customized solution when needed.

Our research and development efforts during 2010, 2011 and 2012 focused principally on improving the solutions and applications of our ATJ300X (car audio) series, ATS250X (boom box audio) series, ATJ331X/AK211X (MP3) series and ATJ223X /ATJ225X /ATJ227X /ATJ228X (portable media player) series products to enhance their appeal to our customers, and, in [2011 and 2012], also on the development and production of our ATM701X (tablet) series, ATM702X (tablet) series, ATJ212X (MP3) series, ATJ227X (portable media player) series products. In addition to these efforts, we are also currently focusing on gaining know-how and intellectual property in the areas of advanced audio and video technology. The continuing goal for our research and development efforts is to develop and integrate increasing functionality into our SoCs and integrated platform solutions products while maintaining our competitive pricing structure. Also, we will continue to focus on developing the low power consumption technology while the technologies to enhance the quality of sound, image and video high definition multi-format video, 3D video decoder and encoder, and 3D graphics are other key technologies on which we expect to focus in 2013. We integrated certain technologies mentioned above in the past two years into our new ATJ212X and ATM702X series products, which have been introduced to the market in the fourth quarter of 2012.

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We have a stable core team of engineers that have detailed knowledge of our proprietary architecture, algorithms, integrated circuit designs, firmware and software engineering, as well as system-level knowledge of our customers’ manufacturing processes. Our ability to adapt to changing customer requirements and evolving industry standards through the development of new and enhanced products is a significant factor in maintaining our competitive position and our prospects for growth.

See also “Item 5.A Operating and Financial Review and Prospects—Operating Results—Financial Operations Overview—Operating Expenses—Research and development expenses” for information regarding the amount spent by us on research and development activities during the last three fiscal years.

Licenses

Our products are designed for use in devices manufactured by our customers that comply with international standards. These international standards are often covered by patents or copyrights held by third parties. We have entered into various licensing agreements with major technology companies, including MIPS Technologies International Ltd., Microsoft Corporation, ARM Limited, Samsung Electronics Co., Ltd., Lineo Solutions, Inc., and Real Networks Inc. We integrate third-party software or other licensed technology into almost all of our products.

| D. | Trend Information

Demand for portable media players and tablets. As mentioned earlier, the portable media player market experienced rapid growth from 2004 to 2008, but has witnessed demand decrease since the economic crisis at the end of 2008. Though we have continued to derive steady revenue and profit from this market in 2012, we do not expect another period of rapid growth in this mature market in the future, especially given the uncertainty of the global economy.

The tablet market entered into a rapid growth period starting in 2012, especially for the low-end and low-cost tablets, which are also widely known as “white box” tablets, manufactured in China. Due to the marketing and promotional efforts of international companies such as Apple and Samsung, consumers are quickly becoming aware of the benefits of tablets. At the same time, the rapid maturation of the software applications market for smartphone and tablets provides end users with more incentives to purchase tablets. However, the high price point of certain tablets, such as Apple’s iPad and Samsung’s Galaxy series, does not appeal to all consumers, and determining the optimal price point is a key factor in this rapidly expanding market. We believe that the market for tablets at a lower price point is one which will continue to expand rapidly in the future. The consumer electronics industry in Southern China, which historically has focused heavily on production of MP3 and portable media players, already has the infrastructure and resources in place to support the production of tablets more affordable than many existing products currently being offered in the market such as a sub-US$100 7” tablet and a sub-US$200 10.1” tablet.

According to a research conducted in November 2012 by Digitimes, a daily publication covering the semiconductor, electronics and computer industries, the worldwide tablet shipping numbers for 2011 and 2012 was 73 million units and 155 million units, respectively, which represented a growth rate of 112% for the tablet market in 2012. If we break down the shipping numbers into Apple, non-Apple and white box segments, the highest growth rate occurred in the white box segment, growing from 10 million units in 2011 to 51 million units in 2012, which represents growth of over 400%, and supports our belief that a lower price point is critical for future growth in the tablet market. These white box tablets were sold in North America, Western Europe and many emerging markets such as Latin America, Eastern Europe, Russia, Africa, Southern Asia including India, and of course within China locally. In 2013, we expect the demand for white box tablets to remain strong. Even though the 51 million units shipped in 2012 represents an already significant market, most research institutions still forecast a growth rate of over 50% for China-manufactured white box tablets in 2013.

We foresaw this trend in the end of 2010, and significantly increased our investment in tablet SoCs since 2011. As a result, we were able to launch the single core tablet SoC ATM701x in the 1st half of 2012, and the multi-core tablet SoC ATM702x (OWL Series) in the end of 2012.

We have entered into the tablet market and are continuing to invest in research, development and marketing in connection with this strategic move. There are no assurances that our endeavor in this market will succeed. Therefore, you should not rely on the results of any prior quarterly or annual periods as an indication of our future operating performance.

Average selling price of our products. The portable consumer electronics market has been characterized by rapidly changing technical standards and consumer preferences. Consumers generally expect that new product releases will have more capabilities than previous generations. To succeed in this intensely competitive and quickly evolving market, brand owners must constantly and rapidly introduce portable media players with more functions and enhanced features. As an SoC and integrated platform solutions provider for these brand owners, we usually plan to introduce a new product series every nine to twelve months, and introduce new SoC products within a series with increased functionality, improved cost structure and enhanced features more frequently.

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The average selling price of any particular SoC product declines by approximately 15% annually after it reaches maturity in the product life cycle. Since our overall average selling prices depend on our product portfolio, they generally benefit from the introduction of new SoC products, which benefit may be partially offset by seasonality. We have penetrated into both higher-end (portable media player with gaming, camera or WiFi functions embedded) and entry media players (car audio, boombox, toy type player) and different products have slightly different seasonality. For example, the sales of MP3 and portable media player products are usually slow in the second quarter and the end of the fourth quarter, but boombox and car audio markets are usually busy at that time. As a result, our overall average selling prices dropped by 9% in the second quarter of 2012. Demand in the boombox and car audio markets slowed in the third and fourth quarters of 2012, but the release of new products with enhanced functionality resulted in our average selling price going up again in the second half of 2012.

We seek to achieve revenue growth and margin stability through increasing our share of the total volume of units shipped by offering products with high functionality and competitive pricing; continuously integrating additional functionality to improve the value of our products; and reducing costs by achieving smaller die size, greater integration and migration to more advanced process technologies. In the event that we are not able to timely introduce new products, the average selling price of our products will decline and we may not be able to offset such decline by realizing additional production efficiencies.

Seasonality of the demand for our products. Like sales for most consumer electronics products, portable media player and tablet sales tend to increase significantly in the end of the third quarter and the first half of the fourth quarter to meet the year-end holiday demand. However, this pattern has varied due in part to the following reasons:

| · | U.S. and European Economy: In the past few years, the recession in the U.S. and European markets has resulted in lower demand for consumer electronics products and has impacted the shipment amounts prepared for holiday sales.

Chinese New Year: Usually, the Chinese New Year falls within the period from the end of January to the middle of February. The holiday usually causes, for factories in China, production to slow down for at least three weeks, or even causes a complete shutdown of production before and after the Chinese New Year holiday, especially for consumer electronics manufacturers. On the demand side, areas outside of China like Korea or certain countries in Southeast Asia also celebrate Chinese New Year, which leads to an increase in demand during the holiday. Given the effect of the Chinese New Year on both the supply and demand sides, this period has become increasingly critical for the consumer electronics industry. If the Chinese New Year occurs in the middle of February, the shipments in December of the earlier year is usually not particularly strong because the factories still have enough time to produce in January. However, if the Chinese New Year occurs at the end of January, manufactures will increase the shipment in December before they have to be shut down in the one or two weeks leading to the start of the holiday, and thus increase the sales in the fourth quarter.

| · | Growing Popularity: In 2012, tablets were a particularly popular item within the consumer electronics market. Despite the uncertainty of the European economy, the demand from emerging markets was very strong through the whole fourth quarter of 2012.

As a general matter, demand for consumer electronics will still be subject to seasonality, but the traditionally large impact of the U.S. and European holiday season on demand has seen a downward trend over recent years.

Accordingly, you should not rely on the results of any prior quarterly or annual periods as an indication of our future operating performance.

Foundry capacity and wafer pricing. To maximize our unit sales and profits, we must secure committed foundry capacity that is adequate to produce all of the SoCs that we can sell to our customers at prices that enable us to maintain or increase our profit margins. Wafer pricing is affected by the volume of our purchases and overall market demand, and tends to be cyclical. Because contract foundries have fixed capacities, at times of strong market demand, the prices that contract foundries charge for their wafer products and services generally increase, and correspondingly at times of lesser market demand, the prices that contract foundries charge for their wafer products and services may decrease. As a result, if the overall demand for electronics products is high, contract foundries that manufacture wafers for electronics products may increase the prices that they charge to their customers, including our company. In the past, sales volume increases helped us to negotiate better pricing terms and secure committed capacity with our foundries. However, since the fourth quarter of 2008, we have experienced a decline in sales due to the impact of the global economic downturn, which also affected the overall market demand of wafers. If the decrease of our sales volume continues and if it outpaces the overall market demand, we may lose our ability to negotiate favorable terms and secure capacity with our foundries. Further, we are also subject to seasonal and other factors affecting foundry capacity and pricing that are beyond our control.

Presently, He Jian and UMC manufacture almost all of our mass produced semiconductors. We also maintain relationships with other foundries to help ensure that we have alternative manufacturing capabilities if He Jian and UMC fail to achieve satisfactory yields or are unable to meet our requirements. However, there are many purchasers of foundry products and services that are larger than us, and our ability to source adequate foundry services could be affected by significant increases in demand for electronics products.

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| E. | Off-balance Sheet Arrangements

We did not have any significant outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts as of December 31, 2012.

| F. | Tabular Disclosure of Contractual Obligations

The following sets forth information regarding our aggregate payment obligations under our contracts and commercial commitments as of December 31, 2012:

|  | Payments due by period |  |  |  |  |  |  |  |  |  |
Contractual obligations |  | Total |  |  | Less than 1 year |  |  | 1-3 years |  |  | 3-5 years |  |  | More than 5 years |
|  | (thousands) |
Operating lease obligations |  | US$ | 308 |  |  | US$ | 261 |  |  | US$ | 47 |  |  | US$ | — |  |  | US$ | — |
Royalty Commitment |  |  | 269 |  |  |  | 269 |  |  |  | — |  |  |  | — |  |  |  | — |
Purchase Obligations |  |  | 4,454 |  |  |  | 4,454 |  |  |  | — |  |  |  | — |  |  |  | — |
Capital Commitment |  |  | 2 |  |  |  | 2 |  |  |  | — |  |  |  | — |  |  |  | — |
Other Liabilities |  |  | 2,069 |  |  |  | 2,056 |  |  |  | 13 |  |  |  | — |  |  |  | — |
Total contractual obligations |  | US$ | 7,102 |  |  | US$ | 7,042 |  |  | US$ | 60 |  |  |  | — |  |  |  | — |

| G. | Safe Harbor

This report contains forward-looking statements within the meaning of section 27A of the Section Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the Private Securities Litigation Reform Act of 1995. See “Introduction-Forward-Looking Statements”.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

| A. | Directors and Senior Management

Directors, Executive Officers and Key Employees

The following table sets forth our executive officers, directors and key employees, their ages as of December 31, 2012 and the positions held by them. The business address for each of our executive officers and directors is c/o Actions Semiconductor Co., Ltd., No. 1, Ke Ji Si Road, Technology Innovation Coast of Hi-Tech Zone, Zhuhai, Guangdong, 519085, the People’s Republic of China.

Name |  | Age |  | Position
Lee, Hsiang-Wei (David) |  | 53 |  | Director, Chairman of the Board
Yeh, Nan-Horng |  | 54 |  | Director
Lin, Yu-Hsin Casper (1) |  | 66 |  | Director
Chen, Chin-Hsin (Fred) (1) |  | 70 |  | Director
Li, Shao Chuan (Shawn) |  | 45 |  | Director and Chief Technology Officer
Huang , Jun-Tse (Walter) (1) |  | 55 |  | Director
Pan, I-Ming (Robin) (1) |  | 52 |  | Director
Zhou, Zhenyu |  | 48 |  | Chief Executive Officer
Liu, I-Hung (Nigel) |  | 41 |  | Chief Financial Officer

(1) Member of each of the audit committee, compensation committee and nominations committee.

Lee, Hsiang-Wei (David) has served as our Chairman since October 2007. Previously, Mr. Lee served as our Chief Financial Officer since August 2005. Mr. Lee also currently serves as CEO of Robeco TEDA (Tianjin) Asset Management Co., Ltd, and a director of Pacific Sun Investment Management Co., Ltd. Previously, Mr. Lee was the CEO of ABN AMRO Asset Management (China). From 1995 to 2002 he was the Chairman and CEO of ABN AMRO Asset Management’s Taiwan operations where he managed assets in the amount of US$3.5 billion. Mr. Lee has more than 15 years of experience in corporate finance and investment management. Mr. Lee holds a Master of Business Administration degree from Duke University and a Bachelor of Science degree in biometrics from National Taiwan University.

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Yeh, Nan-Horng has served as one of our directors since October 2007. Mr. Yeh also served as our Chief Executive Officer from May 2005 to November 2009 and currently serves as Chairman of the board of Realtek Semiconductor Corp. Previously, Mr. Yeh served as a director and the president of each of Globaltec Management Consulting Corp. and Globaltec Technology Partner I Venture Capital Corp. Mr. Yeh holds a Master in Business Administration degree from Washington University in St. Louis and a Bachelor of Science degree in transportation management from National Chiao Tung University in Taiwan.

Lin, Yu-Hsin (Casper) has served as one of our directors since August 2005. Previously, Mr. Lin served as the chairman and director of Memory Devices, Ltd., a memory module manufacturer, a director of Twinmos Tech. Inc., a network module manufacturer, and a director and the Chief Financial Officer of United Microelectronics, a semiconductor wafer manufacturer. Mr. Lin holds a Master in Business Administration degree from Bloomsbury University of Pennsylvania and a Bachelor of Art degree from the accounting department of Soochow University in Taiwan.

Chen, Chin-Hsin (Fred) has served as one of our directors since October 2007. Previously, Mr. Chen served as an Endowed Chair Professor in Shanghai Jiao Tong University, Director of the OLED Laboratory, Display Institute, National Chiao Tung University in Hsinchu, Taiwan and Director of the Centre for Advanced Luminescence Materials (CALM) at Hong Kong Baptist University. Mr. Chen was also a group leader and senior scientist at the Display Technology Laboratory of Eastman Kodak Co., in Rochester, New York, USA. Mr. Chen is the co-inventor of the key Doped OLED Guest-Host Emitter Technology and has been awarded more than 35 U.S. patents.

Li, Shao Chuan (Shawn) has served as one of our directors since September 2005 and as our Chief Technology Officer since the establishment of our operations in December 2001. Before joining us, Mr. Li was the director of research and development at Zhuhai Arestek Electronic Co., Ltd. Mr. Li holds a Master of Science degree in electrical engineering from Beijing Institute of Technology.

Huang, Jun Tse (Walter) has served as our director since April 2009. Mr. Jun Tse Huang currently serves as the CEO of Colorwind Technology Corporation, a position he has held since 2004. From 2001 to 2003, he was a Vice President of the Overseas department at the Guangzhou Risun Information Technology Group. Prior to that, starting in 1999, Mr. Huang served as an Executive Vice President at Global Brand Manufacturing Corporation, a Taiwan Stock Exchange listed company. From 1995 to 1998, he served as an Executive Vice President in Proview Group, a Hong Kong Stock Exchange listed company. And prior to that he was as a Vice President of Purchasing at Elitegroup Computer Systems Co., Ltd, a Taiwan Stock Exchange listed company. Mr. Huang holds a Bachelor degree in Electrical Engineering from Tamkang University in Taiwan.

Pan, I-Ming (Robin) has served as our director since November 2009. Previously, Mr. Pan also served as the Chief Executive Officer of Ambiwin Technology Inc., Vice President of Marketing at PQ International Co. from 2007 to 2008 and Vice President of Sales at Sinostar Technology Ltd. from 2005 to 2006. Mr. Pan also co-founded and served as the President and Chief Operating Officer of GMI Technology Inc. from 1995 to 2005. Mr. Pan holds a Bachelor degree in Electrical Engineering from Chung Yuan Christian University in Taiwan.

Zhou, Zhenyu has served as our Chief Executive Officer since December 2011. Dr. Zhou has over 17 years of senior management experience, with expertise in establishing R&D teams, setting strategy and product road maps, and driving revenue growth through design win activity. Dr. Zhou founded Mavrix in 2005 and became Actions’ Senior Vice President when Mavrix was acquired by Actions in 2010. Prior to that, Dr. Zhou served as Senior Vice President of digital imaging products at Fremont, California-based ESS Technology, Inc. after it acquired in February 2000 Irvine, California-based NetRidium Communications, Inc., or NetRidium, which Dr. Zhou founded in January 1999 and which was a developer of CMOS sensors for cell phone makers such as Motorola, Samsung and LG. Prior to founding NetRidium, Dr. Zhou held multiple senior-level engineering positions at Conexant/Rockwell in Newport Beach, California. Dr. Zhou graduated with a master's degree and a PhD from the Signal and Image Processing Institute at the University of Southern California, Viterbi School of Engineering. Dr. Zhou holds a master's degree and a bachelor's degree from Zhejiang University in Hangzhou, China.

Liu, I-Hung (Nigel) has served as our Chief Financial Officer since September 2011. Mr. Liu has over 14 years of accounting and finance experience and has been with Actions since 2007. He is a Certified Public Accountant, a Qualified Internal Auditor (QIA), and a Certified Internal Auditor in Taiwan. Previously, Mr. Liu spent seven years in multiple management positions, most recently as Senior Manager at PricewaterhouseCoopers. Mr. Liu received a bachelor’s degree in Accounting from Fu Jen Catholic University in Taiwan and a Master of Business Administration degree from National Taiwan University.

There are no family relationships among any of our executive officers and directors. There are no arrangements or understandings with any person pursuant to which any of our executive officers or directors were selected.

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| B. | Compensation

Cash Compensation

Our directors and senior management receive compensation in the form of salaries and annual bonuses. While we do not have a specific bonus plan setting the calculation of our annual bonuses, each director is entitled to receive an annual discretionary bonus of such amount as shall be determined by the board of directors. Additionally, our senior management and employees are entitled to receive an annual discretionary bonus based on their individual performance and our financial performance during the year in question.

The aggregate amount of salaries and bonuses paid by us to our current directors and executive officers during the year ended December 31, 2012 was approximately US$0.9 million. None of our directors or executive officers has any employment or service contracts with us providing for benefits upon termination of employment.

We do not, nor do any of our subsidiaries, provide pension, retirement or similar benefits to our executive officers and directors.

Equity Compensation

In 2012, 100,000 restricted share units, or RSUs, representing 600,000 ordinary shares, were granted under our 2007 Equity Performance and Incentive Plan, as amended, or the 2007 Plan, to our current directors and executive officers. The vesting dates of such RSUs ranged from 2012 to 2014, had an exercise price of zero and expiration dates ranging from 2014 to 2016.

Indemnification

As permitted by Cayman Islands law, our articles of association provide that we shall indemnify each of our directors and officers acting in relation to any of our affairs against any liability incurred by him as a result of any act or failure to act in carrying out his functions other than such liability (if any) that he may incur by his own willful neglect or default. No such director or officer shall be liable to our company for any loss or damage in carrying out his functions unless that liability arises through the willful neglect or default of such person.

2007 Equity Performance and Incentive Plan

In May 2007, our board of directors and shareholders adopted the 2007 Plan, which is intended to attract and retain officers, employees, non-employee directors and consultants for us and our subsidiaries and to provide to such persons incentives to stay with us or our subsidiaries and make superior contributions to us in the future. We have reserved 8 million ADSs upon exercise of awards granted under the 2007 Plan. In November 2010, our board of directors approved a proposal to amend the 2007 Plan by increasing the number of ADSs available for issuance pursuant to the 2007 Plan to 9.4 million. In April 2013, our board of directors approved a proposal to further amend the 2007 Plan by increasing the number of ADSs available for issuance pursuant to the 2007 Plan to 11.4 million and allowing for the grants of options which may be considered “incentive stock options” as such term is defined under Section 422 of the United States Internal Revenue Code of 1986, as amended.

Types of Awards. We may grant the following types of awards under our 2007 Plan:

| • | [Incentive stock options to purchase our ADSs;]

| • | Nonstatutory stock options to purchase our ADSs;

| • | Restricted shares, which are non-transferable ADSs, that may be subject to forfeiture;

| • | Restricted Shares Units, which represent the right to receive our ADSs at a specified date in the future, which may be subject to forfeiture.

Plan Administration. Our board of directors, or our compensation committee (or its subcommittee) designated by our board or directors, administers the 2007 Plan. A majority of the board of directors or the committee (or subcommittee) constitutes a quorum, and the action of the members of the board of directors or committee (or subcommittee) present at any meeting at which a quorum is present, or acts unanimously in writing, will be the acts of the board of directors or committee (or subcommittee).

The interpretation and construction by our board of directors of any provision of the 2007 Plan or of any agreement, notification or document evidencing the grant of option rights, restricted shares or restricted share units and any determination by the board of directors pursuant to any provision of the 2007 Plan or of any such agreement, notification or document will be final and conclusive. No member of our board of directors will be liable for any such action or determination made in good faith.

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Amendment. Our board of directors may at any time and from time to time amend the 2007 Plan in whole or in part; provided, however, that [any such amendment is subject to approval by our shareholders in the manner and to the degree required under ]applicable law or the rules of the NASDAQ Global Market or, if our ADSs are not quoted on the NASDAQ Global Market, the principal national securities exchange upon which our ordinary shares are traded or quoted. Nothing herein shall be construed to limit our authority to offer similar or dissimilar benefits under other plans or otherwise with or without further shareholder approval.

On February 26, 2009, we initiated an offer to amend, or the Offer to Amend, the terms of the options previously granted to certain of our employees, consultants, and non-employee directors. On March 20, 2009, we completed our Offer to Amend. As a result, options to purchase approximately 7,742,000 shares of our ADSs, or approximately 99.9% of all eligible options, were tendered for amendment in accordance with the Offer to Amend. The terms of our Offer to Amend can be found in the Form CB filed with the SEC on February 26, 2009.

Our board of directors also may permit participants to elect to defer the issuance of ADSs or the settlement of awards in cash under the 2007 Plan pursuant to such rules, procedures or programs as it may establish for purposes of the 2007 Plan. Our board of directors also may provide that deferred issuances and settlements include the payment or crediting of dividend equivalents or interest on the deferral amounts.

Our board of directors may condition the grant of any award or combination of awards authorized under the 2007 Plan on the surrender or deferral by the participant of his or her right to receive a cash bonus or other compensation otherwise payable by us or one of our subsidiaries to the participant.

