SINBON Electronics - Capital/Financing Update 2014

OFFERING CIRCULAR

Sinbon Electronics Co., Ltd.

(Incorporated as a company limited by shares in Taiwan, Republic of China)

U.S.$45,000,000 Zero Coupon Convertible Bonds due 2007

Issue Price: 100 per cent.

The U.S.$45,000,000 Zero Coupon Convertible Bonds due 2007 (the ‘‘Bonds’’) will be issued in registered form by Sinbon Electronics Co., Ltd. (the ‘‘Company’’) in reliance on Regulation S under the Securities Act of 1933, as amended (the ‘‘Securities Act’’). The Bonds will not bear interest except in the limited circumstances set forth herein. On the Maturity Date, the Company will redeem the Bonds at their original principal amount, unless the Bonds have been previously purchased and cancelled, converted or redeemed.

The Bonds will be direct, unconditional, unsecured and unsubordinated obligations of the Company and will rank at least pari passu in right of payment with all other unsecured and unsubordinated debt of the Company, except as otherwise provided herein. Holders of the Bonds may convert the Bonds into the common shares, par value NT$10 per share, of the Company (the ‘‘Shares’’) at any time (subject to certain restrictions) on or after 17 September 2002 and prior to the close of business (at the place the Bond is deposited for conversion) on 17 June 2007. The Conversion Price will initially be NT$57.5 per Share, which is equivalent to U.S.$1.716 per Share based on a fixed exchange rate of NT$33.51 = U.S.$1.00, subject to adjustment in the manner provided herein. In addition, the Conversion Price will be adjusted from time to time in certain circumstances relating to the then prevailing closing price of the Shares relative to the Conversion Price. The Shares are listed on the Republic of China Over-the-Counter Securities Exchange (the ‘‘ROSE’’). On 8 July 2002, the closing price of the Shares on the ROSE was NT$54.0 per Share.

The Company will, at the option of the holder of any Bond (the ‘‘Bondholder’’), redeem all or part of the Bondholder’s Bonds on 17 July 2004 at 106.75 per cent. and on 17 July 2005 at 112.26 per cent. of the principal amount, respectively. The Company has the option, having given not less than 40 days or more than 60 days notice to the Bondholders, to redeem all, or part only, of the Bonds on or at any time after 17 July 2003 at their principal amount in the event that the closing price of the Shares in the ROSE in U.S. Dollars, calculated at the prevailing exchange rate, for each of the 30 consecutive Trading Days (as defined herein), the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 140 per cent. of the Conversion Price in effect on each such Trading Day translated into U.S. Dollars at the fixed exchange rate of NT$33.51=U.S.$1.00. The Bonds may be redeemed in whole at any time at the Company’s option at the principal amount in the event that (i) the Bonds outstanding are less than 10 per cent. of the issue amount; or (ii) certain changes relating to Republic of China (‘‘ROC’’ or ‘‘Taiwan’’) taxation which will result in additional costs to the Company.

For a discussion of certain factors that should be considered in connection with an investment in the Bonds, see ‘‘Risk Factors’’ on page 9 herein.

Application has been made to list the Bonds on the Socie´te´ de la Bourse de Luxembourg S.A. (the ‘‘Luxembourg Stock Exchange’’).

The Bonds and Shares to be issued upon conversion of the Bonds have not been and will not be registered under the Securities Act, and may not be offered or sold within the United States or to, or for the account on behalf of, U.S. persons. The Bonds are not being offered in the ROC or in the United States.

Sole Bookrunner Lead Manager

NSC Securities (Asia) Limited

Managers

The International Commercial Bank of China, OBU Taiwan Securities (HK) Co., Ltd. Fubon Securities (BVI) Limited

Local Advisor

National Securities Corporation

The date of this Offering Circular is 9 July 2002.

Sinbon Electronics Co., Ltd. having made all reasonable inquiries, confirms that this Offering Circular contains all information with respect to the Company, the Bonds and the Shares which is material in the context of the issue and offering of the Bonds (including all information required by applicable laws of the ROC), that the information contained herein (save as set out below) is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed herein are honestly held and have been reached after considering all relevant circumstances and are based on reasonable assumptions, that there are no other facts, the omission of which would, in the context of the issue and offering of the Bonds, make this Offering Circular as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respects, that all reasonable inquiries have been made by the Company to verify the accuracy of such information, and that this Offering Circular does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary in order to make the statements herein, in the light of the circumstances under which they are made, not misleading. The Company accepts responsibility accordingly. Information provided herein with respect to the ROC, its political status and economy, has been derived from government and other public sources, and the Company accepts responsibility only for accurately extracting information from such sources.

The distribution of this Offering Circular and the offering and sale of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Company and the Managers (as defined in ‘‘Subscription and Sale’’) to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of the Bonds and distribution of this Offering Circular, see ‘‘Subscription and Sale’’. This Offering Circular does not constitute an offer of, or an invitation by or on behalf of the Company or the Managers to subscribe for or purchase, any of the Bonds in any jurisdiction in which such offer or invitation would be unlawful.

No person is authorized in connection with the issue, offering or sale of the Bonds to give any information or to make any representation not contained in this Offering Circular and any information or representation not contained herein must not be relied upon as having been authorized by the Company or the Managers. Neither the delivery of this Offering Circular nor any sale or allotment made in connection with the issue of the Bonds shall, under any circumstances, constitute a representation or create any implication that there has been no change in the affairs of the Company since the date hereof or that the information contained herein is correct as of any time subsequent to its date.

The Bonds will be represented by beneficial interests in a permanent global certificate (the ‘‘Global Certificate’’) in registered form, which will be registered in the name of a nominee of, and shall be deposited on 17 July 2002, as the Closing Date with a common depositary for Euroclear Bank S.A./N.V. as operator of the Euroclear System (‘‘Euroclear’’) and Clearstream Banking, socie´te´ anonyme (‘‘Clearstream, Luxembourg’’).

The Company has prepared the audited consolidated and non-consolidated financial statements as at and for the years ended 31 December 1999, 2000 and 2001 and unaudited non-consolidated financial statements as at and for the three-month periods ended 31 March 2001 and 2002, contained herein in accordance with accounting principles generally accepted in the ROC.

NOTICE TO INVESTORS

The Bonds may not be offered or sold directly or indirectly in the ROC. The Bonds and the Shares issuable upon conversion of the Bonds have not been and will not be registered under the Securities Act. The Bonds and the Shares issuable upon conversion of the Bonds may not be offered or sold to any person in the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. In addition, no transfer of any interest in the Global Certificate may be made to any U.S. person outside the United States or any person in the United States for a period of 40 days after the later of the commencement of this offering and the latest closing date of this offering.

Each purchaser of Bonds will be deemed to have represented and agreed as follows (terms that are defined in Regulation S under the Securities Act and used in the following section have the meanings assigned in Regulation S):

(1) it is purchasing the Bonds for its own account or for an account with respect to which it exercises sole investment discretion, and it and any such account is outside the United States and is not a U.S. person;
(2) it acknowledges that neither the Bonds nor the Shares issued upon conversion of the Bonds have been or will be registered under the Securities Act or with any securities regulatory authority of any jurisdiction and may not be offered or sold within the United States except as set forth below;
(3) it understands and agrees that if in the future it decides to resell, pledge or otherwise transfer any Bond or beneficial interest therein, or any Shares issued upon conversion of the Bonds, it may do so only (i) in an offshore transaction meeting the requirements of Rule 903 or Rule 904 of Regulation S, (ii) pursuant to an exemption from registration under the Securities Act, if available, or (iii) pursuant to an effective registration statement under the Securities Act, and in each of cases (ii) and (iii), in accordance with applicable securities laws of the states of the United States;
(4) if it is purchasing Bonds prior to the expiration of 40 days after the later of the commencement of the offering and the latest closing date (the ‘‘distribution compliance period’’) it is purchasing the Bonds in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation S and the Bonds will not be sold, pledged or otherwise transferred to, or for the account or benefit of, any U.S. person outside the United States or any person in the United States during the distribution compliance period;
(5) it agrees to, and each subsequent holder is required to, notify any purchaser from it of a Bond or beneficial interest therein of the resale restrictions referred to in section (3) above, if then applicable;
(6) it understands that, except in the circumstances referred to under the heading ‘‘The Form of the Bonds’’, the Bonds, and beneficial interests therein, will be represented by the Global Certificate;
(7) it understands that the Global Certificate will bear a legend to the following effect (unless otherwise agreed by the Company):

‘‘THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE ‘‘SECURITIES ACT’’) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY JURISDICTION AND, ACCORDINGLY, MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED TO A U.S. PERSON OR WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT.

THIS LEGEND MAY BE REMOVED AFTER THE EXPIRATION OF FORTY DAYS FROM THE ORIGINAL ISSUANCE OF THE ZERO COUPON CONVERTIBLE BONDS DUE 2007 OF SINBON ELECTRONICS CO., LTD.’’; and

(8) it acknowledges that the Company and the Managers and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements; and if it is acquiring the Bonds as a fiduciary or agent for one or more accounts, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of each such account.

For further information about the requirements under the Indenture to effect exchanges or transfers of interests in the Global Certificates and of Bonds in certificated form, see ‘‘The Form of the Bonds’’.

iii

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Offering Circular contains forward-looking statements that involve risks and uncertainties. Forward-looking terminology include ‘‘may,’’ ‘‘will,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘continue,’’ ‘‘believe,’’ ‘‘forecast,’’ ‘‘project’’ and other similar words. Statements that include such terminology are forward-looking statements. The Company’s actual results could differ materially from those anticipated in these forward-looking statements as a result of the risks and uncertainties faced by the Company described elsewhere in this Offering Circular. The Company undertakes no obligation after the date of this Offering Circular to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future which may affect information contained herein.

ENFORCEABILITY OF FOREIGN JUDGMENT IN THE ROC

The Company is a company limited by shares incorporated under the ROC Company Law. All of the Company’s directors and executive officers, and its respective supervisors are residents of the ROC and a substantial portion of the assets of the Company and such persons are located in the ROC. As a result, it may not be possible for investors to effect service of process upon the Company or such persons outside the ROC, or to enforce against any of them judgments obtained in courts outside the ROC.

Any final judgment obtained against the Company or such persons in any court other than the courts of the ROC in respect of any legal suit or proceeding arising out of or relating to the Bonds will be enforced by the courts of the ROC without further review of the merits only if the court of the ROC in which enforcement is sought is satisfied that: (i) the court rendering the judgment has jurisdiction over the subject matter according to the laws of the ROC; (ii) the judgment is not contrary to the public order or good morals of the ROC; (iii) if the judgment was rendered by default by the court rendering the judgment, the Company or such persons were served within the jurisdiction of such court, or process was served on the Company or such persons with judicial assistance of the ROC; and (iv) judgments of the courts of the ROC are recognized and enforceable in the court rendering the judgment on a reciprocal basis. Remittance out of the ROC of any amount recovered from enforcing a foreign judgment in the ROC is also subject to the Foreign Exchange Control Statute and regulations as described in ‘‘Appendix B — Foreign Investment and Exchange Controls in the ROC’’.

		Page		Page
Summary . . . . . . . . . . . . . . . . . . .	. . . . . . . . . .	1	The Form of the Bonds . . . . . . . . . . . . . . . . .	79
Risk Factors . . . . . . . . . . . . . . . . .	. . . . . . . . . .	9	Description of the Shares . . . . . . . . . . . . . . . .	82
Use of Proceeds . . . . . . . . . . . . .	. . . . . . . . . .	17	Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	87
Market Price Information . . . . .	. . . . . . . . . .	18	Subscription and Sale . . . . . . . . . . . . . . . . . . .	89
Dividends and Dividend Policy	. . . . . . . . . .	19	Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . .	91
Exchange Rates . . . . . . . . . . . . . .	. . . . . . . . . .	20	Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . .	91
Capitalization . . . . . . . . . . . . . . .	. . . . . . . . . .	21	General Information . . . . . . . . . . . . . . . . . . . .	92
Business . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . .	22	Summary of Significant Differences
Selected Financial Information .	. . . . . . . . . .	40	between ROC GAAP and U.S. GAAP . . .	94
Management’s Discussion and Analysis of			Index to Financial Statements . . . . . . . . . . . .	F-1
Financial Condition and Results of			Appendix A — Taiwan, The Republic
Operation . . . . . . . . . . . . . . . . .	. . . . . . . . . .	42	of China . . . . . . . . . . . . . . . . . . . . . . . . . . . .	A-1
Management and Employees . . .	. . . . . . . . . .	54	Appendix B — Foreign Investment and
Principal Shareholders . . . . . . . .	. . . . . . . . . .	58	Exchange Controls in the ROC . . . . . . . . .	B-1
Changes in Issued Share Capital	. . . . . . . . .	58	Appendix C — The Securities Market
Terms and Conditions of the Bonds . . . . . . .		59	of The ROC . . . . . . . . . . . . . . . . . . . . . . . . .	C-1

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

All references herein to ‘‘Sinbon’’ or to the ‘‘Company’’ are to Sinbon Electronics Co., Ltd. and its consolidated subsidiaries or, where the context requires, to Sinbon Electronics Co., Ltd.. All references to the ‘‘Group’’ are to Sinbon and its subsidiaries, consolidated and non-consolidated, as a whole. All references herein to ‘‘Taiwan’’ or the ‘‘ROC’’ are to the island of Taiwan and other areas under the effective control of the Republic of China. All references herein to the ‘‘ROC Government’’ or the ‘‘ROC Company Law’’ are references to the government of the Republic of China and the Company Law of the Republic of China, respectively. All references herein to ‘‘ROC GAAP’’ are to the ‘‘Rules Governing Preparation of the Financial Statements of Securities Issuers’’ and accounting principles generally accepted in the ROC and ‘‘U.S. GAAP’’ are to accounting principles generally accepted in the United States, respectively. All references herein to the ‘‘TSE’’ are references to the Taiwan Stock Exchange and all references herein to the ‘‘ROSE’’ are to the ROC Over-the-Counter Stock Exchange. All references herein to the ‘‘PRC’’ are to the People’s Republic of China excluding Hong Kong and Macau. All references herein to ‘‘Hong Kong’’ are to the Hong Kong Special Administrative Region of the PRC.

Should the Company in the future list the Shares on the TSE, the references to the ROSE should, where appropriate, also be construed as references to the TSE.

The Group does not exist as a legal entity. References herein to the Group and to financial or statistical information relating to the Group are for convenience of presentation only. Except as otherwise indicated, all financial information set forth herein with respect to various members of the Group has been presented in New Taiwan Dollars.

The Company publishes its financial statements in New Taiwan Dollars, the lawful currency of the ROC. All references herein to ‘‘New Taiwan Dollars’’, ‘‘NT Dollars’’ and ‘‘NT$’’ are to New Taiwan Dollars and references to ‘‘United States Dollars’’, ‘‘U.S. Dollars’’ and ‘‘U.S.$’’ are to United States Dollars. All translations from New Taiwan Dollars to United States Dollars were made on the basis of the average of buying and selling exchange rates in Taipei for cable transfers in NT Dollars per U.S. Dollar as certified by Bank of Taiwan of NT$34.98 = U.S.$1.00 as of 31 December 2001 and NT$35.00 = U.S.$1.00 as of 31 March 2002. All amounts translated into United States Dollars as described above are provided solely for the convenience of the reader, and no representation is made that the NT Dollar or U.S. Dollar amounts referred to herein could have been or could be converted into U.S. Dollar or NT Dollar, as the case may be, at any particular rate, the above rates or at all. See ‘‘Exchange Rate’’. The closing rate between the NT Dollar and the U.S. Dollar on 8 July 2002 was NT$33.51 = U.S.$1.00.

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SUMMARY

The following summary is qualified in its entirety by the more detailed information and financial statements contained elsewhere herein.

Sinbon Overview

The Company sells connectors, designs and manufactures cable assemblies and provides electronic device turn-key services on an original equipment manufacture (‘‘OEM’’) or original design manufacture (‘‘ODM’’) basis. The Company also provides surface mounting technology (‘‘SMT’’) and electronic device turn-key services to and produces finished devices for certain reputable communication equipment manufacturers. The Company’s customers include industry leaders in the computers, communications and commercial electronics sectors, such as Acer, ASUSTeK, BenQ, Mobility, Oriental Computer, Quanta, Samsung, Symbol and Wistron. The Company believes that it is one of the major OEM/ODM manufacturers of cable assemblies and related products and distributors of connectors for computers, communications and commercial electronics in the world.

The Group has established a wide network of sales and service offices in the United States, Japan, Korea, Taiwan and the PRC to provide fast and convenient global distribution services to its customers. The Company believes that its well established sales and marketing channels related to its distribution of HRS[TM] connectors and cable assembly products allow the Company to tap into the customers’ demand for other products and services offered by the Company, such as SMT and electronic device turn-key services.

The Company is one of a few regional distributors of the HRS[TM] connectors manufactured by Hirose Electric Co., Ltd. (‘‘Hirose’’), a leading specialized Japanese manufacturer of high quality connectors. In addition to direct sales of HRS[TM] connectors, the Company also applies such connectors on its cable assembly products. These include I/O cable, USB, IEEE 1394, mini-coaxial, and other high speed transmission cable. In 2001 and the first quarter of 2002, 47.7 per cent. and 52.4 per cent. of the Company’s revenues were derived from the sales of HRS[TM] connectors, respectively.

The Group owns four manufacturing facilities in Taiwan and the Northern, Southern and Eastern regions of the PRC from which it produces its cable assemblies and related products and provides SMT and electronic device turn-key services. As a whole, the Company and its subsidiaries own a total of 926,308.6 square feet of manufacturing space. In order to take advantage of lower labor costs and to capture market opportunity, the Group has recently increased its production outside of Taiwan, primarily in plants located in the PRC.

The consolidated net revenues of the Company have grown at a compounded annual growth rate of 15.7 per cent. from NT$1,718.1 million in 1999 to NT$2,301.8 million (U.S.$65.8 million) in 2001. For the three months ended 31 March 2002, the Company recorded non-consolidated net revenues of NT$487.6 million (U.S.$13.9 million) and non-consolidated net income of NT$50.7 million (U.S.$1.4 million), compared to NT$319.8 million and NT$52.6 million, respectively, for the same period in 2001.

Competitive Strengths

The Company believes that the following strengths contribute to its competitive position in the relevant markets:

Well established customer relationships and sales and marketing channels

The Company as an OEM/ODM manufacturer of cable assemblies and distributor of HRS[TM] connectors has established close supplier-customer relationships with some of the world’s leading manufacturers of computers, communications devices and commercial electronics such as Acer, ASUSTeK, BenQ, Mobility, Oriental Computer, Quanta, Samsung, Symbol and Wistron. The Company has established extensive sales channels for its products in Japan and other Asia Pacific countries, the United States and Europe, as well as the HRS[TM] connectors in Taiwan, the PRC and Hong Kong, by leveraging such close supplier-customer relationships. Through such close proximity to its customers and extensive sales channels, the Company can further develop existing customer relationships and create new customer relationships with industry leaders in the computer, communications and commercial electronics industries.

Established material and component supply network

The Company endeavors to ensure that it controls the quality and delivery time of all of its products. Accordingly, through strategic alliances and cross investments, the Company has built a solid supply network of key materials and components. The Company has entered into a seven-year distribution agreement with Hirose to distribute the HRS[TM] connectors in Taiwan, the PRC and Hong Kong. The Company believes that being a distributor of the HRS[TM] connectors places the Company in a key position in the connectors supply chain and reduces the Company’s cost of manufacturing quality cable assemblies and related products. The established supply network gives the Company control over quality, costs and supply chain management, and the flexibility necessary to customize components to match its customers’ specifications and to roll out and ramp up production of new products.

Strong research and development programs

The Company invests significant resources in research and development, through in-house research and development activities and joint development with major customers. As at 30 April 2002, the Company employed more than 60 engineers in its research and development division in Taiwan and the PRC. Each of the six managers in the research and development division has over ten years’ industry experience. The focus of the Company’s research and development activities is new product development. The Company has joint development arrangements with General Research of Electronics, Inc. (‘‘GRE’’) in Japan and Symbol Technologies Inc. (‘‘Symbol’’) in the U.S.A. for their wireless transmission products and portable scanning products, respectively. In addition to the research and development programs, the Company’s Quality Assurance Section provides electrical, mechanical, environmental, reliability and special testing services and functions to the research and development projects of the manufacturing divisions, as well as to the central quality division.

Flexible production process

The Company’s core business is to provide its customers with both custom-made and standardized products. The Company specializes in designing and manufacturing cable assemblies and related products, such as printed circuit board assembly (‘‘PCBA’’) products, with unique and fine features. The Company’s production lines and plant layout can be modified to manufacture all kinds of cable assemblies and PCBA products, regardless of the production volume. In addition, the Company outsources its cable assemblies manufacturing to pre-qualified third party subcontractors. The Company believes that through such flexible arrangements and strict quality control systems, it can react to and meet customers’ orders quickly. The Company believes that its profit margin does not depend upon the volume of products manufactured in its facilities but on its designing capability, delivery lead-time, product quality and in-depth industry knowledge.

Strong sales and marketing teams with technical knowledge

The Company’s sales and marketing teams comprise a number of experienced engineers with good technical knowledge in electronics or related fields. In addition to marketing, the sales engineers are also involved in the product development phase and are therefore able to relay information on customers’ requirements to the Company quickly. By taking into account the customers’ needs early on in the product design stage, the Company is able to shorten its product rolled-out period and produce products that meet customers’ requirements in a shorter time.

Strict quality control processes and standards

The Company has instituted a comprehensive quality assurance program to ensure the implementation of its quality control policy. This policy rests on six basic principles, namely, customer first; quality optimization; personnel management; continuous improvements; integrity; and establishing a reputable firm name. To implement its quality program comprehensively, the Company has established a Central Quality Division, comprising the Quality Assurance Section and the Quality Control Section. These departments provide quality control services and support for the quality assurance departments of each of the manufacturing divisions. These quality assurance departments implement a series of rigorous quality checks at all stages of product development and production.

Experienced management team

The management of the Company is led by a core team of professionals in the fields of management, finance and engineering, with an average of over ten years of management experience each in the industry. Most of the Company’s senior management were employed by world’s leading precision production companies before joining the Company and have committed to sales and marketing activities in the electronics industry for more than 15 years. As a result, the Company is able to capture market opportunities by directing its research and development as well as sales and marketing efforts to high growth areas. The Company believes it has the leadership it needs to continue to leverage its core strengths in the future.

Strategy

Utilizing surface mounting technology to provide total solution for customers

By capitalizing on its manufacturing capabilities and close relationships with material and component suppliers, the Company will extend the scope of its services to include the provision of SMT and electronic device turn-key services for customers to whom the Company supplies connectors and other cable assemblies and related products. The Company believes that its expertise in connectors and cable assemblies makes the Company an attractive supplier of electronic sub-system assembly solutions. In particular, the Company’s Jiang Yin Plant and Miaoli Plant were established to provide customers with SMT and electronic device turn-key services and they have already started to manufacture finished communications and networking devices.

Currently, Symbol, the world’s largest bar code scanner maker with 70 per cent. global market share, is one of the major customers of the Company. The Company supplies electronic sub-systems for bar code scanner to Symbol. In addition, GRE engaged the Company to manufacture wireless receivers under Radio Shack[TM] brand name on an OEM and electronic device turn-key services basis.

Focus on high-growth markets

The Company will focus its product development efforts on high-growth markets. These include communications, networking devices, and commercial electronics. The Company believes that the rate of turnover in these areas will increase with the evolution of new standards, increasing the functionality of each successive generation and increasing the rates of penetration. The Company will explore new products that it believes have market potential and will produce such products on an OEM/ODM basis.

Establish strategic alliances to improve technology and develop new customers

The Company will explore the opportunity to form strategic alliances with market leaders as well as key suppliers in different sectors to improve its services to customers. The Company believes that through strategic alliances with market leaders, the Company can gain access to cutting-edge engineering and technology capabilities. Such alliances can enable the Company to expand its customer base, as well as to enhance the quality, technological sophistication, cost efficiency and time-to-market of the Company’s products.

Undertake acquisition strategy to integrate supply chain

The Company endeavors to establish a steady supply of critical materials and components for its core products through vertical integration with selected suppliers by way of acquisitions and equity participations. This will give the Company both control over quality, costs and supply chain management, as well as the flexibility necessary to customize components to match its customers’ specifications, and to roll out and ramp up production of new products.