In case of termination of employment by reason of death, disability or normal or early retirement, or in the case of hardship or other special circumstances, of a participant who holds an option right not immediately exercisable in full, or any restricted shares as to which the risk of forfeiture or the prohibition or restriction on transfer has not lapsed, or any restricted share units as to which the restriction period has not been completed, or who holds shares subject to any transfer restriction imposed pursuant to the 2007 Plan, the board of directors may, in its sole discretion, accelerate the time at which such option right may be exercised or the time at which such risk of forfeiture or prohibition or restriction on transfer will lapse or the time when such restriction period will end or the time when such transfer restriction will terminate or may waive any other limitation or requirement under any such award.

Our 2007 Plan does not confer upon any participant any right with respect to employment or other service with us or any of our subsidiaries (including, without limitation, continuation of employment), nor does it interfere in any way with any of our rights or the right of any of our subsidiaries would otherwise have to terminate such participant’s employment or other service at any time, with or without cause. The terms of employment of an employee is not affected by the execution of the 2007 Plan. Awards granted under the 2007 Plan do not form a part of the terms of employment of an employee or entitle such employee to take into account awards granted under the 2007 Plan when calculating any compensation or damages upon the termination of such employee’s employment for any reason.

Termination. No grant will be made under this 2007 Plan after April 1, 2023 but all grants made on or prior to such date will continue in effect thereafter subject to the terms thereof and of this Plan.

| C. | Board Practices

Our board of directors currently consists of seven members. Currently, three committees have been established under the board: the audit committee, the compensation committee and the nominations committee. Mr. Lin, Yu-Hsin Casper, Mr. Chen, Chin-Hsin Fred, Mr. Huang, Jun-Tse Walter and Mr. Pan, I-Ming Robin serve as independent board members on our audit committee, nominations committee and compensation committee. There are no family relationships between any of our executive officers and directors.

The audit committee is responsible for overseeing the accounting and financial reporting processes of our company and audits of our financial statements, including the appointment, compensation and oversight of the work of our independent auditors. Mr. Lin, Yu-Hsin Casper is the Chairman of the audit committee and an “audit committee financial expert” within the meaning of the Sarbanes-Oxley Act of 2002.

The compensation committee of the board of directors reviews and makes recommendations to the board regarding our compensation policies for our officers. Mr. Pan, I-Ming Robin is the Chairman of the compensation committee.

The nominations committee of the board of directors identifies individuals qualified to become members of the board, consistent with criteria approved by the board and selects or recommends that the board select, the director nominees for the next annual shareholders’ meeting and recommends members of the board to the board for committee membership. Mr. Huang, Jun-Tse Walter is the Chairman of the nominations committee.

None of our directors has contracts with us or any of our subsidiaries providing for benefits upon termination of employment.

Our board of directors is divided into three classes, with each class being elected, at succeeding annual general meetings of shareholders, for a term of three years. Messrs. Yeh, Chen and Pan have terms that expire at the 2013 annual general meeting of shareholders. Messrs. Li and Huang have terms that expire at the 2014 annual general meeting of shareholders. Messrs. Lee and Lin have terms that expire at the 2015 annual general meeting of shareholders.

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| D. | Employees

As of December 31, 2010 and 2011, we had 679 and, 708 full-time employees, respectively. As of December 31, 2012, we had 614 full-time employees, including 435 dedicated engineers in the research and development department, 32 field application engineers in customer service department, 22 in sales and marketing, 79 in general and administration and 46 in manufacturing and logistics functions. Of these full-time employees, 438 are located in Zhuhai, China, 55 in Shenzhen, China, 115 in Shanghai, China and 6 in Hong Kong. The decrease in the number of our full-time employees in 2012 was due to our continued efforts to improve workflow and process efficiency. We have never had a work stoppage and none of our employees are covered by a collective bargaining agreement. We believe that the relations between the Company and our employees are healthy.

We adopted the 2007 Plan that is designed to assist us to attract and retain key employees, directors and consultants of outstanding ability and to motivate such employees, directors and consultants to exert their best efforts on our behalf by providing compensation and incentives through the granting of awards.

Options granted under the 2007 Plan are mostly subject to two sets of vesting schedules. Under the equal vesting schedule, 25% of the ADSs underlying the option will vest on each anniversary of the grant date provided that the optionee remains in the continuous service of the Company through each such vesting date.

Under the graded vesting schedule, 15% of the ADSs on the first anniversary of the grant, 20%, 30% and 35% of the ADSs shall vest on each of the next three anniversaries of the grant, respectively, provided that the optionee remains in the continuous service of the Company through each such vesting date.

Additionally, we grant options under the 2007 Plan that are subject to performance-based vesting schedules as approved by our board of directors.

The total ADSs available for future grant were 1,576,130 ADSs as of December 31, 2012.

E. Share ownership

Our directors and senior management do not own any shares of the Company as of March 31, 2013. For a description of options granted to our directors and executive officers under the 2007 Plan, please see “Item 6. Directors, Senior Management and Employees - B. Compensation - Equity Compensation.”

The table below sets forth the ordinary shares beneficially owned by each of our directors and executive officers as of March 31, 2013, the most recent practicable date.

|  | Ordinary Shares Beneficially Owned(1) |  |
Name |  | Number |  | Percent(2) |  |
Lee, Hsiang-Wei (David) |  |  | * |  | * |
Lin, Yu-Hsin (Casper) |  |  | * |  | * |
Chen, Chin-Hsin (Fred) |  |  | * |  | * |
Li, Shao Chuan (Shawn) |  |  | * |  | * |
Zhou, ZhenYu |  |  | * |  | * |
Liu, I-Hung (Nigel) |  |  | * |  | * |
All directors and executive officers as a group(3) |  |  | * |  | * |

| * | Represents less than 1% of our ordinary shares.

| (1) | Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting power or investment power with respect to securities. The number of ordinary shares beneficially owned includes options currently exercisable into ordinary shares that will vest within 60 days after March 31, 2013 for the purpose of computing the number of shares beneficially owned by such shareholder. They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other shareholder.

| (2) | Percentage of ordinary shares is based on 410,958,576 ordinary shares outstanding as of March 31, 2013.

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| (3) | Includes 72,500 ADSs issuable upon exercise of options and RSUs held by our directors and executive officers that are exercisable or will become exercisable within 60 days of March 31, 2013.

As of April 22, 2013, our directors and executive officers held options to purchase an aggregate of 390,000 ADSs, representing 2,340,000 ordinary shares, and 100,000 RSUs representing 600,000 ordinary shares, under our 2007 Plan.

For information concerning the details of our 2007 Plan, pursuant to which we issue options, restricted share units or other securities to our employees, please see “Item 6.B. Directors, Senior Management and Employees — Compensation” and “Item 6.D. Directors, Senior Management and Employees — Employees.”

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. Major Shareholders

Based on our Register of Members, as of December 31, 2012, Devon Dragon Trading Limited held 3,840,691 of our ADSs, or approximately 5.6% of our outstanding shares. Devon Dragon Trading Limited does not have voting rights that are different from the voting rights of our other shareholders.

As of March 31, 2013, 410,597,976 of our ordinary shares were issued and outstanding. JPMorgan Chase Bank, N.A., the depositary, has advised us that, as of March 31, 2013, 42,279,303 ADSs, representing 253,675,818 underlying ordinary shares, were held of record by DTC, under the nominee name of Cede & Co., on behalf of DTC participants. To our knowledge, as of March 31, 2013, approximately 66.1% of our total outstanding ordinary shares (excluding 125,313,030 ordinary shares represented by 20,885,505 ADSs repurchased by us on the open market that have not yet been cancelled) were held by over 3,000 record holders in the United States, including approximately 61.7% of our total outstanding ordinary shares in the form of ADSs held of record by DTC and the number of beneficial owners of our ADS in the United States may be larger than the number of record holders of our ordinary shares in the United States.

B. Related Party Transactions

Details of the ownership by our employees of our ordinary shares as of March 31, 2013 are provided in the following table:

Name of BVI Company |  | Directors |  | Shares Beneficially Owned |  |
Fairly Consultants Limited (1) |  | Wu, Zhang Liang |  | 9,420,625 |  | 2.3 %

(1) Fairly Consultants Limited has twenty shareholders, ten of whom are our employees.

We have been notified by the shareholder named in the table above that its director, who is an employee or otherwise affiliated with us, has sole voting and investment power with respect to all of our ordinary shares shown as beneficially owned by it.

Transactions with GMI Technology

During the year ended December 31, 2010, 2011 and 2012, we sold products to GMI Technology amounting to US$7.5 million, US$5.8 million and US$1.8 million, respectively. The president of GMI Technology is the elder brother of Mr. Yeh, Nan-Horng, one of our directors.

Our Audit Committee has determined that our transactions with GMI were fair and reasonable to us and on terms comparable to those from unrelated third parties.

C. Interests of Experts and Counsel

Not applicable.

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ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

Financial Statements

Please see “Item 18. Financial Statements”. Other than as disclosed elsewhere in this annual report, no significant changes have occurred since the date of our annual financial statements.

Legal Proceedings

As of December 31, 2012, there were no legal or arbitration proceedings that have had in the recent past, or to our knowledge, may have, material effects on our financial position, profitability or cash flows.

Dividend Policy

Annual dividends, if any, on our shares and ADSs will be declared by and subject to the discretion of our board of directors. Our board of directors may from time to time pay to the shareholders such interim dividends as appear to our board of directors to be justified by our profits. We may pay dividends to shareholders in the future; however, such payments will depend upon a number of factors, including our results of operations, earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors considered relevant by our board of directors. We currently intend to retain all of our earnings to finance the development and expansion of our business and therefore do not intend to declare or pay cash dividends on our shares and ADSs in the near to medium term.

Our dividends may be declared and paid out of our profits, realized or unrealized, or from any reserve set aside from profits which the directors determine is no longer needed or out of our share premium account. We currently have no reserve set aside from profits for the payment of dividends.

Our ability to pay dividends depends substantially on the payment of dividends to us by Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen). Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen) may pay dividends only out of their accumulated distributable profits, if any, determined in accordance with their articles of association, and the accounting standards and regulations in China. In addition, each of Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), as a wholly foreign owned enterprise, is required to provide for a reserve fund and a staff and workers’ bonus fund, and to set aside at least 10% (up to an aggregate amount equal to half of its registered capital) of its after-tax profits each year at the discretion of its board of directors. Allocations to these statutory reserves and funds can only be used for specific purposes and are not distributable to us in the form of loans, advances, or cash dividends. Any limitation on the payment of dividends by our subsidiaries could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, and otherwise fund and conduct our businesses.

Our subsidiary Actions Semiconductor (Mauritius) declared a special dividend in June 2005 in the amount of US$20 million, which was paid in July 2005. We will not use this dividend distribution as a reference or basis to determine the amount of future dividends, if any. Any future dividends will be paid in accordance with our policy described above.

B. Significant Changes

Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.

ITEM 9. THE OFFER AND LISTING

A. Offer and Listing Details

Our ADSs have been quoted on The NASDAQ Global Market under the symbol ACTS since November 30, 2005. Each ADS represents six ordinary shares. On April 22, 2013, the last reported sale price of our ADSs on the NASDAQ Global Market was US$3.20.

The table below sets forth, for the periods indicated, the highest and lowest closing prices on the NASDAQ Global Market for our ordinary shares represented by ADSs.

|  | High |  |  | Low |
2008 |  |  | 4.40 |  |  |  | 1.35 |
2009 |  |  | 2.90 |  |  |  | 1.34 |
2010 |  |  | 2.54 |  |  |  | 1.95 |

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|  | High |  |  | Low |
2011 |  |  | 2.60 |  |  |  | 1.67 |
2012 |  |  | 1.92 |  |  |  | 1.46 |
First Quarter 2011 |  |  | 2.56 |  |  |  | 2.15 |
Second Quarter 2011 |  |  | 2.48 |  |  |  | 1.87 |
Third Quarter 2011 |  |  | 2.19 |  |  |  | 1.71 |
Fourth Quarter 2011 |  |  | 2.17 |  |  |  | 1.81 |
First Quarter 2012 |  |  | 1.92 |  |  |  | 1.65 |
Second Quarter 2012 |  |  | 1.72 |  |  |  | 1.50 |
Third Quarter 2012 |  |  | 1.75 |  |  |  | 1.57 |
Fourth Quarter 2012 |  |  | 1.64 |  |  |  | 1.46 |
October 2012 |  |  | 1.64 |  |  |  | 1.46 |
November 2012 |  |  | 1.63 |  |  |  | 1.53 |
December 2012 |  |  | 1.64 |  |  |  | 1.55 |
2013 |  |  |  |  |  |  |  |
January 2013 |  |  | 2.16 |  |  |  | 1.62 |
February 2013 |  |  | 2.25 |  |  |  | 1.96 |
March 2013 |  |  | 2.63 |  |  |  | 2.11 |
April (through April 22, 2013) |  |  | 3.24 |  |  |  | 3.12 |

B. Plan of Distribution

Not applicable.

C. Markets

Our ADSs are listed on the NASDAQ Global Market under the symbol “ACTS”.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expense of the Issue

Not applicable.

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ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

Company Objects and Purposes

We are a Cayman Islands exempted company and our affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and the Companies Law (2012 Revision) of the Cayman Islands, which is referred to below as the Companies Law. A Cayman Islands exempted company is a company that conducts its business outside of the Cayman Islands, is exempted from certain requirements of the Companies Law, including a filing of an annual return of its shareholders with the Registrar of Companies, does not have to make its register of shareholders open to inspection and may obtain an undertaking against the imposition of any future taxation. According to our memorandum and articles of association, the objects for which we are established are unrestricted and we have full power and authority to carry out any object not prohibited by the Companies Law or as the same may be revised from time to time, or any other law of the Cayman Islands.

The following are summaries of material terms and provisions of our memorandum and articles of association and the Companies Law insofar as they relate to the material terms of our ordinary shares. These summaries are not complete, and you should read the forms of our memorandum and articles of association, which was filed as exhibits to our registration statement on Form F-1.

The holders of ADSs will not be treated as our shareholders and will be required to surrender their ADSs for cancellation and withdrawal from the depositary facility in which the ordinary shares are held in order to exercise shareholders’ rights in respect of the ordinary shares. The depositary will agree, so far as it is practical, to vote or cause to be voted the amount of ordinary shares represented by ADSs in accordance with the non-discretionary written instructions of the holder of such ADSs.

Board of Directors

We are managed by a board of directors which currently consists of seven members. Our articles of association provide that the board of directors shall consist of not more than seven directors.

The directors are divided into three classes, designated Class I, Class II, and Class III, as nearly equal in number as the then total number of directors permits. At the 2006 annual meeting of shareholders, all directors stood for election. Class I Directors were elected for a one-year term, Class II Directors for a two-year term and Class III Directors for a three-year term. At each succeeding annual meeting of shareholders beginning in 2007, successors to the class of directors whose terms expire at that annual meeting were or shall be elected for a three-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional directors of any class elected to fill a vacancy resulting from an increase in such class will hold office for a term that coincides with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director.

Our shareholders may by special resolution at any time remove any director for negligence or other reasonable cause before the expiration of his period of office notwithstanding anything in the articles of association or in any agreement between us and such director, and may by ordinary resolution elect another person in his stead. Any person so elected will hold office during such term only as the director in whose place he is elected would have held the same if he had not been removed. Subject to our articles of association, the directors will have power at any time and from time to time to appoint any person to be a director, either as an addition to the existing directors or to fill a vacancy resulting from death, resignation, retirement, disqualification, removal from office or any other reason, but so that the total number of directors (exclusive of alternate directors) must not at any time exceed the number fixed in accordance with the articles of association.

There are no share ownership qualifications for directors.

Meetings of our board of directors may be convened at any time deemed necessary by any member of our board of directors or any alternate director, by giving at least two days' notice in writing to every director and alternate director, provided that notice of a meeting is not required if all our directors (or their alternates) waive such notice either at, before or after the meeting.

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The quorum necessary for the transaction of business at any meeting of our board of directors may be fixed by our directors, and unless so fixed shall be a majority of the then existing directors. At any meeting of our directors, each director, by his or her presence or by his or her alternate, is entitled to one vote. A director shall not be disqualified by his office from contracting with our company, nor shall any such contract or arrangement entered into by our company with any person, company or partnership in which a director shall be a member or otherwise interested be capable on that account of being avoided, nor shall a director so contracting or being so interested be liable to account to our company for any profit so realized by any such contract or arrangement by reason only of such director holding that office , provided, (a) such director must, if his interest in such contract or arrangement is material, declare the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which we may subsequently make and (b) if such contract or arrangement is a transaction with a related party, such transaction has been approved by our Audit Committee.

Questions arising at a meeting of our board of directors are required to be decided by simple majority votes of the members of our board of directors present or represented at the meeting. In the case of a tie vote, the chairman of the meeting shall have a second or deciding vote. Our board of directors may also pass resolutions without a meeting by unanimous written consent.

Subject to the recommendation of our Compensation Committee, the remuneration to be paid to the directors shall be such remuneration as the directors shall determine. Such remuneration shall be deemed to accrue from day to day. The directors shall also be entitled to be paid their traveling, hotel and other expenses properly incurred by them in going to, attending and returning from meetings of the directors, or any committee of the directors, or general meetings of the company, or otherwise in connection with our business, or to receive a fixed allowance in respect thereof as may be determined by the directors from time to time, or a combination partly of one such method and partly the other.

Under Cayman Islands laws, our directors have a duty of loyalty and must act honestly and in good faith and in our best interests. Our directors also have a duty to exercise the care, diligence, and skills that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duties to us, our directors must ensure compliance with the memorandum and articles of association and the class rights vested thereunder in the holders of the shares. The Company may in certain circumstances have rights to damages if a duty owed by the directors is breached.

Voting Rights Attaching to the Shares

Subject to any rights or restrictions attached to any shares, at any general meeting every shareholder who is present in person (or, in the case of a shareholder being a corporation, by its duly authorized representative) or by proxy shall have one vote and on a poll every shareholder present in person (or, in the case of a shareholder being a corporation, by its duly appointed representative) or by proxy shall have one vote for each share which such shareholder is the holder. Voting at any meeting of the shareholders is by taking a poll.

Any ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes cast at a meeting of our shareholders, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast at a meeting of our shareholders. Holders of our ordinary shares may by ordinary resolution, among other things, elect directors, and make alterations of capital. A special resolution is required for matters such as a change of name.

No shareholder shall be entitled to vote or be reckoned in a quorum, in respect of any share, unless such shareholder is registered as our shareholder at the applicable record date for that meeting.

If a recognized clearing house (or its nominee(s)) is our shareholder, it may authorize such person or persons as it thinks fit to act as its representative(s) at any meeting or at any meeting of any class of shareholders provided that, if more than one person is so authorized, the authorization shall specify the number and class of shares in respect of which each such person is so authorized. A person authorized pursuant to this provision is entitled to exercise the same powers on behalf of the recognized clearing house (or its nominee(s)) as if such person was the registered holder of our shares held by that clearing house (or its nominee(s)) including the right to vote individually on a show of hands.

Protection of Minority Shareholders

The Grand Court of the Cayman Islands may, on the application of shareholders holding not less than one-fifth of our shares in issue, appoint an inspector to examine our affairs and report thereon in a manner as the Grand Court shall direct.

Any shareholder may petition the Grand Court of the Cayman Islands which may make a winding up order, if the court is of the opinion that it is just and equitable that we should be wound up.

Claims against us by our shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by our memorandum and articles of association.

The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against, or derivative actions in our name to challenge (1) an act which is ultra vires or illegal, (2) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of us, and (3) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

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Pre-emption Rights

There are no pre-emption rights applicable to the issuance of new shares under either Cayman Islands law or our memorandum and articles of association.

Liquidation Rights

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares, if the Company shall be wound up the liquidator may, with the sanction of a Special Resolution of the Company and any other sanction required by the Companies Law, divide among the shareholders in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for that purpose value any assets and determine how the division shall be carried out as between the shareholders or different classes of shareholders. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the shareholders as the liquidator, with the like sanction, shall think fit, but so that no shareholders shall be compelled to accept any asset upon which there is a liability. If the Company shall be wound up, and the assets available for distribution among the shareholders as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the shareholders in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if winding up the assets available for distribution among the shareholders shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed amongst the shareholders in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively.

Modification of Rights

Except with respect to share capital (as described below) and the location of the registered office, alterations to our memorandum and articles of association may only be made by special resolution of no less than two-thirds of votes cast at a meeting of the shareholders.

Subject to the Companies Law, all or any of the special rights attached to any class, unless otherwise provided for by the terms of issue of the shares of that class, may be varied, modified or abrogated either with the consent in writing of the holders of not less than 75% of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. The provisions of our articles of association relating to general meetings shall apply mutatis mutandis to every such separate general meeting, but so that the quorum for the purposes of any such separate general meeting other than an adjourned meeting shall be a person or persons together holding, or represented by proxy, on the date of the relevant meeting not less than one-third of the issued shares of that class, every holder of shares of the class shall be entitled on a poll to one vote for every such share held by such holder.

The special rights conferred upon the holders of any class of shares shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

Meetings

Subject to our articles of association, any general meeting of our shareholders shall be called by not less than 20 days’(but not more than 60 days’) notice in writing. Notice of every general meeting will be given to all of our shareholders.

Notwithstanding that a meeting is called by shorter notice than that mentioned above, but, subject to our articles of association, it will be deemed to have been duly called, if it is so agreed (1) in the case of a meeting called as an annual general meeting by all of our shareholders (or their proxies) entitled to attend and vote at the meeting; or (2) in the case of any other meeting, by a majority in number of our shareholders having a right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving that right.

No business other than the appointment of a chairman of the meeting may be transacted at any general meeting unless a quorum is present at the commencement of business. However, the absence of a quorum will not preclude the appointment of a chairman of the meeting. If present, the chairman of our board of directors shall be the chairman presiding at any shareholders’ meetings.

Any member(s) holding in the aggregate not less than one-third of the outstanding voting shares of the company shall constitute a quorum.

A corporation being a shareholder shall be deemed for the purpose of our articles of association to be present in person if represented by its duly authorized representative. Such duly authorized representative shall be entitled to exercise the same powers on behalf of the corporation which he or she represents as that corporation could exercise if it were our individual shareholder.

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The quorum for a separate general meeting of the holders of a separate class of shares is described in “Modification of Rights” above.

Transfer of Shares

Subject to any applicable restrictions set forth in our articles of association, any of our shareholders may transfer all or any of his or her shares by an instrument of transfer in the usual or common form or in any other form which our directors may approve.

Our board of directors may, in its absolute discretion, decline to register any transfer of any share without assigning any reasons therefor.

If our directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 45 days in any year.

Share Repurchase

We are empowered by the Companies Law and our articles of association to purchase our own shares, subject to certain restrictions. Our directors may only exercise this power on our behalf, subject to the Companies Law, our memorandum and articles of association and to any applicable requirements imposed from time to time by the SEC, the NASDAQ Global Market, or by any recognized stock exchange on which our securities are listed.

Dividends

Subject to the Companies Law and to our articles of association, our board of directors may, from time to time, declare dividends (including interim dividends) in any currency. No dividend may be declared or paid other than out of our profits and reserves lawfully available for distribution, including share premium.

Subject to the rights of persons, if any, entitled to shares with special rights as to dividends or distributions, if dividends are to be declared on a class of shares they shall be declared and paid according to the amounts paid or credited as paid on the shares of such class outstanding on the record date for such dividend but no amount paid or credited as paid on a share in advance of calls shall be treated as paid up on the share.