The Offering

For the definition of the capitalized terms, please see ‘‘Terms and Conditions of the Bonds’’.	For the definition of the capitalized terms, please see ‘‘Terms and Conditions of the Bonds’’.	For the definition of the capitalized terms, please see ‘‘Terms and Conditions of the Bonds’’.
Issuer . . . . . . . . . . . . . .		Sinbon Electronics Co., Ltd.
Bonds . . . . . . . . . . . . . .		U.S.$45,000,000 Zero Coupon Convertible Bonds due 2007 convertible into
		fully-paid common shares with a par value of NT$10 each of the Company
		(‘‘Shares’’).
Issue Price . . . . . . . . . . .		100 per cent.
The Offering . . . . . . . . .		The Bonds will not be offered or sold in the ROC or in the United States.
		The Bonds will be offered only in offshore transactions in reliance on
		Regulation S under the U.S. Securities Act of 1933.
Closing Date . . . . . . . . .		17 July 2002
Maturity Date . . . . . . . .		17 July 2007
Status . . . . . . . . . . . . . .		The Bonds will be direct, unconditional, unsecured and unsubordinated
		obligations of the Company and will rank at least pari passu without any
		preference or priority among themselves and shall at all times rank at least
		equally with all other present and future direct, unsecured and
		unsubordinated obligations of the Company.
Interest . . . . . . . . . . . . .		No interest will be payable on the Bonds prior to the Maturity Date, except
		in certain circumstances following an event of default. See Condition 10 in
		‘‘Terms and Conditions of the Bonds’’.
Withholding Tax	. . . . . .	Premium (if any) and interest (if any) payable on the Bonds to non-residents
		of the ROC is subject to a withholding tax in the ROC equal to 20 per cent.
		of the gross amount of such premium (if any) and interest (if any). The
		Company will gross up such amounts as will result in the receipt by the
		Bondholders of the net amounts after such withholding or deduction equal to
		the amounts which would otherwise have been receivable by them had no
		such withholding or deduction been required.
Tax Redemption . . . . . . .		The Company may redeem all but not part of the Bonds at their principal
		amount in the event of changes in ROC taxation which will result in
		additional costs to the Company to gross up for payment of principal, or to
		gross up for payments of premium (if any) or interest (if any), at the rate
		exceeding 20 per cent. See Condition 8(D) in ‘‘Terms and Conditions of the
		Bonds’’.
Conversion . . . . . . . . . .		Subject to prior redemption and otherwise provided herein, the Bonds are
		convertible at any time on or after 17 September 2002 and prior to the close
		of business (at the place at which the Bond is deposited for conversion) on
		17 June 2007, except during any Closed Period, into Shares at a conversion
		price per Share (subject to adjustment in certain circumstances) (the
		‘‘Conversion Price’’) of NT$57.5 per Share, which is equivalent to
		U.S.$1.716 per Share, determined on the basis of a fixed exchange rate of
		NT$33.51 = U.S.$1.00 (the ‘‘Fixed Exchange Rate’’). The Conversion Price
		will be subject to adjustment for, among other things, subdivision or
		consolidation of Shares, bonus issues of Shares, rights issues, distribution of
		stock dividends and other dilution events. Fractional Shares will not be
		issued or paid in cash, or in any other means. See Condition 6 in ‘‘Terms and
		Conditions of the Bonds — Conversion’’.

To the extent permitted under the laws of the ROC, the converting Bondholders will be entitled to the annual dividend distributions or other benefits if the conversion of the Bonds takes place prior to the 100-day closed period in each relevant year.

The Company shall, within five Trading Days from the date of the notification of the Conversion Notice (as defined herein) is received by the Company or its domestic stock transfer agent from the Principal Agent (as defined herein), issue and deliver the Shares converted from the Bonds to the converting Bondholder or its designee, subject to the requirements relating to the conversion in the Indenture are satisfied.

Conversion Price Reset . . The Conversion Price shall be adjusted on each Reset Date, in the event that the average closing price of the Share on the ROSE translated into U.S. Dollars at the then Prevailing Rate for 20 consecutive Trading Days immediately prior to a Reset Date is less than the Conversion Price then in effect on the relevant Reset Date converted into U.S. Dollars at the Fixed Exchange Rate of NT$33.51 = U.S.$1.00; provided that the Adjusted Conversion Price (on a cumulative basis, if applicable) shall not be less than 80 per cent. of the initial Conversion Price after anti-dilution adjustments, if any. See Condition 6(D) in ‘‘Terms and Conditions of the Bonds — Conversion’’.

Alternative Conversion Price Reset . . . . . . . . . The Bondholders are entitled, within seven Trading Days immediately after 17 June 2004 and 17 June 2005 (each an ‘‘Alternative Reset Date’’), to convert the Bonds into Shares at an Alternative Conversion Price as defined herein equal to 88.0 per cent. and 85.0 per cent., respectively, of the then market price. See Condition 6(E) in ‘‘Terms and Conditions of the Bonds — Conversion’’.

Final Redemption . . . . . . Unless previously redeemed, converted or repurchased and cancelled in the circumstances referred to in Condition 8 in ‘‘Terms and Conditions of the Bonds’’, the Bonds will be redeemed at their principal amount in U.S. Dollars on 17 July 2007. See ‘‘Withholding Tax’’ above and Condition 8(A) in ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation’’.

Redemption at the option of the Company . . . . . . . The Company may, having given not less than 40 nor more than 60 days’ notice to the Bondholders, call all, or part only, of the Bonds on or at any time one year after the Closing Date at their principal amount in the event that the closing price of the Shares on the ROSE in U.S. Dollars at the prevailing rate for each of the 30 consecutive Trading Days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 140 per cent. of the Conversion Price in effect on each such Trading Day translated into U.S. Dollars at the Fixed Exchange Rate of NT$33.51 = U.S.$1.00. The Company may, having given the same notice, redeem the outstanding Bonds in whole, but not in part, at their principal amount (i) in the event that 90 per cent. of the Bonds have been previously redeemed, repurchased or converted, or (ii) in the event of changes in ROC taxation laws or regulations which will result in additional costs to the Company to gross up for payment of principal, or to gross up for payments of premium, if any, or interest, if any, at the rate exceeding 20 per cent. See Conditions 8(B) and 8(D) in ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation’’.

Redemption at the option of Bondholders . . . . . . . . Until and unless previously redeemed, converted or purchased and cancelled, the Company will at the Bondholder’s option redeem all or part of the Bondholder’s Bonds (a) on 17 July 2004 at 106.75 per cent. and (b) on 17 July 2005 at 112.26 per cent. of the principal amount. See Condition 8(C) in ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and Cancellation’’.

Form and Registration of	Form and Registration of	Form and Registration of
the Bonds	. . . . . . . . .		The Bonds will be issued in registered form in the denomination of
			U.S.$1,000 each. The Bonds will be offered and sold in principal amounts of
			U.S.$1,000 or an integral multiple thereof. The Bonds will initially be
			represented by a Global Certificate deposited with The Bank of New York,
			as common depositary for, and registered in the name of a nominee for,
			Euroclear and Clearstream, Luxembourg. Beneficial interests in the Global
			Certificate will be shown on, and transfers thereof will be effected only
			through, records maintained by Euroclear and Clearstream, Luxembourg and
			their participants. Except as described herein, certificates for Bonds will not
			be issued in exchange for beneficial interests in the Global Certificate.
Governing Law		. . . . . . .	The laws of the State of New York, U.S.A.
Trustee . . . . . . . . . . . . .			The Bank of New York
Listing . . . . . . . . . . . . .			Application has been made to list the Bonds on the Luxembourg Stock
			Exchange. The Shares are listed on the ROSE and application will be made
			for the Shares issuable upon conversion of the Bonds to be listed on the
			ROSE.
Use of Proceeds		. . . . . . .	The net proceeds from the offering of the Bonds, after deducting
			underwriting fees, including selling concessions, and other expenses, are
			estimated to be approximately U.S.$44.1 million. The net proceeds will be
			used as follows:
			" U.S.$13.8 million for long-term investment in overseas facilities;
			" U.S.$1.7 million for repayment of bank loans of the Company;
			" U.S.$8.7 million for acquisition of office and factory buildings;
			" U.S.$5.8 million for establishment of e-commerce platforms; and
			" the remaining for procurement of raw materials and machinery
			equipment.

SUMMARY FINANCIAL DATA

The summary consolidated income statement data for the years ended 31 December 1999, 2000 and 2001, the summary non-consolidated income statement data for the three-month periods ended 31 March 2001 and 2002, the summary consolidated balance sheet data as of 31 December 1999, 2000 and 2001 and the summary non-consolidated balance sheet data as of 31 March 2001 and 2002 all expressed in millions of New Taiwan dollars (except for per Share data) set forth below are derived, without adjustment, from the Audited Consolidated Financial Statements and the Reviewed Non-Consolidated Financial Statements included elsewhere in this Offering Circular and should be read in conjunction with, and are qualified in their entirety by reference to, such financial statements, including the notes thereto. Results for the threemonth period ended 31 March 2002 are not necessarily indicative of the results that may be expected for the year ending 31 December 2002. The summary consolidated income statement data for the years ended 31 December 1997 and 1998 and the summary consolidated balance sheet data as of 31 December 1997 and 1998 set forth below are derived from the audited consolidated financial statements of the Company not included herein. The Audited Consolidated Financial Statements and Reviewed Non-Consolidated Financial Statements of the Company have been prepared and presented in accordance with ROC GAAP and reporting practices in the ROC which differ in certain material respects with U.S. GAAP. For a discussion of certain differences between ROC GAAP and U.S. GAAP, see ‘‘Summary of Significant Differences Between ROC GAAP and U.S. GAAP’’. The Company has not quantified or identified the impact of the differences between ROC GAAP and U.S. GAAP, see ‘‘Risk Factors — Risks Relating to the ROC — Financial reporting and accounting standards in the ROC differ from other countries; bonus share issuance’’. The Company is not required to, and does not, prepare interim financial statements on a consolidated basis.

Income Statement Operating revenue-net Cost of sales . . . . . . Gross profit . . . . . . . Operating expenses . . Operating income . . . Non-operating income Non-operating expenses . . . . . . . Income before income tax and minority interest . . . . . . . . Income tax benefit (expense) . . . . . . Minority interest in consolidated subsidiaries . . . . . Net income . . . . . . .			Audited consolidated, as of 31 December		2001 U.S.$(1) 66 (48) 18 (9) 9 2 (2) 9 (2) (0) 7	Reviewed non-consolidated as of 31 March 2001 2002 2002 NT$ NT$ U.S.$(2) (in millions) 320 488 14 (202) (358) (10) 118 130 4 (62) (67) (2) 56 63 2 18 12 0 (3) (6) (0) 71 69 2 (19) (18) (1) — — — 52 51 1
	1997 NT$ 418 (334) 84 (76) 8 20 (10) 18 (4) — 14	1998 NT$ 700 (539) 161 (99) 62 10 (20) 52 (12) (1) 39	1999 2000 NT$ NT$ (in millions) 1,718 1,917 (1,404) (1,494) 314 423 (203) (238) 111 185 25 61 (29) (24) 107 222 (29) (57) (3) (2) 75 163	2001 NT$ 2,302 (1,683) 619 (315) 304 71 (53) 322 (84) (2) 236		2001 2002 NT$ NT$ (in millions) 320 488 (202) (358) 118 130 (62) (67) 56 63 18 12 (3) (6) 71 69 (19) (18) — — 52 51

		Reviewed non-consolidated as of 31 March	Reviewed non-consolidated as of 31 March
1997 NT$ 333 21 134 9 497 226 23 6 255 242 497 1.16 0.50	1998 1999 2000 2001 NT$ NT$ NT$ NT$ (in millions, except for per Share data) 420 1,077 1,127 1,679 32 21 43 169 245 323 331 522 16 13 14 43 713 1,434 1,515 2,413 305 727 584 825 0 136 83 478 16 23 51 102 321 886 718 1,405 392 548 797 1,008 713 1,434 1,515 2,413 1.51 1.98 3.45 3.83 0.88 1.38 2.81 3.83	2001 2002 NT$ NT$ (in millions) 790 1,191 200 442 309 310 6 8 1,305 1,951 372 383 64 145 19 43 455 571 850 1,380 1,305 1,951 1.05 0.82 0.86 0.82	2002
			U.S.$(2) 34 13 9 0
			56
			11 4 1
			16
			40
			56
			0.02 0.02

(1) Translated into United States Dollars using the exchange rate published by the Bank of Taiwan at 31 December 2001 of NT$34.98 = U.S.$1.00.
(2) Translated into United States Dollars using the exchange rate published by the Bank of Taiwan at 31 March 2002 of NT$35.00 = U.S.$1.00.
(3) Earnings per Share are calculated by dividing net income by the weighted average number of shares outstanding during each year before adjusting retroactively for the effect of stock dividends and employees’ bonuses. However, no adjustment has been made with respect to the stock dividends and capitalization of employees’ bonuses approved by the shareholders on 12 April 2001.
(4) Adjusted earnings per Share are calculated by dividing net income by the weighted average number of shares outstanding during each year after adjusting retroactively for the effect of stock dividends, including the stock dividends and capitalization of employees bonus approved by the shareholders on 12 April 2001.

RISK FACTORS

Prior to making an investment decision, prospective investors should carefully consider the following risk factors, along with the other matters set out in this Offering Circular. The following risk factors could affect the Company’s actual results and could cause them to differ materially from estimates in any forward-looking statements given by or on behalf of the Company. ROC laws and regulations may differ from the laws and regulations in other countries.

Risks Relating to the Company’s Business

The Company’s customers may cancel their orders, change production quantities or delay production

The Company does not generally obtain firm, long-term purchase commitments from its customers and it continues to experience reduced lead-times in customer orders. Customers may cancel their orders, change production quantities or delay production for a number of reasons. Cancellations, reductions or delays by a significant customer or by a group of customers could seriously affect the Company’s results of operations.

In addition, the Company makes significant decisions, including determining the levels of business that it will seek and accept, production schedules, component and raw material procurement commitments, personnel needs and other resource requirements, based on its estimates of customer requirements. The short-term nature of the Company’s customers’ commitments and the possibility of rapid changes in demand for their products reduce the Company’s ability to estimate accurately future customer requirements. On occasion, customers may require rapid increases in production, which can stress the Company’s resources and reduce profit margins. Although the Company has increased its manufacturing capacity, it may not have sufficient capacity at any given time to meet its customers’ demands. In addition, because many of the Company’s costs and operating expenses are relatively fixed, a reduction in customer demand could impact the Company’s gross margins and operating income.

There are relatively low entry barriers in the Company’s cable assembly business

There are low barriers to entry in the Company’s cable assembly business as capital investment and start-up costs are relatively low and required techniques are relatively few. Although several entry barriers exist in the design, development, manufacture and distribution of the Company’s cable assembly products which include strong technical expertise and difficulty in and time required for, building long standing customer relationship and large customer base with size comparable to the Group, the Directors are aware that other manufacturers in Asia may be developing or have developed the required technical capability to produce products which are similar to the Group’s products. Any significant increase in competition could erode the Company’s profit margins and weaken its earnings.

The Company’s business is dependent on certain major supplier

A substantial portion of the Company’s revenue is attributable to the sale of connectors manufactured by Hirose Electric Co., Ltd (‘‘Hirose’’), in respect of which the Company is a non-exclusive distributor for Taiwan, Hong Kong and the PRC since 1998. The distribution agreement will expire on 31 December 2004 and may be terminated by either party giving three months’ prior written notice. There is no assurance that this distribution agreement will not be terminated in accordance with its terms prior to its expiry. If the Company’s appointment as a Hirose distributor is terminated and it is unable to obtain alternative satisfactory source(s) of supply of such connectors at prices equal to or less than the price of the Hirose connectors or to pass on the increased costs of the components to customers, the Company’s gross margins and operating income could be negatively affected.

The Company’s business is highly dependent on the computers, communications and commercial electronics businesses

Most of the Company’s sales are to customers in the computers, communications and commercial electronics industries. Therefore, the Company’s financial performance depends on its customers’ continued growth, viability and financial stability. These customers in turn depend on the growth and viability of the computers, communications and commercial electronics industries, which can be subject to pronounced cyclicality. These industries are characterized by rapidly changing technologies and short product life

cycles. The factors affecting the computers, communications and commercial electronics industries in general, or any of the Company’s major customers or competitors in particular, could have a material adverse effect on the Company’s results of operations. The Company’s success depends to a significant extent on the success achieved by its customers in developing and marketing their products, some of which may be new and untested. If customers’ products become obsolete or fail to gain widespread commercial acceptance, the Company’s business could be materially adversely affected.

The Company may experience shortages of raw materials and components

The Company currently purchases certain of its key components and raw materials from a limited number of suppliers. These suppliers’ capacity may be insufficient should the Company’s requirements increase. In addition, the Company is, in certain circumstances, required to source certain key components from suppliers who have been qualified by its customers and the Company may not be able to obtain alternative satisfactory sources of supply should such qualified suppliers be unable to supply it in the future. Accordingly, there can be no assurance that shortages of supply will not occur in the future and that, if such shortages occur, the Company is able to obtain an adequate alternative supply of components and raw materials to meet production demand. If the Company is unable to obtain sufficient components and raw materials on a timely basis, the Company could experience manufacturing and shipping delays, which could adversely affect customer relationships and reduce sales. In addition, there can be no assurance that the Company would be able to pass on increased costs of components and raw materials to its customers. See ‘‘Business — Raw Materials and Components’’.

The computers, communications and commercial electronics components manufacturing industries are highly competitive

The computers, communications and commercial electronics components manufacturing industry in which the Company operates is highly competitive and includes hundreds of companies with widely varying levels of engineering expertise and sophistication, some of which have achieved substantial market share. General competition in the computers, communications and commercial electronics components manufacturing industry is characterized by price erosion and rapid technological change. The Company competes with different companies, depending upon the type of product or geographic area. The Company also faces competition from the manufacturing operations of its current and prospective customers, which continually evaluate the merits of manufacturing products internally. A number of the Company’s competitors are much larger and have greater manufacturing, financial, research and development and marketing resources than the Company. Some of these competitors also carry product lines that the Company does not carry and provide services that the Company does not provide. No assurance can be given that the Company will be able to continue to compete successfully in its relevant markets.

The Company’s historical sales growth and historical margins may not be sustainable

The Company recorded sales growth of 145.4 per cent., 11.6 per cent. and 20.0 per cent. for the years 1999, 2000 and 2001, respectively. This level of sales growth may not be sustained in future periods. As the Company continues to develop and expand its operations and production capacity, its operating costs and expenses will continue to increase, putting pressure on gross margins and operating margins. In addition, competition could result in price pressure, lower sales, reduced margins and lower market share, any of which could materially and adversely affect the Company’s results of operations. Therefore, period-toperiod comparisons of operating results may not be meaningful and investors should not rely on the results of any period as an indication of future performance.

The Company’s business depends on a limited number of customers

For 1999, 2000 and 2001, the Company’s five largest customers accounted for 46.6 per cent., 39.6 per cent. and 42.1 per cent., respectively, of consolidated net operating revenues. For 1999, 2000 and 2001, no other customers accounted for five per cent. or more of consolidated net operating revenues.

The Company’s operating results vary significantly

The Company experiences significant fluctuations in its results of operations. The factors which contribute to fluctuations include:

" the timing of customer orders;
" the volume of these orders relative to the Company’s capacity;
" market acceptance of customers’ new products;
" changes in demand for customers’ products and product obsolescence;
" the timing of the Company’s expenditure in anticipation of future orders;
" the Company’s effectiveness in managing manufacturing processes;
" changes in the cost and availability of labor and components;
" changes in the Company’s product mix;
" changes in economic conditions; and
" local factors and events that may affect the Company’s production volume, such as local holidays.

The markets for the Company’s customers’ products are subject to a certain degree of seasonality. These markets exhibit particular strength toward the end of each year in connection with holiday season sales. Accordingly, the Company’s third- and fourth-quarter revenues are ordinarily higher, and its first- and second-quarter sales are ordinarily lower, than average.

The Company is subject to operational risks and its insurance may not be adequate

The operation of manufacturing facilities involves many risks and hazards, including the breakdown, failure or substandard performance of equipment, delay in delivery of equipment or improper installation or operation of equipment, difficulties in upgrading or expanding existing facilities in changing manufacturing line technologies, capacity constraints, labor disturbances, fire, natural disasters such as earthquakes or typhoons, environmental hazards and industrial accidents. The occurrence of material operational problems, including but not limited to the above events, could adversely affect the Company’s manufacturing plants. These problems could cause delivery delays and reduced output.

The Company maintains insurance typical in the electronics manufacturing industry in Taiwan and in amounts that the Company believes to be adequate. Such insurance, however, may not provide adequate coverage in certain circumstances. The Company currently carries insurance on its operations, manufacturing facilities and offices in Beijing and Jiang Yin, PRC. The Company does not carry any insurance on its operations, manufacturing facilities or offices in Shanghai or Shenzhen, PRC. In addition, the Company does not carry any third party liability insurance to cover claims in respect of bodily injury or property or environmental damage resulting from accidents on the Company’s property or relating to Company operations in the PRC. The Company also does not carry business interruption insurance with respect to any of its operations in Taiwan or elsewhere. No assurance can be given that uninsured losses and liabilities incurred by the Company will not have a material adverse effect on the Company’s results of operations.

The Company may not be able to develop new products or keep pace with technological change

The Company’s future success will depend in part on its ability to develop and market products and manufacturing processes which meet changing customer needs and to successfully anticipate or respond to technological changes in manufacturing processes in cost-effective and timely ways. Many of the Company’s products have short product life cycles due to frequent product introductions, rapidly changing technology and evolving industry standards. There can be no assurance that the Company will be successful

in developing new products as a result of its research and development efforts or its cooperation with industry leaders or that it will keep pace with technological changes taking place in the market. Failure to do so or delay in reacting to the technological changes could have a material adverse effect on the Company’s business, or results of operations.

Errors or defects in the Company’s products could cause it to lose customers and harm its reputation

The Company’s customers use its products in complex finished products or systems. Because of the complexity of the systems and products with which the Company’s products are applied on, some of its products and designs can be adequately tested only when put to full use in the marketplace. As a result, its customers or their end users may discover errors or defects in the Company’s products, or the products incorporating its connectors or cable assemblies. Errors or defects could result in loss of current customers and loss or delay in revenues and loss of market share; failure to attract new customers or achieve market acceptance; diversion of development resources to resolving the problem; and increased service costs.

The Company may be unable to manage its growth effectively

The Company has grown rapidly. The Company’s ability to manage growth effectively will require it to continue to implement and improve its operational, financial and management systems; continue to develop the management skills of its managers; and continue to train, motivate and manage its employees. If the Company were to fail to manage growth effectively, the Company’s results of operations could be adversely affected.

The Company is dependent on its ability to attract and retain qualified employees

The Company’s success depends to a significant extent on the skills and efforts of key managerial and technical and other employees and upon its ability to continue to attract, retain and motivate qualified personnel. The Company competes with other electronics manufacturers as well as other manufacturing companies for technical and other employees, and the competition for such employees is intense. There can be no assurance that the Company will be able to continue to attract and retain the services of qualified employees essential for the Company’s growth. The loss of the services of certain of these employees or an inability to attract or retain qualified employees could have a material adverse effect on the Company.

The Company may not be able to protect its intellectual property

The Company has proprietary intellectual property rights and information with respect to certain of its products. Accordingly, the Company has taken appropriate steps to protect this proprietary information and actively seeks to protect its intellectual property rights. Notwithstanding these steps, the Company’s protective measures may not be sufficient to prevent the misappropriation or unauthorized disclosure of the Company’s property or information. There can be no assurances that the Company will be successful in defending against infringement claims that may be brought by third parties, or that the Company will be successful in its own intellectual property enforcement actions. Even if the Company is successful, it may have to incur significant costs and time to litigate its claims or defend itself against the claims of third parties.

Seeking patent protection can be expensive and time consuming. There can be no assurances that patents will be issued for pending or future applications or that, if patents are issued, they will provide meaningful protection or other commercial advantage to the Company. Moreover, there can be no assurance that any patent rights will be upheld in the future.

Disruptions in the international trading environment may seriously decrease the international sales of the Company

A substantial portion of the Company’s net operating revenues are derived from sales to customers located outside of Taiwan. In 2000 and 2001, the Company’s overseas customers accounted for 60.5 per cent. and 72.2 per cent., respectively, of its net operating revenues. The Company expects sales to customers outside of Taiwan to continue to represent a significant portion of its net operating revenues. Disruptions in the international trading environment, including adverse changes in foreign government regulations, political unrest and international economic downturns, could negatively affect the business of the Company’s customers and could in turn adversely affect the business of the Company.

The Company is exposed to the risks of currency exchange rate fluctuations

The Company’s consolidated and non-consolidated net revenues and costs and expenses are denominated in NT Dollars, U.S. Dollars, Japanese Yen, Hong Kong Dollars and RMB. The Company is exposed to movements in the exchange rates of the U.S. Dollar in relation to NT Dollar and Japanese Yen. The Company recorded consolidated net exchange gains (losses) of NT$11.6 million, NT$28.2 million and NT$45.9 million (U.S.$1.3 million) in 1999, 2000 and 2001, respectively, reflecting the depreciation and appreciation of the U.S. Dollar in relation to the NT Dollar and Japanese Yen. However, the Company does not have hedging contracts of any nature currently in effect.

A substantial portion of the Company’s net revenues are denominated in NT Dollars, U.S. Dollars, Japanese Yen and Hong Kong Dollars, while a majority of the Company’s operating costs and expenses are denominated in NT Dollars and Japanese Yen. Accordingly, the Company is exposed to movements in the exchange rates between U.S. Dollars, Japanese Yen and Hong Kong Dollars on the one hand, and NT Dollars on the other hand. The Company recorded net exchange losses of NT$11.4 million in 1999, and net exchange gains of NT$28.4 million and NT$25.1 million (U.S.$0.7 million) in 2000 and 2001 respectively. The effect of future changes in currency exchange rates on the Company’s results of operations cannot be accurately predicted. The Company, however, does not enter into forward foreign currency contracts or other financial derivatives to hedge the related foreign currency positions related to these transactions. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation — Foreign Exchange Matters’’.

The Company may be subject to changes in tax benefits and increased taxes

The Company has structured its operations in a manner designed to maximize income in countries where tax incentives have been extended to encourage foreign investment, such as the PRC or where income tax rates are low. If the tax rates and policies applicable to the Company are rescinded or changed or if tax authorities were to challenge successfully the manner in which profits are recognized among the members of the Company, the Company’s taxes could increase and its results of operations and cash flow could be adversely affected. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation — Income Tax’’.

Risks Relating to the Offering

The Bondholders’ ability to exercise their conversion rights may be limited

The Bonds are convertible into Shares at the option of the converting Bondholders pursuant to the terms of the Bonds. Purchasers of the Bonds will not be able to exercise their conversion right during the Closed Periods, (as defined in the terms and conditions of the Bonds). Under current ROC law, regulations and policy, PRC persons are not permitted to hold or convert the Bonds or to register as shareholders of the Company.

A liquid market for the Bonds and Shares may not develop

Application has been made to have the Bonds listed on the Luxembourg Stock Exchange. However, there can be no assurance that an active trading market or a trading market for the Bonds will develop. The trading market for the Shares is the ROSE on which the Shares were listed in May 2001. The Shares will not be listed on the Luxembourg Stock Exchange.

Shares eligible for future sale by the current shareholders may adversely affect the market price of the Shares

While the Company is not aware of any plans by any major shareholders to dispose of a significant amount of Shares, it cannot assure that one or more of the shareholders will not dispose of the Shares in the future. The Company also cannot predict the effect, if any, that future sales of the Shares, or the availability of the Shares for future sale, will have on the market price of the Shares prevailing from time to time. Sales of substantial amounts of common shares in the public market, or the perception that such sales may occur, could adversely affect the prevailing market price of the Shares.

Risks Relating to the ROC

The trading price of the Bonds may be adversely affected by the general activities of the ROSE and the trading price of the Company’s Shares

The Company’s Shares are listed on the ROSE. The ROC securities markets are smaller and more volatile than the securities markets in the United States and in certain European and other countries. The ROSE was established in November 1994 to take over the previous Taiwanese over-the-counter market. The ROSE reformed its trading system in September 1995 and, since then, trading volume on the ROSE has grown substantially. Compared to the TSE, however, the ROSE is still in the early stages of development. In addition, although some shares have significant turnover on a daily basis, others trade sporadically.

The ROSE has experienced substantial fluctuations in the prices and volumes of sale of listed securities. There are currently limits on the range of daily price movements on the ROSE, as well as on the TSE. Since inception in 1992, the Taiwan Over-the-Counter Market Weighted Stock Index (the ‘‘ROSE Index’’) peaked at 348.50 in August 1997 and subsequently fell to a low of 77.32 in October 2001. Over the same period, the daily closing value of the Company’s Shares ranged from a high of NT$93.0 per Share to a low of NT$27.2 per Share.

The ROSE is particularly volatile during times of political instability, including when relations between the ROC and the PRC are strained. In addition, the ROSE has experienced substantial fluctuations in the prices and volumes of sales of listed securities at times when the TSE has experienced volatility due to various factors. Several investment funds affiliated with the ROC government have from time to time purchased securities from the TSE to support the trading level of the TSE. In addition, the TSE has experienced market manipulation, insider trading and settlement defaults. The recurrence of these or similar problems or circumstances could influence the market price and liquidity of the Shares. See ‘‘Appendix C — The Securities Market of the ROC’’.

The political status and international relations of the ROC may affect the Company and the Bonds

The Company is incorporated in the ROC. The ROC has a unique international political status. Since 1949, Taiwan and the Chinese mainland have been separately governed. The ROC, which was founded in 1912, governs Taiwan while the PRC, which was founded in 1949, has governed the Chinese mainland for the past 53 years. The ROC asserts that the ROC and the PRC are equal political entities, while the PRC claims that it is the sole government in China and that Taiwan is part of China. Although significant economic and cultural relations have been established during recent years between the ROC and the PRC, the PRC has refused to renounce the possibility that it may at some point use force to gain control over the ROC. These developments have from time to time had an adverse effect on the value of the TSE Index, ROSE Index and the price of the Shares. Relations between the ROC and the PRC may also have an adverse effect on the ROC’s economy, the Company’s results of operations and the market price and liquidity of the Shares and the Bonds. There can be no assurance that the present tensions will not worsen, which could have a significant adverse impact on the ROC’s economy, the value of the TSE Index, ROSE Index, the price of the Shares and the Company’s results of operations and financial conditions.

The ROC congressional election on 1 December 2001 was believed to increase political tensions between the ROC and the PRC. The election ended the Nationalist Kuomintang Party’s role as the controlling party in the Legislative Yuan of ROC and the Democratic Development Party became the controlling party of the Legislative Yuan, as well as the Executive Yuan. Because the Democratic Development Party is to a certain extent considered as a supporter of the independence of Taiwan, the ROCPRC relationship may be further tensed. The possibility of instability and uncertainty during this transition and thereafter could have a significant adverse impact on the ROC’s economy and investors may adopt a more cautious approach towards the ROC’s securities markets and/or making investments in the ROC generally, and such factors may affect the price of the Shares and the Bonds.

The adverse economic conditions in Taiwan and Asia may affect the Company and the Bonds

Many economies in Asia, including the ROC, have recently experienced significant downturns and related difficulties. As a result of the decline in the value of the region’s currencies, many Asian governments and companies have had difficulties in servicing foreign currency-denominated debt and many corporate borrowers have defaulted on their payment obligations. The currency fluctuations, as well as

higher interest rates and other factors, have materially and adversely affected the economies of many countries and regions, including the ROC. The NT Dollar significantly weakened against the U.S. Dollar in the first half of 2001 negatively impacting the results of operations of many companies. See ‘‘Exchange Rates’’. Economic developments in Asia could materially and adversely affect the Company’s business, results of operations and financial condition.

Foreign exchange approvals may be required

Under existing ROC law, foreign exchange approvals must be obtained from the Central Bank of China (the ‘‘CBC’’) on a payment-by-payment basis for the conversion into foreign currencies of the net proceeds realized from sale of the Shares issued on conversion of Bonds or any dividends relating to such Shares, or of any cash dividends or other cash distributions in respect of such Shares, as well as for inward remittances of subscription payments in connection with a rights issue. In addition, foreign persons may, subject to certain required documents, but without foreign exchange approval of the CBC, remit outside and into the ROC foreign currencies of up to U.S.$100,000 (or its equivalent) for each remittance. There can be no assurance that any such approval will be obtained in a timely manner or at all. See ‘‘Foreign Investment and Exchange Controls in the ROC — Exchange Controls’’.

Financial reporting and accounting standards in the ROC differ from other countries; bonus share issuance

The Company is subject to financial reporting requirements in the ROC that differ in significant respects from those applicable to companies in certain other countries, including the United States and the United Kingdom. In addition, the Company’s financial statements are prepared in accordance with the ROC GAAP, which differ in certain material respects from U.S. GAAP. See ‘‘Summary of Certain Differences Between ROC GAAP and U.S. GAAP’’. Potential investors should consult their own professional advisers for an understanding of such differences and how they might affect the financial information contained herein.

In particular, the Company paid employee bonuses of 1 to 15 per cent. of the after-tax profits, less legal reserves, in the form of a combination of Shares and cash and expects that, subject to shareholder approval, it will pay all or some of employee bonuses for the future periods in the form of Shares or cash or a combination of the two. The Company granted an aggregate of 300,000 Shares, 800,000 Shares, and 1,500,000 Shares in years 1999, 2000 and 2001 to its employees, respectively. In such case, the number of Shares distributed is obtained by dividing the total nominal NT Dollar amount of the bonus by the par value of the Shares rather than their market value, which has generally been substantially higher than par value. Under ROC GAAP, the distribution of employee bonus shares is treated as an allocation from retained earnings when the distribution of employees bonuses is approved by the shareholders, and the Company is not required to, and does not, charge the value of the employee bonus shares to income. Under U.S. GAAP, however, the Company would be required to initially accrue the bonus as compensation costs when services are rendered. When bonuses are approved by shareholders in the subsequent year, an additional compensation cost is recorded for the difference between the par value and the fair market value/intrinsic value of the shares granted to employees. Correspondingly, the Company’s net income and income per share calculated in accordance with U.S. GAAP will be reduced. These differences would be material.

In addition, because the Shares issued under the employee share bonus scheme are issued at less than market value, such issuances also have a dilutive effect on existing shareholders. However, the Conversion Price of the Bonds is adjusted for such issuances.

The Company’s operation may be adversely affected by natural disaster in Taiwan

The headquarters and some of the Company’s existing manufacturing facilities are in Miaoli, Taiwan, which is vulnerable to natural disasters. Disruption of operations at the manufacturing facilities for any reason, including work stoppages, power outages, fire, earthquakes or other natural disasters, would cause delays in shipments of certain products, which could lead customers to obtain products from other sources. In September 1999, a major earthquake occurred, with its epicenter in central Taiwan. The earthquake caused interruptions to power supplies and significant damage to buildings across Taiwan. As a result of the earthquake, the Company was obliged to suspend its manufacturing operation in Taiwan for several days. After the 1999 earthquake, there were a number of earthquakes in Taiwan in 2000 and the first half of 2001.

However, the latest major earthquake experienced by Taiwan on 31 March 2002 did not cause any disruption to the Company’s operations. Similar incidents may occur in the future, which could have a material adverse effect on its results of operations.

Risks relating to the PRC

The Company is subject to the political and economic situation and legal developments in the PRC

Currently a substantial part of the Company’s operations and assets are located in the PRC and the Company expects to make further investments in the PRC in the future and the Company is also making limited sales of its products in the PRC. Accordingly, the financial condition, results of operations and future prospects of the Group are subject, to a significant degree, to the political and economic situation and legal developments in the PRC. There can be no assurance that the Company’s investment in the PRC and its manufacturing operations in the PRC will not be adversely affected if relations between the PRC and the ROC are further strained.

Prior to 1978, the PRC had adopted a central economic planning system. All production and economic activities in the country were governed by the economic goals set out in the five-year plans and annual plans adopted by central authorities. Since 1978, the PRC government has permitted foreign investment and implemented economic reforms, gradually changing from a planned economic towards a market-oriented economy. However, many of the reforms and economic policies adopted or to be adopted by the PRC government are unprecedented or experimental in nature and may have unforeseen results, which may have an adverse effect on enterprises with substantial business in the PRC, including the Company.

The Company is subject to risks associated with the PRC legal system

Since 1979, many laws and regulations dealing with general economic matters or particular economic activities have been promulgated in the PRC. However, enforcement of existing laws and regulations may be uncertain and sporadic, and implementation and interpretation thereof may be inconsistent. The PRC judiciary is relatively inexperienced in enforcing the laws and regulations that currently exist, leading to a degree of uncertainty as to the outcome of any litigation. Further, it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgment by a court of another jurisdiction. The PRC’s legal system is based on written statutes and, therefore, decided legal cases do not have binding legal effect, although they are often followed by judges as guidance. The introduction of new PRC laws and regulations and the interpretation of existing ones may be subject to policy changes reflecting domestic political or social changes. As the PRC legal system develops, there can be no assurance that changes in such legislation or interpretation thereof will not have a material adverse effect on the business, financial condition, results of operations and future prospects of the Company, and could cause the price of the Shares to decline.

USE OF PROCEEDS

The net proceeds from the offering of the Bonds, after deducting underwriting fees, including selling concessions, and other expenses, are estimated to be approximately U.S.$44.1 million. The net proceeds will be used as follows:

" U.S.$13.8 million for long-term investment in overseas facilities;
" U.S.$1.7 million for repayment of bank loans of the Company;
" U.S.$8.7 million for acquisition of office and factory buildings;
" U.S.$5.8 million for establishment of e-commerce platforms; and
" the remaining for procurement of raw materials and machinery equipment.

MARKET PRICE INFORMATION

The Shares have been quoted and traded on the ROSE since May 2001. The table below sets forth, for the periods indicated, the high and low closing prices and the average daily volume of trading activity on the ROSE for the Shares (adjusted for the effects of rights issues, employee bonus issues and stock dividends) and the high and low of the daily closing values of the ROSE Index.

2001 . . . . . . . . . . May (listed) June July August September October November December 2002 . . . . . . . . . . January February March April May June	Closing price per Share High Low NT$ 65.00 46.00 57.50 48.80 50.00 39.10 45.70 38.90 39.60 28.60 35.40 29.70 44.50 35.00 70.50 46.00 90.50 68.00 90.50 70.00 83.00 74.50 83.00 66.00 67.50 53.50 60.00 46.90	Average daily trading Volume Thousands of Shares 732 429 162 586 206 307 683 2,573 3,024 1,969 1,762 1,555 918 759	ROSE	Index
			High Low points 138.83 121.15 132.09 118.45 120.57 100.52 110.89 103.41 104.34 81.30 87.23 78.22 103.21 84.33 136.23 106.74 154.81 135.26 153.52 139.25 156.96 142.74 163.00 152.88 147.85 131.06 138.00 121.52	Low

Source: Taiwan Economic Journal Data Book

On 8 July 2002, the reported closing price of the Shares was NT$54.0 per Share and the ROSE Index closed at 129.59.

DIVIDENDS AND DIVIDEND POLICY

To date the Company has not paid any cash dividends on the Shares. The Company has paid annual stock dividends on the Shares since 1998.

The following table sets forth the aggregate number of outstanding Shares entitled to dividends, as well as the stock dividends paid during each of the years indicated. The stock dividends per Share represent dividends paid in the fiscal year for the Shares outstanding on the record date applicable to the payment of these dividends.

1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Stock dividends per Common Share(1) NT$ 1.8 2.0 1.5 2.0	Total Common Shares issued as stock dividends and employee bonus shares Shares 3,744,000 6,300,000 6,800,000 11,500,000	Outstanding Common Shares on record date(2)
			Shares 19,800,000 30,000,000 40,000,000 50,000,000

(1) Holders of Shares receive as a stock dividend the number of Shares equal to the NT Dollar value per Share of the dividend declared multiplied by the number of Shares owned and divided by the par value of NT$10 per share. Fractional Shares are not issued but are paid in cash.
(2) Aggregate number of Shares outstanding on the record date applicable to the dividend payment, including Shares issued in the previous year under the Company’s employee bonus plan.

The Company has historically paid stock dividends on the Shares with respect to the preceding year after approval by the shareholders at the annual general meeting of shareholders. The form, frequency and amount of future cash or stock dividends on the Shares will depend upon the Company’s earnings, cash flow, financial condition and other factors.

Except in certain limited circumstances, the Company is not permitted to distribute dividends or make other distributions to shareholders for any year in which the Company has no earnings. The ROC Company Law also requires that ten per cent. of the Company’s annual earnings, less prior years’ losses, if any, and outstanding tax, be set aside as a legal reserve until the accumulated legal reserve equals the paid-in capital. The Company may set aside a special reserve in accordance with the applicable laws and regulations. In addition, the Articles of Incorporation of the Company provide that the remaining portion of the earnings will be distributed as dividends and bonuses, according to the board of directors’ resolution as approved by the shareholders, of which (1) the employee bonuses shall be 1 to 15 per cent. of the residual earnings approved by the shareholders, and (2) the remuneration of all directors and supervisors shall be less than four per cent. of the residual earnings approved by the shareholders.

In addition, the Articles of Incorporation of the Company further provide that when distributing dividends in any year, the Company may distribute cash dividends in an amount not in excess of 20 per cent. of the distributable dividends in that year. See ‘‘Description of The Shares — Dividends and Distribution’’.

EXCHANGE RATES

Fluctuations in the exchange rate between NT Dollars and U.S. Dollars will affect the U.S. Dollar equivalent of the NT Dollar price of the Shares on the ROSE and, as a result, may affect the market price of the Bonds.

Set forth below are the period-end average of buying and selling exchange rates in effect between the NT Dollar and the U.S. Dollar, expressed in NT Dollars per U.S. Dollar, for the period indicated.

Period-End 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998 1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4th Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4th Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4th Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4th Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . July (through 8 July) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	NT$ per U.S.$1.00
	27.49 32.64 32.81 34.49 34.46 32.21 33.16 32.28 31.80 31.46 30.46 30.82 31.33 33.08 32.84 34.44 34.55 34.98 34.97 35.01 35.00 34.72 34.15 33.57 33.51

Period-End
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1998
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1999
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2000
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2002
January . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
February . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
May . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July (through 8 July) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

NT$ per
U.S.$1.00

27.49
32.64
32.81
34.49
34.46
32.21
33.16
32.28
31.80
31.46
30.46
30.82
31.33
33.08
32.84
34.44
34.55
34.98
34.97
35.01
35.00
34.72
34.15
33.57
33.51

Source: Bank of Taiwan

CAPITALIZATION

The following table sets forth the debt, the shareholders’ equity and the capitalization of the Company as of 31 December 2001 and 31 March 2002 and as adjusted to reflect the issuance of the Bonds.

As of 31 December 2001	As of 31 December 2001	As of 31 December 2001	As of 31 December 2001	As of 31 March 2002	As of 31 March 2002	As of 31 March 2002	As of 31 March 2002
(audited) (unconsolidated) Actual		As adjusted		(unconsolidated) (reviewed) Actual		As adjusted
NT$’000 123,959 5,000	U.S.$’000 3,544 143	NT$’000 123,959 5,000	U.S.$’000 3,544 143	NT$’000 — 5,000	U.S.$’000 — 143	NT$’000 — 5,000	U.S.$’000 — 143
128,959 59,167 401,332	3,687 1,691 11,473	128,959 59,167 401,332	3,687 1,691 11,473	5,000 57,917 87,358,	143 1,655 2,496	5,000 57,917 87,358	143 1,655 2,496
460,499 —	13,164 —	460,499 1,749,000	13,164 50,000	145,275 —	4,151 —	145,275 1,750,000	4,151 50,000
615,000 — 115,351 29,434 239,461 11,806 (2,663)	17,581 — 3,298 841 6,846 338 (76)	615,000 — 115,351 29,434 239,461 11,806 (2,663)	17,581 — 3,298 841 6,846 338 (76)	707,981(4) 1,966 338,141 29,434 290,191 11,907 —	20,228 56 9,661 841 8,292 340 —	707,981 1,966 338,141 29,434 290,191 11,907 —	20,228 56 9,661 841 8,292 340 —
1,008,389	28,828	1,008,389	28,828	1,379,620	39,418	1,379,620	39,418
1,468,888	41,992	3,217,888	91,992	1,524,895	43,569	3,274,895	93,569

Note:

(1) The Company’s short-term debt is discussed in more detail in Notes 4 to the Financial Statements.
(2) The Company’s long-term debt is discussed in more detail in Notes 4 to the Financial Statements.
(3) As of 31 December 2001, the Company’s authorized and issued common stock amounted to NT$1,500,000,000 and NT$615,000,000 divided into 150,000,000 shares and 61,500,000 shares, respectively, each at a par value of NT$10. As of 31 March 2002, the Company’s authorized and issued common stock amounted to NT$1,500,000,000 and NT$707,981,160 divided into 150,000,000 shares and 70,798,116 shares each at a par value of NT$10.
(4) As of 31 March 2002, the paid-in capital was NT$707,981,160, all of which are issued and outstanding and in registered form.
(5) Total capitalization is the summation of long-term debt, the Bonds and shareholder’s equity.
(6) The translation rate were NT$34.98 = U.S.$1.00 on 31 December 2001, and NT$35.00 = U.S.$1.00 on 31 March 2002, respectively.

BUSINESS

This Offering Circular contains certain forward-looking statements. When used in this Offering Circular, the words ‘‘believes,’’ ‘‘intends,’’ ‘‘anticipates’’ and similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include the timing and acceptance of new product introductions, the actions of the Company’s competitors and business partners, and those discussed above under ‘‘Risk Factors,’’ and ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operation’’.

Overview

Competitive Strengths

The Company believes that the following strengths contribute to its competitive position in the relevant markets:

Well established customer relationships and sales and marketing channels

Europe, as well as the HRS[TM] connectors in Taiwan, the PRC and Hong Kong, by leveraging such close supplier-customer relationships. Through such close proximity to its customers and extensive sales channels, the Company can further develop existing customer relationships and create new customer relationships with industry leaders in the computer, communications and commercial electronics industries.

Established material and component supply network

Strong research and development programs

The Company invests significant resources in research and development, through in-house research and development activities and joint development with major customers. As at 30 April 2002, the Company employed more than 60 engineers in its research and development division in Taiwan and the PRC. Each of the six managers in the research and development division has over ten years’ industry experience. The focus of the Company’s research and development activities is new product development. The Company has joint development arrangements with General Research of Electronics, Inc. (‘‘GRE’’) in Japan and Symbol Technologies Inc. (‘‘Symbol’’) in U.S.A. for their wireless transmission products and portable scanning products, respectively. In addition to the research and development programs, the Company’s Quality Assurance Section provides electrical, mechanical, environmental, reliability and special testing services and functions to the research and development projects of the manufacturing divisions, as well as to the central quality division.

Flexible production process

Strong sales and marketing teams with technical knowledge

Strict quality control processes and standards

The Company has instituted a comprehensive quality assurance program to ensure the implementation of its quality control policy. This policy rests on seven basic principles, namely, customer first; quality optimization; personnel management; continuous improvements; integrity; and building a reputation. See ‘‘— Quality Control’’. To implement its quality program comprehensively, the Company has established a Central Quality Division, comprising the Quality Assurance Section and the Quality Control Section. These

departments provide quality control services and support for the quality assurance departments of each of the manufacturing divisions. These quality assurance departments implement a series of rigorous quality checks at all stages of product development and production.

Experienced management team

Strategy

Utilizing surface mounting technology to provide total solution for customers

Focus on high-growth markets

Establish strategic alliances to improve technology and develop new customers

Undertake acquisition strategy to integrate supply chain

History and Organization of the Company

Sinbon was founded on 6 December 1989 and its original product line focused on the manufacture of cable assemblies for personal computers. In October 1997, Sinbon merged with K&L Enterprises Co., Ltd., a trading company founded in 1990. K&L Enterprises Co., Ltd. began distributing HRS[TM] connectors in 1990 and such distribution business became part of the Company’s principal business after the merger. In 1998, to formalize their relationship, the Company entered into a formal distribution agreement with Hirose to be a non-exclusive distributor of HRS[TM] connectors. To utilize its manufacturing expertise and in response to the growing demand of the communication devices and commercial electronics industries, the Company has in recent years invested significant resources to expand its business lines to provide the customers with SMT and electronic device turn-key services.

The Company’s common shares have been traded on the ROSE since 3 May 2001.

In 1999, the Company was appointed by Symbol as its core supplier of cable assemblies and electronic device turn-key services for the bar code systems manufactured by Symbol. Currently, the Group is one of a few core suppliers of cable assemblies and electronic device turn-key services worldwide for Symbol. Sales to Symbol accounted for 16.5 per cent. and 14.8 per cent. of the Company’s total sales in 2001 and 2000, respectively. All sales made by the Company to Symbol are on purchase order basis without long-term contract or firm purchase commitments.

The Company moved into its corporate headquarters and main manufacturing plant in Miaoli County, which is also its sole manufacturing base in Taiwan, in 1999. The Company commenced its operations in the PRC in 1994 by establishing Beijing Sinbon Electronics Ltd., a joint venture with a local PRC entity, to produce cable assemblies and to sell HRS[TM] connectors. In 1995, the Company established Tokyo Sinbon Electronics Co., Ltd. to collect market information and sell its products in Japan. In 1999, Hong Kong Sinbon Electronics Co., Ltd. acquired a processing and assembly plant in Dongguan to manufacture cable assemblies. In 2000, the Company established Sinbon International Enterprise Co., Ltd. as a holding company for investing in the manufacturing facilities, research and development center and sales and marketing offices in Shenzhen, Guangdong Province, and Shanghai and Jiang Yin, Jiangsu Province, namely Sinbon Shenzhen Electronics Co., Ltd., Shanghai Sinbon Electronics Co., Ltd., and Jiang Yin Sinbon Electronics Co., Ltd.. In 2001, the Company acquired a minority interest in Korea Sinbon Electronics Co., Ltd.. The Miaoli Plant in Taiwan has received ISO9001 and ISO14001 accreditation. Jiang Yin Sinbon has also received ISO9002 accreditation.