Our board of directors may deduct from any dividend or other distribution payable to any shareholder all sums of money, if any, presently payable by him or her to us on account of calls, installments or otherwise.

No dividend shall carry interest against us.

Any dividend, interest or other sum payable in cash to a holder of shares may be paid by check or warrant sent through the post addressed to the registered address of the shareholder entitled, or in the case of joint holders, to the registered address of the person whose name stands first in our register of shareholders in respect of the joint holding to such person and to such address as the holder or joint holders may in writing direct. Every check or warrant so sent shall be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on our register of shareholders in respect of such shares, and shall be sent at his or their risk and the payment of any such check or warrant by the bank on which it is drawn shall operate as a good discharge to us in respect of the dividend and/or bonus represented thereby, notwithstanding that it may subsequently appear that the same has been stolen or that any endorsement there on has been forged.

Any dividend unclaimed for six years from the date of declaration of such dividend may be forfeited by the board of directors and shall revert to us.

Our board of directors may, with the sanction of the shareholders in general meeting, direct that any dividend be satisfied wholly or in part by the distribution of specific assets of any kind, and in particular of paid up shares, debentures or warrants to subscribe securities of any other company, and where any difficulty arises in regard to such distribution our directors may settle it as they think expedient, and in particular may disregard fractional entitlements, round the same up or down or provide that the same shall accrue to our benefit, and may fix the value for distribution of such specific assets and may determine that cash payments shall be made to any of our shareholders upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to our board of directors.

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Issuance of Additional Ordinary Shares or Preferred Shares

Our articles of association authorizes our board of directors to issue additional ordinary shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.

Our articles of association authorizes our board of directors to establish from time to time one or more series of preferred shares and to determine, with respect to any series of preferred shares, the terms and rights of that series, including:

| • | the designation of the series;

| • | the number of shares of the series;

| • | the dividend rights, dividend rates, conversion rights, voting rights; and

| • | the rights and terms of redemption and liquidation preferences.

Our board of directors may issue series of preferred shares without action by our shareholders to the extent authorized but unissued. Accordingly, the issuance of preferred shares may adversely affect the rights of the holders of the ordinary shares. In addition, the issuance of preferred shares may be used as an anti-takeover device without further action on the part of the shareholders, subject to general principles of Cayman Islands common law, including the duties of our board of directors to exercise their power for a proper purpose. We have no immediate plans to issue any preferred shares.

The listing maintenance requirements of the NASDAQ Global Market, which apply so long as our ADSs are quoted on that market, require shareholder approval of certain issuances of our securities equal to or exceeding 20% of the then outstanding voting power of all our securities or the then outstanding number of our ordinary shares.

Inspection of Books and Records

Holders of our ordinary shares have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements.

Untraceable Shareholders

We are entitled to sell any shares of a shareholder who is untraceable, provided that:

| • | all checks or warrants, not being less than three in number, for any sums payable in cash to the holder of such shares have remained uncashed for a period of 12 years;

| • | we have not during that time or before the expiry of the three-month period referred to in the last bullet under this section received any indication of the whereabouts or existence of the shareholder or person entitled to such shares by death, bankruptcy or operation of law;

| • | during the 12-year period, at least three dividends in respect of the shares in question have become payable and no dividend during that period has been claimed by the shareholder; and

| • | Upon expiration of the 12-year period, we have caused an advertisement to be published in newspapers (or, by electronic communication in the manner in which notices may be served by us by electronic means as provided in our articles of association), giving notice of its intention to sell these shares, and a period of three months has elapsed since such advertisement.

The net proceeds of any such sale shall belong to us, and when we receive these net proceeds we shall become indebted to the former shareholder for an amount equal to such net proceeds.

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Differences in Corporate Law

The Companies Law distinguishes between ordinary resident companies and exempted companies, and we are an exempted company with limited liability under the Companies Law. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The responsibilities of an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:

| • | an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;

| • | an exempted company does not have to hold an annual general meeting;

| • | an exempted company may issue no par value, negotiable or bearer shares;

| • | an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

| • | an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

| • | an exempted company may register as a limited duration company; and

| • | an exempted company may register as a segregated portfolio company.

The company has not registered as a limited duration company or a segregated portfolio company and could not do so without prior shareholder approval. The company has no intention to seek such shareholder approval.

The Companies Law is modeled after similar laws in the United Kingdom but does not follow recent changes in United Kingdom laws. In addition, the Companies Law differs from laws applicable to U.S. corporations and their shareholders. Set forth below is a summary of the significant provisions of the Companies Law applicable to us.

Duties of Directors

Under Cayman Islands law, at common law, members of a board of directors owe a fiduciary duty to the company to act in good faith in their dealings with or on behalf of the company and exercise their powers and fulfill the duties of their office honestly. This duty has four essential elements:

| • | a duty to act in good faith in the best interests of the company;

| • | a duty not to personally profit from opportunities that arise from the office of director;

| • | a duty to avoid conflicts of interest; and

| • | a duty to exercise powers for the purpose for which such powers were intended.

In general, the Companies Law imposes various obligations on directors of a company with respect to certain matters of management and administration of the company. The Companies Law contains provisions, which impose default fines on persons who fail to satisfy those requirements. However, in many circumstances, an individual is only liable if he knowingly is guilty of the default or knowingly and willfully authorizes or permits the default.

Interested Directors

The Companies Law does not require a director who is interested in a transaction entered into by a Cayman company to disclose his interest nor render such director liable to such company for any profit realized pursuant to such transaction.

Voting Rights and Quorum Requirements

Under Cayman Islands law, the voting rights of shareholders are regulated by the company’s articles of association and, in certain circumstances, the Companies Law. The articles of association will govern matters such as quorum for the transaction of business, rights of shares, and majority votes required to approve any action or resolution at a meeting of the shareholders or board of directors. Our articles of association provide that any member(s) holding in the aggregate not less than one-third of the outstanding voting shares of the company shall be a quorum for a general meeting. Under Cayman Islands law, certain matters must be approved by a special resolution which is defined as two-thirds of the votes cast by shareholders present at a meeting and entitled to vote. Other than special resolutions, all resolutions shall be passed by a simple majority of those shares voted at a meeting at which a quorum is present.

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Mergers and Similar Arrangements

The Companies Law permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation (a “Plan”), which must then be authorized by (a) a special resolution of the shareholders of each constituent company voting together as one class if, and (b) such other authorization, if any, as may be specified in such constituent company's articles of association. The Plan must be filed with the Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the members and creditors of each constituent company and that notice of the merger or consolidation will be published in the Cayman Islands Gazette. Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed between the parties, will be determined by the Cayman Islands court) if they follow the required procedures, subject to certain exceptions. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.

In addition to the statutory merger provisions, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in-person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:

| • | the statutory provisions as to majority vote have been complied with;

| • | the shareholders have been fairly represented at the meeting in question;

| • | the arrangement is one that a businessman would reasonably approve; and

| • | the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

When a takeover offer is made and accepted by holders of 90.0% of the shares affected within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.

If the arrangement and reconstruction are thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of U.S. corporations, providing rights to receive payment in cash for the judicially determined value of the shares.]

Shareholder Suits

The Cayman Islands courts can be expected to follow English case law precedents. The common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) which permit a minority shareholder to commence a class action against or derivative actions in the name of the Company to challenge (a) an act which is ultra vires to the Company or illegal, (b) an act which constitutes a fraud against the minority where the wrongdoers are themselves in control of the Company, and (c) an action which requires a resolution with a qualified (or special) majority which has not been obtained) have been applied and followed by the courts in the Cayman Islands.

Under Delaware law, a stockholder may bring a derivative action on behalf of the corporation to enforce the rights of the corporation. Delaware law expressly authorizes stockholder derivative suits on the condition that the stockholder either held the stock at the time of the transaction of which the stockholder complains, or acquired the stock thereafter by operation of law and continues to hold it throughout the duration of the suit. An individual may also commence a class action suit on behalf of himself and other similarly situated stockholders where the requirements for maintaining a class action under Delaware law have been met. A plaintiff instituting a derivative suit is required to serve a demand on the corporation before bringing suit, unless such demand would be futile.

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Corporate Governance

Cayman Islands laws do not restrict transactions with directors, requiring only that directors exercise a duty of care and owe a fiduciary duty to the companies for which they serve. Under our memorandum and articles of association, subject to any separate requirement for audit committee approval under the applicable rules of The NASDAQ Stock Market, Inc., a director shall not be disqualified by his office from contracting with our company, nor shall any such contract or arrangement entered into by our company with any person, company or partnership in which a director shall be a member or otherwise interested be capable on that account of being avoided, nor shall a director so contracting or being so interested be liable to account to our company for any profit so realized by any such contract or arrangement by reason only of such director holding that office , provided, (a) such director must, if his interest in such contract or arrangement is material, declare the nature of his interest at the earliest meeting of the board at which it is practicable for him to do so, either specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which we may subsequently make and (b) if such contract or arrangement is a transaction with a related party, such transaction has been approved by the Audit Committee.

Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our articles of association provide for the indemnification of our directors, auditors and other officers against all liabilities incurred by him or her as a result of any act or failure to act in carrying out his or her functions other than such liability (if any) that he or she may incur by his own willful neglect or default.

Approval of Corporate Matters by Written Consent

As permitted by the Companies Law, our articles of association allow a special resolution to be passed in writing if signed by all our shareholders.

Calling of Special Shareholders Meetings

As a Cayman Islands exempted company, we are not obliged by the Companies Law to call shareholders’ annual general meetings. Our articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors

Staggered Board of Directors

The Companies Law does not contain statutory provisions that require staggered board arrangements for a Cayman Islands company. Such provisions, however, may validly be provided for in the articles of association, and we have provided for a staggered board of directors in our articles of association. Pursuant to such provision, the term of office of one class of the current members of our shall terminate (but such directors shall be eligible to stand for re-election) at each annual general meeting of our company.

Issuance of Preferred Stock

The Companies Law allows shares to be, issued with preferred, deferred or other special rights, whether in regard to dividends, voting, return of share capital or otherwise. Our articles of association provide that the directors may allot, issue, grant options over or otherwise dispose of shares (including fractions of a share) with or without preferred, deferred or other special rights or restrictions, in one or more series, whether with regard to dividend rights, dividend rates, conversion rights, voting rights, rights and terms of redemption and liquidation preferences or otherwise and to such persons, at such times and on such other terms as they think proper.

Anti-takeover Provisions

The Companies Law does not prevent companies from adopting a wide range of defensive measures, such as staggered boards, blank check preferred stock, removal of directors only for cause and provisions that restrict the rights of shareholders to call meetings and submit shareholder proposals. Our articles of association contain the provisions regarding a staggered board of directors which may be regarded as a defensive measure.

Alteration of Capital

Our company may from time to time by ordinary resolution:

| • | increase our share capital by such sum as the resolution shall prescribe and with such rights, priorities and privileges annexed thereto, as our company in general meeting may determine;

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| • | consolidate and divide all or any of our share capital into shares of larger amount than our existing shares;

| • | by subdivision of our existing shares or any of them divide the whole or any part of our share capital into shares of smaller amount than is fixed by our Memorandum of Association or into shares without par value; and

| • | cancel any shares that at the date of the passing of the resolution have not been taken or agreed to be taken by any person.

We may, by special resolution, subject to any confirmation or consent required by the Companies Law, reduce our share capital or any capital redemption reserve fund in any manner authorized by law.

C. Material Contracts

Not Applicable.

D. Exchange Controls

Foreign Currency Exchange

Pursuant to the Administrative Regulations on Foreign Exchange amended by the State Council on August 5, 2008 and effective as of the same date and various further regulations issued by SAFE, RMB can be freely converted into foreign currency and remitted out of China through a designated foreign exchange bank for current account transactions, such as payment for purchase of goods and services as long as such payment is supported by bona fide legal transactions, , which shall be examined by the bank. For capital account transactions, such as equity investments and loans, conversion of foreign currency into RMB or RMB into foreign currency, and remittance thereof into or out of China requires approval or registration by SAFE or its local counterparts.

Within China, unless otherwise approved, all payments must be made in RMB. Pursuant to the new amended regulation, Chinese companies may repatriate foreign currency payments received from abroad into China or retain them abroad, the conditions and terms thereof shall be provided by SAFE, in accordance with the balance of payments and the need of foreign currency administration .Foreign invested enterprises, such as Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), are allowed to retain foreign currency in accounts with designated foreign exchange banks, subject to a maximum amount set by SAFE.

Dividend Distribution

The principal regulations governing distribution of dividends by wholly foreign owned enterprises include the Wholly Foreign-owned Enterprise Law amended by SCNPC on October 31, 2000 and effective as of the same date, and its Implementing Rules amended by the State Council on April 12, 2001 and effective as of the same date.

Under these regulations, a foreign invested enterprise in China may pay dividends only out of its accumulated distributable profits, if any, determined in accordance with its articles of association, and the accounting standards and regulations in China. In particular, each of our principal PRC subsidiaries, Actions Semiconductor (Zhuhai) and Artek Microelectronics (Shenzhen), as wholly foreign owned enterprises, is required to set aside at least 10% of their respective after-tax profits each year, if any, to fund certain reserve funds until such reserves have reached at least 50% of their respective registered capital. These reserves are not distributable as cash.

E. Taxation

Cayman Islands Taxation

The following discussion of the material Cayman Islands tax consequences of an investment in our ordinary shares or ADSs does not consider any investor’s particular circumstances, and does not consider tax consequences other than those arising under Cayman Islands law.

The Cayman Islands currently have no exchange control restrictions and no income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax applicable to us or to any holder of ADS or of ordinary shares. Accordingly, any payment of dividends or any other distribution made on the ordinary shares will not be subject to taxation in the Cayman Islands, no Cayman Islands withholding tax will be required on such payments to any shareholder and gains derived from the sale of ordinary shares will not be subject to Cayman Islands capital gains tax. The Cayman Islands are not party to any double taxation treaties that are applicable to any payments made by or to our company.

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We have obtained an undertaking from the Governor-in-Cabinet of the Cayman Islands that, in accordance with section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, for a period of 20 years from August 9, 2005, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations will apply to us or our operation and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of the estate duty or inheritance tax will be payable (i) on or in respect of our shares, debentures, or other obligations, or (ii) by way of withholding in whole or in part of a payment of dividend or other distribution of income or capital by us.

PRC Tax

If we declare dividends to our ordinary share and ADS holders from income originated from our PRC subsidiaries, it is unclear whether such dividends will be deemed to be derived from sources within the PRC under the EIT Law and be subject to a 10% withholding tax. Accordingly, we may be required under the EIT Law to withhold PRC income tax on our dividends payable to our non-PRC shareholders and ADS holders. Please see “Item 3.D. Risk Factors – Risks Relating to Doing Business in China – Dividends we receive from our non-PRC resident subsidiaries and dividends payable by us to our foreign investors and gain on the sale of our Shares may become subject to withholding taxes under PRC tax laws.”

United States Federal Income Taxation

The following is a summary of the material United States federal tax consequences relating to the purchase, ownership, and disposition of the ordinary shares or ADSs. The information provided below is based on the United States Internal Revenue Code of 1986, as amended, or the Code, Treasury Regulations, proposed Treasury Regulations, Internal Revenue Service, or the IRS, published rulings and court decisions, all as of the date hereof. These authorities may change, possibly on a retroactive basis, or the IRS might interpret the existing authorities differently. In either case, the tax consequences of purchasing, owning or disposing of ordinary shares or ADSs could differ from those described below. We do not intend to obtain a ruling from the IRS with respect to the tax consequences of acquiring or holding the ordinary shares or ADSs.

This description is general in nature and does not discuss all aspects of U.S. federal income taxation that may be relevant to a particular investor in light of the investor’s particular circumstances, or to certain types of investors subject to special treatment under U.S. federal income tax laws, such as:

| • | banks or financial institutions;

| • | life insurance companies;

| • | tax-exempt organizations;

| • | dealers in securities or foreign currencies;

| • | traders in securities that elect to apply a mark-to-market method of accounting;

| • | shareholders that actually or constructively hold 10% or more of the total combined voting power of all of the classes of our stock entitled to vote;

| • | persons holding ordinary shares or ADSs as part of a position in a “straddle” or as part of a “hedging,” “conversion” or “integrated” transaction for U.S. federal income tax purposes;

| • | persons subject to the alternative minimum tax provisions of the Code; and

| • | persons that have a “functional currency” other than the U.S. dollar.

This description generally applies to U.S. Holders (as defined below) of the ordinary shares or ADSs who hold the ordinary shares or ADSs as capital assets. This description does not consider the effect of any foreign, state, local or other tax laws that may be applicable to particular investors.

Investors considering the purchase of ordinary shares or ADSs should consult their own tax advisors regarding the application of the U.S. federal income tax laws to their particular situations and the consequences of U.S. federal estate or gift tax laws, foreign, state, or local laws, and tax treaties.

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U.S. Holders

As used herein, the term “U.S. Holder” means a beneficial owner of ordinary shares or ADSs that is:

| • | a citizen or resident of the U.S. for U.S. federal income tax purposes;

| • | a corporation or other entity taxable as a corporation for U.S. federal income tax purposes organized in or under the laws of the U.S. or any political subdivision thereof;

| • | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

| • | a trust, if such trust validly elects to be treated as a U.S. person for U.S. federal income tax purposes, or if (a) a court within the U.S. can exercise primary supervision over its administration and (b) one or more U.S. persons have the authority to control all of the substantial decisions of such trust.

If a partnership (including any entity treated as a partnership for U.S. tax purposes) is a beneficial owner of the ordinary shares or ADSs, the U.S. tax treatment of a partner in the partnership will generally depend on the status of the partner and the activities of the partnership. A holder of the ordinary shares or ADSs that is a partnership and partners in such partnership should consult their tax advisors about the U.S. federal income tax consequences of holding and disposing of the ordinary shares or ADSs.

For U.S. federal income tax purposes, U.S. Holders of ADSs will be treated as the beneficial owners of the underlying shares represented by the ADSs. Accordingly, no gain or loss will be recognized upon the exchange of ADSs for the holder’s proportionate interest in the shares, a holder’s tax basis in the withdrawn shares will be the same as its tax basis in the ADSs surrendered in exchange therefor, and the holding period in the withdrawn shares will include the period during which the holder held the surrendered ADSs.

Passive Foreign Investment Company

A company is considered a passive foreign investment company, or PFIC, for any taxable year if either:

| • | at least 75% of its gross income is passive income; or

| • | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.

For the purpose of applying the income and asset tests described above, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation if we own, directly or indirectly, 25% or more (by value) of the stock of such corporation.

We believe we were classified as a PFIC for calendar year 2012 and we expect to be classified as a PFIC for calendar year 2013 and for the foreseeable future. The determination of whether or not we are classified as a PFIC is a factual determination that is made annually based on the categories and amounts of income that we earn and the categories and valuation of our assets (including goodwill), all of which are subject to change. There is no assurance as to the categories of assets in which we may invest. Moreover, in calculating goodwill, the valuation of our assets may be based on our anticipated total market value, determined with reference to the market price of our ordinary shares or ADSs.

Assuming we are classified as a PFIC at any time during a U.S. Holder’s holding period in ordinary shares or ADSs, you would be subject to special rules generally intended to reduce or eliminate any benefits from the deferral of United States federal income tax that a U.S. Holder could derive from investing in a non-United States company that does not distribute all of its earnings on a current basis. In such event, you may be subject to tax at ordinary income tax rates on (i) any gain recognized on the sale of the ordinary shares or ADSs and (ii) any “excess distribution” paid on ordinary shares or ADSs (generally, a distribution in excess of 125% of the average annual distributions paid by us in the three preceding taxable years). In addition, you may be subject to an interest charge on such gain or excess distribution. Finally, the 20% maximum rate on our dividends would not apply if we are or become a PFIC.

Assuming we are a PFIC, you would generally be able to avoid the “excess distribution” rules described above by making a timely so-called “mark-to-market” election with respect to your ADSs and ordinary shares provided our ADSs and ordinary shares are “marketable.” If you made this election in a timely fashion, you would recognize as ordinary income or ordinary loss the difference between the fair market value of your ADSs and ordinary shares on the first day of any taxable year and their value on the last day of that taxable year. Any ordinary income resulting from this election would generally be taxed at ordinary income rates and would not be eligible for the reduced rate of tax applicable to qualified dividend income. Any ordinary losses would be limited to the extent of the net amount of previously included income as a result of the mark-to-market election, if any. Your basis in the ADSs and ordinary shares would be adjusted to reflect any such income or loss.

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We do not intend to provide you with the information you would need to make or maintain a so-called “Qualified Electing Fund” or “QEF” election. Accordingly, if we were a PFIC in any year you would not be able to avoid the “excess distribution” rules described above by making such an election with respect to your ADSs and ordinary shares.

A U.S. Holder is required to file an IRS Form 8621 for any year in which our ordinary shares or ADSs constitute stock in a PFIC.

You are urged to consult your tax advisor regarding the potential tax consequences to you assuming we are or become a PFIC, as well as any elections that may be available to you to mitigate such consequences.

Taxation of Dividends and Other Distributions on Ordinary Shares or ADSs

Subject to the PFIC rules discussed above, all distributions to a U.S. Holder with respect to the U.S. Holder’s ordinary shares or ADSs, other than certain pro rata distributions of our shares, will be includible in the U.S. Holder’s gross income as ordinary dividend income when received, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits. For this purpose, earnings and profits will be computed under U.S. federal income tax principles. The dividends will not be eligible for the dividends-received deduction allowed to corporations. To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of capital to the extent of the U.S. Holder’s tax basis in the U.S. Holder’s ordinary shares or ADSs, and to the extent the amount of the distribution exceeds the U.S. Holder’s tax basis, the excess will be taxed as capital gain.

Dividends paid in RMB will be included in each U.S. Holder’s income as a U.S. dollar amount based on the spot rate in effect on the date that the U.S. Holder (or, in the case of a U.S. Holder of ADSs, the Depositary) receives the dividend, regardless of whether the payment is converted into U.S. dollars. If the U.S. Holder (or the Depositary) does not receive U.S. dollars on the date the dividend is distributed, the U.S. Holder will be required to include either gain or loss in income when the U.S. Holder (or the Depositary) later exchanges the RMB for U.S. dollars. The gain or loss will be equal to the difference between the U.S. dollar value of the amount that the U.S. Holder includes in income when the dividend is received and the amount that the U.S. Holder receives on the exchange of the RMB for U.S. dollars. The gain or loss generally will be ordinary income or loss from United States sources. If we distribute non-cash property as a dividend, the U.S. Holder will generally include in income an amount equal to the fair market value, in U.S. dollars, of the property on the date that it is distributed. Dividends will constitute foreign source income for foreign tax credit limitation purposes. The rules relating to the foreign tax credit are complex and U.S. Holders should consult their tax advisors to determine the foreign tax credit implications of owning the ordinary shares or ADSs.