The following diagram shows the structure of Sinbon and its principal subsidiaries, as of 31 March 2002, together with details of Sinbon’s direct and indirect equity interests in such subsidiaries. See ‘‘ — Principal Subsidiaries’’.

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SINBON ELECTRONICS CO., LTD.
51% 75% 100% 100% 100%
SINBON TOKYO SINBON HONG KONG SINBON(1)
SINBONTECHNOLOGY LLC BEIJING SINBONELECTRONICS LTD.(1) INTERNATIONALENTERPRISE CO., LTD.(1) ELECTRONICSCO., LTD. (1) ELECTRONICSCO., LTD.
(“Sinbon Technology”) (“Beijing Sinbon”)
(“Sinbon International”) (“Tokyo Sinbon”) (“Hong Kong Sinbon”)
100% 66% 100%
SINBON SHENZHEN JIANG YIN SINBON SHANGHAI SINBON
ELECTRONICS ELECTRONICS ELECTRONICS
CO., LTD. CO., LTD. CO., LTD.
(“Shenzhen Sinbon”) (“Jiang Yin Sinbon”) (“Shanghai Sinbon”)
----- End of picture text -----

(1) The financial statements of these companies have been consolidated with those of the Company in the Consolidated Financial Statements. See ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations — Basis of Presentation’’ and Note 2 to Consolidated Financial Statements for a discussion of principles of consolidation.
(2) There have been no material changes in Sinbon’s direct and indirect equity interests in each of the principal subsidiaries and affiliates since 31 March 2002.

The Company’s corporate headquarters and principal place of business are located at No. 582, KuoHwa Rd., Miaoli City, Miaoli County, Taiwan, ROC. The Company’s telephone number and website are (886-3) 733 0099 and www.sinbon.com, respectively.

Products and Services

The Company capitalizes on its precision processing and industrial engineering expertise, its close relationships with key suppliers and its expertise in high quality production to offer quality products to its customers. The products manufactured and sold by the Company are mainly:

" connectors;
" cable assemblies;
" electronic sub-systems; and
" finished electronic devices.

The Company assembles and produces all its products except for connectors. The connectors sold by the Company are manufactured by Hirose under its HRS[TM] brand. The Company supplies its products on an OEM/ODM basis to manufacturers of computers, communications devices and commercial electronics. In 1999, the Company became a supplier of electronic sub-systems for Symbol in its bar code system thereby entering the industrial electronics market.

The table below sets out the Company’s consolidated and Sinbon’s non-consolidated total sales by product category and consolidated and non-consolidated net revenues for the periods indicated. The information for the years ended 31 December 1999, 2000 and 2001 is provided on a consolidated basis and the information for the three months ended 31 March 2001 and 2002 is provided on a non-consolidated basis.

Connectors(1) . . . . . . . . . . . . . . . . . Cable assemblies. . . . . . . . . . . . . . . Electronic sub-systems . . . . . . . . . . . Finished electronic devices . . . . . . . . Others(3). . . . . . . . . . . . . . . . . . . . . Net revenues. . . . . . . . . . . . . . . . . .	Year	ended 31 December (consolidated) 2000 2001 NT$’000 NT$’000 790,802 1,096,965 745,493 650,843 284,622 380,263 615 73,616 95,917 100,126 1,917,449 2,301,813	Three months ended 31 March (non-consolidated) 2001 2002 NT$’000 NT$’000 80,071 207,046 103,124(2) 107,827(2) 120,904 87,955 6,115 54,743 9,606 30,019 319,820 487,590
		(consolidated)
	1999 NT$’000 783,028 764,184 15,291 0 155,639 1,718,142	2000 NT$’000 790,802 745,493 284,622 615 95,917 1,917,449	2001 NT$’000 80,071 103,124(2) 120,904 6,115 9,606 319,820

(1) Exclude other revenues derived from sales of HRS[TM] connectors made directly from Oriental Computers Inc. (‘‘OCI’’) to the Company’s customers.
(2) Include consignment of cable assemblies in relation to Symbol.
(3) Include sale of raw materials and other revenues derived from sales of HRS[TM] connectors made directly from OCI to the Company’s customers.

Connectors

The Company is one of the regional distributors of the HRS[TM] connectors which are used for a wide variety of products such as computers, communications devices and commercial electronics. The Company purchases a majority of HRS[TM] connectors from OCI, one of the Japanese trading companies designated by Hirose to distribute the HRS[TM] connectors.

K&L Enterprises Co., Ltd. which was merged into the Company in 1997, started distributing the HRS[TM] connectors in 1990. In 1998, the Company entered into a distribution agreement with Hirose and OCI to formalize its appointment as one of the regional distributors of the HRS[TM] connectors. Under the distribution agreement, the Company is granted a non-exclusive right to distribute HRS[TM] connectors in Taiwan, Hong Kong and the PRC beginning 1 January 1998 until 31 December 2004. Under the distribution agreement, the Company is also committed to purchase a certain volume of HRS[TM] connectors for each fiscal year starting from 1 January to 31 December.

The connectors sold by the Company consist of connectors of:

" internal connection devices mainly used on board to wire devices, such as discrete wire connectors and pin headers and cable connectors,
" interface connection (I/O connection) (circular connectors) such as audio/visual connectors and machine toll connectors,
" external I/O connectors such as parallel port connectors and serial port connectors,
" co-axial connector such as standard co-axial connectors and hard matrix co-axial connectors and miniature co-axial connectors, radio frequency (‘‘R/F’’) connectors such as co-axial switch,
" optical fiber connectors such as attenuators, terminators, and MT ferrules, and
" IDC termination connectors.

For the years ended 31 December 1999, 2000 and 2001, sales of connectors accounted for 45.5 per cent., 41.2 per cent. and 47.7 per cent. of the Company’s consolidated total sales respectively. For the three months ended 31 March 2002, sales of connectors accounted for 42.5 per cent. of Sinbon’s non-consolidated total sales.

Cable assemblies

The Company manufactures and sells several different types of cable assemblies which are used in a variety of computer, computer peripheral, networking, communications and commercial electronic products. HRS[TM] connectors and other connectors made by third parties are assembled by the Company into its final cable assembly products.

The cable assembly products of the Company consist of cable assemblies for:

" personal computers and notebooks, such as I/O cable, power cable, adapter cable, flat cable and USB cable,
" PC peripherals, such as mouse cable, bar code reader cable, USB cable and IEEE1394 cable,
" office networking, such as LAN cable, Multi-cable and PCMCIA cable,
" communications devices, such as data cable and RF cable, and
" industrial electronic devices, such as bar code reader and bar code system.

For the years ended 31 December 1999, 2000 and 2001, sales of cable assemblies accounted for 44.5 per cent., 38.9 per cent. and 28.3 per cent. of the Company’s consolidated total sales respectively. For the three months ended 31 March 2002, sales of cable assemblies accounted for 22.1 per cent. of Sinbon’s nonconsolidated total sales.

Electronic sub-systems

Through the Company’s electronic device turn-key services, it provides its customers with total solutions in electronic device manufacturing process. Based on customers’ request, the Company leverages its manufacturing expertise to produce electronic sub-systems. An electronic sub-system is a combination of cable assemblies and electronic circuits. The customer may further apply the electronic sub-systems supplied by the Company toward any finished products or integrate it into another system.

For the years ended 31 December 1999, 2000 and 2001, the sales revenue derived from the production of electronic sub-systems accounted for 0.8 per cent., 14.8 per cent. and 16.5 per cent. of the Company’s consolidated total sales, respectively. For the three months ended 31 March 2002, sales revenue derived from electronic sub-systems accounted for 18.0 per cent. of Sinbon’s non-consolidated total sales.

Finished electronic devices

In 1999, the Company started producing finished electronic devices by utilizing its SMT. According to the specifications made by the customers, the Company unitizes semi-automatic manufacturing process to assemble the finished products. Some products such as long-range high-frequency wireless receivers currently manufactured by the Company’s SMT assembly line require final testing and precision tuning to achieve optimal performance. The Company’s testing department is capable of setting up testing programs and procedures as well as performing the tests. The Company believes that its testing department is equipped with strong research and development capability to perform tests for all kinds of products it produces.

The production facilities for finished electronic devices are mainly located at the Company’s Jiang Yin Plant in Jiangsu Province, PRC and the Company’s corporate headquarters. Currently, the primary products manufactured by the Company as finished electronic devices are the Radio Shack[TM] brand longrange, high-frequency wireless receivers and home phoneline networking appliances (‘‘HomePNA’’). The Company is evaluating a number of new finished electronic products it may produce for potential customers, such as modules and parts of medical equipment and e-Book.

For the years ended 31 December 1999, 2000 and 2001, the sales revenue derived from the production of finished electronic devices accounted for zero per cent., 0.03 per cent. and 3.2 per cent. of the Company’s consolidated total sales respectively. For the three months ended 31 March 2002, sales revenue derived from such finished electronic devices accounted for 11.2 per cent. of Sinbon’s non-consolidated total sales.

Others

Other revenues of the Company are derived from the sale of raw materials and revenues derived from sales of HRS[TM] connectors through Oriental Computers Inc. (‘‘OCI’’) directly to the Company’s customers. For the years ended 31 December 1999, 2000 and 2001, sales of other products accounted for 9.1 per cent., 5.0 per cent. and 4.3 per cent., respectively, of the Company’s consolidated total sales. For the three months ended 31 March 2002, sales of other products accounted for 6.2 per cent. of the Company’s nonconsolidated total sales, compared to 3.0 per cent. in the comparable period of 2001.

Sales and Marketing

The Company has a global sales network, consisting of a direct sales force and customer service representatives. To conduct its sales and marketing activities, the Company has established sales offices in Taiwan (Taipei), Japan (Tokyo), Korea (Seoul), the United States (New York City), Hong Kong and the PRC (Shanghai, Beijing, Jiang Yin and Shenzhen) which are located in close proximity to key customers. Each office is responsible for securing new customers, providing sales and customer support and maintaining existing customer relationships. The primary sales and marketing efforts for the Company are conducted by the Company’s product divisions, each of which is responsible for developing the sales and marketing strategies of new and existing products produced by the division. As of 31 March 2002, the Company had 59 sales staff worldwide.

The Company generally sells its products pursuant to specific customer purchase orders without any long-term contractual commitments. Generally, the sales and marketing process involves a customer first qualifying the Company as an approved vendor or supplier. This process typically involves exchanges of information through written surveys, presentations, site visits, formal audits, sample quotations and prototype promotions. The Company is an approved vendor of the products manufactured by itself or distributed by it for many major electronic devices manufacturers, such as Acer and Symbol.

The Company’s customers generally are invoiced either at the time of delivery of the products or upon receipt of the products, with varying credit terms, depending, in part, on where the customer is located and the product type. The Company’s pricing policy takes account of a number of factors, including customer relation, product specification, cost of production, mode of transportation and size of order.

The following table sets out a breakdown of the Company’s total net revenues by geographical region for the periods indicated:

	Year ended 31 December
	(consolidated)
1999 (in 837,127 53.6% 846,621 49.4% 23,834 1.4% 10,560 0.6% 1,718,142 100.0%	2000 2001 millions, except percentages) 829,828 43.3% 814,467 35.4% 777,957 40.6% 1,065,658 46.3% 281,876 14.7% 392,305 17.0% 27,788 1.45% 29,383 1.3% 1,917,449 100.0% 2,301,813 100.0%	2001
837,127 846,621 23,834 10,560 1,718,142			35.4% 46.3% 17.0% 1.3%
			100.0%

Customers

General

The Company emphasizes customer relations as a key to develop its sales channel and its growth and to enhance profitability. A key aspect of the Company’s customer development strategy is to locate the sales and marketing team and in certain instances the production facilities near the customers in order to provide better and more efficient service.

The Company supplies connectors and cable assemblies to key manufacturers in the computers, communications devices and commercial electronics industries. Some of the Company’s key customers are Acer, ASUSTeK, BenQ, Mobility, Oriental Computer, Quanta, Samsung, Symbol and Wistron. For 1999, 2000 and 2001, the Company’s five largest customer accounted for 46.6 per cent., 39.6 per cent. and 42.1 per cent., respectively, of the consolidated net operating revenues. For 1999, 2000 and 2001, no other customers accounted for five per cent. or more of consolidated net operating revenues.

Top Products and Applications

The following table sets forth the major product/service categories and applications of the Company and products purchased directly by the Company’s key customers, and the percentage of total sales which these customers comprised during the three months ended 31 March 2001 and 2002:

Product/Service category Connectors . . . . . . . . . . . Cable assemblies. . . . . . . Electronic sub-systems . . . Finished electronic devices Others . . . . . . . . . . . . . .	Sample applications/Nature of Services Mobile telephones, fixed line telephones, communications devices, notebook computers, personal computers, PC peripherals, information application products PC peripherals, telecommunications Personal computers, PC peripherals and commercial electronics Wireless receivers and Home PNA Sale of raw materials and revenues derived from sales of HRSTM connectors made directly from OCI to the Company’s customers	Percentage of total sales	Percentage of total sales
		three months ended 31 March
		2001 % 25.0 32.2 37.8 1.9 3.0	2000
			% 42.5 22.1 18.0 11.2 6.2

Production Process

Connectors, cable assemblies and electronic sub-systems

The Company imports connectors, raw cables, printed circuit boards and other raw materials from local or foreign suppliers for assembling into cable assemblies, electronic sub-systems and finished electronic products. The Company does not produce connectors for final sales or for assembling into its cable assemblies and related products. The Company produces very limited number of raw materials in-house, such as the plastic connector covers. The Company believes that by managing the supply channel and forming strategic alliances with third party suppliers, it can obtain key materials and components in a cost-effective manner. Close relationships with key suppliers by way of cross investments and/or strategic alliances allow the Company to achieve cost savings and ensure a steady supply of components that meet the Company’s quality specifications.

The Company’s products are assembled in-house involving a series of precise assembly processes. Quality control is therefore an important factor to the Company’s success. Quality control tests are conducted on organic and metallic materials used in the production process. In addition, quality control procedures and tests are conducted at each manufacturing and assembly stage. The Company also arranges for certain of its customers to conduct periodic on-site quality inspections. See ‘‘— Quality Control’’.

The Company has installed computerized equipments to increase the automation of its production process. However, the Company believes that in the production of certain products, it will continue to rely on its well-trained labor force to conduct manual assembly.

Finished electronic devices

The Company unitizes semi-automatic manufacturing process to assemble the finished products according to the specifications provided by the customers. Detailed production processes for finished electronic devices vary from product to product. The Company, however, is standardizing the general SMT and electronic device turn-key service processes in order to save cost and increase efficiency.

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IPQC
IPQC
Case Assembly
Incoming Parts IQC SMT Inspection
NG NG
Return to Vendor Rework
100% Testing
IPQC
Touch Up
Performance IPQC
Test
NG
IPQC
NG
Rework
Repair Station
NG
IPQC
Wave Solder IA
IPQC
IPQC
NG
Case Assembly Rework
NG
Rework
NG
Packaging
Performance Test Final Inspection
IPQC IPQC
Fmd Shipping Warehouse
Routine Inspection
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The quality control procedures for finished electronic devices would follow the standard applicable to the other products manufactured in-house by the Company. See ‘‘— Quality Control’’.

Quality Control

The Company has instituted a comprehensive quality assurance program to ensure the implementation of its quality policy. This policy rests on seven basic principles, namely:

" customer first — products must consistently achieve highest quality to meet customer demands,
" quality optimization — all products distributed and/or manufactured by the Company must meet the highest quality standards,
" human resource management — every employee, from president to production operator, participates in training programs that include total quality control (‘‘TQC’’) techniques and SPC analyzed on a real time basis.
" continuous efforts — quality control is a permanent mission that requires continuous inputs of labor and other system sources to meet most stringent quality standards,
" integrity — no bypass of quality control procedures to ensure all products will meet highest quality standards, and
" building a reputation — Sinbon will be a reputable name in its industry only if the quality control procedure is performed closely.

In order to implement the quality assurance program comprehensively, the Company has established a Central Quality Division, which comprises a Quality Control Section and a Quality Assurance Section. The Quality Control Section is responsible for quality goal planning and follow-up, establishing and auditing the operation of the quality system, certification programs, including ISO, quality education and training, customer complaint follow-up and improvement, and quality documentation control. The Quality Assurance Section is responsible for the engineering standards research and services, assistance in designing product testing procedures, electrical, mechanical, environmental and reliability testing, special testing, laboratory operation and management, equipment maintenance and calibration, and product safety applications and management.

The Company believes that through rigorous implementation of the quality assurance program, it has been able to achieve a reputation for consistently high product quality, and that this reputation is an important competitive advantage for retaining existing customers and attracting new customers among industry leaders in the computers, communications and commercial electronics industries. Sinbon’s Miaoli Plant received ISO9001: 2000 accreditation in July 2001. The Company’s quality goals for 2002 are to increase the yield rates for the products produced in-house and by third party suppliers to 99.2 per cent., to reduce customer complaints to 0.4 per cent. or below, and to reduce product defect rates to below 1,000 parts per million.

Raw Materials and Components

The Company uses a variety of raw materials and components in its manufacturing processes. Raw materials include plastic resins and various non-ferrous metal alloys, such as copper and bronze alloys. The Company purchases these items in bulk quantity from a number of suppliers based on spot market prices. To a large extent, the pricing and other terms of these purchases follow world commodity prices.

Components primarily include connectors, raw cables, integrated circuits and printed circuit boards. The Company purchases connectors, raw cables, integrated circuits, circuit boards and circuit components from several vendors based on purchase orders. As in the case of raw materials purchases, the prices of these components largely follow world market trends.

In the case of certain materials and components, the Company is required to purchase from vendors approved not only by it, but by its OEM/ODM customers as well. The connectors sold by the Company are supplied by Hirose.

The Company has implemented various inventory and resource management systems to enable it to plan the allocation of resources to ensure a steady and timely supply of principal raw materials and components. The Company’s Material Supply Section under the Manufacturing Division is responsible for the procurement of raw materials and components, based on the requirements provided by each production division from time to time. By centralizing procurement, the Company believes that it increases its bargaining power to achieve competitive pricing, payment, delivery, quality and other terms of supply. The Company’s Central Quality Division performs a series of incoming quality checks to ensure all incoming materials and components comply with internet standards.

The Company has not experienced any significant delay or constraint in production due to disruption of supply of materials and components. The Company believes that there are sufficient alternative suppliers of all of the Company’s important materials and components and the Company is able to shift to such other sources if necessary.

Manufacturing Facilities

The Company operates four production facilities in different locations in Taiwan and the PRC. The following table sets out the location and primary use of the production facilities of the Company as of 31 May 2002:

Location Taiwan Miaoli Plant . . . . . . . . . . . . . . . PRC Beijing Plant . . . . . . . . . . . . . . Jiang Yin Plant . . . . . . . . . . . . . Dongguan Plant . . . . . . . . . . . .	Principal products Cable assemblies, electronic sub-systems and finished electronic devices Cable assemblies and electronic sub-systems Cable assemblies, electronic sub-systems and finished electronic devices Cable assemblies	Owned or leased
		Owned Owned Owned Owned

Taiwan

The Company manufactures cable assemblies, electronic sub-systems and finished electronic devices at its Miaoli Plant, located at No.582, Kuo-Hwa Rd., Miaoli City, Miaoli County, Taiwan, ROC. The Miaoli Plant comprises a four-floor building of 82,531.9 square feet which is owned by the Company. The Company’s headquarters are also located at the Miaoli Plant. As at 31 March 2002, approximately 220 people were employed by the Company to work at the Miaoli Plant. The Miaoli Plant is also a plant certified by the Underwriters’ Laboratories Inc. (‘‘UL’’). The Miaoli Plant has also received ISO9001 and ISO14001 accreditation.

The Company also maintains a research and development center in Hsinchu City, Taiwan, and a general administrative center in Shihchi, Taipei County, Taiwan.

The PRC

The Company has three production facilities in the PRC. The Beijing Plant is located in Changping District, Beijing City, the Jiang Yin Plant is located in Jiang Yin City, Jiangsu Province, and the Dongguan Plant is located in Dongguan City, Guangdong Province. Currently, the Company’s production facilities in the PRC contribute approximately 21.0 per cent. of the Company’s total annual output by value. All plants in the PRC are owned by the Company.

Beijing Plant. The Beijing Plant is operated by Beijing Sinbon which is also the Company’s main distributor of HRS[TM] connectors in Northern China. The Beijing Plant produces cable assemblies and electronic sub-systems. The Beijing Plant assembles HRS[TM] connectors and in some occasions connectors produced by other manufactures with the cables it procured locally. The Company also has research and development and testing facilities at the Beijing Plant. The Beijing Plant is a facility owned by Beijing

Sinbon comprising a total floor area of approximately 17,222.2 square feet. As at 31 March 2002, there were approximately 135 workers at the Beijing Plant. The Beijing Plant also has dormitory facilities to accommodate factory workers.

Jiang Yin Plant. The Jiang Yin Plant is operated by Jiang Yin Sinbon with the key function of manufacturing all the Company’s products, except connectors. The Jiang Yin Plant comprises of two buildings. The Company commenced operations of the Jiang Yin Plant in December 2001, which focuses mainly on the provision of SMT and electronic device turn-key services. As at 31 March 2002, the Jiang Yin Plant employed approximately 650 employees and has a total factory space of approximately 78,561.7 square feet. The Jiang Yin Plant has also received ISO9002 accreditation.

Dongguan Plant. In October 1999, the Company commenced operations at its facility at the Dongguan Plant, which focuses primarily on the production of the Company’s products on a processing and assembly basis. The main products processed by the Dongguan Plant are cable assemblies and electronic sub-systems. Total building area of the plant is approximately 40,902.8 square feet. As at 31 March 2002, approximately 350 employees were employed at the Dongguan Plant. The Dongguan Plant has received ISO9002 accreditation. The factory complexes at the Dongguan Plant also have dormitory facilities to accommodate factory workers.

The Company believes that its existing production and office facilities are adequate to meet current requirements, and that suitable additional or substitute space will be available as needed to accommodate any further physical expansion of production, corporate operations and for any additional sales offices. The Company has not experienced any significant interruptions in production at any of its production facilities due to equipment failure or breakdown, raw material shortages, power interruptions, fire, labor disputes or other causes.

Research and Development

To meet its customers’ needs and to contribute to its continued success, the Company continually engages in research and development activities. Research and development activities consist of:

" designing and developing new products, including collaboration with key customers;
" devising manufacturing solutions for customers;
" developing new testing programs and equipment for evaluating the finished electronic devices that the Company manufactured on an SMT or electronic device turn-key service basis; and
" designing and developing new manufacturing techniques which take advantage of the latest component and product designs and packaging to improve production efficiency and reduce costs.

In conducting its research and development activities, the Company works closely with its customers. This close involvement of the research and development teams with customers at each stage of the design and development process positions the Company at the leading edge of technological innovation in the manufacture of cable assemblies, electronic sub-systems and commercial electronics.

The research and development improvements have helped the Company to manufacture its products in a cost-effective and reliable manner. The Company’s research and development achievements include:

" successfully developing precision tuning technology and program for testing the long-range, high-frequency wireless devices it manufactured for the customers on an SMT or electronic device turn-key service basis;
" new SMT which is applicable to the completion of various products assigned by the customers; and
" developing the prototype of e-Book, a proposed replacement of conventional paper books for primary school students in the PRC, and accessories to the e-Book, such as information loaders.

Currently, the Company has joint development arrangements with GRE in Japan and Symbol in U.S.A. for their wireless transmission products and portable scanning products, respectively.

As of 31 March 2002, the Company had more than 60 personnel engaged in research and development activities. Research and development activities are conducted separately for each division of the Company as well as at the Company’s production facilities in Taiwan and the PRC. For fiscal years 1999, 2000 and 2001, the Company expended NT$5.2 million, NT$15.9 million and NT$16.4 million, respectively, on research and development activities, which accounted for 0.3 per cent., 0.8 per cent., and 0.7 per cent., of the Company’s sales revenues, respectively.

Intellectual Property

A number of elements of the Company’s products and technological processes are proprietary in nature, and are owned by the Company or utilized under license from third parties.

As of 31 March 2002, Sinbon held one patent registered in Taiwan for products and technologies developed through its own efforts. In addition, Sinbon has another five patent applications either pending or under review in Taiwan, the United States, Germany and the PRC. The Company intends generally to continue to seek patent protection on any new invention in design or process technology.

The Company has registered the Sinbon trademark in the ROC and the PRC. The Company’s trademark application for the Sinbon trademark in Korea is currently pending. The trademarks are designated for use on the Company’s products, including cable assemblies such as USB hubs, and finished electronic devices developed by the Company itself.

Competition

The Company operates in an international market characterized by intense competition among companies that engage in electronic components manufacturing for computers, communications and commercial electronics. The Company competes with different companies, depending on the type of product or geographic area. While these companies are largely fragmented throughout different sectors of the industry, a number of companies are much larger and have greater manufacturing, financial, research and development and marketing resources than the Company. Some of these competitors also carry product lines that the Company does not carry and provide services that the Company does not provide. The Company also faces competition from the manufacturing operations of its OEM customers, who are continually evaluating the merits of manufacturing products internally versus outsourcing to contract manufacturers.

The Company believes that the primary basis of competition is a combination of engineering capability, service level, manufacturing quality, price, production capacity, manufacturing technology, design expertise, breadth of product line, time to production and reliability of delivery. The Company believes it currently competes favorably with respect to a number of these factors. However, to remain competitive, the Company must continue to explore new customers as well as maintain existing customers by maintaining quality levels, offering flexible and reliable delivery and providing competitive pricing.

Environmental Matters

The Company’s manufacturing processes involve mainly assembly, which invite very limited environmental concerns. These processes generate no liquid waste, and limited amount of solid and gaseous emissions.

The Company has adopted environmental compliance and abatement programs generally accepted in the industry for all its industrial processes. Under the Company’s guidelines, solid waste is either recycled or it is removed under contract by waste management services that have been certified by the applicable environmental authorities in the handling of the relevant materials. Emissions are filtered before being discharged.

The Company believes that it is in substantial compliance with all material environmental regulations. In addition, the Company has not been subject to any material fines or legal action involving noncompliance with any relevant environmental regulations, nor is it aware of any threatened or pending action by any environmental regulatory authority in Taiwan or the PRC. However, any failure to comply with

present and future regulations could subject the Company to future liabilities or the suspension of production. In addition, any such regulations could restrict the Company’s ability to expand its facilities or could require it to acquire costly equipment or to incur other significant expense to comply with environmental regulations.

Legal Proceedings

Neither Sinbon nor its subsidiaries is involved in any litigation or other proceedings the outcome of which the Company believes might, individually or taken as a whole, materially affect the financial results or operations of Sinbon or its subsidiaries.

Insurance

The Company maintains insurance policies with independent third parties in respect of buildings, goods in transit equipment and certain inventories covering loss due to fire, explosion, earthquake, typhoon, flood and certain other risks. for its Taiwan operations. While the Company believes its insurance policies to be adequate and in line with industry norms in Taiwan, significant damage to any of the Company’s production facilities, whether as a result of fire or other causes, could have a material adverse effect on the Company. Insurance coverage on property, plant and equipment and certain inventories amounted to approximately NT$291.0 million and NT$335.5 million in 2000 and 2001, respectively. The Company does not carry business interruption insurance or key-personnel insurance or any policy of a similar nature. In accordance with industry practice in the PRC, the Company does not maintain insurance policies in respect of its operations, manufacturing facilities, equipments and machinery, and other assets in the PRC.

Principal Subsidiaries and Affiliates

Most of the business and assets of the Company in the ROC are held through Sinbon. Sinbon’s subsidiaries hold the Company’s operation facilities in the PRC. See ‘‘— History and Organization of the Company’’ and ‘‘— Manufacturing Facilities’’. The information set forth below reflects Sinbon’s direct and indirect equity interests in these subsidiaries and affiliates as of 31 March 2002.

Company Principal Investment Holding Subsidiary Sinbon International Enterprise Co., Ltd. . . . . Principal Operating Subsidiaries Beijing Sinbon Electronics Ltd.. . . . . . . Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . . . . Hong Kong Sinbon Electronics Co., Ltd. . . . Sinbon Technologies LLC Sinbon Shenzhen Electronics Co., Ltd. . . . Jiang Yin Sinbon Electronics Co., Ltd. . . . Shanghai Sinbon Electronics Co., Ltd. . . . Dongguan Sinbon Electronics Ltd.. . . . . . . Affiliates Korea Sinbon Electronics Co. Ltd. . . . . . . . . . . . . Hantechnic Inc.. . . . . . . General Research of Electronics, Inc. . . . . . . Etherwan Systems Inc. . Top Taiwan III Venture Capital Co., Ltd . . . . . .	Main business Investment holding Manufacture of cable assemblies and electronics sub-systems and sales office Japan sales office Manufacture of cable assemblies and electronics sub-systems and sales office United States sales office Sales office Manufacture of cable assemblies, electronics sub-systems and finished electronics devices and sales office Sales office Processing center of cable assemblies and electronics sub-systems Sales office Manufactures and sales of R/F connectors Manufactures, designs and sales of wireless products Manufactures, designs and sales of networking products Investment holding	Place of incorporation British Virgin Islands PRC Japan Hong Kong New York, U.S.A. PRC PRC PRC PRC Korea Taiwan Japan Taiwan Taiwan	Total paid-in capital U.S.$3,750,050 U.S.$750,000 Y=30,000,000 HK$13,000,000 U.S.$200 U.S.$250,000 U.S.$5,000,000 U.S.$200,000 W —100,000,000 NT$150,000,000 ¥310,000,000 NT$125,000,000 NT$1,000,000,000	Sinbon’s direct and indirect equity interest(1) 100% 75% 100% 100% 51% 100% 66% 100% 37.5% 11.7% 7.5% 19.9% 5%

(1) There has been no material change in Sinbon’s direct and indirect equity interests in each of its principal subsidiaries and affiliates since 31 March 2002.

Principal Investment Holding Subsidiary

Sinbon International Enterprise Co., Ltd. was established in the British Virgin Islands in 2000. Its registered office is at P.O. Box 3340, Road Town, Tortola, British Virgin Islands. Sinbon International is an investment holding company and the investments currently held through it includes Sinbon Shenzhen, Jiang Yin Sinbon and Shanghai Sinbon.

As of and for the year ended 31 December 2001, Sinbon International had audited assets, revenues and net loss of U.S.$4.4 million, U.S.$0 and U.S.$(327,415), respectively.

Principal Operating Subsidiaries

Beijing Sinbon Electronics Ltd. was established in Beijing, the PRC in 1994. Its registered office is at New Feida Electronics Science and Technology Industry Development Center, Fengshan Village, Shahe Town, Changping County, Beijing 102206, PRC. Beijing Sinbon is the Company’s sales and production base in Northern China. The main products distributed by Beijing Sinbon include HRS[TM] connectors and cable assemblies and electronic sub-systems manufactured in-house. Beijing Sinbon owns the use rights to use both the land and the buildings. See ‘‘— Manufacturing Facilities’’.

As of and for the year ended 31 December 2001, Beijing Sinbon had audited assets, revenues and net income of RMB19.8 million, RMB45.3 million and RMB3.8 million, respectively.

Tokyo Sinbon Electronics Co., Ltd. is the Company’s sales office in Japan. The Company established Tokyo Sinbon in 1995 and its registered office is at 1F, Aiku Building, 5-5-1 Kokuryocho, Chofu City, Tokyo 182-0022. Currently, Tokyo Sinbon collects marketing information and sells all product lines of the Company in Japan.

As of and for the year ended 31 December 2001, Tokyo Sinbon had audited assets, revenues and net loss of JPY=469.4 million, JPY=811.6 million and JPY=(23.8 million), respectively.

Hong Kong Sinbon Electronics Co., Ltd. was established in Hong Kong in 1999 through acquisition of K&L Enterprises (Hong Kong) Co. Ltd., a Hong Kong company. Its registered office is at Unit 1703– 1705, 17F Ocean Building, 80 Shanghai Street, Hong Kong. The main products distributed by Hong Kong Sinbon include HRS[TM] connectors and the cable assemblies and electronic sub-systems principally manufactured by its processing and assembly plant in Dongguan (which Hong Kong Sinbon holds through Dongguan Sinbon Electronics Ltd.).

As of and for the year ended 31 December 2001, Hong Kong Sinbon had audited assets, revenues and net income of HK$57.4 million, HK$109 million and HK$8.8 million, respectively.

Sinbon Technologies LLC was established in Florida, U.S.A., in 2001 through a joint venture with two American sales specialists. Its registered office is at 110 Lake Avenue S Nesconset, NY 11716, U.S.A.. Sinbon Technologies is the Company’s sole sales center in the United States to distribute the HRS[TM] connectors and other products manufactured by the Company.

As of and for the year ended 31 December 2001, Sinbon Technologies had audited assets, revenues and net income of U.S.$238,422, U.S.$900,006 and U.S.$69,255, respectively.

Sinbon Shenzhen Electronics Co., Ltd. was established in the PRC in 2001. Its registered office is at Room 1108, Nanguang Building, No. 1004 Huafu Road, Futian District, Shenzhen City, Guangdong Province, PRC. Sinbon Shenzhen is the Company’s key sales office in Southern China.

As of and for the year ended 31 December 2001, Sinbon Shenzhen had audited assets, revenues and net loss of RMB1.7 million, RMB125,818 and RMB(500,269), respectively.

Jiang Yin Sinbon Electronics Co., Ltd. was established in the PRC in 2001. Its registered office is at 98 East Cheng Jiang Road, Jiang Yin City, Jiangsu Province, PRC. Jiang Yin Sinbon is engaged in the manufacture of cable assemblies, electronic sub-systems and finished electronics devices and sales of HRS[TM] connectors. Jiang Yin Sinbon owns the rights to use both the land and the buildings. See ‘‘— Manufacturing Facilities’’.

As of and for the year ended 31 December 2001, Jiang Yin Sinbon had audited assets, revenues and net loss of RMB58.9 million, RMB0 million and RMB(2.2 million), respectively.

Shanghai Sinbon Electronics Co., Ltd. was established in Shanghai City, Jiangsu Province, PRC in 1996. Its registered office is at 2F, No. 699 Yongjia Road, Shanghai, 200031 PRC. Shanghai Sinbon is the Company’s key sales center in Eastern China for the HRS[TM] connectors and other products manufactured by the Company.

As of and for the year ended 31 December 2001, Shanghai Sinbon had audited assets, revenues and net income of RMB12.2 million, RMB22.5 million and RMB69,196, respectively.

Affiliates

Korea Sinbon Electronics Co., Ltd (‘‘Korea Sinbon’’) was established in Korea in November, 2001. Its registered office is at Room 239 Kongkusangka 630 Kojian-Dong, Mamdong-Ku Incheon, Korea. Sinbon has entered into a joint venture agreement with Korea Sinbon pursuant to which Korea Sinbon is responsible for sales of the Company’s products in Korea.

Hantechnic Inc. (‘‘Hantechnic’’) was established in Taiwan in January, 1993. Its registered office is at No. 147 Yen-Pen St. Yung Kung City, Tainan Shieh, Taiwan. Hantechnic Inc. is engaged in the manufacture and sales of connectors as well as processing of electronic sub-systems. Hantechnic provides Sinbon with a steady source of high quality raw materials which it requires.

General Research of Electronics, Inc. (‘‘GRE’’) was established in Japan in December, 1961. Its registered office is at Shiba No. 3 Amerex Blg. 3–12–17 Mita, Minato-Ku Tokyo, Japan 108–0073. Sinbon has technological collaboration with GRE for HomePNA products and Radio Receiver products. Sinbon has cooperated with GRE to enter the field of VHF/UHF communication and networking products.

Etherwan Systems Inc. (‘‘Etherwan’’) was established in Taiwan in March, 1997. Its registered office is at 4F-7, Far East World Center, No. 79, Sec. 1 His-Tai-Wu Rd., His-Chih, Taipei, Taiwan. Sinbon has entered into an investment agreement with Enterwan to jointly develop fiber-optical networking technologies.

Top Taiwan III Venture Capital Co., Ltd. (‘‘Top Taiwan III’’) was established in Taiwan in September, 2001. Its registered office is at 19F, 17, Hsu Chang St. Taipei, Taiwan. Top Taiwan III engages in venture capital investment in the high-tech industries. Sinbon as a shareholder of Top Taiwan III is able to obtain market information in connection to the high-tech industries to further enhance Sinbon’s marketing knowledge.

Related Party Transactions

Sinbon, its subsidiaries and certain of its affiliates, in the ordinary course of business or from time to time, enter into transactions with each other. The Company believes that all such transactions were based on general commercial practice. See Note 5 to the ‘‘Non-consolidated Financial Statements as at and for the three months ended 31 March 2001 and 2002’’, and Note 5 to the ‘‘Consolidated Financial Statements as at and for the years ended 31 December 1999, 2000 and 2001’’.

SELECTED FINANCIAL INFORMATION

The selected consolidated income statement data for the years ended 31 December 1999, 2000 and 2001, the selected non-consolidated income statement data for the three-month periods ended 31 March 2001 and 2002, the selected consolidated balance sheet data as of 31 December 1999, 2000 and 2001 and the selected non-consolidated balance sheet data as of 31 March 2001 and 2002 all expressed in millions of New Taiwan dollars (except for per Share Data) set forth below are derived, without adjustment, from the Audited Consolidated Financial Statements and the Reviewed Non-Consolidated Financial Statements included elsewhere in this Offering Circular and should be read in conjunction with, and are qualified in their entirety by reference to, such financial statements, including the notes thereto. Results for the threemonth period ended 31 March 2002 are not necessarily indicative of the results that may be expected for the year ending 31 December 2002. The selected consolidated income statement data for the years ended 31 December 1997 and 1998 and the selected consolidated balance sheet data as of 31 December 1997 and 1998 set forth below are derived from the audited consolidated financial statements of the Company not included herein. The Audited Consolidated Financial Statements and Reviewed Non-Consolidated Financial Statements of the Company have been prepared and presented in accordance with ROC GAAP and reporting practices in the ROC which differ in certain material respects with U.S. GAAP. For a discussion of certain differences between ROC GAAP and U.S. GAAP, see ‘‘Summary of Significant Differences Between ROC GAAP and U.S. GAAP’’. The Company has not quantified or identified the impact of the differences between ROC GAAP and U.S. GAAP, see ‘‘Risk Factors — Risks Relating to the ROC — Financial reporting and accounting standards in the ROC differ from other countries; bonus share issuance’’. The Company is not required to, and does not prepare interim financial statements on a consolidated basis.

Income Statement Operating revenue — net . . . . . . . . . . . Cost of sales. . . . . . . Gross profit . . . . . . . Operating expenses . . Operating income . . . Non-operating income Non-operating expenses . . . . . . . Income before income tax and minority interest . . . . . . . . Income tax benefit (expense) . . . . . . . Minority interest in consolidated subsidiaries . . . . . Net income. . . . . . . .			Audited consolidated, as of 31 December		2001 U.S.$(1) 66 (48) 18 (9) 9 2 (2) 9 (2) (0) 7	Reviewed non-consolidated as of 31 March 2001 2002 2002 NT$ NT$ U.S.$(2) (in millions) 320 488 14 (202) (358) (10) 118 130 4 (62) (67) (2) 56 63 2 18 12 0 (3) (6) (0) 71 69 2 (19) (18) (1) — — — 52 51 1
	1997 NT$ 418 (334) 84 (76) 8 20 (10) 18 (4) — 14	1998 NT$ 700 (539) 161 (99) 62 10 (20) 52 (12) (1) 39	1999 2000 NT$ NT$ (in millions) 1,718 1,917 (1,404) (1,494) 314 423 (203) (238) 111 185 25 61 (29) (24) 107 222 (29) (57) (3) (2) 75 163	2001 NT$ 2,302 (1,683) 619 (315) 304 71 (53) 322 (84) (2) 236		2001 2002 NT$ NT$ (in millions) 320 488 (202) (358) 118 130 (62) (67) 56 63 18 12 (3) (6) 71 69 (19) (18) — — 52 51

		Reviewed non-consolidated as of 31 March	Reviewed non-consolidated as of 31 March
1997 NT$ 333 21 134 9 497 226 23 6 255 242 497 1.16 0.50	1998 1999 2000 2001 NT$ NT$ NT$ NT$ (in millions, except for per Share data) 420 1,077 1,127 1,679 32 21 43 169 245 323 331 522 16 13 14 43 713 1,434 1,515 2,413 305 727 584 825 0 136 83 478 16 23 51 102 321 886 718 1,405 392 548 797 1,008 713 1,434 1,515 2,413 1.51 1.98 3.45 3.83 0.88 1.38 2.81 3.83	2001 2002 NT$ NT$ (in millions) 790 1,191 200 442 309 310 6 8 1,305 1,951 372 383 64 145 19 43 455 571 850 1,380 1,305 1,951 1.05 0.82 0.86 0.82	2002
			U.S.$(2) 34 13 9 0
			56
			11 4 1
			16 40
			56
			0.02
			0.02

(1) Translated into United States Dollars using the exchange rate published by the Bank of Taiwan at 31 December 2001 of NT$34.98 = U.S.$1.00.
(2) Translated into United States Dollars using the exchange rate published by the Bank of Taiwan at 31 March 2002 of NT$35.00 = U.S.$1.00.
(3) Earnings per Share are calculated by dividing net income by the weighted average number of shares outstanding during each year before adjusting retroactively for the effect of stock dividends and employees’ bonuses. However, no adjustment has been made with respect to the stock dividends and capitalization of employees’ bonuses approved by the shareholders on 12 April 2001.
(4) Adjusted earnings per Share are calculated by dividing net income by the weighted average number of shares outstanding during each year after adjusting retroactively for the effect of stock dividends, including the stock dividends and capitalization of employees bonus approved by the shareholders on 12 April 2001.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

This discussion and analysis should be read in conjunction with the Financial Statements of the Company included elsewhere in this Offering Circular. Those financial statements have been prepared in accordance with ROC GAAP, which differ in certain material respects from U.S. GAAP. See ‘‘Summary of Significant Differences between ROC GAAP and U.S. GAAP’’. The Company has not quantified the effect of the differences that would arise in the event its financial condition and results of operations were restated or reconciled to U.S. GAAP; however, some of these differences could be material. See ‘‘Risk Factors — Risks Relating to the ROC — Financial reporting and accounting standards in the ROC differ from other countries; bonus share issuance’’. This Offering Circular contains the financial statements of the Company ended 31 December 1999, 2000 and 2001.

This discussion and analysis contains forward-looking statements. These statements are subject to certain risks and uncertainties, including those discussed below and in Risk Factors, that could cause actual results to differ materially from the expectations expressed in such forward-looking statements. Readers are cautioned not to place undue reliance on any forward-looking statements.

Overview

The Company sells connectors, designs and manufactures cable assemblies and provides cable assemblies turn-key services for some of the world’s leading makers of computers, communications devices and commercial electronics on an OEM/ODM basis. The Company also provides SMT and electronic device turn-key services and produces finished devices to certain reputable communication devices name brands. The Company’s customers include the industry leaders in the computers, communications devices and commercial electronics sectors, such as Acer, ASUSTeK, BenQ, Mobility, Oriental Computer, Quanta, Samsung, Symbol and Wistron and others. The Company believes that it is one of the major OEM/ODM manufacturers of cable assemblies and related products and distributors of connectors for computers, communications devices and commercial electronics in the world.

The Company is one of a few global distributors of HRS[TM] brand connectors manufactured by Hirose Electric Co., Ltd., a professional Japanese connector manufacturer. The Company applies HRS[TM] connectors on its cable assemblies products as well as sells them to the customers who require high-quality connector products. In 2001 and the first quarter of 2002, 47.7 per cent. and 52.4 per cent. of the Company’s revenues were derived from the sales of HRS[TM] brand connectors, respectively. The Company believes that its well established sales and marketing channels related to its distribution of HRS[TM] brand connectors and cable assemblies products invite the customers’ demand on other products and services offered by the Company, such as SMT and electronic device turn-key services.

Some of the Company’s manufacturing facilities, its principal research and development facilities and its headquarters are located in Taiwan. Through Sinbon International Enterprise Co., Ltd. (‘‘Sinbon International’’), its wholly-owned subsidiary, the Company owns and operates Jiang Yin Sinbon Electronics Co., Ltd. (‘‘Jiang Yin Sinbon’’), which is the Company’s largest facility, manufacturing most of the Company’s product lines, and two sales offices, Sinbon Shenzhen Electronics Co., Ltd. (‘‘Sinbon Shenzhen’’) and Shanghai Sinbon Electronics Co., Ltd. (‘‘Shanghai Sinbon’’). The Company owns 66.0 per cent. interest on Jiang Yin Sinbon and 100 per cent. on both Sinbon Shenzhen and Shanghai Sinbon. Through Hong Kong Sinbon Electronics Co., Ltd. (‘‘Hong Kong Sinbon’’), its wholly-owned subsidiary, the Company owns and operates Dongguan Sinbon Electronics Ltd. (‘‘Dongguan Sinbon’’), where the Company manufactures cable assemblies and electronic sub-system. The Company also directly owns a 75.0 per cent. interest on Beijing Sinbon Electronics Ltd. (‘‘Beijing Sinbon’’), a company incorporated in the PRC engaged in the manufacture and sales of HRS[TM] brand connectors, cable assemblies and electronic sub-system.

The Company owns a 51.0 per cent. direct interest on Sinbon Technologies L.L.C., a joint venture in the United States engaged in the sale and marketing of the Company’s products in the United States. The Company also owns 100 per cent. interest on its two sales offices in Asia region, namely, Tokyo Sinbon Electronics Co., Ltd. and Hong Kong Sinbon. The Company also holds 37.5 per cent. interest in Korea Sinbon Electronics Co., Ltd.

In addition, the Company also has long-term investments in several other companies. See Note 4 to the Consolidated Financial Statements as at and for the years ended 31 December 2000, 2001 and 2002.

The Company’s operating results and financial performance depend on the demand for connectors, cable assemblies and related electronics products, which in turn depends on the demand for communications, computers and computer peripherals, and commercial electronics. By diversifying its product range and customer base, the Company attempts to minimize the risk of a downturn in demand for any particular Company of products.

The Company will continue to expand its product offerings when the foregoing criteria are met. The Company may also consider expanding through acquisitions or strategic alliance arrangements in the area of cable assemblies and finished electronics devices or other products.

Basis of Presentation

This Offering Circular contains both consolidated financial statements of Sinbon and its consolidated subsidiaries and non-consolidated financial statements of Sinbon only as of and for the years ended 31 December 1999, 2000 and 2001, and Sinbon’s unaudited non-consolidated financial statements as of and for the three months ended 31 March 2001 and 2002.

The consolidated financial statements present the financial statements of Sinbon and its consolidated subsidiaries on a consolidated basis, after eliminating all significant inter-company accounts and transactions. Sinbon consolidates the financial statements of all of its wholly-owned and majority-owned subsidiaries, except as noted in the next paragraph. Sinbon’s consolidated subsidiaries are Sinbon International, Beijing Sinbon, Tokyo Sinbon and Hong Kong Sinbon.

Under ROC GAAP, a company is required to consolidate financial results of any subsidiary whose total assets or net revenues exceed 10 per cent. of the company’s non-consolidated total assets or net revenues, as the case may be. A subsidiary is defined as any corporation or other business entity more than 50 per cent. of the outstanding voting stock of which is owned directly or indirectly by the company. In addition, the ROC Securities and Futures Commission requires Sinbon to consolidate the financial statements of each subsidiary whose total assets or net revenues exceed three per cent. of the company’s non-consolidated total assets or net revenues, if the total assets or net revenues of all non-consolidated subsidiaries of the company exceed 30 per cent. of the company’s non-consolidated total assets or net revenues, as the case may be.

Long-term investments of less than 50.0 per cent., and long-term investments in majority- or whollyowned subsidiaries, such as Sinbon Technologies L.L.C., whose total assets and net revenues are less than 10.0 per cent. of the Company’s total assets and net revenues, are accounted for by the equity method.