Taxation of Disposition of Ordinary Shares or ADSs

Subject to the PFIC rules discussed above, a U.S. Holder will recognize taxable gain or loss on any sale or exchange of ordinary shares or ADSs equal to the difference between the amount realized (in U.S. dollars) for the ordinary shares or ADSs and the U.S. Holder’s tax basis (in U.S. dollars) in the ordinary shares or ADSs. The gain or loss recognized generally will be capital gain or loss. Capital gain of an individual U.S. Holder is taxed at a maximum tax rate of 20% if the property giving rise to the capital gain is held for more than one year. The deductibility of capital loss is subject to limitations.

Any gain or loss that a U.S. Holder recognizes will generally be treated as United States source income or loss for purposes of foreign tax credit limitations, unless it is attributable to an office or other fixed place of business outside the U.S. and certain other conditions are met.

Medicare Tax. Certain U.S. Holders who are individuals, estates or trusts may be required to pay up to an additional 3.8% tax on, among other things, capital gains and dividends.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to dividends in respect of our ordinary shares or ADSs or the proceeds received on the sale, exchange or redemption of our ordinary shares or ADSs paid within the United States (and, in certain cases, outside the United States) to U.S. Holders other than certain exempt recipients, such as corporations, and backup withholding tax may apply to such amounts if the U.S. Holder fails to provide an accurate taxpayer identification number (or otherwise establishes, in the manner provided by law, an exemption from backup withholding) or to report interest and dividends required to be shown on the U.S. Holder’s U.S. federal income tax returns. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as credit against the U.S. Holder’s U.S. federal income tax liability provided that the appropriate returns are filed.

F. Dividends and paying agents

Not applicable.

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G. Statement by experts

Not applicable.

H. Documents on display

We file annual reports with and furnish other information to the SEC as may be applicable from time to time. You may read and copy any documents filed or furnished by Actions at the SEC’s public reference room in Washington, D.C. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

In accordance with NASDAQ Stock Market Rule 5250(d), we will post this annual report on Form 20-F on our website at http://actions-semi.investorroom.com

I. Subsidiary Information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to the interest income generated by our RMB cash deposits in banks and other financial institutions. We have no derivative financial instruments in our investment portfolio to hedge interest rate risks. In 2010, 2011 and 2012, the rate of return on our RMB cash deposit was 4.9%, 6.1% and 6.2%, respectively. As a result of the Chinese government’s alternate efforts to curb inflation or stimulate economy, interest rates have often fluctuated. For example, China’s central bank raised interest rates three times in 2011 due to its relative high inflation in 2011 but then decreased interest rates twice in 2012, as a result of which China’s one-year RMB deposit rate reached 3.50% as of December 31, 2011, which represented an increase of 0.75% from the beginning of 2011, but then dropped by 7.1% to 3.25% as of December 31, 2012. Further, at the beginning of 2012, the China Banking Regulatory Commission imposed certain limitations on the amount of new loans to be granted by commercial banks in China to minimize the risk of defaults. In addition, if there were further uncertainties in global economic and market conditions, interest rates could further decrease and might adversely affect out interest income and in turn impact our net income.

Foreign Exchange Risk

Although our reporting currency is the U.S. dollar and virtually all of our sales are denominated in U.S. dollar, our operating expenses and substantially all of our assets and liabilities are denominated in RMB. As a result, any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. Generally, if the RMB appreciates against the U.S. dollar, our operating expenses will increase and, as a consequence, our operating margins and net income will likely decline. However, this effect may be partially offset by the fact that we also incur expenses and liabilities in U.S. dollar and other foreign currencies and have our major interest-generating financing activities in RMB. Since July 2005 the RMB is no longer pegged solely to the U.S. dollar. Instead, it was reported to be pegged against a basket of currencies, determined by the People’s Bank of China, against which it can rise or fall by as much as 0.3% each day. This volatility range was further expanded by the People’s Bank of China by 0.5% each day since May 21, 2007. If the RMB had been 1% and 5% less valuable against the U.S. dollar than the actual rate as of December 31, 2012 which was used in preparing our audited financial statements as of and for the year ended December 31, 2012, our net asset value, as presented in U.S. dollars, would have been reduced by US$2.7 and US$12.8 million, respectively. Conversely, if the RMB had been 1% and 5% more valuable against the U.S. dollar as of that date, then our net asset value would have increased by US$2.7 and US$14.1 million, respectively.

The RMB appreciated against the US dollar in 2007 and 2008 significantly and then stabilized during the financial downturn in 2009 and the first half of 2010 before further appreciating against the US dollar from the second half of 2010 through the end of 2012. Meanwhile, the exchange rate between the New Taiwan dollar and the US dollar fluctuated significantly in the second half of 2008 and 2009, when we held around US$20 million in New Taiwan dollars after withdrawing from an investment in Taiwan. We have experienced a foreign exchange loss of US$2.3 million and a gain of US$4.1 million in 2010 and 2011, respectively, and an exchange gain of US$1.5 million in 2012. In addition, we have recognized foreign currency translation adjustments of approximately US$4.4, US$8.2 and US$3.2 million in 2010, 2011 and 2012, respectively.

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ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A. Debt Securities

Not applicable.

B. Warrants and Rights

Not applicable.

C. Other Securities

Not applicable.

D. American Depositary Shares

Fees and Charges Our ADS Holders May Have to Pay

JPMorgan Chase Bank, N.A., the depositary of our ADS program, or the depositary, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary may charge each person to whom ADSs are issued against deposits of shares, including deposits in respect of share distributions, rights and other distributions, and each person surrendering ADSs for withdrawal of deposited securities, US$5.00 for each 100 ADSs (or portion thereof) delivered or surrendered. The depositary may sell (by public or private sale) sufficient securities and property received in respect of share distributions, rights and other distributions prior to such deposit to pay such charge. The address of the depositary’s principal executive office is P.O. Box 64506, St. Paul, Minnesota, U.S.A. 55164-0506.

The following additional charges shall be incurred by the holders, by any party depositing or withdrawing shares or by any party surrendering ADSs or to whom ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by the Company or an exchange of stock regarding the ADSs or the deposited securities or a distribution of ADSs), whichever is applicable:

(i) to the extent not prohibited by the rules of the primary stock exchange upon which the ADSs are listed, a fee of US$0.02 or less per ADS (or portion thereof) for any cash distribution made pursuant to the deposit agreement,

(ii) to the extent not prohibited by the rules of the primary stock exchange upon which the ADSs are listed, a fee of US$1.50 per ADR or ADRs for certain transfers made,

(iii) a fee for the distribution or sale of securities, such fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were our ordinary shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to holders entitled thereto,

(iv) to the extent not prohibited by the rules of the primary stock exchange upon which the ADSs are listed, a fee of US$0.02 per ADS (or portion thereof) per year for the services performed by the depositary in administering the depositary receipt program (which fee shall be assessed against holders as of the record date or dates set by the depositary not more than once each calendar year and shall be payable at the sole discretion of the depositary by billing such registered holders or by deducting such charge from one or more cash dividends or other cash distributions), and

(v) such fees and expenses as are incurred by the depositary (including without limitation expenses incurred on behalf of holders in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment) in delivery of deposited securities or otherwise in connection with the depositary’s or its custodian’s compliance with applicable law, rule or regulation.

Registered holders of ADSs must pay any tax or other governmental charge payable by the custodian or the depositary on any ADSs, deposited security or distribution.

We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary, except :

(i) stock transfer or other taxes and other governmental charges (which are payable by holders or persons depositing shares),

(ii) cable, telex and facsimile transmission and delivery charges incurred at the request of persons depositing, or holders delivering shares, ADRs or deposited securities (which are payable by such persons or holders),

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(iii) transfer or registration fees for the registration or transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities (which are payable by persons depositing shares or holders withdrawing deposited securities),

(iv) expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars (which are paid out of such foreign currency), and

(v) any other charge payable by any of the depositary, any of the depositary’s agents, including, without limitation, the custodian, or the agents of the depositary’s agents in connection with the servicing of the shares or other deposited securities (which charge shall be assessed against holders as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such holders or by deducting such charge from one or more cash dividends or other cash distributions). Such charges may at any time and from time to time be changed by agreement between us and the depositary.

Fees and Other Payments Made by the Depositary to Us

In 2012, we received from our depositary, JPMorgan Chase Bank, N.A., a reimbursement of approximately US$500,000 for our expenses incurred partially in 2011 and mainly in 2012 in connection with our ADR and investor relations programs, including legal fees, accounting and audit fees, expenses related to investor relations, ADS-related financial advertising and public relations, and other expenses related to our ongoing compliance with NASDAQ and SEC rules and regulations, itemized as follows:

Item |  | US$ |
Reimbursement for accounting and audit fees |  |  | 272,714.57 |
Reimbursement for legal fees |  |  | 124,137.00 |
Reimbursement for expenses related to investor relations |  |  | 60,648.43 |
Reimbursement for ADS-related financial advertising and public relations |  |  | 42,500.00 |
Reimbursement for other expenses |  |  |  |
Total |  |  | 500,000.00 |
Withholding income tax |  |  | (150,000.00 | )
Net reimbursement |  |  | 350,000.00 |

Meanwhile we were charged by JPMorgan Chase Bank, N.A. in the amount of US$500,000 related to the maintenance of the ADR program, database subscription fees and other services.

The depositary has agreed to reimburse us for our expenses incurred in connection with our ADR and investor relations programs in the future, which reimbursements will be subject to a 30% withholding tax effective from 2012. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement is not related to the amount of fees the depositary collects from ADS holders.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15. CONTROLS AND PROCEDURES

We maintain a set of disclosure controls and procedures designed to ensure that information required to be disclosed by us in reports that we file or submit under the U.S. Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and terms.

Disclosure control and procedures. Pursuant to Rules 13a-14(c) of the Securities Exchange Act of 1934, as amended. An evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of the effectiveness of our disclosure controls procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures were effective as of December 31, 2012.

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Management’s Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. As of December 31, 2012, management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that our internal control over financial reporting as of December 31, 2012 is effective.

Changes in Internal Control Over Financial Reporting. There is no change in company’s internal control over financial reporting that occurred during 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Attestation Report of the Registered Public Accounting Firm

The effectiveness of internal control over financial reporting as of December 31, 2012 has been audited by Deloitte Touche Tohmatsu, an independent registered public accounting firm with a report to the shareholders and the Board of Directors of the Company included herein.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our Board of Directors has determined that Mr. Lin, Yu-Hsin Casper, the chairman of our Audit Committee and an independent, non-executive director, is an “audit committee financial expert” as defined under the applicable rules of the SEC issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002.

ITEM 16B. CODE OF ETHICS

We have adopted a Code of Ethics that applies to all of our directors, officers and employees. We have never granted a waiver for non-compliance with the policies and procedures set forth in the code of ethics for any director, officer or employee of our company or any of our subsidiaries.

A copy of our Code of Ethics is available at our website at www.action-semi.com.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The table below summarizes the fees that we paid or accrued for services provided by Deloitte Touche Tohmatsu for the years ended December 31, 2011, and 2012.

|  | For the year ended December 31, |
|  | 2011 |  |  | % |  |  | 2012 |  |  | % |
|  | (thousands) |  |  |  |  |  | (thousands) |  |  |  |
Audit Fees |  | US$ | 539 |  |  |  | 99.6 | % |  | US$ | 555 |  |  |  | 99.5 | %
Tax Fees |  |  | 2 |  |  |  | 0.4 | % |  |  | 3 |  |  |  | 0.5 | %
Audit Related Fees |  |  | Nil |  |  |  | - |  |  |  | Nil |  |  |  | - |
All Other Fees |  |  | Nil |  |  |  | - |  |  |  | Nil |  |  |  | - |
Total |  | US$ | 541 |  |  |  | 100.0 | % |  | US$ | 558 |  |  |  | 100.0 | %

Audit Fees. This category includes the audit of our annual financial statements and services that are normally provided by Deloitte Touche Tohmatsu in connection with statutory and regulatory filings or engagements for those fiscal years.

Tax Fees. This category consists of professional services rendered by the Deloitte Touche Tohmatsu for tax compliance and tax advice. The services for the fees disclosed under this category include tax return preparation and technical tax advice.

All Other Fees. There were no other fees billed by Deloitte Touche Tohmatsu for the fiscal years ended December 31, 2011 and 2012, respectively.

78

All non-audit services need to be pre-approved by the Audit Committee on a case-by-case basis. Accordingly, we have not established any pre-approval policies and procedures. All audit and non-audit services performed by the Deloitte Touche Tohmatsu were pre-approved by the Audit Committee.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

In May 2007, our board of directors authorized a program to repurchase up to 8 million of our ADSs representing 48 million ordinary shares. We repurchased shares in the open market and through privately negotiated transactions. As of January 21, 2009, the initial 8 million ADS repurchase program was completed, and our board of directors approved an add-on share repurchase program pursuant to which we were authorized to repurchase up to 12 million additional ADSs through December 31, 2010. Our board of directors subsequently approved on August 13, 2010 to extend the authorization through December 31, 2012. Further, on August 7, 2012, our board of directors authorized an increase, by 10 million ADSs, from 20 million ADSs to 30 million ADSs, for the share repurchase program through December 31, 2015.

The following table sets forth our share repurchase activities as of March 31, 2013.

Period |  | Total Number of ADSs Purchased |  |  | Average Price Paid per ADS |  |  | Total Number of ADSs Purchased as Part of Publicly Announced Plans or Programs |  |  | Maximum Number of ADSs that May Yet Be Purchased Under the Plans or Programs |
2012 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
January |  |  | 151,030 |  |  |  | 1.87 |  |  |  | 151,030 |  |  |  | 2,141,655 |
February |  |  | 167,369 |  |  |  | 1.77 |  |  |  | 167,369 |  |  |  | 1,974,286 |
March |  |  | 259,816 |  |  |  | 1.71 |  |  |  | 259,816 |  |  |  | 1,714,470 |
April |  |  | 137,840 |  |  |  | 1.69 |  |  |  | 137,840 |  |  |  | 1,576,630 |
May |  |  | 292,233 |  |  |  | 1.64 |  |  |  | 292,233 |  |  |  | 1,284,397 |
June |  |  | 410,825 |  |  |  | 1.67 |  |  |  | 410,825 |  |  |  | 873,572 |
July |  |  | 206,758 |  |  |  | 1.68 |  |  |  | 206,758 |  |  |  | 666,814 |
August |  |  | 164,486 |  |  |  | 1.66 |  |  |  | 164,486 |  |  |  | 10,502,328 |
September |  |  | 162,492 |  |  |  | 1.64 |  |  |  | 162,492 |  |  |  | 10,339,836 |
October |  |  | 167,042 |  |  |  | 1.59 |  |  |  | 167,042 |  |  |  | 10,172,794 |
November |  |  | 171,031 |  |  |  | 1.60 |  |  |  | 171,031 |  |  |  | 10,001,763 |
December |  |  | 177,754 |  |  |  | 1.62 |  |  |  | 177,754 |  |  |  | 9,824,009 |
2013 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
January |  |  | 286,679 |  |  |  | 1.98 |  |  |  | 286,679 |  |  |  | 9,537,330 |
February |  |  | 225,514 |  |  |  | 2.12 |  |  |  | 225,51 |  |  |  | 9,311,816 |
March |  |  | 197,321 |  |  |  | 2.42 |  |  |  | 197,321 |  |  |  | 9,114,495 |

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not Applicable.

ITEM 16G. CORPORATE GOVERNANCE

We are incorporated in the Cayman Islands and our corporate governance practices are governed by applicable Cayman Islands law. In addition, because our ADSs are listed on the NASDAQ Global Market, we are subject to NASDAQ’s corporate governance requirements.

NASDAQ Marketplace Rule 5615(a)(3) permits a foreign private issuer like us to follow home country practices in lieu of certain requirements of Rule 5600, provided that such foreign private issuer discloses in its annual report filed with the SEC each requirement of Rule 5600 that it does not follow and describes the home country practice followed in lieu of such requirement.

Generally, NASDAQ Marketplace Rule 5635(c) requires each issuer to obtain shareholders' approval of all equity compensation plans (including stock option plans) and material amendments to such plans. However, pursuant to NASDAQ Market Rule 5615(a)(3), we have elected to follow our home country's practices (in this case, being Cayman Islands’ practices) in lieu of the requirements of NASDAQ Marketplace Rule 5635(c). Our home country practices do not require us to obtain a shareholders' approval for amendments to our existing equity incentive plans.

79

In April 2013, with the authorization and the approval of our board of directors, we increased the number of ADSs reserved under our 2007 Plan by 2,000,000 ADSs, which constituted a material amendment to our 2007 Plan under NASDAQ Marketplace Rule 5635(c). We intend to seek shareholder approval for this increase at our 2013 annual general meeting.

On February 26, 2009, we offered to certain of our employees, consultants and non-employee directors the opportunity to amend their outstanding stock options to purchase our ADSs or ordinary shares that were granted on May 21, 2008, August 4, 2008 or January 21, 2009 (as applicable). Under this offer, outstanding options with an exercise price of US$3.30 per ADS were exchangeable for an equivalent number of options with an exercise price of US$1.40 per ADS. Under this offer, the first vesting date under the options was also extended from May 21, 2009, August 4, 2009, or January 21, 2010, as applicable, to May 21, 2010. On March 20, 2009, we completed our offer to amend, as a result of which options to purchase approximately 7,742,000 shares of our ADSs, or approximately 99.9% of all eligible options, were tendered for amendment. The terms of our offer to amend can be found in the Form CB filed with the SEC on February 26, 2009. Following our home country practice, we did not seek to obtain our shareholders’ approval for these amendments to option terms.

ITEM 16H. MINE SAFETY DISCLOSURE

Not Applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS

The Company has elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.

ITEM 18. FINANCIAL STATEMENTS

(a) The following information attached hereto starting from page F-2 are hereby incorporated by reference:

Report of Independent Registered Public Accounting Firm |  | F-2
Consolidated Balance Sheets as of December 31, 2011 and 2012 |  | F-5
Consolidated Statements of Operations for the years ended December 31, 2010, 2011 and 2012 |  | F-6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2010, 2011 and 2012 |  | F-7
Consolidated Statements of Changes in Equity for the years ended December 31, 2010, 2011 and 2012 |  | F-8
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2011 and 2012 |  | F-9
Notes to the Consolidated Financial Statements |  | F-11
Schedule 1 - Actions Semiconductor Co., Ltd. - condensed financial information as of December 31, 2011 and 2012 and for the years ended December 31, 2010, 2011 and 2012 |  | F-40

ITEM 19. EXHIBITS

| (a) | See Item 18 for a list of the financial statements filed as part of this annual report.

| (b) | Exhibits to this Annual Report:

| 1.1 | Memorandum of Association of the Registrant, as amended (incorporated by reference to Exhibit 4.1 of Form S-8 (File No. 333-152490) filed with the Securities and Exchange Commission on July 24, 2008)

| 1.2 | Articles of Association of the Registrant, as amended (incorporated by reference to Exhibit 99.2 of Form 6-K (File No. 000-51604) filed with the Securities and Exchange Commission on May 20, 2010)

80

| 2.1 | Registrant’s Specimen Share Certificate (incorporated by reference to Exhibit 4.1 of Form F-1 (File No. 333-129208) filed with the Securities and Exchange Commission on October 24, 2005)

| 2.2 | Form of Deposit Agreement among the Registrant, JP. Morgan Chase Bank, N.A., as depositary, and holders from time to time of the American Depositary Shares issued thereunder (incorporated by reference to Exhibit (a) of Form F-6 (File No. 333-129375) filed with the Securities and Exchange Commission on November 2, 2005)

| 2.3 | Form of American Depositary Receipt (incorporated by reference to Exhibit (a)(2) of Form F-6 (File No. 333-152447) filed with the Securities and Exchange Commission on July 22, 2008)

| 4.1 | Third Amended and Restated 2007 Equity Performance and Incentive Plan

| 4.2 | English Summary of Auction Confirmation Letter Relating to Land Use Rights for land located in Zhangjiang, Shanghai, dated as of March 19, 2010, between Actions Technology (Shanghai) Co., Ltd. and Shanghai Real Property Transaction Center (incorporated by reference to Exhibit 4.2 of Form 20-F for the year ended December 31, 2009 (File No. 000-51604) filed with the Securities and Exchange Commission on April 30, 2010.)

| 8.1 | List of Subsidiaries

| 12.1 | Certification of Chief Executive Officer required by Rule 13a-14(a) under the Exchange Act.

| 12.2 | Certification of Chief Financial Officer required by Rule 13a-14(a) under the Exchange Act.

| 13.1 | Certification of Chief Executive Officer and Chief Financial Officer required by Rule 13a-14(b) under the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code.

| 15.1 | Consent of Independent Registered Public Accounting Firm

| 101.INS | XBRL Instance Document.

| 101.SCH | XBRL Taxonomy Extension Schema Document.

| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document.

| 101.DEF | XBRL Taxonomy Extension Definition.

| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document.

| 101.PRE | XBRL Taxonomy Presentation Linkbase Document.

81

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

Actions Semiconductor Co., Ltd. |
By: | /s/ I-Hung (Nigel) Liu |
Name: | I-Hung (Nigel) Liu |
Title: | Chief Financial Officer |

Date: April 25, 2013

82

ACTIONS SEMICONDUCTOR CO., LTD.

ACTIONS SEMICONDUCTOR CO., LTD.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2010, 2011 AND 2012

REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONTENTS |  | PAGE(S)
Reports of Independent Registered Public Accounting Firm |  | F - 2
Consolidated Balance Sheets as of December 31, 2011 and 2012 |  | F - 5
Consolidated Statements of Operations for the years ended December 31, 2010, 2011 and 2012 |  | F - 6
Consolidated Statements of Comprehensive Income for the years ended December 31, 2010, 2011 and 2012 |  | F - 7
Consolidated Statements of Changes in Equity for the years ended December 31, 2010, 2011 and 2012 |  | F - 8
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2011 and 2012 |  | F - 9
Notes to the Consolidated Financial Statements |  | F - 11
Schedule 1 - | Actions Semiconductor Co., Ltd. - condensed financial information as of December 31, 2011 and 2012 and for the years ended December 31, 2010, 2011 and 2012 |  | F - 40

F - 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

ACTIONS SEMICONDUCTOR CO., LTD.

We have audited the accompanying consolidated balance sheets of Actions Semiconductor Co., Ltd. and subsidiaries (the "Group") as of December 31, 2011 and 2012, and the related consolidated statements of operations, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2012. Our audits also included the financial statement schedule included in Schedule 1 at item 18. These consolidated financial statements and the financial statement schedules are the responsibility of the Group's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Actions Semiconductor Co., Ltd. and subsidiaries as of December 31, 2011 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group's internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated April 25, 2013, expressed an unqualified opinion on the Group's internal control over financial reporting.

/s/Deloitte Touche Tohmatsu |
Hong Kong |
April 25, 2013 |

F - 2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

ACTIONS SEMICONDUCTOR CO., LTD.

We have audited the internal control over financial reporting of Actions Semiconductor Co., Ltd. and subsidiaries (the "Group") as of December 31, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Group's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Group's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

F - 3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

ACTIONS SEMICONDUCTOR CO., LTD. - continued

In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedules as of and for the year ended December 31, 2012 of the Group and our report dated April 25, 2013 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/Deloitte Touche Tohmatsu |
Hong Kong |
April 25, 2013 |

F - 4

CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data)

|  | At December 31, |
|  | 2011 |  |  | 2012 |
ASSETS |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 33,207 |  |  | $ | 71,336 |
Time deposit |  |  | - |  |  |  | 10,000 |
Marketable securities |  |  | 186,890 |  |  |  | 130,721 |
Trading securities |  |  | 530 |  |  |  | 76 |
Accounts receivable, net of allowance for doubtful accounts of $621 and nil as of December 31, 2011 and 2012, respectively |  |  | 2,794 |  |  |  | 5,950 |
Amount due from a related party |  |  | 9 |  |  |  | 340 |
Amount due from an equity method investee |  |  | 64 |  |  |  | 79 |
Inventories |  |  | 7,477 |  |  |  | 11,979 |
Prepaid expenses and other current assets |  |  | 1,675 |  |  |  | 4,288 |
Income tax recoverable |  |  | - |  |  |  | 189 |
Deferred tax assets |  |  | 430 |  |  |  | 504 |
Total current assets |  |  | 233,076 |  |  |  | 235,462 |
Investments in equity method investees |  |  | 14,246 |  |  |  | 14,329 |
Other investments |  |  | 17,334 |  |  |  | 16,305 |
Marketable securities |  |  | - |  |  |  | 11,239 |
Rental deposits |  |  | 49 |  |  |  | 49 |
Property, plant and equipment, net |  |  | 32,939 |  |  |  | 32,321 |
Land use right |  |  | 1,593 |  |  |  | 1,584 |
Acquired intangible assets, net |  |  | 9,859 |  |  |  | 10,819 |
Deferred tax assets |  |  | 27 |  |  |  | 80 |
TOTAL ASSETS |  | $ | 309,123 |  |  | $ | 322,188 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable |  | $ | 4,374 |  |  | $ | 8,073 |
Accrued expenses and other current liabilities |  |  | 8,605 |  |  |  | 8,411 |
Short-term bank loans |  |  | 12,000 |  |  |  | 20,500 |
Other liabilities |  |  | 1,954 |  |  |  | 2,056 |
Income tax payable |  |  | 238 |  |  |  | 49 |
Deferred tax liabilities |  |  | 295 |  |  |  | 534 |
Total current liabilities |  |  | 27,466 |  |  |  | 39,623 |
Other liabilities |  |  | 458 |  |  |  | 13 |
Payable for acquisition of intangible assets |  |  | 153 |  |  |  | 603 |
Deferred tax liabilities |  |  | 2,840 |  |  |  | 3,189 |
Total liabilities |  |  | 30,917 |  |  |  | 43,428 |
Commitments and contingencies (note 21) |  |  |  |  |  |  |  |
Equity: |  |  |  |  |  |  |  |
Ordinary shares of par value $0.000001: 2,000,000,000 shares authorized 408,985,092 (2011: 413,985,636) shares issued and outstanding |  | $ | 1 |  |  | $ | 1 |
Additional paid-in capital |  |  | 20,600 |  |  |  | 20,202 |
Accumulated other comprehensive income |  |  | 32,589 |  |  |  | 35,751 |
Retained earnings |  |  | 225,037 |  |  |  | 222,835 |
Total Actions Semiconductor Co., Ltd. shareholders' equity |  |  | 278,227 |  |  |  | 278,789 |
Non-controlling interest |  |  | (21 | ) |  |  | (29 | )
Total equity |  |  | 278,206 |  |  |  | 278,760 |
TOTAL LIABILITIES AND EQUITY |  | $ | 309,123 |  |  | $ | 322,188 |

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

F - 5

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share data)

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Revenues: |  |  |  |  |  |  |  |  |  |  |  |
Third-parties: |  |  |  |  |  |  |  |  |  |  |  |
System-on-a chip products |  |  | 29,939 |  |  |  | 41,385 |  |  |  | 52,356 |
Semiconductor product testing services |  |  | 151 |  |  |  | 317 |  |  |  | 179 |
|  |  | 30,090 |  |  |  | 41,702 |  |  |  | 52,535 |
Related-parties: |  |  |  |  |  |  |  |  |  |  |  |
System-on-a chip products |  |  | 7,495 |  |  |  | 5,783 |  |  |  | 1,794 |
Total revenues |  |  | 37,585 |  |  |  | 47,485 |  |  |  | 54,329 |
Cost of revenue: |  |  |  |  |  |  |  |  |  |  |  |
Third-parties: |  |  |  |  |  |  |  |  |  |  |  |
System-on-a chip products |  |  | (18,521 | ) |  |  | (25,454 | ) |  |  | (33,814 | )
Semiconductor product testing services |  |  | (81 | ) |  |  | (176 | ) |  |  | (100 | )
|  |  | (18,602 | ) |  |  | (25,630 | ) |  |  | (33,914 | )
Related parties: |  |  |  |  |  |  |  |  |  |  |  |
System-on-a-chip products |  |  | (4,325 | ) |  |  | (3,367 | ) |  |  | (1,193 | )
Total cost of revenues |  |  | (22,927 | ) |  |  | (28,997 | ) |  |  | (35,107 | )
Gross profit |  |  | 14,658 |  |  |  | 18,488 |  |  |  | 19,222 |
Other operating income |  |  | 966 |  |  |  | 1,523 |  |  |  | 896 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |
Research and development |  |  | (17,325 | ) |  |  | (22,086 | ) |  |  | (23,739 | )
General and administrative |  |  | (8,125 | ) |  |  | (8,786 | ) |  |  | (8,573 | )
Selling and marketing |  |  | (1,208 | ) |  |  | (1,195 | ) |  |  | (1,281 | )
Impairment on goodwill and intangible assets |  |  | - |  |  |  | (888 | ) |  |  | - |
Total operating expenses |  |  | (26,658 | ) |  |  | (32,955 | ) |  |  | (33,593 | )
Loss from operations |  |  | (11,034 | ) |  |  | (12,944 | ) |  |  | (13,475 | )
Other income |  |  | 2,348 |  |  |  | 4,066 |  |  |  | 1,547 |
Dividend income from an other investment |  |  | - |  |  |  | 889 |  |  |  | - |
Investment income from an other investment |  |  | - |  |  |  | 268 |  |  |  | - |
Fair value change in trading securities |  |  | (2 | ) |  |  | 4 |  |  |  | 2 |
Gain on disposal of an other investment |  |  | 137 |  |  |  | 195 |  |  |  | - |
Interest income |  |  | 9,608 |  |  |  | 12,668 |  |  |  | 13,240 |
Interest expense |  |  | - |  |  |  | (144 | ) |  |  | (250 | )
Other-than-temporary impairment loss on investments |  |  | - |  |  |  | - |  |  |  | (2,543 | )
Income (loss) before income taxes, equity in net (loss) income of equity method investees and non-controlling interest |  |  | 1,057 |  |  |  | 5,002 |  |  |  | (1,479 | )
Income tax expense |  |  | (422 | ) |  |  | (879 | ) |  |  | (772 | )
Equity in net (loss) income of equity method investees |  |  | (781 | ) |  |  | (1,113 | ) |  |  | 41 |
Remeasurement gain on equity interest on acquisition of a subsidiary |  |  | 494 |  |  |  | - |  |  |  | - |
Net income (loss) |  |  | 348 |  |  |  | 3,010 |  |  |  | (2,210 | )
Add: Net loss (income) attributable to non-controlling interest |  |  | 36 |  |  |  | (5 | ) |  |  | 8 |
Net income (loss) attributable to Actions Semiconductor Co., Ltd. |  | $ | 384 |  |  | $ | 3,005 |  |  | $ | (2,202 | )
Net income (loss) per share: Basic |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) attributable to Actions Semiconductor Co., Ltd. shareholders |  | $ | 0.001 |  |  | $ | 0.007 |  |  | $ | (0.005 | )
Net income (loss) per share: Diluted |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) attributable to Actions Semiconductor Co., Ltd. shareholders |  | $ | 0.001 |  |  | $ | 0.007 |  |  | $ | (0.005 | )
Weighted-average shares outstanding used in computation: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 438,401,072 |  |  |  | 418,499,545 |  |  |  | 412,706,341 |
Diluted |  |  | 454,568,850 |  |  |  | 433,983,105 |  |  |  | 412,706,341 |

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

F - 6

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars, except share and per share data)

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Net income (loss) |  |  | 384 |  |  |  | 3,005 |  |  |  | (2,202 | )
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |  |  |  |  |  |
Change in cumulative foreign currency translation adjustments |  |  | 4,350 |  |  |  | 8,169 |  |  |  | 3,162 |
Unrealized loss on other investment, net of tax effects of nil, nil and nil for the years ended December 31, 2010, 2011 and 2012, respectively |  |  | (169 | ) |  |  | - |  |  |  | - |
Total comprehensive income |  |  | 4,565 |  |  |  | 11,174 |  |  |  | 960 |
Comprehensive (income) loss attributable to the non-controlling interests |  |  | (36 | ) |  |  | 5 |  |  |  | (8 | )
Total comprehensive income attributable to Actions Semiconductor Co., Ltd. |  | $ | 4,529 |  |  | $ | 11,179 |  |  | $ | 952 |

F - 7

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(In thousands of U.S. dollars, except share and per share data)

|  | Attributable to the shareholders of the Actions Semiconductor Co., Ltd. |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |  |  |  |  |  |  |
|  | Ordinary shares |  |  | Additional |  |  | other |  |  |  |  |  |  |  |  | Non |  |  |  |
|  | Number |  |  | Amount |  |  | paid-in capital |  |  | comprehensive income |  |  | Retained earnings |  |  | Total |  |  | controlling interest |  |  | Total |
Balance at January 1, 2010 |  |  | 450,563,676 |  |  | $ | 1 |  |  | $ | 31,423 |  |  | $ | 20,239 |  |  | $ | 221,648 |  |  | $ | 273,311 |  |  | $ | - |  |  | $ | 273,311 |
Repurchase of ordinary shares |  |  | (24,212,718 | ) |  |  | - |  |  |  | (9,019 | ) |  |  | - |  |  |  | - |  |  |  | (9,019 | ) |  |  | - |  |  |  | (9,019 | )
Share-based compensation |  |  | - |  |  |  | - |  |  |  | 1,532 |  |  |  | - |  |  |  | - |  |  |  | 1,532 |  |  |  | - |  |  |  | 1,532 |
Exercise of share-based awards |  |  | 1,354,350 |  |  |  | - |  |  |  | 316 |  |  |  | - |  |  |  | - |  |  |  | 316 |  |  |  | - |  |  |  | 316 |
Foreign currency translation adjustments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,350 |  |  |  | - |  |  |  | 4,350 |  |  |  | - |  |  |  | 4,350 |
Acquisition of a subsidiary |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 10 |  |  |  | 10 |
Unrealized loss on other investments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (169 | ) |  |  | - |  |  |  | (169 | ) |  |  | - |  |  |  | (169 | )
Net income (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 384 |  |  |  | 384 |  |  |  | (36 | ) |  |  | 348 |
Balance at December 31, 2010 |  |  | 427,705,308 |  |  | $ | 1 |  |  | $ | 24,252 |  |  | $ | 24,420 |  |  | $ | 222,032 |  |  | $ | 270,705 |  |  | $ | (26 | ) |  | $ | 270,679 |
Repurchase of ordinary shares |  |  | (16,594,848 | ) |  |  | - |  |  |  | (6,251 | ) |  |  | - |  |  |  | - |  |  |  | (6,251 | ) |  |  | - |  |  |  | (6,251 | )
Share-based compensation |  |  | - |  |  |  | - |  |  |  | 1,928 |  |  |  | - |  |  |  | - |  |  |  | 1,928 |  |  |  | - |  |  |  | 1,928 |
Exercise of share-based awards |  |  | 2,875,176 |  |  |  | - |  |  |  | 671 |  |  |  | - |  |  |  | - |  |  |  | 671 |  |  |  | - |  |  |  | 671 |
Foreign currency translation adjustments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8,169 |  |  |  | - |  |  |  | 8,169 |  |  |  | - |  |  |  | 8,169 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,005 |  |  |  | 3,005 |  |  |  | 5 |  |  |  | 3,010 |
Balance at December 31, 2011 |  |  | 413,985,636 |  |  | $ | 1 |  |  | $ | 20,600 |  |  | $ | 32,589 |  |  | $ | 225,037 |  |  | $ | 278,227 |  |  | $ | (21 | ) |  | $ | 278,206 |
Repurchase of ordinary shares |  |  | (14,812,056 | ) |  |  | - |  |  |  | (4,166 | ) |  |  | - |  |  |  | - |  |  |  | (4,166 | ) |  |  | - |  |  |  | (4,166 | )
Share-based compensation |  |  | - |  |  |  | - |  |  |  | 1,465 |  |  |  | - |  |  |  | - |  |  |  | 1,465 |  |  |  | - |  |  |  | 1,465 |
Exercise of share-based awards |  |  | 9,811,512 |  |  |  | - |  |  |  | 2,303 |  |  |  | - |  |  |  | - |  |  |  | 2,303 |  |  |  | - |  |  |  | 2,303 |
Foreign currency translation adjustments |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,162 |  |  |  | - |  |  |  | 3,162 |  |  |  | - |  |  |  | 3,162 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,202 | ) |  |  | (2,202 | ) |  |  | (8 | ) |  |  | (2,210 | )
Balance at December 31, 2012 |  |  | 408,985,092 |  |  | $ | 1 |  |  | $ | 20,202 |  |  | $ | 35,751 |  |  | $ | 222,835 |  |  | $ | 278,789 |  |  | $ | (29 | ) |  | $ | 278,760 |

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

F - 8

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars)

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) |  | $ | 348 |  |  | $ | 3,010 |  |  | $ | (2,210 | )
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Depreciation of property, plant and equipment |  |  | 1,929 |  |  |  | 2,109 |  |  |  | 2,290 |
Allowance for doubtful accounts receivable |  |  | (101 | ) |  |  | - |  |  |  | - |
Amortization of land use right |  |  | 33 |  |  |  | 36 |  |  |  | 36 |
Amortization of acquired intangible assets |  |  | 1,901 |  |  |  | 1,803 |  |  |  | 3,056 |
Utilization of subsidy from local authorities of Zhuhai, the People's Republic of China (the "PRC") |  |  | (225 | ) |  |  | (995 | ) |  |  | (674 | )
Write down of inventories |  |  | 378 |  |  |  | 232 |  |  |  | 180 |
Loss on disposal of property, plant and equipment |  |  | 42 |  |  |  | 28 |  |  |  | 5 |
Loss on disposal of intangible assets |  |  | - |  |  |  | 4 |  |  |  | - |
Impairment loss recognised in respect of goodwill |  |  | - |  |  |  | 468 |  |  |  | - |
Impairment loss recognised in respect of intangible assets |  |  | - |  |  |  | 420 |  |  |  | - |
Remeasurement gain on equity interest on acquisition of a subsidiary |  |  | (494 | ) |  |  | - |  |  |  | - |
Fair value change in trading securities |  |  | 2 |  |  |  | (4 | ) |  |  | (2 | )
Investment income from other investment |  |  | - |  |  |  | (268 | ) |  |  | - |
Gain on disposal of other investments |  |  | (137 | ) |  |  | (195 | ) |  |  | - |
Share-based compensation |  |  | 1,532 |  |  |  | 1,928 |  |  |  | 1,465 |
Deferred tax |  |  | 419 |  |  |  | 428 |  |  |  | 454 |
Proceeds from disposal of trading securities |  |  | 5 |  |  |  | - |  |  |  | 459 |
Share of net loss (income) of equity method investees |  |  | 781 |  |  |  | 1,113 |  |  |  | (41 | )
Impairment recognised in respect of other investments |  |  | - |  |  |  | - |  |  |  | 2,543 |
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Accounts receivable |  |  | 150 |  |  |  | (947 | ) |  |  | (3,150 | )
Amounts due from a related party |  |  | (39 | ) |  |  | 550 |  |  |  | (331 | )
Inventories |  |  | 222 |  |  |  | (2,632 | ) |  |  | (4,510 | )
Prepaid expenses and other current assets |  |  | (1,326 | ) |  |  | 1,736 |  |  |  | (2,549 | )
Amount due from an equity method investee |  |  | 410 |  |  |  | 47 |  |  |  | (14 | )
Accounts payable |  |  | (32 | ) |  |  | 1,310 |  |  |  | 3,598 |
Accrued expenses and other current liabilities |  |  | (1,680 | ) |  |  | (3,002 | ) |  |  | (3,526 | )
Income tax recoverable |  |  | - |  |  |  | - |  |  |  | (189 | )
Income tax payable |  |  | 14 |  |  |  | 94 |  |  |  | (190 | )
Deposit paid for acquisition of land use right |  |  | (901 | ) |  |  | - |  |  |  | - |
Rental deposit (paid) received |  |  | (1 | ) |  |  | (8 | ) |  |  | 4 |
Net cash provided by (used in) operating activities |  |  | 3,230 |  |  |  | 7,265 |  |  |  | (3,296 | )
Investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Purchase of marketable securities |  |  | (100,498 | ) |  |  | (272,240 | ) |  |  | (132,376 | )
Disposal of a subsidiary, net of cash equivalent disposed |  |  | (10,110 | ) |  |  | - |  |  |  | - |
Purchase of property, plant and equipment |  |  | (8,851 | ) |  |  | (7,472 | ) |  |  | (249 | )
Investment in equity method investees |  |  | (5,606 | ) |  |  | (9,676 | ) |  |  | (1,500 | )
Deposit paid for acquisition of intangible assets |  |  | (2,408 | ) |  |  | - |  |  |  | - |
Purchase of intangible assets |  |  | (1,762 | ) |  |  | (2,642 | ) |  |  | (1,081 | )
Acquisition of a subsidiary, net of cash and cash equivalent acquired |  |  | (937 | ) |  |  | - |  |  |  | - |
Purchase of trading securities |  |  | (470 | ) |  |  | - |  |  |  | - |
Investment income from an other investment |  |  | - |  |  |  | 268 |  |  |  | - |
Purchase of an other investment |  |  | - |  |  |  | (13,727 | ) |  |  | - |
Proceeds from disposal of property, plant and equipment |  |  | 21 |  |  |  | 34 |  |  |  | 22 |
Decrease (increase) in time deposit |  |  | 28 |  |  |  | 34 |  |  |  | (10,000 | )
Proceeds from the disposal of other investments |  |  | 1,251 |  |  |  | 195 |  |  |  | - |
Proceeds from redemption of marketable securities |  |  | 77,657 |  |  |  | 278,568 |  |  |  | 178,975 |
Net cash (used in) provided by investing activities |  |  | (51,685 | ) |  |  | (26,658 | ) |  |  | 33,791 |

F - 9

CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(In thousands of U.S. dollars)

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Receipt of amount due from a former subsidiary |  |  | 11,020 |  |  |  | - |  |  |  | - |
Proceeds from exercise of stock options |  |  | 316 |  |  |  | 671 |  |  |  | 2,289 |
Advance subsidy from local authorities of Zhuhai, the PRC |  |  | 302 |  |  |  | 711 |  |  |  | 299 |
Raise of short-term bank loans |  |  | - |  |  |  | 12,000 |  |  |  | (8,500 | )
Repurchase of ordinary shares |  |  | (9,019 | ) |  |  | (6,251 | ) |  |  | (4,152 | )
Net cash provided by financing activities |  |  | 2,619 |  |  |  | 7,131 |  |  |  | 6,936 |
Net (decrease) increase in cash and cash equivalents |  |  | (45,836 | ) |  |  | (12,262 | ) |  |  | 37,431 |
Cash and cash equivalents at the beginning of the year |  |  | 87,706 |  |  |  | 42,872 |  |  |  | 33,207 |
Effect of exchange rate changes on cash |  |  | 1002 |  |  |  | 2,597 |  |  |  | 698 |
Cash and cash equivalents at the end of the year |  | $ | 42,872 |  |  | $ | 33,207 |  |  | $ | 71,336 |
Supplemental cash flow information: |  |  |  |  |  |  |  |  |  |  |  |
Cash paid during the period for: |  |  |  |  |  |  |  |  |  |  |  |
Interest |  | $ | - |  |  | $ | (144 | ) |  | $ | (250 | )
Income taxes |  | $ | (180 | ) |  | $ | (207 | ) |  | $ | (312 | )
Non-cash investing activities |  |  |  |  |  |  |  |  |  |  |  |
Purchases of intangible assets |  | $ | (536 | ) |  | $ | (2,353 | ) |  | $ | (2,786 | )
Purchases of property, plant and equipment |  | $ | (2,305 | ) |  | $ | (1,702 | ) |  | $ | (898 | )
Transfer of an investment in equity method investee to other investment |  | $ | - |  |  | $ | 804 |  |  | $ | - |

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

F - 10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2012

(In thousands of U.S. dollars, except share and per share data, share related data and unless otherwise stated)

| 1 | ORGANIZATION AND PRINCIPAL ACTIVITIES

Actions Semiconductor Co., Ltd. ("Actions Semiconductor Cayman Islands" or "the Company") is a holding company incorporated in the Cayman Islands on July 27, 2005.

At December 31, 2012 and 2011, the subsidiaries of the Company include the following:

Name of Company |  | Place and date of incorporation/establishment |  | Attributable equity interest held |  | Principal activities
Actions Semiconductor Co., Ltd. ("Actions Semiconductor Mauritius") |  | Republic of Mauritius ("Mauritius") November 16, 2001 |  |  | 100 | % | Investment holding
Actions Semiconductor Co., Ltd. ("Actions Semiconductor Zhuhai") |  | PRC December 28, 2001 |  |  | 100 | % | Design and manufacture of system-on-a-chip products
Shanghai Actions Semiconductor Co., Ltd. ("Actions Semiconductor Shanghai ") |  | PRC March 27, 2008 |  |  | 100 | % | Design and manufacture of system-on-a-chip products
Actions Technology (HK) Company Limited ("Actions Hong Kong") |  | Hong Kong January 13, 1999 |  |  | 100 | % | Trading of system-on-a-chip products
Actions Microelectronics Co., Ltd. |  | Hong Kong August 17, 2007 |  |  | 100 | % | Trading of system-on-a-chip products and investment holding
Artek Microelectronics (HK) Co., Limited |  | Hong Kong January 16, 2006 |  |  | 100 | % | Trading of system-on-a-chip products and investment holding
Artek Microelectronics Co., Ltd. ("Artek Microelectronics Shenzhen") |  | PRC March 14, 2006 |  |  | 100 | % | Design and manufacture of system-on-a-chip products
Actions Capital Investment Inc. |  | British Virgin Islands February 10, 2006 |  |  | 100 | % | Investment holding
Actions Capital Investment (Malaysia) Inc. Co., Ltd. ("Actions Malaysia ") |  | Republic of Malaysia January 13, 2009 |  |  | 100 | % | Inactive
Mavrix Technology, Inc. (“Mavrix”) |  | Cayman Islands June 20, 2006 |  |  | 93.4 | % | Investment holding
Mavrix Technology (H.K.) Co., Limited (“Mavrix HK”) |  | Hong Kong August 17, 2007 |  |  | 93.4 | % | Manufacturing and trading of system-on-a-chip products
Shanghai Mavrix Electronics, Ltd. (“Mavrix Shanghai”) |  | PRC October 23, 2006 |  |  | 93.4 | % | Design and manufacture of system-on-a-chip products

Actions Semiconductor Cayman Islands and its subsidiaries (the "Group") are principally engaged in the design and development of System-on-a-chip ("SoC") products and total solutions for the development and manufacture of portable media players ("PMPs") and the provision of testing solutions. The Group's total solutions include SoCs, solution development kits and detailed specifications of other required components and the providers' information of those components. The Group's total solutions enable its customers to quickly introduce new portable media players, which play multimedia files by compressing to a fraction of their size using any one of a number of audio and video compression technologies, into the mainstream market worldwide.