Revenues

The following table summarizes certain items from the Company’s results of operations for fiscal years 1999, 2000 and 2001 and three months ended 31 March 2001 and 2002, in each case as a percentage of net revenues:

Net Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating income . . . . . . . . . . . . . . . . . . . . . . . Non-operating expenses . . . . . . . . . . . . . . . . . . . . . . Income Before Income Taxes . . . . . . . . . . . . . . . . . . Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . Less: Minority interest income . . . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Years ended 31 December 1999 2000 2001 (consolidated) % % % 100.0 100.0 100.0 (81.7) (77.9) (73.1) 18.3 22.1 26.9 (11.8) (12.4) (13.7) 6.4 9.7 13.2 1.5 3.2 3.1 (1.7) (1.2) (2.3) 6.2 11.6 14.0 (1.7) (3.0) (3.6) (0.2) (0.1) (0.1) 4.4 8.5 10.2	Three months ended 31 March	Three months ended 31 March
	1999 2000 (consolidated) % % 100.0 100.0 (81.7) (77.9) 18.3 22.1 (11.8) (12.4) 6.4 9.7 1.5 3.2 (1.7) (1.2) 6.2 11.6 (1.7) (3.0) (0.2) (0.1) 4.4 8.5	2001 2002 (non-consolidated) % % 100.0 100.0 (63.2) (73.3) 37.0 26.7 (20.0) (13.7) 17.4 13.0 5.8 2.4 (0.9) (1.2) 22.3 14.1 (5.8) (3.7) — — 16.5 10.4	2002

The following table sets out the Company’s consolidated net revenues for the three years 1999, 2000 and 2001, and Sinbon’s non-consolidated net revenues for the three-month periods ended 31 March 2001 and 2002 by product category:

Connectors . . . . . . . Cable assemblies. . . Electronic sub- system . . . . . . . . Finished electronics devices . . . . . . . Others(1). . . . . . . . . Net revenues. . . . . .	Year ended 31 December (consolidated) 1999 2000 2001 NT$’000 % NT$’000 % NT$’000 % 783,028 45.6 790,802 41.2 1,096,965 47.7 764,184 44.5 745,493 38.9 650,843 28.3 15,291 0.8 284,622 14.8 380,263 16.5 0 0 615 0.03 73,616 3.2 155,639 9.1 95,917 5.0 100,126 4.3 1,718,142 100.0 1,917,449 100.0 2,301,813 100.0	Year ended 31 December (consolidated) 1999 2000 2001 NT$’000 % NT$’000 % NT$’000 % 783,028 45.6 790,802 41.2 1,096,965 47.7 764,184 44.5 745,493 38.9 650,843 28.3 15,291 0.8 284,622 14.8 380,263 16.5 0 0 615 0.03 73,616 3.2 155,639 9.1 95,917 5.0 100,126 4.3 1,718,142 100.0 1,917,449 100.0 2,301,813 100.0	Three months ended 31 March (non-consolidated)	Three months ended 31 March (non-consolidated)
	1999 NT$’000 % 783,028 45.6 764,184 44.5 15,291 0.8 0 0 155,639 9.1 1,718,142 100.0	2000 NT$’000 % 790,802 41.2 745,493 38.9 284,622 14.8 615 0.03 95,917 5.0 1,917,449 100.0	2001 NT$’000 % 80,071 25.0 103,124(2) 32.2 120,904 37.9 6,115 1.9 9,606 3.0 319,820 100.0	2002
				NT$’000 % 207,046 42.5 107,827(2) 22.1 87,955 18.0 54,743 11.2 30,019 6.2 487,590 100.0

(1) Include sale of raw materials and other revenues derived from sales of HRS[TM] connectors made directly from OCI to the Company’s customers.

(2) Include consignment of cable assemblies in relation to Symbol.

The markets for the Company’s customers’ products are subject to a certain degree of seasonality. These markets exhibit particular strength toward the end of each year in connection with holiday season sales. Accordingly, as illustrated by the following table, the Company’s third- and fourth-quarter revenues are ordinarily higher, and its first- and second-quarter sales are ordinarily lower, than average.

1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	First Quarter 292,888 427,222 462,414 712,296	Second Quarter 407,462 540,504 517,603 806,264	Third Quarter NT$’000 439,431 487,473 574,912 890,976	Fourth Quarter 578,361 462,250 746,884 893,151	Total
					1,718,142 1,917,449 2,301,813 3,302,687

Revenues are recorded when goods are deliver or services are provided to third parties.

Consolidated operating results

2001 compared to 2000

Operating revenues. Net operating revenues in 2001 were NT$2,301.8 million (U.S.$65.8 million), representing an increase of 20.0 per cent. over 2000. The increase was attributable to significant increases in sales of the Company’s cable assemblies and electronic sub-systems to Symbol and connectors and cable assemblies to BenQ and increases in sales of the Company’s connectors and cable assemblies to ASUSTeK and Quanta. The Company’s sales of finished electronics devices to GRE also contribute substantially to the increase of operating revenues.

Cost of revenue and gross profit. Costs of revenue consist of the following major elements:

" Direct materials costs, such as:
" connectors
" raw cables
" printed circuit boards
" plastic resins
" Direct labor costs
" Manufacturing expenses, including:
" processing and sub-contracting expenses
" indirect labor
" insurance
" expenses for creating molds
" depreciation and amortization expenses
" transport expenses
" utilities
" repairs and maintenance and others

Costs of revenues in 2001 rose to NT$1,682.3 million (U.S.$48.1 million), an increase of 12.6 per cent. compared to 2000. This increase was generally in line with the increase in total sales.

Gross profit and gross margins (i.e., gross profit divided by operating revenue) in 2001 were NT$619.6 million (U.S.$17.7 million) and 26.9 per cent., respectively, whereas gross profit and gross margins in 2000 were NT$423.2 million and 22.1 per cent., respectively. The gross profit increased by 46.4 per cent. from 2000 to 2001. The Company expects that the gross margins for sales of connectors and cable assemblies in Taiwan and the PRC will continue to decrease mainly due to the increase in competition and decrease in sales price. However, the Company believes its expanding market share for connectors and cable assemblies as well as other products in the global market will enable the Company to improve its gross margins.

Operating expenses and income from operations. Operating expenses are classified as selling expenses, management and administrative expenses and research and development expenses. These consist principally of:

" salaries and wages;
" depreciation;
" commission expense;
" research and development expense;
" travel expenses;
" rental expenses;
" advertising expenses; and
" other overheads.

Total operating expenses in 2001 increased to NT$315.3 million (U.S.$9.0 million), from NT$238.2 million in 2000, an increase of 32.4 per cent. over 2000. The increase was attributable to increases in:

" selling expenses of 12.9 per cent., primarily due to the increase in commission expenses related to the sales in the United States by Sinbon Technologies L.L.C.;
" administrative and general expenses of 58.4 per cent. primarily due to expenses and fees for listing; and
" research and development expenses of 3.5 per cent.

Operating income increased to NT$304.3 million (U.S.$8.7 million) in 2001, a 64.4 per cent. increase compared to 2000. Operating margins were 13.2 per cent. in 2001, compared to 9.7 per cent. in 2000.

Non-operating income. Total non-operating income increased to NT$70.8 million (U.S.$2.0 million) in 2001 compared to NT$61.2 million in 2000. The increase was attributable to increases in gains on disposal of investments. In addition, the Company experienced an increase in gains on foreign exchange. Net exchange gains (calculated as gains on foreign exchange less loss on foreign exchange) were NT$45.9 million (U.S.$1.3 million) in 2001, compared to net exchange gains of NT$28.2 million in 2000. The increase in net exchange gains is primarily due to depreciation of NT Dollars against U.S. Dollars.

Non-operating expenses. Total non-operating expenses increased significantly to NT$53.3 million (U.S.$1.5 million) in 2001 compared to NT$23.9 million in 2000. The increase was attributable to increases of NT$3.1 million in interest expenses and NT$17.7 million in other expenses including NT$15.7 million cancellation of obsolete inventories, which is partially offset by decreases in inventory losses and losses on disposal of property, plant and equipment.

Accordingly the Company’s consolidated non-operating income net of non-operating expenses in 2001 was NT$17.5 million (U.S.$0.5 million), compared to non-operating income, net of non-operating expenses, of NT$37.3 million in 2000.

Net income. Income before income tax increased to NT$321.7 million (U.S.$9.2 million), an increase of 44.7 per cent. over 2000. Income tax expenses increased by 46.6 per cent. to NT$83.4 million (U.S.$2.4 million). Minority interest income increased to NT$2.4 million (U.S.$70,000), an increase of 27.3 per cent. over 2000. Net income increased to NT$235.8 million (U.S.$6.7 million), representing an increase of 44.2 per cent. over 2000.

2000 Compared to 1999

Operating revenues. Net revenues in 2000 were NT$1,917.4 million, representing an increase of 11.6 per cent. over 1999. The increase was attributable to the change of product mix, such as the sales of electronic sub-systems made to Symbol for the application of its bar code systems.

Cost of revenue and gross profit. Costs of revenue in 2000 rose to NT$1,494.3 million, an increase of 6.4 per cent. compared to 1999. The fact that cost of revenues increased at a higher rate than net operating revenues is also attributable to the change of product mix, such as the sales of electronic subsystems made to Symbol for the application of its bar code systems.

Gross profit increased by 34.9 per cent. to NT$423.2 million in 2000. Gross margins rose to 22.1 per cent. in 2000, compared to 18.3 per cent. in 1999 due to higher profit margin accrued from the products sold to Symbol.

Operating expenses and income from operations. Total operating expenses increased to NT$238.2 million in 2000, an increase of 17.2 per cent. over 1999. The increase was attributable to increases in:

" selling expenses of 65.2 per cent., primarily due to increases in commission expenses and compensation for sales personnel; and
" research and development expenses of 202.3 per cent., primarily due to expansion in the research and development department, which resulted in increases in compensation expenses,
the increases in selling and research and development expenses were partially offset by a slight decrease in management and administrative expenses.

In 2000, the Company started manufacturing cable assemblies and electronic sub-system for Symbol, which were further sold by the Company’s agent in the United States on a commission basis. The significant portion on the increases of the selling expenses is due from the increase of commission expenses. In addition, the Company expended its research and development department in 2000, which resulted in the increase of research and development expense. The Company was able to control the rate of increase in such expenses because a significant proportion of the operating expenses are fixed; the greater the output, the smaller the operating expenses increases are relevant.

Operating income increased to NT$185.0 million in 2000, a 67.6 per cent. increase over 1999. Operating margins in 2000 were 9.7 per cent., compared to 6.4 per cent. in 1999.

Non-operating income. Total non-operating income increased to NT$61.2 million in 2000, compared to NT$25.0 million in 1999. The increase was attributable to increases of:

" NT$28.2 million in gains on foreign exchange;
" NT$2.9 million in interest income; and
" NT$7.9 million in other non-operating income,

which were partially offset by decreases in investment income, gains on inventory value recoveries and gain on disposal of property, plant and equipment.

Non-operating expenses. Total non-operating expenses decreased to NT$23.9 million in 2000, compared to NT$28.5 million in 1999. The decrease was attributable to decreases of:

" NT$0.9 million in loss on market price decline; and
" NT$11.6 million in losses on foreign exchanges,

partially offset by an increase of NT$4.3 million in interest expense and, NT$2.4 million in other losses.

Net income. Income before income tax increased to NT$222.3 million, an increase of 108.1 per cent. over 1999. Income tax expenses increased by 95.3 per cent. to NT$56.9 million. Minority interest income decreased to NT$1.9 million, a decrease of 31.4 per cent. over 1999. Net income increased to NT$163.5 million, representing an increase of 118.2 per cent. over 1999.

Non-consolidated Operating Results

Net revenues for April and May 2002

Sinbon’s net revenues for April and May 2002 were NT$249.5 million and NT$196.1 million, respectively, representing an increase of 104.0 per cent. and 56.3 per cent. respectively, from the comparable periods in 2001.

Three months ended 31 March 2002 compared to three months ended 31 March 2001

Operating revenues. Total revenues of Sinbon in the first three months of 2002 were NT$487.6 million (U.S.$13.9 million), representing an increase of 52.5 per cent. over the comparable period of 2000. The increase was attributable to the continuous introduction of new products. The increases were attributable to the increase in sales of the Company’s products consisting of connectors and cable assemblies to Ambit, ASUSTeK, BenQ, Quanta, USI, and Winstron, and finished electronics devices to GRE.

Cost of revenue and gross profit. Cost of revenue in the first three months of 2002 rose to NT$357.5 million (U.S.$10.2 million), an increase of 76.8 per cent. compared to the comparable period in 2001. This increase was generally in line with the growth of total sales.

Gross profit increased by 10.0 per cent. to NT$130.1 million (U.S.$3.7 million) in the first three months of 2002. Gross margins were 26.7 per cent. in the first three months of 2002, compared to 36.9 per cent. in the comparable period of 2001. The gross margins decreased primarily due to changes in product mix.

Operating expenses and operating income. Total operating expenses increased to NT$66.9 million (U.S.$1.9 million) in the first three months of 2002, an increase of 6.8 per cent. over the comparable period of 2001. The rate of increase of operating expenses was substantially higher than the increase in total sales, mainly attributable to increases in:

" management and administrative expenses of 26.0 per cent. due to increase of direct and indirect labor in the corporate headquarters, which is generally in line with the growth of the Company; and
" research and development expenses of 95.6 per cent. due to continuous expansion of the research and development team for the development of new products,

partly offset by a 13.3 per cent. decrease in the selling expenses.

Sinbon’s non-consolidated operating income of the first three months of 2002 increased by 13.6 per cent. to NT$63.2 million (U.S.$1.8 million), compared to the first three months of 2001.

Non-operating income and expenses. Sinbon’s non-consolidated non-operating income of the first three months of 2002 decreased by 37.9 per cent. to NT$11.5 million (U.S.$0.3 million), compared to the first three months of 2001. The increase of the non-consolidated operating income was mainly attributable

to the decrease of interest and invest income, partly offset by an NT$1.5 million increase in foreign exchange gains. The non-consolidated non-operating expenses for the first three months of 2002 increased by 100.5 per cent. to NT$5.8 million (U.S.$0.2 million) primarily due to increase in interest expenses.

Net Income. Income before income tax decreased to NT$68.9 million (U.S.$2.0 million) for the first three months of 2002, a decrease of 3.3 per cent. over the comparable period of 2001. Income tax expense for the first three months of 2002 decreased to NT$18.2 million (U.S.$0.5 million) from NT$18.6 million in the comparable period of 2001. Accordingly, net income increased to NT$50.7 million (U.S.$1.4 million), representing an decrease of 3.6 per cent. over the first three months of 2001.

Inventories and Receivables

Inventories and receivables are the principal components of the Company’s current assets and require a significant amount of working capital support, particularly as the Company’s sales continue to increase. Accordingly, control of inventories and receivables is a key aspect of the Company’s business operations.

The following tables summarize the Company’s inventories and receivables positions for the years ended 31 December 1999, 2000 and 2001:

Notes receivable, non-related parties . . . . . . . . . . . . . . . . . . Accounts receivable, non-related parties . . . . . . . . . . . . . . . . Less: allowance for doubtful accounts . . . . . . . . . . . . . . . . Add (less): allowance for foreign exchange gains (losses) . . . Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable, related parties . . . . . . . . . . . . . . . . . . . Notes and accounts receivable, net . . . . . . . . . . . . . . . . . . . Average receivables turnover (days). . . . . . . . . . . . . . . . . . . Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for decline in market value and obsolescence . . . . . . . . . . . . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Average inventories turnover (days). . . . . . . . . . . . . . . . . . .	1999 NT$’000 133,962 438,415 (4,112) (126) 434,177 1,005 569,144 85 1999 NT$’000 63,974 334 19,288 71,642 66,358 221,596 (6,867) 214,729 43	2000 NT$’000 82,893 426,797 (8,504) 4,296 422,589 28,953 534,435 106 2000 NT$’000 87,952 572 12,632 59,709 78,603 239,468 (9,397) 230,071 56	2001 NT$’000 U.S.$’000 79,749 2,280 649,240 18,560 (9,429) (270) 4,677 134 644,488 18,424 46,895 1,341 771,132 22,045 105 2001 NT$’000 U.S.$’000 124,139 3,549 658 19 17,696 506 84,873 2,426 69,702 1,993 297,068 8,493 (17,969) (506) 279,372 7,987 58
			NT$’000 124,139 658 17,696 84,873 69,702 297,068 (17,969) 279,372 58

As of 31 December 2001, net receivables represented 33.5 per cent. of consolidated net revenues and net inventories represented 12.1 per cent. of consolidated net revenues. The corresponding figures for 31 December 2000 were 27.9 per cent. and 12.0 per cent., respectively. Receivables and inventories have increased as the Company’s sales have increased. Inventory levels at 31 December 2001 increased in comparison to prior periods.

The Company invoices customers when goods are shipped. Credit terms are generally 60 days and up to 120 days, in the case of customers that make volume purchases.

As of 31 December 2001, receivables from related parties represented 2.0 per cent. of net revenues, compared to 1.5 per cent. at 31 December 2000.

Liquidity and Capital Resources

The Company’s principal sources of working capital and financing for capital expenditures have been cash flow from operations, the proceeds of offerings of Shares and, to a limited extent, short- and long-term borrowings. At 31 December 2001, the Company had cash and cash equivalents of NT$462.9 million (U.S.$13.2 million) and no short-term investments. In addition, at that date the Company had total of NT$396.9 million (U.S.$11.3 million) in unused bank credit facilities available. The Company believes that its current sources of short-term liquidity are sufficient to finance its working capital needs, including the increasing amount of the Company’s sales, for the foreseeable future.

Consolidated net cash provided by operating activities for the years ended 31 December 2001, 2000 and 1999 were NT$146.9 million (U.S.$4.2 million), NT$147.6 million and NT$(94.3) million, respectively. During each of the three years through 31 December 2001, the Company has expended significant cash in investing activities, principally the acquisition of fixed assets relating to the purchase, construction and equipment of the production facilities in the PRC, as set out in the table of capital expenditures below. In addition, the Company has invested cash in both long- and short-term investments.

On 5 December 2001, Sinbon issued 5-year NT$400 million non-interest bearing domestic convertible bonds for the repayment of both long- and short-term loans and long-term investments. The maturity date of the convertible bonds is 4 December 2006. The conversion price was initially set at NT$33.1 per Share on the issuance date, which will be adjusted for any capital increase, issue of Shares at less than the then market price and any capital decrease which is not due to repurchase of the Shares by the Company. The bondholders of such convertible bonds may require Sinbon to redeem the bonds for cash at 114.12 per cent. of the bond principal amount as of 5 December 2004 or 121.55 per cent. of the bond principal amount as of 5 December 2005. The bondholders of the convertible bonds are entitled to convert the bonds into Sinbon’s common stocks from 5 March 2002 to 24 November 2006. As of 20 April 2002, NT$67.1 million of the convertible bonds remained outstanding.

In addition to working capital for operations, the Company’s funding requirements include capital expenditures for acquisition of property, plant and equipment and acquisition of land use rights in Taiwan and the PRC. The following table sets out the Company’s consolidated capital expenditures for the acquisition of land, buildings, facilities, machinery and equipment at its headquarters in Taiwan, as well as capital expenditures (consisting of acquisition of land use rights, construction of facilities and procurement of machinery and equipment) for the facilities of Jiang Yin Sinbon in the PRC and others:

Capital expenditures for Taiwan facilities . . . . . . . . . . . . . . . . . . . . . . . . . Capital expenditures for Jiang Yin Sinbon facilities . . . . . . . . . . . . . . . . . . Others(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 NT$’000 89,609 — 2,542 92,151	2000 NT$’000 7,910 — 17,863 25,773	2001
			NT$’000 15,580 190,066 11,080
			216,726

(1) Include the acquisition of facilities by other subsidiaries including Hong Kong Sinbon and Beijing Sinbon.

The Company intends to finance its capital expenditures with internally generated funds and the proceeds of the Bonds. In addition, the Company may also incur further borrowings. The Company believes that the Company has and will have sufficient resources available to meet its planned capital expenditure requirements.

The Company had two long-term borrowings, one of which is denominated in NT Dollars and the other is denominated in Japanese Yen, as at 31 December 2001. These borrowings bear interest at rates ranging from 2.06 per cent. to 7.70 per cent. per annum. The NT Dollar denominated loan is from The Bank of Taiwan and is secured by a mortgage over the corporate headquarters building. See Note 4 to the Consolidated Financial Statements as at and for the years ended 31 December 1999, 2000 and 2001.

The significant commitments and contingencies as at 31 December 2001 include:

" NT$49.9 million (U.S.$1.4 million) and NT$50.0 million (U.S.$1.4 million) time deposits, as security for the long-term loan borrowed by Tokyo Sinbon and a short-term loan borrowed by Hong Kong Sinbon, respectively;
" NT$1.1 million (U.S.$0.3 million) in restriced account for a bank guarantee for the hiring of foreign labors; and
" NT$5.0 million (U.S.$0.2 million) in restricted account for a bank guarantees for importing goods.

Quantitative and Qualitative Disclosures about Market Risk

The financial market risks to which the Company is exposed are principally risks relating to changes in exchange rates and interest rates. The Company does not enter into any financial instruments for the purpose of hedging such risks.

Foreign Currency Risk

The Company’s reporting currency is NT Dollars. However, a substantial portion of the Company’s consolidated and non-consolidated revenues and costs and expenses are denominated in currencies other than NT Dollars, including U.S. Dollars, Japanese Yen and Hong Kong Dollars. However, the Company does not have hedging contracts of any nature currently in effect.

Interest Rate Risk

The Company endeavors to manage its short- and long-term financing needs in such a way as to minimize the amount of debt on its balance sheet at any time. As a result, the Company considers that its exposure to fluctuations in interest rates historically has not been significant, and accordingly the Company has not entered into interest swaps or other hedging arrangements.

The following table shows long- and short-term bank loans outstanding at 31 December 1999, 2000 and 2001 (including borrowings of subsidiaries guaranteed by the Company):

Short-term loans:

1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Principal amount NT$ million 212.2 105.6 256.7	Interest rate(1)
		1.28%–8.08% 1.91%–7.45% 1.30%–7.45%

Long-term loans:

1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Principal amount NT$ million(2) 137.3 135.1 81.2	Interest rate(2)
		1.75%–8.00% 1.75%–7.70% 2.06%–7.70%

(1) Floating interest rate.

(2) Including current portion of the loans.

Foreign Exchange Matters

The Company’s consolidated and non-consolidated net revenues and costs and expenses are denominated in NT Dollars, U.S. Dollars, Japanese Yen, Hong Kong Dollars and RMB. The Company is exposed to movements in the exchange rates of the U.S. Dollar in relation to NT Dollar and Japanese Yen. The Company recorded consolidated net exchange gains (losses) of NT$(11.6) million, NT$28.2 million and NT$45.9 million (U.S.$1.3 million) in 1999, 2000 and 2001, respectively, reflecting the depreciation and appreciation of the U.S. Dollar in relation to the NT Dollar and Japanese Yen.

The effect of future changes in currency exchange rates on the Company’s results of operations cannot be accurately predicted. In order to mitigate such risks, the Company attempts to balance to the extent possible the currency of its revenues with the currency of costs and expenses.

Income Tax

The statutory income tax rate applicable to the Company in the ROC is 25.0 per cent. Although under the ROC Statute for Upgrading Industries, several tax incentives are available for companies organized under the ROC laws, the Company did not receive tax credits for research and development, employee training expenses, and received limited tax credits for investments in certain qualified equipment and technology.

In order to eliminate the effects of ‘‘double taxation’’ of corporate earnings, the ROC Income Tax Law of 1997 (the ‘‘Income Tax Law’’) instituted a revised income tax system, pursuant to which ROC resident shareholders may claim credit for a portion of income taxes paid by the ROC corporation, setting off the tax credit against individual income tax liability of the ROC resident shareholder in respect of dividend income received from the corporation. The amount of credit available is calculated by multiplying the amount of dividend income received by a credit imputation ratio. The ratio is derived as the amount of corporate income taxes paid, plus imputation credit, divided by retained earnings from operations after 1 January 1998.

Under the Income Tax Law, retained earnings from operations after 1 January 1998 that are not distributed to shareholders by way of dividend for the relevant operating period are subject to a ten per cent. corporate income tax surcharge. If all or a portion of such retained earnings are subsequently distributed to shareholders, ROC resident shareholders may credit their ratable portion of the corporate income tax surcharge paid against their income tax liabilities in relation to such dividend income. Non-resident shareholders may offset the ratable amount of the corporate income tax surcharge against withholding tax in respect of the dividend income.

The Company’s investments in the PRC are considered to be foreign-invested enterprises in the form of foreign owned enterprises. Foreign-invested enterprises are generally entitled to income tax exemption for a period of two years, followed by a 50.0 per cent. reduction in applicable enterprise income tax rates for a period of three years in Jiangsu Province, beginning with the first year in which the enterprises record taxable profits. The Company’s subsidiary Jiang Yin Sinbon Electronics Co., Ltd. is entitled to these incentives.

Recent Developments

There has been no significant change in the financial or trading position of the Company since 31 March 2002, the date of the Company’s last published financial statements. There has been no material adverse change in the financial position or prospects of the Company since 31 March 2002, the date of the Company’s last published financial statements.

The Company’s production capacity, sales, inventory, costs and selling prices have not experienced material adverse changes since 31 March 2002.

MANAGEMENT AND EMPLOYEES

Directors

The Company’s board of directors is elected by the shareholders in a general meeting at which a quorum, consisting of a majority of all issued and outstanding common shares, is present. The Chairman is elected by the board from among the directors. The Company’s five-member board of directors is responsible for the management of the Company’s business.