F - 11

| 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with the accounting principles generally accepted in the United States of America ("U.S. GAAP").

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances are eliminated on consolidation.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the periods presented. Actual results could differ from those estimates. The significant accounting estimates, which have had an impact on the consolidated financial statements, include write down of slow moving and obsolete inventories, useful lives of property, plant and equipment and intangible assets, impairment of cost and equity method investees, impairment of long-lived assets and definite-lived intangible assets.

Cash and cash equivalents

Cash and cash equivalents consist of cash on hand, demand deposits and highly liquid interest-earning deposits which are unrestricted as to withdrawal and use, and which have maturities of three months or less when purchased, and are readily convertible to known amount of cash.

Time deposit

Time deposit consist of deposit placed with financial institutions with original maturity terms of greater than three months but less than one year.

F - 12

2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Marketable securities

Marketable securities are liquid investments purchased by the Group from banks or independent financial institutions in the PRC. Those investments mainly include money market deposits and trust financial products with market based interest rates that have maturities anywhere between three to twenty-four months when purchased.

Marketable securities are classified as held to maturity as the Group has the positive intent and ability to hold the securities to maturity. All of the Group's held-to-maturity securities are stated at amortized cost.

Trust financial products are investments in individual funds or in pools of funds held by financial institutions, who in turn use the funds raised to independently manage a pool of various assets of which the underlying investments are debt instruments. Such investments carry market based interest rates and have maturities anywhere between three to twenty-four months.

Trading securities

The Group's trading securities comprised investments in publicly traded mutual funds in Taiwan. The investments are reported at fair value and its unrealized gains and losses are included in earnings. Unrealized (loss) gain of $(2), $4 and $2 had been recognized for the year ended December 31, 2010, 2011 and 2012, respectively.

Research and development

Research and development costs are expensed as incurred.

Inventories

Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average method and mainly comprise cost of materials and sub-contract service fee. Write down of potentially obsolete or slow moving inventories is recorded based on management's assumptions about future demand and market conditions.

F - 13

2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Investments under equity method

The investments for which the Group has the ability to exercise significant influence are accounted for using the equity method. Under the equity method, original investments are recorded at cost and adjusted by the Group's share of undistributed earnings or losses of the entities, by dividend distributions or subsequent investments. All unrecognized inter-company profits and losses have been eliminated under the equity method.

When the estimated amount to be realized from the investments falls below its carrying value, an impairment charge is recognized in the consolidated statements of operations when the decline in value is considered other than temporary.

Other investments

Other investments comprise investments in equity securities. Equity securities that do not have readily determinable market values are carried at cost. Fair values of equity securities carried at cost are estimated if there are identified events or changes in circumstances that may have a significant adverse effect on the fair value of the investments.

When the estimated amount to be realized from the investments falls below its carrying value, an impairment charge is recognized in the consolidated statements of operations when the decline in value is considered other than temporary.

Property, plant and equipment and land use right

Property, plant and equipment, net are carried at cost less accumulated depreciation. Cost includes professional fees and, for assets constructed by the Group, any related works to the extent that these are directly attributable to the construction of the asset. Assets under construction are not depreciated until construction is completed and the assets are ready for their intended use. Gains and losses on disposal of property, plant and equipment and land use right are included in the consolidated statement of operations.

Depreciation rates computed using the straight-line method are as follows:

Buildings | 30 years
Leasehold improvements | Shorter of lease term or 3 years
Furniture, fixtures and equipment | 5 years
Motor vehicles | 5 years
Plant and machinery | 3 to 5 years

All land in the PRC is owned by the government. According to PRC law, the government may sell the right to use of the land for a specified period of time. Thus, all of the Group's land, which were all purchased in the PRC, are considered to be prepaid leasehold land and classified as land use right. These are expensed on a straight-line basis over the respective term of the right to use the land. Expense for years ended December 31, 2010, 2011 and 2012 were $33, $36 and $36 respectively.

F - 14

| 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Acquired intangible assets - definite live, net

Acquired intangible assets - definite live comprising purchased software and technology licenses. Purchased software and technology licenses are amortized on a straight-line basis over their expected useful economic lives, both ranged from one to ten years.

Goodwill

The Group records goodwill when the purchase price of a business acquisition exceeds the estimated fair value of net identified tangible and intangible assets acquired. Goodwill is not amortized, but tested for impairment at the reporting unit level annually, or more frequently when events or changes in circumstances indicate that the fair value of a reporting unit has more likely than not declined below its carrying value. The goodwill impairment test is a two-step test. Under the first step, the fair value of the reporting unit is compared with its carrying value (including goodwill). If the fair value of the reporting unit is less than its carrying value, an indication of goodwill impairment exists for the reporting unit and the enterprise must perform step two of the impairment test (measurement). Under step two, an impairment loss is recognized for any excess of the carrying amount of the reporting unit's goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation. The residual fair value after this allocation is the implied fair value of the reporting unit's goodwill. If the fair value of the reporting unit exceeds its carrying value, step two does not need to be performed. The Group primarily utilizes a discounted cash flow methodology to calculate the fair value of its reporting units.

Impairment testing for goodwill is done at the reporting unit level. A reporting unit is an operating segment or one level below an operating segment (also known as a component).

In-process research and development ("IPR&D")

IPR&D is recognised separately from goodwill at fair value of acquisition date, IPR&D is not subjected to amortization until research and development efforts are completed and assets are ready for their intended use. IPR&D is tested for impairment annually, or more frequently when events or changes in circumstances indicate that the carrying amount of the IPR&D may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the IPR&D to the estimated discounted cash flow expected. If the sum of the expected discounted cash flow is less than the carrying amount of the IPR&D, the Group would recognize impairment loss by which the carrying value of the IPR&D exceeds their recoverable amount. The recoverable amount is based on fair value of the IPR&D.

Impairment of long-lived assets

The Group reviews for impairment or obsolescence annually, long-lived assets including property, plant and equipment and acquired intangible assets - definite live are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable. When these events occur, the Group measures impairment by comparing the carrying value of the long-lived assets to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. If the sum of the expected undiscounted cash flow is less than the carrying amount of the assets, the Group would recognize an impairment loss by which the carrying value of the assets exceeds their recoverable amount. The recoverable amount is based on the fair value of the assets.

Government subsidies

Government subsidies include cash subsidies and advance subsidies received from the local PRC governments in Zhuhai by Actions Semiconductor Zhuhai. Advance subsidies are recognized as other income when received and when all the conditions for their receipt have been met. Advance subsidies recognized as income were $225, $995 and $674 for the years ended December 31, 2010, 2011 and 2012, respectively.

Advance subsidies received from the government have been recorded in other liabilities. The advance subsidies are repayable unless the conditions attached to the grant use satisfied, the respective subsidies will be recognized as other income (see note 11 for additional details).

F - 15

| 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition

The Group's revenues are primarily derived from sale of SoC products and their total system solutions. The Group recognizes revenue based on firm customer orders with fixed terms and conditions, including price net of discount and commission, if any. The Group recognizes revenue when delivery has occurred and collectability is determined to be reasonably assured. All of the Group's product sales have destination shipping terms and no rights of return, the Group determined that delivery has occurred when the goods are delivered to the customers and the Group receives acknowledgment of receipts, which occur simultaneously. The Group further determined that collectability is reasonably assured by performing an assessment of credibility of its customers based on their operating results and past payment records. The Group only sells products to customers that are determined to have the ability to make payments and have not had material collectability defaults in the past. The Group also provides semiconductor product testing, and revenue is recognized when the services are rendered. The Group does not provide its customers with any price protection and only provides the right of return for defective goods in connection with its warranty policy. The costs of the Group's warranty policy to-date are insignificant.

Purchase of ordinary shares

The Group's stock is acquired for purposes other than retirement, the cost of acquired stock is shown separately as a deduction from the total of capital stock, capital surplus, and retained earnings. For the years ended December 31, 2010, 2011 and 2012, 24,212,718, 16,594,848 and 14,812,056 number of ordinary shares were repurchased by the Company respectively.

Income taxes

Income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant tax authorities.

Advertising costs

Advertising costs are expensed as incurred and are included in general and administrative expense, and selling and marketing expenses. Total advertising expenses were approximately $199, $173 and $106 for the years ended December 31, 2010, 2011 and 2012 respectively.

Comprehensive income (loss)

Comprehensive income (loss) includes net income (loss), unrealized gains on other investments and foreign currency translation adjustments. Beginning on January 1, 2012, the Group presents the components of net income, the components of other comprehensive income and total comprehensive income in two separate but consecutive statements. The consolidated financial statements have been adjusted for the retrospective application of the authoritative guidance regarding presentation of comprehensive income (loss).

Foreign currency translation

All transactions in currencies other than functional currencies during the year are converted at the exchange rates prevailing on the respective transaction dates. Foreign currency monetary assets and liabilities at the balance sheet date are remeasured at the exchange rates existing on that date. Exchange differences are recorded in the consolidated statement of operations.

The financial statements of all subsidiaries with functional currencies other than the U.S. dollars, are translated into U.S. dollars. All assets and liabilities are translated at the rates of exchange prevailing at the balance sheet date, and all income and expense items are translated at the average rates of exchange over the year. All exchange differences arising from the translation of subsidiaries' financial statements are recorded as a component of comprehensive income.

F - 16

| 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Fair value of financial instruments

Fair values of cash and cash equivalents, time deposit, marketable securities, trading securities, accounts receivable, net of allowance for doubtful accounts, amount due from a related party, amounts due from an equity method investee, accounts payable, accrued expenses and other current liabilities and short-term bank loans approximate their carrying amounts due to their short-term maturities.

Concentration of credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, time deposit, marketable securities, trading securities, accounts receivable, net, amount due from a related party and amount due from an equity method investee. The Group places its cash and cash equivalents, time deposits, marketable securities and trading securities with financial institutions with high-credit ratings and quality.

The Group conducts credit evaluations of customers and generally does not require collateral or other security from its customers. The Group establishes an allowance for doubtful accounts based upon estimates, factors surrounding the credit risk of specific customers and other information. For the years ended December 31, 2010 and 2011, allowance for doubtful accounts of $101 and nil was recorded by the Group respectively. For the year ended December 31, 2012, allowance for doubtful account of $621 have been written off against respective accounts receivable.

Movements in allowances for doubtful accounts receivable are as follows:

Year ended |  | Beginning |  |  | Write off during |  |  | Closing |
December 31 |  | balance |  |  | the year |  |  | balance |
2011 |  | $ | 621 |  |  | $ | - |  |  | $ | 621 |
2012 |  | $ | 621 |  |  | $ | (621 | ) |  | $ | - |

Net income (loss) per share

Basic net income (loss) attributable to the Company per share is computed by dividing net income attributable to the Company by the weighted average number of ordinary shares outstanding during the year. Diluted net income (loss) attributable to the Company per share give effect to all dilutive potential common shares outstanding during the year. The weighted average number of common shares outstanding is adjusted to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued.

F - 17

| 2 | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Share-based compensation

The Group issued stock options under its share incentive plan during the years ended December 31, 2010 and 2011 and restricted stock units during the year ended December 31, 2011 and 2012.

The Group measures the cost of employee services received in exchange for share-based compensation at the grant date fair value of the award. The Group recognizes the compensation costs on a straight-line over the vesting period. Share-based compensation cost with a graded vesting schedule is recognized on a straight-line basis over the requisite service period of the entire award. Forfeitures are estimated at the time of grant with such estimate updated periodically and with actual forfeitures recognised currently to the extent they differ from the estimate.

For any awards that are modified during a relevant period, the Group calculates the incremental fair value of the award resulting from the modification, at the excess of the fair value of the modified award over the fair value of the original award immediately before its terms are modified and it is further amortized over the remaining vesting period of the award.

For the year ended December 31, 2010, the compensation cost of $2, $1,067, $404 and $59 have been included as cost of revenue, research and development expenses, general and administrative expenses and selling and marketing expenses, respectively.

For the year ended December 31, 2011, the compensation cost of $18, $1,449, $393 and $68 have been included as cost of revenue, research and development expenses, general and administrative expenses and selling and marketing expenses, respectively.

For the year ended December 31, 2012, the compensation cost of $10, $1,090 $312 and $52 have been included as cost of revenue, research and development expenses, general and administrative expenses and selling and marketing expenses, respectively.

Recently issued accounting pronouncements

In December 2011, the FASB has issued Accounting Standard Update ("ASU") 2011-11, Disclosures about Offsetting Assets and Liabilities, an authoritative pronouncement related to Disclosures about Offsetting Assets and Liabilities. The guidance requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. An entity is required to apply the amendments for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative periods presented.

In July 2012, the FASB has issued Accounting Standard Update ("ASU") 2012-12, Testing Indefinite-Lived Intangible Assets for Impairment, an authoritative pronouncement related to testing indefinite lived intangible assets, other than goodwill, for impairment. Under the pronouncement, entities testing indefinite-lived intangible assets for impairment would have the option of performing a qualitative assessment before calculating the fair value of the asset. If an entity determines, on the basis of qualitative factors, that the indefinite-lived intangible asset is not more likely than not impaired, a quantitative fair value calculation would not be needed. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted.

F - 18

| 3 | INVENTORIES

Inventories consisted of the following:

|  | At December 31, |
|  | 2011 |  |  | 2012 |
Raw materials |  | $ | 4,211 |  |  | $ | 5,318 |
Work in progress |  |  | 811 |  |  |  | 1,755 |
Finished goods |  |  | 2,455 |  |  |  | 4,906 |
|  | $ | 7,477 |  |  | $ | 11,979 |

Slow moving inventories amounting to $378, $232, and $180 were written down for the years ended December 31, 2010, 2011and 2012, respectively.

| 4 | PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

|  | At December 31, |
|  | 2011 |  |  | 2012 |
Prepaid expenses |  | $ | 555 |  |  | $ | 274 |
Value added tax refundable |  |  | 881 |  |  |  | 3,377 |
Interest receivables |  |  | 86 |  |  |  | 350 |
Others |  |  | 153 |  |  |  | 287 |
|  | $ | 1,675 |  |  | $ | 4,288 |

F - 19

5 | INVESTMENT IN EQUITY METHOD INVESTEES

Actions Microelectronics Co., Ltd (Beijing) ("Beijing Actions")

Beijing Actions is a private company which design and manufactures SoC products for portable media players and digital photoframe.

As of December 31, 2010, the Group hold 35% ownership interest in Beijing Actions.

In February 2011, Beijing Actions increased its injected capital by $2,600 of which the Group further invested such amount in full. Upon the completion of this capital injection, the Group's ownership interest in Beijing Actions is increased from 35% to 45.8% and continues its significant influence in Beijing Actions as of December 31, 2011.

No change in ownership interest is noted for 2012 and the Group continues its significant influence in Beijing Actions as of December 31, 2012.

Nann Capital Corporation ("Nann Capital")

Nann Capital is a private investment holding company. Its wholly owned subsidiaries include Actions Enterprise (HK) Co., Ltd and Actions Technology (Shanghai) Co., Ltd. Both are disposed by the Group in July 2010.

Subsequent to the disposal, the Group purchased 40% of equity interest in Nann Capital for $4,406 in 2010. The Group exercise significant influence but did not control Nann Capital and the investment in Nann Capital is accounted for under the equity method of accounting.

In May 2011, the Group further invested $7,076 to maintain its 40% interest due to a capital contribution by all shareholders.

No change in ownership interest is noted for 2012 and the Group continues its significant influence in Nann Capital as of December 31, 2012.

F - 20

5 | INVESTMENT IN EQUITY METHOD INVESTEES - continued

The summarized financial information of equity method investees is illustrated as below:

|  | 2011 |  |  | 2012 |
Balance sheets |  |  |  |  |  |  |  |
Current assets |  | $ | 24,173 |  |  | $ | 19,608 |
Non-current assets |  |  | 13,093 |  |  |  | 18,363 |
Current liabilities |  |  | 433 |  |  |  | 528 |
Non-current liabilities |  |  | 30 |  |  |  | 30 |

|  | 2010 |  |  | 2011 |  |  | 2012 |
Results of operations |  |  |  |  |  |  |  |  |  |  |  |
Revenues |  | $ | 6,255 |  |  | $ | 4,823 |  |  | $ | 4,904 |
Gross profit |  |  | 2,134 |  |  |  | 2,342 |  |  |  | 2,700 |
Loss from operations |  |  | (2,666 | ) |  |  | (3,816 | ) |  |  | (555 | )
Net loss |  | $ | (2,293 | ) |  | $ | (2,782 | ) |  | $ | (9 | )

6 | OTHER INVESTMENTS

|  | At December 31, |
|  | 2011 |  |  | 2012 |
Unlisted securities at cost |  | $ | 21,344 |  |  | $ | 22,859 |
Less: other-than-temporary impairment losses recognized (note 17) |  |  | (4,010 | ) |  |  | (6,554 | )
|  | $ | 17,334 |  |  | $ | 16,305 |

Prior to 2010, the Group invested in certain equity securities listed in Taiwan and intended to hold such listed available-for-sale securities for long term and the investment was reported at fair value.

In March 2010, the Group disposed of all of its listed available-for-sale securities. Accordingly, the unrealized gains accumulated in a separate component of shareholder's equity are reversed into earnings. A gain on disposal of $137 has been recognized in the consolidated statement of operations for the year ended December 31, 2010.

In June 2011, the Group disposed one of its other investments held by Mavrix, whose investment cost has already been written down to nil before acquisition of Mavrix in August 2010. Accordingly, its sales proceeds of $195 is fully recognised as a gain on disposal in the consolidated statement of operations for the year ended December 31, 2011.

In September 2012, the Group further invested $1,500 into Grand Choice which accounted for under the cost method of accounting. The capital injection resulted in increase of the Group’s ownership interest from 12% to 19%. As the Group does not exercise significant influence over Grand Choice, the investment is accounted for under the cost method of accounting as of Dcecmber 31, 2012.

The unlisted investments represent investments in unlisted equity securities issued by private entities.

F - 21

7 | FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., the "exit price") in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be carried at fair value, the Group considers the principal or most advantageous market in which it would transact and also considers assumptions that market participants would use when pricing the asset or liability.

Fair Value Hierarchy

FASB ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. FASB ASC 820 establishes three levels of inputs that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The following table summarizes the Group's assets and liabilities measured at fair value on a recurring basis:

Fair value measurements at December 31, 2012

|  | Quoted Prices in Active Markets (Level l) |
Trading securities: |  |  |  |
Publicly traded mutual funds in Taiwan |  | $ | 76 |

Fair value measurements at December 31, 2011

|  | Quoted Prices in Active Markets (Level l) |
Trading securities: |  |  |  |
Publicly traded mutual funds in Taiwan |  | $ | 530 |

F - 22

8 | PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consist of the following:

|  | At December 31, |
|  | 2011 |  |  | 2012 |
Buildings |  | $ | 29,870 |  |  | $ | 30,588 |
Leasehold improvements |  |  | 793 |  |  |  | 1,101 |
Furniture, fixtures and equipment |  |  | 3,870 |  |  |  | 4,016 |
Motor vehicles |  |  | 655 |  |  |  | 586 |
Plant and machinery |  |  | 9,995 |  |  |  | 10,624 |
Total |  |  | 45,183 |  |  |  | 46,915 |
Less: Accumulated depreciation |  |  | (12,244 | ) |  |  | (14,594 | )
Property, plant and equipment, net |  | $ | 32,939 |  |  | $ | 32,321 |

The Group has recorded depreciation expense of $1,929, $2,109 and $2,290 for the years ended December 31, 2010, 2011 and 2012, respectively.

9 | ACQUIRED INTANGIBLE ASSETS, NET

Acquired intangible assets, net consist of the following:

|  | At December 31, |
|  | 2011 |  |  | 2012 |
Cost: |  |  |  |  |  |  |  |
Purchased software |  | $ | 5,654 |  |  | $ | 6,803 |
Technology licenses |  |  | 12,261 |  |  |  | 15,268 |
|  |  | 17,915 |  |  |  | 22,071 |
Accumulated amortization: |  |  |  |  |  |  |  |
Purchased software |  |  | (4,232 | ) |  |  | (5,661 | )
Technology licenses |  |  | (3,824 | ) |  |  | (5,591 | )
|  |  | (8,056 | ) |  |  | (11,252 | )
IPR&D not subject to amortization |  |  | 420 |  |  |  | 420 |
Less: Impairment loss in respect of IPR&D recognized |  |  | (420 | ) |  |  | (420 | )
Acquired intangible assets, net |  | $ | 9,859 |  |  | $ | 10,819 |

The intangible assets of the Group mainly consist of purchased software which is used to support the business administration and the electronic design automation, and technology licenses acquired for the purpose of utilizing certain intellectual property held by third parties.

The Group has recorded amortization expense of $1,901, $1,803, and $3,056 for the years ended December 31, 2010, 2011 and 2012, respectively. Intangible asset amortization expense is estimated to be $3,182, $2,644, $2,298, $1,801 and $877 for the 2013, 2014, 2015, 2016 and 2017 fiscal years, respectively.

In 2011, the Group compared the IPR&D's carrying value to its respective fair value. The Group estimated the fair value of the IPR&D by the income approach. Significant assumptions inherent in the valuation methodologies for IPR&D are employed and include, but are not limited to, prospective financial information and discount rates. Based on this quantitative test, the Group determined that the fair value of the IPR&D tested in 2011 was lower than its carrying amount because the management decided to cease the entire research and development project of the application for Android, which is the primarily line of business of Mavrix reporting unit, due to of technological failure. Accordingly, the Group recognized an impairment loss of $ 420 on the IPR&D.

F - 23

10 | ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:

|  | At December 31, |
|  | 2011 |  |  | 2012 |
Accrued wages and bonuses |  | $ | 2,734 |  |  | $ | 2,862 |
Accrued legal and professional fees |  |  | 363 |  |  |  | 278 |
Payables for acquisition of properly, plant and equipment |  |  | 1,702 |  |  |  | 898 |
Payables for acquisition of intangible assets |  |  | 2,353 |  |  |  | 2,183 |
Royalty fees payable |  |  | 389 |  |  |  | 912 |
Accrued consulting fees |  |  | 250 |  |  |  | 188 |
Share repurchase fee payable |  |  | 41 |  |  |  | 41 |
Payables for insurance premium |  |  | 8 |  |  |  | 33 |
Accrued share option management fee |  |  | 10 |  |  |  | 34 |
Customer advance |  |  | 51 |  |  |  | 88 |
Others |  |  | 704 |  |  |  | 894 |
|  | $ | 8,605 |  |  | $ | 8,411 |

11 | OTHER LIABILITIES

The local authorities in Zhuhai, PRC, operate certain government subsidy programs which are intended to encourage companies to invest in the high technology industry in Zhuhai.

For the year ended December 31, 2011, Actions Semiconductor Zhuhai were further granted $711 advance subsidies, the total liabilities amounted to $2,412, of which $1,954 was repayable within one year, subject to the acknowledgement by the local authorities that all conditions attached to the grant are satisfied, and $458 are repayable after 2011 and therefore are recorded in non-current liabilities.

For the year ended December 31, 2012, Actions Semiconductor Zhuhai were further granted $299 advance subsidies, the total liabilities amounted to $2,069, of which $2,056 was repayable within one year, subject to the acknowledgement by the local authorities that all conditions attached to the grant are satisfied, and $13 are repayable after 2012 and therefore are recorded in non-current liabilities.

The estimated fair value of the advances granted to Actions Semiconductor Zhuhai based on the Group's borrowing interest rate from independent financial institution was approximately $2,252 and $1,970 at December 31, 2011 and 2012, respectively.

12 | SHORT-TERM BANK LOANS

Balances comprised unsecured bank loans with three different banks located in Taiwan and Hong Kong.

Loan from a bank in Taiwan

The Group has entered into loan facility agreement with a bank in Taiwan during August 2010 and is available for the Group to draw on within a year. In January 2011, the Group has drawn down the full amount of loan of $6,000. This bank borrowing is denominated in US Dollars, which carries floating interest rate at 1.2% higher than the London Interbank Offered Rate ("LIBOR") at date of inception of loan facility agreement, which adjusted to 1.1% higher than LIBOR in April 2012, and further adjusted to 1.6% higher than LIBOR in June 2012. Effective interest rate was 1.56% and 2.08% per annum as at December 31, 2011 and 2012. The loan is repayable on May 2, 2013.

Loan from bank A in Hong Kong

The Group has entered into loan facility agreement with a bank in Hong Kong during May 2011 and is available for the Group to draw on within a year. In May 2011, the Group has drawn down the full amount of loan of $6,000 in two tranches of $3,000 in each tranche. This bank borrowing is denominated in US Dollars, which carries floating interest rate at 1.1% higher than the LIBOR at the dated of inception of loan facility agreement and adjusted to 1.9% higher than the LIBOR in November 2011. The loans have been roll-over in May, August and November 2012 with floating interest rate remains at 1.9% higher than LIBOR throughout 2012. Effective interest rate was 2.29% and 2.20% per annum as at December 31, 2011 and 2012. The first tranche and second tranche of the loan is repayable on February 12, 2013 and February 19, 2013, respectively as at year ended December 31, 2012.

Loan from bank B in Hong Kong

The Group has entered into loan facility agreement with a bank in Hong Kong during December 2012 and drawn down the full amount of loan of $8,500. This bank borrowing is denominated in US Dollars, which carries fixed interest rate at 1.84% at date of inception of loan facility agreement. The loan of $8,500 together with $1,500 US Dollars have been converted into Renminbi and placed as time deposit (note 13). The loan is repayable on December 31, 2013.

There were no restrictive financial covenants associated with these loans.

F - 24

13 | TIME DEPOSIT

The time deposit is denominated in Renminbi, which carries fixed interest rate at 2.58% per annum and will be matured on December 31, 2013.

14 | GOODWILL

At December 31, |  | 2011 |  |  | 2012 |
Gross goodwill |  | $ | 468 |  |  | $ | 468 |
Less: accumulated impairment losses recognized |  |  | (468 | ) |  |  | (468 | )
|  | $ | - |  |  | $ | - |

In 2011, for Mavrix reporting unit, the Group compared its carrying value, inclusive of assigned goodwill, to its respective fair value - step 1 of the two-step impairment test. The Group estimated the fair value of these reporting units by the income approach. Significant assumptions inherent in the valuation methodologies for goodwill are employed and include, but are not limited to, prospective financial information, terminal value, and discount rates. Based on this quantitative test, the Group determined that the fair value of Mavrix reporting unit tested in 2011 was lower than its carrying amount because the management decided to cease the entire research and development project of the application for Android, which is the primarily line of business of Mavrix reporting unit, due to of technological failure and, therefore, step 2 of the two-step goodwill impairment test was performed. Under step 2 of the two-step goodwill impairment test, the Group estimated the impairment loss of goodwill by comparing the implied fair value of the Mavrix reporting unit's goodwill to the carrying amount of the Mavrix reporting unit's goodwill, which implied fair value of the Mavrix reporting unit's goodwill was calculated in a manner similar to a purchase price allocation. Based on the two-step goodwill impairment test, the Group recognized an impairment loss of $468 on the goodwill of Mavrix reporting unit for the year ended December 31, 2011.

F - 25

15 | SHARE-BASED COMPENSATION

In May 2007, the Board of Directors approved a share incentive plan, in which the Group may grant either options to purchase the Company's ordinary shares or restricted stock units ("RSU"). A maximum of 8,000,000 stock options or RSU were granted to the directors of the Company and senior officers of the Group to subscribe to 48,000,000 shares of the Company. The share based awards granted under this plan have a requisite service period of four years. The Board of Directors also has the right to terminate any unvested share based awards.

The share based awards vest over four years and expire six years from grant date. For some of the employees, twenty-five percent of the share based awards vest on each of the four years following the grant date. For the other employees, fifteen, twenty, thirty and thirty five percent, respectively, will vest on each of the four years following the grant date.

On February 26, 2009, the Board of directors modified the share incentive plan to reduce the option exercise price from $3.30 to $1.40 and extended the first vesting period to May 21, 2010 for all granted options and as a result extended the vesting period to 5 years from grant date and contractual maturity to 7 years from grant date. The incremental increase in the fair value of the options as a result of the modification of approximately $2,614 is amortized over the remaining vesting period.

In May 2011, the Board of Directors approved and granted a further 1,400,000 stock options or RSU to the senior officers and key employees of the Company to subscribe to 8,400,000 shares of the Company under the share incentive plan.

In addition to options granted during the years ended December 31, 2009, 2010 and 2011, RSU were also granted to the senior officers and key employees of the Company since May 2011.

In July 2010, the Group revised its estimate of the number of options that are expect to ultimately vest. The number of stock options granted expected to vest has been reduced to reflect historical experience of forfeiture of 5% to 10% of options granted prior to completion of vesting period and accordingly the share-based compensation expense has been adjusted.

In July 2011, the Group further revised its estimate of the number of options that are expect to ultimately vest. The number of share-based awards granted expected to vest has been reduced to reflect historical experience of forfeiture of 10% to 15% of share-based awards granted prior to completion of vesting period and accordingly the share-based compensation expense has been adjusted.

For the year ended December 31, 2012, forfeiture rate for share-based awards granted expected to vest has remain stable at 15%.

The fair value of each share-based award is estimated at grant date during 2012 using the Black-Scholes option-pricing model based on the following assumptions:

Year ended December 31 |  | 2011 |  | 2012
Risk-free interest rate (1) |  | 0.11% - 2.66% |  | 0.11% - 2.66%
Expected life (2) |  | 2-5 years |  | 2-5 years
Expected volatility (3) |  | 42.04%- 48.30% |  | 39.97%-42.04%
Dividend yield (4) |  | Nil |  | Nil

| (1) | Risk-free interest rate

Risk-free interest rate adopted the yield to maturity of United States government bonds with the same maturity as the respective expected term of the options.

| (2) | Expected life

The expected life was estimated as the average between the vesting term of the options and the original contractual term.

| (3) | Expected volatility

The expected volatility of the underlying ADS during the life of the options was calculated based on the Company's historical stock price volatility over the period from initial public offering through to the grant date.

| (4) | Dividend yield

The dividend yield was expected to be nil based on the Company's historical dividend distribution record and its policy.

| (5) | Share price

The fair value of the ordinary shares on the grant date was the closing price of the Company's stock at each grant date.

F - 26

15 | SHARE-BASED COMPENSATION - continued

Stock options

A summary of stock option activity is as follows:

|  |  |  |  | Weighted |  |  | Weighted |
|  |  |  |  | average |  |  | average |
|  | Number |  |  | exercise price |  |  | fair value |
|  | of options |  |  | per option |  |  | at grant date |
Outstanding at December 31, 2010 |  |  | 6,962,675 |  |  | $ | 1.40 |  |  | $ | 1.22 |
Granted on January 25, 2011 |  |  | 27,000 |  |  | $ | 1.40 |  |  | $ | 1.13 |
Granted on December 15, 2010 but effective on May 10, 2011 (note) |  |  | 812,700 |  |  | $ | 1.40 |  |  | $ | 1.12 |
Granted on May 10, 2011 |  |  | 274,000 |  |  | $ | 1.40 |  |  | $ | 1.12 |
Granted on August 9, 2011 |  |  | 532,100 |  |  | $ | 1.40 |  |  | $ | 0.79 |
Granted on November 8, 2011 |  |  | 15,000 |  |  | $ | 1.40 |  |  | $ | 0.91 |
Exercised |  |  | (479,196 | ) |  | $ | 1.40 |  |  | $ | 1.22 |
Forfeited |  |  | (777,280 | ) |  | $ | 1.40 |  |  | $ | 1.22 |
Expired |  |  | (10,750 | ) |  | $ | 1.40 |  |  | $ | 1.22 |
Outstanding at December 31, 2011 |  |  | 7,356,249 |  |  | $ | 1.40 |  |  | $ | 1.01 |
Exercised |  |  | (1,635,252 | ) |  | $ | 1.40 |  |  | $ | 1.01 |
Forfeited |  |  | (751,425 | ) |  | $ | 1.40 |  |  | $ | 1.01 |
Expired |  |  | (91,475 | ) |  | $ | 1.40 |  |  | $ | 1.01 |
Outstanding at December 31, 2012 |  |  | 4,878,097 |  |  | $ | 1.40 |  |  | $ | 1.01 |

Note: The stock options were approved by the shareholder and Board of Directors on May 10, 2011.

The following table summarizes information with respect to stock options outstanding at December 31, 2011 and 2012:

|  |  |  |  |  |  |  |  |  |  |  |  |  | Options exercisable |
|  | Options outstanding as of December 31, 2011 |  |  | as of December 31, 2011 |
|  |  |  |  |  |  |  | Weighted |  |  |  |  |  |  |  |  | Weighted |  |  |  |
|  |  |  |  | Weighted |  |  | average |  |  |  |  |  |  |  |  | average |  |  |  |
|  |  |  |  | average |  |  | exercise |  |  | Aggregate |  |  | Number |  |  | exercise |  |  | Aggregate |
|  | Number |  |  | contractual |  |  | price |  |  | intrinsic |  |  | of |  |  | price |  |  | intrinsic |
|  | of option |  |  | period |  |  | per option |  |  | value |  |  | options |  |  | per option |  |  | value |
Ordinary shares |  |  | 7,356,249 |  |  |  | 5 years |  |  | $ | 1.40 |  |  | $ | 8,984 |  |  |  | 2,195,234 |  |  | $ | 1.40 |  |  | $ | 2,106 |

|  |  |  |  |  |  |  |  |  |  |  |  |  | Options exercisable |
|  | Options outstanding as of December 31, 2012 |  |  | as of December 31, 2012 |
|  |  |  |  |  |  |  | Weighted |  |  |  |  |  |  |  |  | Weighted |  |  |  |
|  |  |  |  | Weighted |  |  | average |  |  |  |  |  |  |  |  | average |  |  |  |
|  |  |  |  | average |  |  | exercise |  |  | Aggregate |  |  | Number |  |  | exercise |  |  | Aggregate |
|  | Number |  |  | contractual |  |  | price |  |  | intrinsic |  |  | of |  |  | price |  |  | intrinsic |
|  | of option |  |  | period |  |  | per option |  |  | value |  |  | options |  |  | per option |  |  | value |
Ordinary shares |  |  | 4,878,097 |  |  |  | 5 years |  |  | $ | 1.40 |  |  | $ | 17,957 |  |  |  | 2,839,857 |  |  | $ | 1.40 |  |  | $ | 2,507 |

F - 27

As at December 31, 2012, there was $204 (2011: $1,210) of unrecognized compensation expense related to non-vested stock options that are expected to be recognized over a weighted-average period of 3 years (2011: 4 years) on a straight-line basis.

RSU

The fair value of each RSU is estimated based on the market price at grant date. RSU were first grant to the directors of the Company and senior management of the Group since May 2011. A summary of RSU activity is as follows:

|  | For the year ended |
|  | December 31, 2012 |
|  |  |  |  | Weighted |
|  |  |  |  | average |
|  | Number |  |  | fair value |
|  | of options |  |  | at grant date |
Outstanding at December 31, 2010 |  |  | - |  |  | $ | - |
Granted on December 15, 2010 but effective on May 10, 2011 (note) |  |  | 183,000 |  |  | $ | 2.36 |
Granted on May 10, 2011 |  |  | 12,000 |  |  | $ | 2.36 |
Granted on August 9, 2011 |  |  | 48,000 |  |  | $ | 1.98 |
Forfeited |  |  | (9,000 | ) |  | $ | 2.36 |
Outstanding at December 31, 2011 |  |  | 234,000 |  |  | $ | 2.28 |
Granted on January 17, 2012 |  |  | 100,000 |  |  | $ | 1.87 |
Granted on May 8, 2012 |  |  | 313,250 |  |  | $ | 1.69 |
Exercised |  |  | (31,500 | ) |  | $ | 2.28 |
Forfeited |  |  | (34,100 | ) |  | $ | 2.28 |
Outstanding at December 31, 2012 |  |  | 581,650 |  |  | $ | 1.93 |

Note: The RSU were approved by the shareholder and Board of Directors on May 10, 2011.

As at December 31, 2012, there was $190 (2011: 164) of unrecognized compensation expenses related to non-vested RSU that are expected to be recognized over a weighted-average period of 2 years (2011: 2.13 years) on a straight-line basis.

As at December 31, 2012, 3,940,253 (2011: 1,809,751) options to purchase ordinary shares or RSU were available for future grant.

F - 28

16 | OTHER INCOME

Other income for 2010, 2011 and 2012 represented foreign exchange gain was $2,348, $4,066 and $1,547, respectively.

17 | OTHER-THAN-TEMPORARY IMPAIRMENT

All investments are evaluated for impairment periodically or if the Group becomes aware of an event that indicates that the carrying amount of the asset may not be recoverable. To determine whether a decline in value below the carrying amount of an asset is other-than-temporary, the Group considers whether it has the ability and intent to hold the debt instrument until a market price recovery occurs or whether evidence indicating that the carrying value of the investment is recoverable outweighs evidence to the contrary. Evidence considered in this assessment includes the reasons for the decline in fair value, the severity and duration of the decline in realizable value below cost, changes in value subsequent to the balance sheet date, as well as forecasted performance of the investee. If a decline in value below the carrying amount is determined to be other-than-temporary, the asset is written down to fair value through an impairment charge recognized in the earnings and a new cost basis is established.

No other-than-temporary impairment loss was recognized for the year ended December 31, 2010 and 2011.

In 2012, the Group recorded other-than-temporary impairment losses related to two unlisted equity securities issued by two private entities ("Investees"). The management of the Group has assessed that the decline in value is other-than-temporary, thus impairment losses of approximately $803 and $1,740 have been recognized respectively and the investments in these unlisted equity securities are written down to approximately $1,500 and nil as of December 31, 2012.

F - 29

18 | INCOME TAXES

The components of income (loss) before income taxes, equity in net loss of equity method investee and non-controlling interest are as follows:

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Domestic |  | $ | (3,593 | ) |  | $ | (3,659 | ) |  | $ | (3,182 | )
Foreign |  |  | 4,650 |  |  |  | 8,661 |  |  |  | 1,703 |
|  | $ | 1,057 |  |  | $ | 5,002 |  |  | $ | (1,479 | )

The Company is tax exempt in the Cayman Islands.

Under the current Mauritius law and Hong Kong Inland Revenue Ordinance, Actions Semiconductor Mauritius' and Artek Microelectronics (HK) Co., Limited's income are subject to taxation in Mauritius and Hong Kong, respectively; however, up to and as of December 31, 2012, both entities have not had any taxable profits. Actions Semiconductor Shanghai, Actions Microelectronics Co., Ltd, Actions Capital Investment Inc. and Actions Malaysia have been loss making since their incorporation. Mavrix HK and Mavrix Shanghai have been loss making since the date of acquisition.

Effective January 1, 2008, the Enterprise Income Tax of the people’s Republic of China (“EIT Law”) was implemented. The new law requires that:

| 1. | For all resident enterprises, domestic or foreign, the unified Enterprise Income Tax (“EIT”) rate is 25%.

| 2. | Enterprises that are categorized as the "High New Tech Enterprise" will have a reduced tax rate of 15%.

| 3. | From January 1, 2008 onwards, enterprises that enjoyed a preferential tax rate will need to adopt the new law over the next five years. Enterprises with a current preferential tax rate of 15%, would be subject to tax rates of 18%, 20%, 22%, 24% and 25% for the years ended December 31, 2008, 2009, 2010, 2011 and 2012 respectively.

The new law allows the preferential tax treatment to be continued by enterprises up until the year when it expires. For enterprises that have preferential tax treatment, all preferential tax treatments were required to be commenced in 2008.

F - 30

18 | INCOME TAXES - continued

Actions Semiconductor Zhuhai

On August 23, 2011, Actions Semiconductor Zhuhai successfully renewed its certificate of "High New Tech Enterprises" with effective from January 1, 2011. As a result, the applicable tax rate continues to be 15% for the years ended December 31, 2011 and 2012 and the year ended December 31, 2013, and 25% thereafter, unless the Group continues its status and receives certification as a "High New Tech Enterprises" by the end of 2014.

Artek Microelectronics Shenzhen

Artek Microelectronics Shenzhen was established in the Shenzhen Special Economic Zone ("Shenzhen Economic Zone") of China as a foreign investment enterprise and principally conducts its business operations in this Shenzhen Economic Zone. It was subject to the tax preferential treatment and income tax rate was reduced by 50% for 2010 and 2011, therefore, income tax rates were 11% and 12% for the years ended December 31, 2010, and 2011, respectively.

On November 5, 2012, certificate of “High New Tech Enterprises” was granted to Artek Microelectronics Shenzhen, as a result, the applicable tax rate was 15% for the year ended December 31, 2012, and for the years ended December 31, 2013 and 2014, and 25% thereafter, unless the Group continues its status and receives certification as a “High New Tech Enterprises” by the end of 2015.

F - 31

18 | INCOME TAXES - continued

Tax residency

Uncertainties exist with respect to how the EIT law applies to our overall operations, and more specifically, with regard to tax residency status. EIT law includes a provision specifying that legal entities organized outside China will be considered residents for Chinese income tax purposes if their place of effective management or control is within China. The Implementation Rules to the EIT Law provide that non-resident legal entities will be considered as PRC tax residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. occurs within China. Additional guidance is expected to be released by the Chinese government in the near future that may clarify how to apply this standard to taxpayers. Except Mavrix, whose place of effective management is in Shanghai, the Group determined that the legal entities organized outside China should not be treated as PRC tax residents for EIT Law purposes as the places of effective management are outside China. If one or more of other legal entities organized outside China were characterized as PRC tax resident, then the additional tax cost might be significant.

The Company's calculation of income taxes generally reflects the Company's status as a non-PRC tax resident company. The tax residency of a company is normally a question of fact. For a company which has been established outside the PRC, will be treated as a PRC tax resident if the location of effective management of the Company is in the PRC. PRC for this purpose does not include Hong Kong, Macao, or Taiwan.

An additional consequence of the Company and/or its non-PRC subsidiaries being tax resident in the PRC would be the taxability in the PRC of the non-PRC tax resident recipients of certain payments made by the Company. This may include dividends, interest, and royalties.

The Company, which has subsidiaries that are tax resident in the PRC, will be subject to the PRC dividend withholding tax of 5% when and if undistributed earnings are declared to be paid as dividends commencing on January 1, 2008 to the extent those dividends are paid out of profits that arose on or after January 1, 2008. The Company's tax provision includes $3,189 (2011:$2,840) of income tax expense for the 5% dividend withholding tax on the balance of distributable profits that arose on or after January 1, 2008 within its PRC subsidiaries as of the balance sheet date.

Actions Hong Kong and Artek Microelectronics (HK) Co., Limited are subject to Hong Kong Profits Tax at a rate of 16.5% for the years ended December 31, 2010, 2011 and 2012 respectively.

The current and deferred components of the income tax expense appearing in the consolidated statements of operations are as follows:

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Current tax |  | $ | 3 |  |  | $ | 451 |  |  | $ | 318 |
Deferred tax |  |  | 419 |  |  |  | 428 |  |  |  | 454 |
|  | $ | 422 |  |  | $ | 879 |  |  | $ | 772 |

F - 32

18 | INCOME TAXES - continued

The Group's deferred tax assets and liabilities as at December 31, 2011 and 2012 are attributable to the following:

|  | At December 31, |
|  | 2011 |  |  | 2012 |
Expenditures deductible for tax purpose in future years |  |  |  |  |  |  |  |
- Accrued legal and professional fees |  | $ | 31 |  |  | $ | 28 |
- Accrued bonus |  |  | 279 |  |  |  | 261 |
- Other |  |  | 56 |  |  |  | 172 |
Tax losses |  |  | 1,912 |  |  |  | 3,535 |
Depreciation and amortization |  |  | 91 |  |  |  | 123 |
Total deferred tax assets |  | $ | 2,369 |  |  | $ | 4,119 |
Valuation allowance |  |  | (1,912 | ) |  |  | (3,535 | )
Deferred tax assets |  |  | 457 |  |  |  | 584 |
Interest income taxable for tax purpose in future years |  |  | (295 | ) |  |  | (534 | )
Deferred tax liability arising from withholding tax on undistributed profits |  |  | (2,840 | ) |  |  | (3,189 | )
Total deferred tax liabilities |  |  | (3,135 | ) |  |  | (3,723 | )
Deferred tax liabilities, net |  | $ | (2,678 | ) |  | $ | (3,139 | )

The following is the analysis of deferred tax balances for reporting purposes:

|  | At December 31, |
|  | 2011 |  |  | 2012 |
Deferred tax assets |  |  |  |  |  |  |  |
Current |  | $ | 430 |  |  | $ | 504 |
Non-current |  |  | 27 |  |  |  | 80 |
|  | $ | 457 |  |  | $ | 584 |
Deferred tax liabilities |  |  |  |  |  |  |  |
Current |  | $ | (295 | ) |  | $ | (534 | )
Non-current |  |  | (2,840 | ) |  |  | (3,189 | )
|  |  | (3,135 | ) |  |  | (3,723 | )
Deferred tax liabilities, net |  | $ | (2,678 | ) |  | $ | (3,139 | )

Movement of valuation allowance:

|  | 2010 |  |  | 2011 |  |  | 2012 |
At the beginning of the year |  | $ | 660 |  |  | $ | 1,002 |  |  | $ | 1,912 |
Change for the year |  |  | 342 |  |  |  | 910 |  |  |  | 1,623 |
At the end of the year |  | $ | 1,002 |  |  | $ | 1,912 |  |  | $ | 3,535 |

A valuation allowance has been provided for the tax loss of $10,304, $4,418 and $1,793 of Actions Semiconductor Shanghai, Actions Semiconductor Zhuhai and Actions Hong Kong respectively since realization of the recorded deferred tax assets is dependent on generating sufficient taxable income. Tax loss of $197, $1,453, $2,409, $3,101 ,$7,562 and $1,793 may carry forward till 2013, 2014, 2015, 2016, 2017 and indefinitely, respectively. As the management does not believe that it is more likely than not that all of the deferred tax asset attributable to the tax losses of Actions Semiconductor Shanghai, Actions Semiconductor Zhuhai and Actions Hong Kong will be realized, valuation allowance of $1,002, $1,912 and $3,535 has been established as of December 31, 2010, 2011 and 2012, respectively for the related deferred tax asset of these subsidiaries

F - 33

18 | INCOME TAXES - continued

The additional tax that would have been payable in the absence of the tax exemption and preferential income tax rate amounts to approximately $473, $1,081, and $911 for the years ended December 31, 2010, 2011 and 2012, respectively. It represents a decrease in the basic and diluted earnings per ordinary share of $0.001 and $0.002 for the years ended December 31, 2010 and 2011; and an increase in the basic and diluted loss per ordinary share of $0.002 for the year ended December 31, 2012.