The term of office for the Company’s directors is three years from the date of election. Directors may serve any number of consecutive terms and may be removed from office at any time for a valid reason by a resolution adopted at a general meeting of shareholders. Normally, all board members are elected at the same time, except where the posts of one-third or more of the directors are vacant, at which time a special shareholders meeting will be convened to elect directors to fill the vacancies.

The following table sets forth the name of each of the Company’s current directors, his or her position in the Company, the percentage of Shares held, and other significant positions in the Company or in unrelated companies held by them. None of the Company’s directors holds significant positions in other entities or institutions.

Name Joseph Wang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jim Liang. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Daniel Yeh. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gerry Wang(2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yau-Zhen Lin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Position Director and Chairman Director and President (Taiwan) Director and Head of China operation Director Director	Percent of Shares held(1)
		6.67% 1.83% 1.43% 2.62% 0.23%

(1) As of 31 May 2002.

(2) Nominee of Argosy Technology Co., Ltd.

Supervisors

The Company currently has two supervisors, each serving a three-year term. Supervisors are typically elected at the time that directors are elected. The supervisors’ duties and powers include investigation of the Company’s business condition, inspection of the Company’s corporate records, verification and review of financial statements presented by the Company’s board of directors at shareholders’ meetings, convening of shareholders’ meetings when the board of directors does not or cannot convene a shareholders’ meeting and/ or such meeting as may be necessary for the benefit of the shareholders of the Company, representing the Company in negotiations with the Company’s directors and notification, when appropriate, to the board of directors to cease acting in contravention of any applicable law or regulation or the Company’s Articles of Incorporation or resolution adopted at the shareholders’ meeting. Each supervisor is elected by the Company’s shareholders and cannot concurrently serve as a director, management officer or other staff member. The ROC Company Law requires at least one supervisor to be a resident of the ROC.

The following table sets forth the name of each of the Company’s current supervisors, his or her position in the Company, the percentage of Shares and other significant positions held by him or her.

Name Mei-Zhen Lin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Min-Cheng Lin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Position Supervisor Supervisor	Percent of Shares held(1) 0.99% 0.08%	Other significant positions held
			— —

(1) As of 31 May 2002.

In accordance with ROC law, a person may serve as the Company’s director or supervisor in his personal capacity or as the representative of another legal entity. Of the current directors and supervisors, only Gerry Wang was nominated by Argosy Technology Co., Ltd.; the remaining directors and supervisors serve in their personal capacity.

Executive Officers

The following table sets forth information relating to the Company’s executive officers.

Name Jim Liang. . . . . . . . . . . . . . . . . . . . Michael Wu . . . . . . . . . . . . . . . . . . John Wang . . . . . . . . . . . . . . . . . . . Ivan Liu. . . . . . . . . . . . . . . . . . . . . Daniel Yeh. . . . . . . . . . . . . . . . . . .	Position President (Taiwan) Vice president (Taiwan) Director of finance Director of research and development Head of China operation	Years with the Company 12 6 6 3 8	Age
			43 43 39 45 46

Biographies of Directors, Supervisors and Executive Officers

Joseph Wang, aged 53, joined the Company in 1989 and has served as a director and the Chairman of the Company since August 1989. Before joining the Company, Mr. Wang served as a manager of AMP. Mr. Wang holds a bachelor’s degree in mathematics from Tamkang University in the ROC.

Jim Liang, aged 43, has served as a director and President of the Company and joined the Company since July 1989. Before joining the Company, Mr. Liang served as a manager of AMP. He holds a bachelor’s degree in economics from Tunghai University in the ROC.

Daniel Yeh, aged 46, has served as a director and the head of China operation of the Company since September 1991. Mr. Yeh manages the Company’s operation in China except for Jiang Yin Sinbon, which is managed by Mr. Joseph Wang, Chairman of the Company. Before joining the Company, Mr. Yeh served as a manager of T&B Taiwan. He holds a bachelor’s degree in agricultural mechanical engineering from National Taiwan University in the ROC.

Gerry Wang, aged 44 , has served as a director of the Company since November 1991. Mr. Wang also served as Chairman of Argosy Technology Co., Ltd. He holds a bachelor’s degree in power mechanical engineering from national Chinhua University.

Yau-Zhen Lin, aged 46 , has served as a director since 2001. Mr. Lin served as President of Normandy Hotel Service Co., Ltd. Mr. Lin holds a bachelor’s degree from Shih Hsin University in the ROC.

Mei-Zhen Lin, aged 44, has served as a supervisor of the Company since 2001.

Min-Cheng Lin, aged 48 , has served as a supervisor of the Company since 2001. Before joining the Company, Mr. Lin served in Lee Yu Co., Ltd., CPA.

Michael Wu, aged 43, has served as the deputy Vice-President (Taiwan) of the Company and joined the Company since January 1996. Before joining the Company, Mr. Wu served as a Vice-President of Relia Technologies Corp. He holds a bachelor’s degree in engineering from National Cheng Kung University in the ROC.

Ivan Liu, aged 45, has served as the Director for Research and Development of the Company since November 1998. Before joining the Company, Mr. Liu served as a deputy general manager of the research and development department of Argosy Technology Co., Ltd.. He holds a college degree from National Union University.

John Wang, aged 39, has served as the Director for Finance Department of the Company since June 1995. Before joining the Company, Mr. Wang served as a deputy manager of the Capital Market Division of Taiwan Securities Co., Ltd. Mr. Wang holds an MBA degree from Rutgers University in New Jersey, USA and a bachelor’s degree in industrial engineering from Tung Hai University in the ROC.

Compensation of Directors, Supervisors and Executive Officers

In 2001, the Company paid to its directors, supervisors, and the executive officers approximately NT$11.4 million (U.S.$0.3 million) in aggregate cash remuneration.

Interests of Management in Certain Transactions

Several of the Company’s directors, supervisors and executive officers also serve as directors, supervisors or executive officers of companies with which the Company does business. These companies include the Company’s affiliates. The Company conducts these transactions on an arms-length basis. See Note 5 to the Non-consolidated Financial Statements as at and for the three months ended 31 March 2000 and 2001 and Note 5 to the ‘‘Consolidated Financial Statements as at for the years ended 31 December 1999, 2000 and 2001’’.

Employees

Overview

The Company had the following number of employees as of the period indicated:

As	of 31 December	of 31 December
1999 132 12 208 48 400	2000 213 24 511 56 804	2001
		367 60 893 91
		1,411

As of 31 December 2001, all of the Company’s employees worked on a full-time basis, of which 4.25 per cent. were engaged in research and product development, 32.46 per cent. in sales, marketing, general and administration and 63.29 per cent. in engineering/technical operations. The average age of the employees is 34 years old. None of the Company’s employees is represented by collective bargaining organization, such as a union, or subject to any bargaining agreements.

As of 31 December 2001, approximately 100 per cent. of the Company’s research and development personnel held a bachelor’s degree or higher educational qualification and approximately 98 per cent. of the Company’s senior to mid-ranking management and administration personnel held a bachelor’s degree or higher educational qualification. The Company places considerable importance on the recruitment, training and retention of a team of qualified and experienced engineers to oversee and manage the Company’s Taiwan and China manufacturing operations.

The Company’s employees in the ROC are not unionized and the Company has not experienced any significant labor disputes in the past three years.

Employee remuneration

The salaries of the Company’s employees in the ROC are adjusted based on industry standards, inflation and individual performance. The Company pays year-end bonus to the employees equivalent to an average of one month salary. In addition, the Articles of Incorporation of the Company provide that the Company’s employees are entitled to employee bonuses out of the earnings (subject to compliance with the requirements of the ROC Company Law) which may be paid in cash or stock. See ‘‘Description of The Shares’’. Stock bonuses of 15 million shares, were paid to employees in respect of the 2001 financial year. The number of the Shares issuable being calculated by reference to the par value of NT$10 per Share, notwithstanding that the market value of the Shares as of the date of declaration and distribution of the stock bonuses were higher than NT$10 per Share. In addition, ROC law requires that the Company’s employees be given pre-emptive rights to subscribe for between 10 per cent. to 15 per cent. of any rights issues or share offerings of the Company, except issuances in connection with exercise of employee stock options, warrant exercises, conversion of bonds, mergers and spin-offs or by way of a private placement. Currently, the Company does not have any share option schemes.

Employee retirement plan

The Company has established an employee retirement plan (‘‘Retirement Plan’’). This Retirement Plan provides for lump-sum payments to retiring employees in Taiwan based on the length of service, age and certain other factors. Every month, the Company deposits at least two per cent. (but up to a maximum of 15 per cent.) of employees’ total monthly salaries with the Central Trust of China in accordance with the Retirement Plan. Actual payment of retirement benefits was financed by the pension fund, and any insufficiency will be paid by the Company.

All ROSE listed companies are required to calculate their pension obligations based on actuarial valuation. Pursuant to ROC Financial Accounting Standard Statement No. 18, the Company recognized net periodic pension cost which includes service cost, interest cost, expected return on plan assets, amortization of unrecognized transition obligation, pension gains/losses and prior service cost based on an actuarial valuation.

Employee Insurance

The Company carries its own account group insurance for its employees. The group insurance covers the employee’s life, accident, and emergency medical needs. Amount insured is based on the labors rank, job function and other factors.

PRINCIPAL SHAREHOLDERS

As of 20 April 2002, no person held more than 10 per cent. of the Company’s shares.

CHANGES IN ISSUED SHARE CAPITAL

The following table shows the increases in the issued share capital of the Company since incorporation:

Date of Issue December 1989. . . . . . . . . . . . . . . . June 1991. . . . . . . . . . . . . . . . . . . . December 1994. . . . . . . . . . . . . . . . September 1995 . . . . . . . . . . . . . . . December 1997. . . . . . . . . . . . . . . . September 1998 . . . . . . . . . . . . . . . September 1999 . . . . . . . . . . . . . . . July 2000 . . . . . . . . . . . . . . . . . . . . November 2000. . . . . . . . . . . . . . . . June 2001. . . . . . . . . . . . . . . . . . . .	Type of Issue Incorporation Rights Issue Rights Issue Rights Issue Issuance in connection to a merger Rights Issue and capitalization of stock dividends and employee bonus Rights Issue and capitalization of stock dividends and employee bonus Capitalization of stock dividends and employee bonus Rights Issue Capitalization of stock dividends and employee bonus	Number of Shares Issued 500,000 800,000 1,600,000 7,000,000 9,900,000 10,200,000 10,000,000 6,800,000 3,200,000 11,500,000	Number of Shares Outstanding after Issue
			500,000 1,300,000 2,900,000 9,900,000 19,800,000 30,000,000 40,000,000 46,800,000 50,000,000 61,500,000

TERMS AND CONDITIONS OF THE BONDS

The following terms and conditions (except for the sentences in italics) will be endorsed on the Certificates issued in respect of the Bond. The Global Certificate contains provisions which apply to the Bonds when they are in the form of interests that are represented by the Global Certificate, some of which modify the effect of the terms and conditions set out below. See ‘‘The Form of the Bonds’’.

The issue of U.S.$45,000,000 Zero Coupon Convertible Bonds Due 2007 (the ‘‘Bonds’’) of Sinbon Electronics Co., Ltd. (the ‘‘Company’’) was authorized by resolutions of the Board of Directors of the Company adopted on 2 April 2002. The Bonds are constituted by an indenture (the ‘‘Indenture’’) to be dated 17 July 2002 and to be made between the Company and The Bank of New York (the ‘‘Trustee’’), which term includes any successor trustee under the Indenture for the holders of the Bonds (the ‘‘Bondholders’’). The Company will enter into a paying and conversion agency agreement (the ‘‘Agency Agreement’’) to be dated 17 July 2002 with the Trustee, The Bank of New York as the registrar (the ‘‘Registrar’’) and the principal paying transfer and conversion agent, (the ‘‘Principal Agent’’) and The Bank of New York (Luxembourg) S.A., as paying, transfer and conversion agent, appointed thereunder (the ‘‘Paying Agent’’, the ‘‘Conversion Agent’’ and the ‘‘Transfer Agent’’ and such expression shall include the Principal Agent) in relation to the Bonds. The Registrar, the Principal Agent, the Paying Agent, the Conversion Agent and the Transfer Agent together referred to as the ‘‘Agents’’. The statements in these Terms and Conditions (‘‘Conditions’’) include summaries of, and are subject to, the detailed provisions of the Indenture. Copies of the Indenture and the Agency Agreement are available for inspection by the Bondholders during normal business hours at the principal office of the Trustee, being at the date hereof at 101 Barclay Street, 21st Floor West, New York, N.Y. 10286 U.S.A., and at the specified offices of each of the Agents. The Bondholders are entitled to the benefit of the Indenture and are bound by, and are deemed to have notice of, all the provisions of the Indenture and the Agency Agreement.

1. Status

The Bonds constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition 3) unsecured obligations of the Company and rank at least pari passu among themselves and (subject as aforesaid and other than any obligations preferred by mandatory provisions of law) with all other present and future direct, unconditional, unsubordinated and unsecured obligations of the Company.

2. Form, Denomination and Title

(A) Form and Denomination

The Bonds will be issued in registered form, without coupons, in denominations of U.S.$1,000 and integral multiples thereof. The Bonds will be offered and sold in principal amounts of U.S.$1,000 or an integral multiple thereof and will be transferable in principal amounts of U.S.$1,000 or an integral multiple thereof. The Bonds are not issuable in bearer form. The Bonds will initially be represented by a global certificate (the ‘‘Global Certificate’’) deposited with The Bank of New York, as common depositary for, and registered in the name of a nominee for, Euroclear Bank S.A./N.V., as operator of the Euroclear System (‘‘Euroclear’’) and Clearstream Banking, socie´te´ anonyme (‘‘Clearstream, Luxembourg’’).

Owners of interests in the Bonds will not be entitled to receive definitive physical certificates (the ‘‘Definitive Certificate’’) in respect of their Bonds except in the limited circumstances described in the Global Certificate. In the event that certificates do become issuable, a bond certificate (each a ‘‘Certificate’’) will be issued to each Bondholder in respect of its registered holding of Bonds. Each Bond and each Certificate will be serially numbered with an identifying number which will be recorded on the relevant Certificate and in the register of Bondholders which the Company will procure to be kept by the Registrar.

(B) Title

Title to the Bonds will pass only by transfer and registration in the register of Bondholders. The registered holder of any Bond will (except as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or

any interest in it or any writing on, or the theft or loss of, the Certificate issued in respect of it) and no person will be liable for so treating the holder. In these Conditions, ‘‘Bondholder’’ and (in relation to a Bond) ‘‘holder’’ mean the person in whose name a Bond is registered.

3. Negative Pledge

So long as any of the Bonds remain outstanding (as defined in the Indenture), the Company shall not, and shall ensure that none of its Principal Subsidiaries (as defined below), if any, will, create or permit to be outstanding any mortgage, charge, pledge, lien or other form of encumbrance (each an ‘‘Encumbrance’’) upon the whole or any part of its, or, as the case may be, any such Principal Subsidiary’s, if any, undertaking, property, assets or revenues, present or future, to secure for the benefit of the holders of any International Investment Securities (as defined below) (i) payment of any sum due in respect of any such International Investment Securities, (ii) any payment under any guarantee of any such International Investment Securities or (iii) any payment under any indemnity or other like obligation relating to any such International Investment Securities without in any such case at the same time according to the Bonds, either the same security as is granted to or is outstanding in respect of such International Investment Securities, guarantee, indemnity or other like obligation or such other security as shall be approved by an Extraordinary Resolution (as defined in the Indenture) of the Bondholders.

As used herein, the term ‘‘International Investment Securities’’ means bonds, debentures, notes or investment securities of the Company or any other person evidencing indebtedness with a maturity of not less than one year from the date thereof which (a) either (i) are by their terms payable, or confer a right to receive payment, in any currency other than New Taiwan Dollars or (ii) are denominated or payable in New Taiwan Dollars and more than 50 per cent. of the aggregate principal amount thereof is initially distributed outside Taiwan, the Republic of China (the ‘‘ROC’’) by or with the authorization of the issuer thereof and (b) are for the time being, or are capable of being, quoted, listed, ordinarily dealt in or traded on any stock exchange, quotation system or over-the-counter or other similar securities market outside the ROC.

‘‘Principal Subsidiary’’ means any subsidiary (i) whose total revenues, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary, are at least 10 per cent. of the total revenues of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company or (ii) whose gross assets, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary are at least 10 per cent. of the gross assets of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company, which may be acquired or formed by the Company from time to time during the terms of the Bonds.

‘‘Subsidiary’’ means any corporation or other business entity more than 50 per cent. of the outstanding voting stock of which is for the time being owned directly or indirectly by the Company.

4. No Interest

No interest will be payable on the Bonds, except as provided in Condition 10.

5. Transfers of Bonds; Issue of Certificates

(A) Transfers

Subject to Condition 5(D) below, a Bond may be transferred upon the surrender at the specified office of any Transfer Agent (including the Transfer Agent in Luxembourg) of the individual Definitive Certificate in respect of the Bond to be transferred, together with the form of transfer endorsed thereon (if such Definitive Certificate has been issued) or, in the case of a Bond represented by the Global Certificate, delivery at such office of a form of transfer obtainable from any of the Transfer Agents (the ‘‘Form of Transfer’’), duly completed and executed and any other evidence that such Transfer Agent may reasonably require. In the case of a transfer of only part of a holding of Bonds in respect of which a Certificate is issued, a new Certificate shall be issued to the transferee in respect of the part transferred and a further new Certificate in respect of the balance of the holding not transferred shall be issued to the transferor. The Form of Transfer is available at the specified office of the Transfer Agent (including the Transfer Agent in Luxembourg).

Transfers of interests in the Bonds evidenced by the Global Certificate will be effected in accordance with the rules of the relevant clearing systems.

(B) Delivery of New Certificates

Each new Certificate to be issued upon a transfer of Bonds shall be available for delivery upon receipt by the Transfer Agent (including the Transfer Agent in Luxembourg) at its specified office of the relevant Certificate and the Form of Transfer. Delivery of the new Certificates shall be made at the specified office of such Transfer Agent to whom the relevant Certificate and the Form of Transfer shall have been surrendered or delivered or, at the option of the holder making such delivery or surrender as aforesaid and as specified in the relevant of Form of Transfer or otherwise in writing, be mailed by uninsured post at the risk of the holder entitled to the new Certificate to such address as may be so specified, unless such holder requests otherwise and pays in advance to the relevant Transfer Agent the costs of such other method of delivery and/or such insurance as it may specify.

Except in the limited circumstances described in the Global Certificate, owners of interests in the Bonds represented by the Global Certificate will not be entitled to receive Definitive Certificates (if issued) in respect of their individual holdings of the Bonds.

(C) Formalities Free of Charge

Transfers of the Bonds will be effected without charge by or on behalf of the Company or any Transfer Agent, but only upon payment (or the giving of such indemnity as such Transfer Agent may require in respect) of any tax or other governmental charges which may be imposed in relation thereto.

(D) Restricted Transfer Periods

No Bondholder may require the transfer of a Bond to be registered (i) during the period of 15 days ending on the due date for any payment of principal and premium (if any) on the Bond; (ii) after such Bond has been called for redemption pursuant to Condition 8(B) or 8(D); (iii) after the Conversion Notice (as defined in Condition 6(B)) and the individual Definitive Certificate in respect of such Bond (if issued) have been deposited for conversion pursuant to Condition 6; or (iv) following exercise of the Bondholder’s put option pursuant to Condition 8(C).

(E) Regulations

All transfers of Bonds and entries on the register of Bondholders will be made subject to the detailed regulations concerning transfer of Bonds (the ‘‘Regulations’’) set forth in the Agency Agreement. The Regulations may be changed by the Company, with the prior written approval of the Trustee and the Registrar. A copy of the Regulations will be mailed (at the Company’s expense) by the Registrar to any Bondholder who asks for one and will also be available at the office of the paying and conversion agent in Luxembourg and elsewhere.

6. Conversion

On exercise of the Conversion Right (as defined below), the converting Bondholders pursuant to the election made by such Bondholder may: (a) elect to receive Shares in Taiwan, or (b) in the event the Company establishes a depositary receipt facility following the closing and subject to compliance with the terms and conditions of the deposit agreement established with such depositary receipt facility, elect to receive depositary shares representing the interests in the Shares and the Bondholder may direct the Company to procure that Shares transferred and delivered upon conversion of the Bonds are deposited with the custodian for the DR Depositary (as defined below) for the issuance and delivery of the DRs (as defined below) by the DR Depositary. The DRs may be listed on recognizable stock exchanges.

In the event that the Company establishes a depositary receipt facility, it will have to procure additional Shares for deposit with the custodian for the DR Depositary. Such Shares could be procured by open market purchases or by issuing new Shares, subject to compliance with applicable ROC law and the Company’s articles of incorporation.

In the event the Company does establish a depositary receipt facility, the procedure for Bondholders to convert the Bonds into DRs will be substantially similar to the conversion procedure for Bondholders to convert the Bonds into Shares. In each case, the Bondholder will deposit the individual Definitive Certificate (if issued) in respect of a Bond and the Conversion Notice (as defined herein) with the Conversion Agent. However, in the case of conversion into DRs, the Bondholder will direct that all of the Shares issuable upon conversion be deposited with the relevant DR Depositary for issuance of DRs.

The Company shall, within five Trading Days from the date the notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from the Principal Agent, issue and deliver the Shares converted from the Bonds to the converting Bondholder or its designee, subject to the requirements relating to the conversion in the Indenture being satisfied.

The Indenture provides, in summary, that the term ‘‘Shares’’ means, when used to refer to the class or classes of the Company’s capital stock into which the Bonds are convertible and when used in certain other instances, only the Company’s common shares, NT$10 par value per share, but that when used elsewhere, including in Condition 6(C), such term also includes shares of any other class or classes of the share capital of the Company authorized after the date of the Indenture which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation or winding-up of the Company.

(A) Conversion Right

(i) Conversion Period: Each Bondholder has the right during the Conversion Period (as defined below) to convert any Bond into Shares, credited as fully paid, and may, if a depositary receipt facility has been established and depositary receipts representing the Shares (‘‘DRs’’) have been issued, and subject to compliance with the terms and conditions of the relevant deposit agreement, direct in the Conversion Notice that all or some of the Shares issuable upon conversion be deposited with the relevant DR depositary (the ‘‘DR Depositary’’) for issuance of DRs or, on and subject to the terms set forth herein (the ‘‘Conversion Right’’). Subject to and upon compliance with the provisions of this Condition, the Conversion Right attaching to any Bond may be exercised, at the option of the holder thereof and as and to the extent provided herein, at any time on or after 17 September 2002 and prior to the close of business (at the place where the Conversion Notice (as defined in Condition 6(B)) and the individual Definitive Certificate (if issued) in respect of such Bond are deposited for conversion) on 17 June 2007 (or if such date shall not be a business day, on the immediately preceding business day at such place) (but in no event thereafter), or, if such Bond shall have been called for redemption prior to that date, then up to the close of business (at the place aforesaid) on the date seven days prior to the date fixed for redemption thereof (or if such day shall not be a business day at such place on the immediately preceding business day at such place) (the ‘‘Conversion Period’’); provided, however, that the Conversion Right during any Closed Period shall be suspended and the Conversion Period shall not include any such Closed Period. ‘‘Closed Period’’ shall mean any period during which under the laws of the ROC the Company shall close its shareholders register, which period includes 60 days prior to the date of the annual meeting of shareholders (‘‘AGM’’), 30 days prior to an extraordinary shareholders’ meeting and the period from the third Taiwan business day prior to the Company’s notification to the ROSE in respect of a record date (and the relevant close of the shareholders’ register) for determining the identity of shareholders entitled to receive annual dividend distribution or other rights or benefits to such record date. In addition, during the period 100 days (including the 60 days prior to the date of the AGM) prior to the record date for determination of shareholders entitlement of receiving stock or cash dividends for the previous year, the conversion right shall be suspended. Such 100-day period shall be extended to the extent necessary for the Company to obtain the ROC SFC’s or other relevant competent authorities’ approval for its distribution of stock and/or cash dividends. The Company shall procure that the Bondholders are given not less than 10 days’ nor more than 60 days’ prior notice of any Closed Period in accordance with the provisions of the Indenture.

A ‘‘Taiwan business day’’ means a day (other than a Saturday or Sunday) on which commercial banks in Taipei are open for business.

Under current ROC law, regulation and policy, PRC persons are not permitted to hold or convert the Bonds or to register as a shareholder of the Company. Under current ROC law, a PRC person means an individual holding a passport issued by the PRC, a resident of any area of China under the effective control or jurisdiction of the PRC (but not including a special administrative region of the PRC such as Hong Kong or Macau, if so excluded by applicable laws of the ROC), any agency or instrumentality of the PRC and any corporation, partnership and other entity organized under the laws of any such area or controlled or beneficially owned by any such person, resident, agency or instrumentality.