The Group has made its assessment of the level of tax authority for each tax position (including the potential application of interest and penalties) based on the technical merits, and has measured the unrecognized tax benefits associated with the tax positions. Based on the evaluation by the Group, it is concluded that there are no significant uncertain tax positions requiring recognition in the consolidated financial statements. The Group classifies interest and/or penalties related to unrecognized tax benefits as a component of income tax expense; however, as of December 31, 2011 and 2012, there were no interest and penalties related to uncertain tax positions. The Group has no material unrecognized tax benefit which would favorably affect the effective income tax rate in the next twelve months. The Group does not anticipate any significant increases or decreases to its liability for unrecognized tax benefit within the next twelve months. The tax positions for the years 2010 to 2012 and years 2006 to 2012 may be subject to examination by the PRC and Hong Kong tax authorities, respectively.

A reconciliation between the provision for income tax computed by applicable PRC enterprise income tax rate to income before income taxes, equity in net loss of equity method investees and noncontrolling interest, and actual provision for income taxes is as follows:

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
PRC tax rate |  |  | 25 | % |  |  | 25 | % |  |  | 25 | %
Tax provision (credit) at PRC enterprise income tax rate |  | $ | 264 |  |  | $ | 1,251 |  |  | $ | (370 | )
Expenses not deductible for tax purpose |  |  | 260 |  |  |  | 717 |  |  |  | 1,224 |
Share-based compensation not deductible for tax purpose |  |  | 1,532 |  |  |  | 420 |  |  |  | 366 |
Income not taxable for tax purposes |  |  | (981 | ) |  |  | (706 | ) |  |  | (599 | )
Net change in valuation allowance |  |  | 342 |  |  |  | 910 |  |  |  | 1,623 |
Effect of tax exemption and preferential income tax rate granted to PRC subsidiaries |  |  | (473 | ) |  |  | (1,081 | ) |  |  | (911 | )
Effect of the different income tax rates in other jurisdictions |  |  | (145 | ) |  |  | (34 | ) |  |  | 21 |
Effect of withholding tax on undistributed earnings |  |  | 229 |  |  |  | 554 |  |  |  | 349 |
Effect of withholding tax on American Depository Shares ("ADS") reimbursement income |  |  | - |  |  |  | 150 |  |  |  | 150 |
Utilization of tax loss previously not recognized |  |  | (341 | ) |  |  | (1,053 | ) |  |  | (979 | )
Overprovision in prior year |  |  | (264 | ) |  |  | (236 | ) |  |  | (81 | )
Others |  |  | (1 | ) |  |  | (13 | ) |  |  | (21 | )
Income tax expense |  | $ | 422 |  |  | $ | 879 |  |  | $ | 772 |

F - 34

19 | NET INCOME (LOSS) PER SHARE

The calculations of basic and diluted earnings per share are computed as follows:

|  | For the years ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Net income (loss) attributable to Actions Semiconductor Co., Ltd. |  | $ | 384 |  |  | $ | 3,005 |  |  | $ | (2,202 | )
Shares: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average shares outstanding used in computing basic net income (loss) per share |  |  | 438,401,072 |  |  |  | 418,499,545 |  |  |  | 412,706,341 |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |  |  |
Weighted average shares from assumed exercise of share-based awards |  |  | 16,167,778 |  |  |  | 15,483,560 |  |  |  | - |
Weighted average shares outstanding used in computing diluted net income (loss) per share |  |  | 454,568,850 |  |  |  | 433,983,105 |  |  |  | 412,706,341 |
Net income (loss) per share, basic |  | $ | 0.001 |  |  | $ | 0.007 |  |  | $ | (0.005 | )
Net income (loss) per share, diluted |  | $ | 0.001 |  |  | $ | 0.007 |  |  | $ | (0.005 | )

The computation of diluted loss per share for the year ended 31 December 2012 did not assume the effect of share option and unvested awarded shares under the Company’s share incentive plan (see note 15) since their assumed conversion and exercise would result in a decrease in loss per share. No options and unvested advanced shares are excluded from calculation of diluted income per share in 2010 and 2011.

20 | SEGMENT AND GEOGRAPHIC INFORMATION

The Group's chief operating decision maker has been identified as the Chief Executive Officer. The Group does not specifically identify and allocate any assets by operating segment nor does management evaluate operating segment using discrete asset information. The chief operating decision maker uses gross profit margin of different products and services when making decisions about allocating resources and assessing performance of the Group so as to allocate operating expenses to each reporting segment.

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |
MMP SoC for portable media players |  | $ | 37,434 |  |  | $ | 47,168 |  |  | $ | 54,150 |
Testing solutions |  |  | 151 |  |  |  | 317 |  |  |  | 179 |
|  | $ | 37,585 |  |  | $ | 47,485 |  |  | $ | 54,329 |
Gross profit: |  |  |  |  |  |  |  |  |  |  |  |
MMP SoC for portable media players |  | $ | 14,588 |  |  | $ | 18,347 |  |  | $ | 19,143 |
Testing solutions |  |  | 70 |  |  |  | 141 |  |  |  | 79 |
|  | $ | 14,658 |  |  | $ | 18,488 |  |  | $ | 19,222 |

Geographic information

The Group operates in PRC/Hong Kong and all of the Group's long-lived assets are located in PRC/Hong Kong and substantially all of our sales are made in PRC/Hong Kong.

F - 35

21 | COMMITMENTS AND CONTINGENCIES

| (a) | Operating leases

The Group leases certain office premises under non-cancelable leases with terms that range from one to two years and are renewable subject to negotiation. Rental expense under operating leases for the years ended December 31, 2010, 2011 and 2012 was $648, $455 and $342, respectively.

Future minimum lease payments under non-cancelable operating lease agreements as of December 31, 2011 were $213 of which $193 and $20 are payable in the years ending December 31, 2012 and 2013, respectively.

Future minimum lease payments under non-cancelable operating lease agreements as of December 31, 2012 were $308 of which $261 and $47 are payable in the years ending December 31, 2013 and 2014, respectively.

| (b) | Capital commitments

Capital commitments for purchase of property, plant and equipment as of December 31, 2011 and 2012 was $164 and $2, respectively.

F - 36

21 | COMMITMENTS AND CONTINGENCIES - continued

| (c) | Royalty fee commitments

The Group has entered into two royalty agreements for the use of certain technology knowhow ("Technology Knowhow") used in the Group's products.

Technology Knowhow A

As of December 31, 2009, the agreement with Technology Knowhow A provider allows the Group to have unlimited use of Technology Knowhow A with minimum quarterly royalty fee commitment of $50. The agreement was effective until September 30, 2010.

In October 2010, the Group revised the agreement, which the terms and conditions are the same as the 2009 agreement. The October 2010 new agreement is effective for period from October 1, 2010 to September 30, 2011.

In April 1, 2011, the Group early renewed its agreement, which the terms and conditions are the same as the 2010 agreement. The 2011 April new agreement replaced the 2010 agreement and is effective for period from April 1, 2011 to March 30, 2013.

Technology Knowhow B

In August 2011, the Group has entered into an agreement with Technology Knowhow B provider which allows the Group to have unlimited use of Technology Knowhow B with minimum quarterly royalty fee commitment of $94. The royalty fee is based on the total number of units shipped by the Company. The agreement is effective for period from September 8, 2011 to September 7, 2013.

The Group's total royalty expenses paid for the use of all Technology Knowhow for the years ended December 31, 2010, 2011 and 2012 amounted to $360, $715 and $715, respectively. Royalty commitment for all Technology Knowhow as of December 31, 2011 and 2012 were $813 and $269 respectively.

F - 37

22 | MAJOR CUSTOMERS

The Group primarily sells to customers located in China/Hong Kong.

The following table summarizes net revenues and accounts receivable for customers, which accounted for 10% or more of the Group's net revenues and accounts receivable:

|  | Net revenues |
|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Customer A |  |  | N/A |  |  |  | 14 | % |  |  | 11 | %
Customer B |  |  | 20 | % |  |  | 12 | % |  |  | N/A |
Customer C |  |  | 10 | % |  |  | N/A |  |  |  | N/A |
Customer D |  |  | 15 | % |  |  | 10 | % |  |  | N/A |
Customer E |  |  | 20 | % |  |  | 17 | % |  |  | 17 | %
Customer F |  |  | N/A |  |  |  | N/A |  |  |  | 17 | %
Customer H |  |  | N/A |  |  |  | N/A |  |  |  | 11 | %
|  |  | 65 | % |  |  | 53 | % |  |  | 56 | %

|  | Accounts receivable |
|  | At December 31, |
|  | 2011 |  |  | 2012 |
Customer C |  |  | 16 | % |  |  | N/A |
Customer D |  |  | 19 | % |  |  | N/A |
Customer E |  |  | 11 | % |  |  | 14 | %
Customer F |  |  | N/A |  |  |  | 14 | %
Customer G |  |  | 21 | % |  |  | 22 | %
Customer H |  |  | N/A |  |  |  | 13 | %
|  |  | 67 | % |  |  | 63 | %

F - 38

23 | EMPLOYEE BENEFIT PLAN

Full time employees of the Group in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees' salaries. Employees of the Group in Hong Kong have joined the Mandatory Provident Fund ("MPF") Scheme which is also a defined contribution plan. The contribution to the MPF Scheme is calculated based on the rules set out in the MPF Ordinance in Hong Kong which is 5% on the relevant income of the employee with a specific ceiling. The total provisions for these employee benefits were $1,918, $2,528, and $2,717 for the years ended December 31, 2010, 2011 and 2012, respectively.

24 | MATERIAL RELATED PARTY DISCLOSURE

During the year ended December 31, 2010, 2011 and 2012, the Group recognized net sales of $7,495, $5,783 and $1,794 to G.M.I. Technology Inc. ("GMI") respectively. As of December 31, 2011 and 2012, amount due from a related party represented an account receivable from GMI of $9 and $340 respectively. GMI's president is an immediate family member of the Group's Director.

As of December 31, 2011 and 2012, the Group had an amount due from an equity method investee, Beijing Actions, of $64 and $79, respectively.

25 | SUBSEQUENT EVENTS

In April 2013, Nann Capital increased its injected capital of which the Group also participated in the capital injection. Upon completion of this capital injection, the Group's ownership interest in Nann Capital remains at 40% and continues its significant influence in Nann Capital.

26 | MAINLAND CHINA PROFIT APPROPRIATION AND RESTRICTION ON CAPITAL REPATRIATION

Pursuant to the laws applicable to the PRC's Foreign Investment Enterprises, the Company's subsidiaries in the PRC registered as foreign-owned enterprise must make appropriations from after-tax profit to non-distributable reserve funds as determined by the Board of Directors of the relevant PRC subsidiary. These reserves include a (1) general reserve, (2) enterprise expansion fund and (3) staff bonus and welfare fund. Subject to certain cumulative limits, the general reserve fund requires annual appropriations of not less than 10% of after-tax profit (as determined under accounting principles and financial regulations applicable to PRC enterprises at each year-end); the other fund appropriations are at the Group's discretion. These reserve funds can only be used for specific purposes and are not distributable as cash dividends. As of December 31, 2011 and 2012, the balance of these of the Company's PRC subsidiaries reserves amounted to $13,227 and $13,656, respectively.

In addition to these reserves, the registered capital of the Company's PRC subsidiaries is also restricted. As of December 31, 2011 and 2012, the total amount of the restricted capital and reserves amounted to $118,167 and $124,141, respectively.

F - 39

SCHEDULE 1

BALANCE SHEETS

(In thousands of U.S. dollars, except share and per share data)

|  | At December 31, |
|  | 2011 |  |  | 2012 |
ASSETS |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 1,882 |  |  | $ | 1,255 |
Amounts due from subsidiaries |  |  | 12,715 |  |  |  | 14,544 |
Prepaid expenses and other current assets |  |  | 221 |  |  |  | 191 |
Total current assets |  |  | 14,818 |  |  |  | 15,990 |
Investments in subsidiaries |  |  | 388,251 |  |  |  | 392,493 |
Investments in an equity method investee |  |  | 11,428 |  |  |  | 11,478 |
TOTAL ASSETS |  |  | 414,497 |  |  |  | 419,961 |
LIABILITIES AND EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accrued expenses and other current liabilities |  | $ | 914 |  |  | $ | 1,902 |
Amounts due to subsidiaries |  |  | 135,356 |  |  |  | 138,795 |
Total current liabilities |  |  | 136,270 |  |  |  | 140,697 |
Payable for acquisition of intangible assets |  |  | - |  |  |  | 475 |
Total liabilities |  |  | 136,270 |  |  |  | 141,172 |
Equity: |  |  |  |  |  |  |  |
Ordinary shares of par value $0.000001: 2,000,000,000 shares authorized 408,985,092 (2011: 413,985,636) shares issued and outstanding |  | $ | 1 |  |  | $ | 1 |
Additional paid-in capital |  |  | 20,600 |  |  |  | 20,202 |
Accumulated other comprehensive income |  |  | 32,589 |  |  |  | 35,751 |
Retained earnings |  |  | 225,037 |  |  |  | 222,835 |
Total equity |  |  | 278,227 |  |  |  | 278,789 |
TOTAL LIABILITIES AND EQUITY |  | $ | 414,497 |  |  | $ | 419,961 |

F - 40

STATEMENTS OF OPERATIONS

(In thousands of U.S. dollars, except share and per share data)

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |
Research and development |  | $ | (1,004 | ) |  | $ | (1,339 | ) |  | $ | (944 | )
General and administrative |  |  | (2,357 | ) |  |  | (2,269 | ) |  |  | (2,190 | )
Selling and marketing |  |  | (46 | ) |  |  | (51 | ) |  |  | (48 | )
Total operating expenses |  |  | (3,407 | ) |  |  | (3,659 | ) |  |  | (3,182 | )
Loss from operations |  |  | (3,407 | ) |  |  | (3,659 | ) |  |  | (3,182 | )
Loss before income taxes |  |  | (3,407 | ) |  |  | (3,659 | ) |  |  | (3,182 | )
Income tax expenses |  |  | - |  |  |  | (150 | ) |  |  | (150 | )
Share of net income of subsidiaries, net of taxes |  |  | 4,058 |  |  |  | 6,786 |  |  |  | 1,080 |
Share of net (loss) income of an equity method investee |  |  | (81 | ) |  |  | 28 |  |  |  | 50 |
Investment loss |  |  | (186 | ) |  |  | - |  |  |  | - |
Net income (loss) |  | $ | 384 |  |  | $ | 3,005 |  |  | $ | (2,202 | )

F - 41

STATEMENTS OF COMPREHENSIVE INCOME
(In thousands of U.S. dollars, except share and per share data)

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Net income (loss) |  |  | 384 |  |  |  | 3,005 |  |  |  | (2,202 | )
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |  |  |  |  |  |
Change in cumulative foreign currency translation adjustments |  |  | 4,350 |  |  |  | 8,169 |  |  |  | 3,162 |
Unrealized loss on other investment, net of tax effects of nil, nil and nil for the years ended December 31, 2010, 2011 and 2012, respectively |  |  | (169 | ) |  |  | - |  |  |  | - |
Total comprehensive income |  | $ | 4,565 |  |  | $ | 11,174 |  |  | $ | 960 |

F - 42

STATEMENTS OF CHANGES IN EQUITY

(In thousands of U.S. dollars, except share and per share data)

|  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |  |  |  |  |
|  |  |  |  |  |  |  |  |  |  | other |  |  | Accumulated |  |  |  |
|  | Ordinary shares |  |  | Additional |  |  | comprehensive |  |  | retained |  |  |  |
|  | Number |  |  | Amount |  |  | paid-in capital |  |  | income |  |  | earnings |  |  | Total |
Balance at January 1, 2010 |  |  | 450,563,676 |  |  | $ | 1 |  |  | $ | 31,423 |  |  | $ | 20,239 |  |  | $ | 221,648 |  |  | $ | 273,311 | )
Repurchase of ordinary shares |  |  | (24,212,718 | ) |  |  | - |  |  |  | (9,019 | ) |  |  | - |  |  |  | - |  |  |  | (9,019 |
Share-based compensation |  |  | - |  |  |  | - |  |  |  | 1,532 |  |  |  | - |  |  |  | - |  |  |  | 1,532 |
Exercise of stock option |  |  | 1,354,350 |  |  |  | - |  |  |  | 316 |  |  |  | - |  |  |  | - |  |  |  | 316 |
Share of subsidiaries’ reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 4,181 |  |  |  | - |  |  |  | 4,181 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 384 |  |  |  | 384 |
Balance at December 31, 2010 |  |  | 427,705,308 |  |  | $ | 1 |  |  | $ | 24,252 |  |  | $ | 24,420 |  |  | $ | 222,032 |  |  | $ | 270,705 |
Repurchase of ordinary shares |  |  | (16,594,848 | ) |  |  | - |  |  |  | (6,251 | ) |  |  | - |  |  |  | - |  |  |  | (6,251 | )
Share-based compensation |  |  | - |  |  |  | - |  |  |  | 1,928 |  |  |  | - |  |  |  | - |  |  |  | 1,928 |
Exercise of share-based awards |  |  | 2,875,176 |  |  |  | - |  |  |  | 671 |  |  |  | - |  |  |  | - |  |  |  | 671 |
Share of subsidiaries’ reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 8,169 |  |  |  | - |  |  |  | 8,169 |
Net income |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,005 |  |  |  | 3,005 |
Balance at December 31, 2011 |  |  | 413,985,636 |  |  | $ | 1 |  |  | $ | 20,600 |  |  | $ | 32,589 |  |  | $ | 225,037 |  |  | $ | 278,227 |
Repurchase of ordinary shares |  |  | (14,812,056 | ) |  |  | - |  |  |  | (4,166 | ) |  |  | - |  |  |  | - |  |  |  | (4,166 | )
Share-based compensation |  |  | - |  |  |  | - |  |  |  | 1,465 |  |  |  | - |  |  |  | - |  |  |  | 1,465 |
Exercise of share-based awards |  |  | 9,811,512 |  |  |  | - |  |  |  | 2,303 |  |  |  | - |  |  |  | - |  |  |  | 2,303 |
Share of subsidiaries’ reserve |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 3,162 |  |  |  | - |  |  |  | 3,162 |
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (2,202 | ) |  |  | (2,202 | )
Balance at December 31, 2012 |  |  | 408,985,092 |  |  | $ | 1 |  |  | $ | 20,202 |  |  | $ | 35,751 |  |  | $ | 222,835 |  |  | $ | 278,789 |

F - 43

STATEMENTS OF CASH FLOWS

(In thousands of U.S. dollars)

|  | Year ended December 31, |
|  | 2010 |  |  | 2011 |  |  | 2012 |
Operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Net income (loss) |  | $ | 384 |  |  | $ | 3,005 |  |  | $ | (2,202 | )
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |  |  |  |  |  |  |  |
Share-based compensation |  |  | 1,532 |  |  |  | 1,928 |  |  |  | 1,465 |
Share of net income of subsidiaries |  |  | (4,058 | ) |  |  | (6,786 | ) |  |  | (1,080 | )
Share of net loss (income) of an equity method investee |  |  | 81 |  |  |  | (28 | ) |  |  | (50 | )
Changes in operating assets and liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Prepaid expenses and other current assets |  |  | 88 |  |  |  | (186 | ) |  |  | 30 |
Accrued expenses and other current liabilities |  |  | 30 |  |  |  | 115 |  |  |  | 1,462 |
Amounts due to subsidiaries |  |  | 16,516 |  |  |  | 15,489 |  |  |  | 3,440 |
Cash provided by operating activities |  |  | 14,573 |  |  |  | 13,537 |  |  |  | 3,065 |
Investing activities: |  |  |  |  |  |  |  |  |  |  |  |
Investment in an equity method investee |  |  | (4,405 | ) |  |  | (7,076 | ) |  |  | - |
Increase in deposit paid for acquisition of intangible assets |  |  | (1,100 | ) |  |  | - |  |  |  | - |
Increase in amounts due from subsidiaries |  |  | (375 | ) |  |  | (67 | ) |  |  | (1,829 | )
Capital contribution in subsidiaries |  |  | (88 | ) |  |  | - |  |  |  | - |
Cash used in investing activities |  |  | (5,968 | ) |  |  | (7,143 | ) |  |  | (1,829 | )
Financing activities: |  |  |  |  |  |  |  |  |  |  |  |
Repurchase of ordinary shares |  |  | (9,019 | ) |  |  | (6,251 | ) |  |  | (4,152 | )
Proceeds from exercise of stock options |  |  | 316 |  |  |  | 671 |  |  |  | 2,289 |
Cash used in financing activities |  |  | (8,703 | ) |  |  | (5,580 | ) |  |  | (1,863 | )
(Decrease) increase in cash and cash equivalents |  |  | (98 | ) |  |  | 814 |  |  |  | (627 | )
Cash and cash equivalents at the beginning of the year |  |  | 1,166 |  |  |  | 1,068 |  |  |  | 1,882 |
Cash and cash equivalents at the end of the year |  | $ | 1,068 |  |  | $ | 1,882 |  |  | $ | 1,255 |

F - 44

NOTES TO SCHEDULE 1

1 | Schedule 1

Schedule 1 has been provided pursuant to the requirements of Rule 12-04(a) and 4-08(e)(3) of Regulation S-X, which require condensed financial information as to financial position, changes in financial position and results and operations of a parent company as of the same dates and for the same periods for which audited consolidated financial statements have been presented when the restricted net assets of the consolidated and unconsolidated subsidiaries together exceed 25 percent of consolidated net assets as of end of the most recently completed fiscal year.

As of December 31, 2011 and 2012, $118,167 and $124,141 of the restricted capital and reserves are not available for distribution, and as such, the condensed financial information of the Company has been presented for the years ended December 31, 2010, 2011 and 2012.

2 | Basis of preparation

The condensed financial information has been prepared using the same accounting policies as set out in the Group's consolidated financial statements except that the parent company has used equity method to account for its subsidiaries.

F - 45