Under current ROC law, a non-ROC converting Bondholder when exercising his Conversion Right to convert the Bonds into Shares is required (unless the Bondholder has the option under these Conditions to elect, and elects to receive DRs with respect to the Bonds to be converted. In such case, the Shares will be delivered to and deposited with a custodian appointed by the relevant DR Depositary) to appoint a local agent in the ROC with such qualifications as are set by the ROC Securities and Futures Commission (‘‘ROC SFC’’), to open a securities trading account with a local brokerage firm and a New Taiwan Dollar bank account, pay ROC withholding taxes, remit funds, exercise shareholders’ rights, handle conversion application and perform such other matters as may be designated by such converting Bondholder (or its designee), on behalf of and as agent for such converting Bondholder (or its designee). In addition, such non-ROC converting Bondholder must also appoint a custodian bank to hold the securities for safekeeping, make confirmation and settlement, and report all relevant information. Under existing ROC laws and regulations, without opening such accounts, an investor in the Bonds would not be able to receive, hold, sell or otherwise transfer the Shares into which the Bonds may have been converted on the ROSE or otherwise. See ‘‘Foreign Investment and Exchange Controls in the ROC’’ and ‘‘Description of the Shares’’.

(ii) Number of Shares and/or DRs Issuable on Conversion: The number of Shares to be issued upon conversion of any Bond will be determined by dividing the principal amount of the Bond (translated into NT Dollars at the fixed rate NT$33.51 = U.S.$1.00) by the Conversion Price (as defined below) in effect on the Conversion Date as defined in Condition 6(B)(ii). Fractional Shares will not be issued or paid in cash, or in any other means. The number of DRs to be issued upon conversion of any Bond (if applicable) will be determined by dividing the principal amount of the Bond by the Conversion Price (as defined below) in effect on the Conversion Date, and dividing such quotient by the number of Shares represented by each DR on the Conversion Date as defined in Condition 6(B)(ii).

If a Certificate or Certificates in respect of more than one Bond shall be deposited for conversion at any one time by the same Bondholder, the number of Shares (and/or DRs, if applicable) to be issued upon conversion thereof will be calculated on the basis of the aggregate principal amount of the Bonds in respect of which the Certificate(s) were so deposited. Fractions of Shares (and/or DRs, if applicable) will not be issued on conversion, and cash adjustments will not be made in respect thereof by the Company. Notwithstanding the foregoing, in the event of a consolidation or reclassification of Shares (and DRs, if applicable) by operation of law or otherwise occurring after 1 July 2002, the Company will upon conversion of the Bonds pay in U.S. Dollars a sum equal to such portion of the principal amount of the Bond or Bonds converted as corresponds to any fraction of a Share (and/or DR, if applicable) not issued as aforesaid if such sum exceeds U.S.$10. For the purpose of calculating the amount of such payment, the Company shall use the exchange rate referred to above in this Condition 6(A)(ii).

(iii) Initial Conversion Price: The price at which Shares will be issued upon conversion (the ‘‘Conversion Price’’) will initially be NT$57.5 per Share, which is equivalent to U.S.$1.716 per Share based on the fixed exchange rate of NT$33.51 = U.S.$1.00 but will be subject to adjustment in the manner provided in Conditions 6(C) and 6(D). The price at which DRs will be issued upon conversion, in the event that the Company establishes a depositary receipt facility, will be determined by multiplying, or dividing, as the case may be, the Conversion Price by the number of Shares represented by each DR on the Conversion Date and will be subject to adjustment in the manner provided in Conditions 6(C) and 6(D).

(iv) Revival on Default: Notwithstanding the provisions of Condition 6(A)(i), if there shall be default in making payment in full in respect of any Bond which shall have been called for redemption prior to 17 June 2007 on the date fixed for redemption thereof, the Conversion Right attaching to such

Bond will continue to be exercisable up to and including the close of business (at the place where the relevant individual definitive Certificate (if issued) in respect of such Bond and the Conversion Notice (as defined in Condition 6(B) are deposited for conversion) on the date upon which the full amount of the monies payable in respect of such Bond has been duly received by the Trustee or the Principal Agent and notice of such receipt has been duly given to the Bondholders.

(B) Conversion Procedure

(i) Exercise Procedure: To exercise the Conversion Right attaching to any Bond, the holder thereof must complete, execute and deposit at its own expense between 9: 00 a.m. and 3: 00 p.m. (local time at the specified office referred to below) on any business day (as defined below) during the Conversion Period at the specified office of a Conversion Agent outside of the ROC, a notice of conversion (a ‘‘Conversion Notice’’) in duplicate, duly completed and signed, in the then current form obtainable from the specified office of any Conversion Agent, together with the relevant individual Definitive Certificate (if issued) and any certificates and other documents as may be required under the law of the ROC or the jurisdiction in which such Conversion Agent is located and any amount to be paid by the Bondholder. A Conversion Notice or the relevant individual Definitive Certificate (if issued) deposited outside the hours specified above or on a day which is not a business day at the place of the specified office of the relevant Conversion Agent shall for all purposes be deemed to have been deposited with that Conversion Agent between 9: 00 a.m. and 3: 00 p.m. on the next business day.

Bondholders who deposit a Conversion Notice during a Closed Period will not be permitted to convert their Bonds until the Trading Day following the last day of the Closed Period which (if all other conditions to convert have been fulfilled) will be the Conversion Date for such Bonds. Such Bondholders or the relevant DR Depositary, as applicable, will not be registered as holders of Shares until the Conversion Date.

If a DR facility has been established and DRs have been issued, the Conversion Notice shall contain an option for the Bondholder to elect to receive Shares and/or DRs upon such conversion. The Conversion Notice shall contain, inter alia, an appointment of a local agent by such converting Bondholder and an irrevocable instruction to exchange for Shares issued pursuant to Condition 6(B)(iii), as soon as Shares are available. A Conversion Notice once deposited may not be withdrawn without the consent in writing of the Company and the Conversion Agents, Principal Agent and Trustee be immediately notified in writing by such written consent of the Company accompanied by the relevant Conversion Notice. The price at which such Bonds will be converted will be the Conversion Price in effect on the Conversion Date.

In this Condition, ‘‘business day’’ means a day on which commercial banks are open for business in London, United Kingdom, and in the place where the Conversion Agent with whom the individual Definitive Certificate (if issued) and the Conversion Notice are deposited is open for business.

(ii) Taxes and Expense; Deposit Date and Conversion Date: As conditions precedent to conversion, together with the Conversion Notice, the Bondholder must pay to the relevant Conversion Agent all stamp, issue, registration, excise and similar taxes or duties or transfer costs (if any) arising on conversion in the country in which the Bond is deposited for conversion, or payable in any jurisdiction consequent upon the issue or delivery of Shares (and/or DRs, if applicable) or any other property or cash upon conversion to or to the order of a person other than the converting Bondholder. Except as aforesaid, the Company will pay the expenses arising in the ROC on the issue of Shares (and/or DRs, if applicable) on conversion of Bonds and all charges of the Conversion Agents (and the relevant DR Depositary, if applicable) in connection therewith as provided in the Indenture and Agency Agreement. The date on which any Certificate and the Conversion Notice (in duplicate) relating thereto, together with any certificates and other documents as may be required under applicable law or a relevant deposit agreement (if applicable), are deposited with a Conversion Agent and the payments, if any, required to be paid by the Bondholder are made is hereinafter referred to as the ‘‘Deposit Date’’. The ‘‘Conversion Date’’ applicable to a Bond shall mean the next day following the Deposit Date, which day both is a Trading Day as defined in Condition 8(B) and occurs during the Conversion Period. Bondholders who deposit a Conversion Notice during a Closed Period will not be permitted to convert their Bonds until the Trading Day following the last day of that Closed Period.

(iii) Holder of Record: With effect from the opening of business in the ROC on the Conversion Date, the Company will deem the converting Bondholder (or its designee) as indicated in the Conversion Notice to have become the holder of record of the number of Shares to be issued upon such conversion to such holder (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective) and at such time, subject to Condition 6(B)(v), the rights of such converting Bondholder as a Bondholder with respect to such Bonds converted shall cease (except rights arising under Condition 6(B)(iv) and 6(B)(vi).

In the event that a converting Bondholder has the option under these Conditions to elect, and elects, to receive DRs, with effect from the opening of business in the ROC on the Conversion Date, the Company will deem the relevant DR Depositary to have become the holder of record of the number of Shares represented by such DRs to be issued upon such conversion (disregarding any retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive adjustment shall have become effective) and upon delivery by the relevant DR Depositary to the Bondholder of the number of DRs or into which the Bonds are convertible, subject to Condition 6(B)(v), the rights of such converting Bondholder as a Bondholder with respect to such Bonds converted shall cease (except rights arising under Condition 6(B)(iv) and 6(B)(vi).

(iv) Availability of Shares: The Company shall, for the benefit of Bondholders, ensure that sufficient Shares are available as soon as possible (but no later than five Trading Days from the date the notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from the Principal Agent).

(v) Delivery of Shares and/or DRs: On the Conversion Date, the Company will register the converting Bondholder (or its designee) or the relevant DR Depositary (or its designee), as applicable, in the Company’s register of shareholders as the owner of the number of Shares to be issued pursuant to Condition 6(B)(iii) upon conversion of such Bonds and, subject to any applicable limitations then imposed by ROC laws and regulations, according to the request made in the relevant Conversion Notice, procure that, as soon as practicable, and in any event within five Trading Days from the date the notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from the Principal Agent, there be delivered to the local agent appointed by the converting Bondholder, and/or to the relevant custodian, as agent for the relevant DR Depositary (if the converting Bondholder has the option under these Conditions to elect, and elects, to receive DRs), a certificate or certificates for the relevant Shares, registered in the name specified for that purpose in the relevant Conversion Notice, together with any other property or cash (including, without limitation, cash payable pursuant to Condition 6(A)(ii)) required to be delivered upon conversion and such assignments and other documents (if any) as may be required by law to effect the delivery thereof.

In the event a converting Bondholder has the option under these Conditions to elect, and elects, to receive DRs on exercise of its Conversion Right, the Company agrees to deliver to and deposit with the relevant custodian, as agent for the relevant DR Depositary, a sufficient number of Shares to represent the DRs such Bondholder is entitled to receive upon conversion. Such Shares will be registered in the name of the relevant DR Depositary or its nominee and deposited in accordance with the terms of the relevant deposit agreement.

(vi) Retroactive Adjustment of Conversion Price: If the Conversion Date in relation to any Bond shall be on or after a date with effect from which an adjustment to the Conversion Price takes retroactive effect pursuant to any of the provisions referred to in Condition 6(C) and the Indenture and the relevant Conversion Date falls on a date when the relevant adjustment has not been reflected in the Conversion Price, the Company will, within 20 days after the effective date of such adjustment of the Conversion Price, issue and deliver (to the local agent appointed by the converting Bondholder and/or, if applicable, to the relevant custodian, as agent for the relevant DR Depositary) such number of Shares as is equal to the excess of the number of Shares that would have been required to be issued on conversion of such Bond if the relevant retroactive adjustment had been made as at the said Conversion Date over the number of Shares previously issued pursuant to such conversion, and in such event and in respect of such number of Shares, references in Condition 6(B)(v) to the Conversion Date

shall be deemed to refer to the date upon which such retroactive adjustment becomes effective (disregarding the fact that it becomes effective retroactively). Fractions of Shares will not be issued and no cash adjustment will be made in respect thereof.

(vii) Dividends and Other entitlements: To the extent permitted under the laws of the ROC, the converting Bondholders will be entitled to the annual dividend distributions or other benefits if the conversion of the Bonds takes place prior to the 100-day Closed Period in each relevant year.

Given the 100-day Closed Period, the converting bondholders will not be entitled to the dividend distributions for the converting year if they convert the Bonds after such 100-day Closed Period.

(viii) Conversion Agents: The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment of any Conversion Agent and to appoint further or other Conversion Agents; provided that the Company will at all times maintain a Conversion Agent having specified offices in London, the United Kingdom and, so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, in Luxembourg. Notice of any such termination or appointment and of any changes in the specified offices of the Conversion Agents will be given promptly by the Company to the Bondholders in accordance with Condition 15 and to the Luxembourg Stock Exchange.

(C) Adjustments to Conversion Price

The Conversion Price will be subject to adjustment in the manner set forth in the Indenture upon the occurrence of certain events set out in the Indenture, including:

(i) the making of a free distribution or bonus issue of Shares;
(ii) subdivisions, consolidations or reclassifications of Shares;
(iii) the declaration of a dividend in Shares (under the terms of the Indenture, no account is to be taken of, or credit given for, the par value of Shares issued in any stock dividend in calculating an appropriate conversion price adjustment, so that the full dilutive effect of stock dividends is provided for);
(iv) the grant, issue or offer to the holders of Shares of rights or warrants to subscribe for or purchase Shares at less than the then Current Market Price (as defined in the Indenture) or to subscribe for or purchase any securities convertible into or exchangeable for Shares at less than the then Current Market Price;
(v) the distribution to the holders of Shares of evidences of indebtedness of the Company or of shares of capital stock of the Company (other than Shares) or of assets (other than regular periodic dividends in cash) or of rights or warrants to subscribe for or purchase shares or securities (other than those mentioned in (iv) above);
(vi) the issue of securities (other than the Bonds and those mentioned in (iv) above) convertible into or exchangeable for Shares at less than the then Current Market Price or of rights or warrants (other than those mentioned in (iv) above) to subscribe for or purchase Shares at less than the then Current Market Price or to subscribe for or purchase securities convertible into or exchangeable for Shares at less than the then Current Market Price;
(vii) the issue of Shares (other than (a) Shares issued on conversion of convertible bonds, including the Bonds, or (b) Shares to shareholders of any company which merges with the Company upon such merger and in proportion to their shareholdings in such company immediately prior to such merger, or (c) in any of the circumstances described above but including Shares issued under any employee bonus or profit-sharing arrangements) at less than the then Current Market Price; and
(viii) any other event or circumstance which would have in the determination of the Company or the Trustee an analogous effect to any of the events in (i) to (vii) above including, but not limited to, issues of receipts or certificates entitling holders to receive securities,

in accordance with the formulas stipulated in the Indenture. No adjustment will be made where such adjustment would be less than one per cent. of the Conversion Price then in effect; provided, however, that any adjustment that otherwise would be required to be made will be carried forward and taken into account in determining any subsequent adjustment. Any adjustment will be notified promptly by the Company to the Bondholders in accordance with Condition 15.

The Indenture provides that the Conversion Price may be reduced, as a result of any adjustment required by this Condition 6(C), below the par value of the Shares for the time being to the extent permitted by ROC law, provided that any Shares issued on conversion of Bonds at such reduced Conversion Price would be legally issued and non-assessable Shares.

The Trustee will not be obliged to monitor whether any event has occurred which might fall within (i) to (viii) above and until it has actual knowledge by way of express notice in writing from the Company to the contrary, shall assume that none has.

(D) Conversion Price Reset

The Conversion Price shall be adjusted (the ‘‘Adjusted Conversion Price’’) on every six months after the Closing Date (each a ‘‘Reset Date’’), in the event that the average closing price of the Share on the ROSE translated into U.S. Dollars at the then Prevailing Rate (defined below) for 20 consecutive Trading Days immediately prior to a Reset Date (the ‘‘Average Closing Price’’) is less than the Conversion Price then in effect on the relevant Reset Date, in accordance with the following formula:

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Such Adjusted Conversion Price shall be rounded upwards, if necessary, to the nearest NT$0.01, provided that:

(i) any adjustment to the Conversion Price pursuant to this Condition 6(D) shall be limited so that the Conversion Price adjusted in accordance with this Condition 6(D) shall not be less than 80 per cent. of the initial Conversion Price prevailing on 17 July 2002 (as adjusted to reflect any adjustments required under Condition 6(C) above, which may have occurred prior to the Reset Date);
(ii) the provisions of Condition 6(C) shall apply mutatis mutandis to this Condition 6(D) to ensure that appropriate adjustments shall be made to any Closing Price to reflect any adjustments made to the Conversion Price in accordance with Condition 6(C) during the period of calculation of the Average Closing Price;
(iii) the Conversion Price shall not be reduced below the par value of the Shares (currently NT$10 per share) unless, under applicable law then in effect, the Bonds could be converted at such reduced Conversion Price into legally issued, fully-paid and non-assessable Shares; and
(iv) for the avoidance of doubt (x) any adjustments to the Conversion Price made pursuant to this Condition 6(D) shall only be downward adjustments and (y) an adjustment may be made in respect of any Reset Date notwithstanding that an adjustment may have been made in respect of a preceding Reset Date, if any.

The ‘‘Prevailing Rate’’ for the translation of the Closing Prices shall be the arithmetic average of the closing rate for the purchase of U.S. Dollars with NT Dollars quoted by Taipei Forex Inc. at the close of business on each day of the 30 consecutive Trading Days preceding the relevant Reset Date. For the purpose of the formula in this Condition, the Prevailing Rate shall be expressed as the number of NT Dollars per U.S.$1.00.

Any such adjustment shall become effective as of the relevant Reset Date and the Bondholders shall be notified of any adjustment to the Conversion Price within five days of the relevant Reset Date in accordance with Condition 15.

(E) Alternative Conversion Price Reset

To stimulate Bondholder’s interest to exercise their conversion right, Condition 6(E) provides an alternative. This is set in accordance with the regulations for underwriters’ assistance for public companies in the issuance of securities, which was amended by the Chinese Securities Association and was then filed for recordation with the ROC SFC. The Alternative Reset Date, the alternative Conversion Price (the ‘‘Alternative Conversion Price’’) and the period of exercise (i.e. seven Trading Days) are set based on that regulations.

The Bondholders are entitled, within a seven Trading-Day period immediately after 17 June 2004, to convert the Bonds into Shares based on the reset Alternative Conversion Price, which would be 88.0 per cent. of the then market price.

The Bondholders are entitled, further, within a seven Trading-Day period immediately after 17 June 2005, to convert the Bonds into Shares based on the reset Alternative Conversion Price, which would be 85.0 per cent. of the then market price.

The above-mentioned ‘‘market price’’ is the lowest among the average closing prices of the Shares on the ROSE translated into U.S. Dollars at the Prevailing Rate for 10, 15 and 20 Trading Days immediately preceding the applicable Alternative Reset Date.

The Company undertakes to notify the Bondholders of the Market Price and Alternative Conversion Price in accordance with Condition 15 and the Luxembourg Stock Exchange as soon as practicable.

The Alternative conversion Prices will only be applicable within the relevant seven Trading-Day period described in this Condition 6(E). The standard Conversion Price will be applicable to any conversion without such period in which the Alternative Conversion Prices are applicable.

The above procedure for Alternative Conversion will follow the Self-control Rules for Underwriters to Sponsoring the Issuing Company for Offering and Issuance of Securities.

(F) Mergers; Disposals

The Company will not merge, amalgamate or consolidate with or into any other corporation or entity where the Company is not being the continuing entity or sell or transfer all, or substantially all, of the assets of the Company, whether as a single transaction or a number of transactions, related or not, to any corporation, entity or person or to one or more members of any group under the common control of any corporation, entity or person unless the Company shall have notified the Bondholders of such event in accordance with Condition 15 and the Company and such corporation, entity or person shall have executed an indenture supplemental to the Indenture in form and substance satisfactory to the Trustee providing that such corporation, entity or person shall assume the obligations of the Company under the Bonds, the Indenture and the Agency Agreement and providing that each Bond then outstanding shall be convertible into the class and amount of shares and other securities, cash and other property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder of the number of Shares (and/or DRs, if applicable) into which such Bond would have been convertible immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming for such purpose that the Bonds were convertible at the time of such consolidation, amalgamation, merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the Indenture. Such supplemental indenture will provide for adjustments which will be as nearly equivalent as may be practicable to the adjustments provided for in the foregoing provisions to this Condition. The above provisions of this Condition 6(F) will apply in the same way to any subsequent or further consolidations, amalgamations, mergers, sales or transfers.

(G) Conversion Undertakings

(i) Depositary receipts: Subject to the ROC SFC’S separate approval, if required, the Company may, at its option, but is not required to, make arrangements satisfactory to the Trustee for the Bonds to be converted into depositary receipts or other scrip evidencing Shares. Any such arrangements shall be in addition to the provisions of these Conditions relating to conversion into Shares.

The Company has not at the date of this Offering Circular established or authorized the establishment of any depositary receipt facility. Accordingly, conversion into DRs is not currently available. If in the future a depositary receipt facility is established or authorized by the Company, the Company will, to the extent permitted by applicable laws and regulations, make arrangements satisfactory to the Trustee for Shares issued on conversion of Bonds to be accepted for deposit (at the option of the converting Bondholder) into such depositary receipt facility, subject always to the terms of such depositary facility, which terms may include certification or other requirements as conditions to the acceptance for deposit of Shares issued on conversion of Bonds. There can be no assurance that the Company will in future establish or authorize any depositary facility or that any arrangements for the deposit of Shares into such depositary facility would be available to all Bondholders.

The Company shall give notice to the Conversion Agents, the Principal Agent and the Bondholders in accordance with Condition 15 and to the Luxembourg Stock Exchange within 14 days of the establishment of the depositary receipt facility.

(ii) Closed Periods: The Company undertakes to ensure that any Closed Period is as short a period as is reasonably practicable having regards to applicable ROC laws, regulations and practices.

7. Payments

(A) Principal and Premium (if any)

Payment of principal and Premium (if any) (defined below) will be made against surrender of the relevant certificate at the specified office of any Agent by transfer to the registered account of the Bondholder or by U.S. Dollar check drawn on a bank in The City of New York, U.S.A., mailed (provided that the Principal Agent shall have received the relevant funds in full from the Company in accordance with the Agency Agreement) to the registered address of the Bondholder if it does not have a registered account. Payments of principal and Premium (if any) will only be made after surrender of the relevant individual Definitive Certificate (if issued) at the specified office of any Agent.

(B) Registered Accounts

A Bondholder’s registered account means the U.S. Dollar account maintained by or on behalf of it with a bank in The City of New York, U.S.A., details of which appear on the register of Bondholders at the close of business on the second business day (as defined below) before the due date for payment and a Bondholder’s registered address means its address appearing on the register of Bondholders at that time.

(C) Fiscal Laws

All payments are subject in all cases to any applicable fiscal or other laws and regulations in the place of payment, but without prejudice to the provisions of Condition 9. No commissions or expenses shall be charged to the Bondholders in respect of such payments.

(D) Payment Initiation

Where payment is to be made by transfer to a registered account, payment instructions (for value the due date or, if that date is not a business day, for value the next following business day) will be initiated and, where payment is to be made by check, the check will be mailed (provided that the

Principal Agent shall have received the relevant funds in full from the Company in accordance with the Agency Agreement), on the later of the due date for payment and the business day on which the relevant Certificate is surrendered (if applicable) at the specified office of an Agent.

(E) Payment Delay

Bondholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due if the due date is not a business day, if the Bondholder is late in surrendering its Certificate (if applicable) or if a check mailed in accordance with this Condition arrives after the due date for payment.

(F) Business Days

In this Condition, ‘‘business day’’ means a day on which commercial banks are open for business in the City of New York, U.S.A. and London, United Kingdom and, in the case of the surrender of a Certificate, in London, United Kingdom, and in the place where the Certificate is surrendered.

(G) Partial Payments

If the amount of principal and premium which is due on the Bonds is not paid in full, the Registrar will annotate the register of Bondholders with a record of the amount of principal and/or premium, in fact paid.

Distribution of payments with respect to the Global Certificates held through Euroclear or Clearstream, Luxembourg, will be made to the holders holding through participants of Euroclear or Clearstream, Luxembourg, as the case may be, to the account of The Bank of New York, as common depositary for Euroclear and Clearstream, Luxembourg and will be credited by Euroclear or Clearstream, Luxembourg, as the case may be, to the cash accounts of the participants of Euroclear or Clearstream, Luxembourg, in accordance with the relevant system’s rules and procedures, to the extent received by the common depositary.

8. Redemption, Purchase and Cancellation

(A) Redemption at Maturity

Unless previously redeemed, converted or purchased and cancelled as herein provided, the Company will redeem the Bonds at their principal amount in U.S. Dollars on 17 July 2007. The Bonds may be redeemed in whole or in part prior to that date only as provided in paragraphs (B), (C) and (D) below (but without prejudice to Condition 10).

(B) Redemption at the Option of the Company

(i) On or at any time after 17 July 2003, the Company may, having given not less than 40 nor more than 60 days’ notice to the Bondholders in accordance with Conditions 8(H) and 15 (which notice will be irrevocable), redeem all or part of the Bonds at their principal amount if the Closing Price of the Shares translated into U.S. Dollars at the prevailing exchange rate for each of the 30 consecutive Trading Days, the last of which occurs not more than 10 days prior to the date upon which notice of such redemption is published, is at least 140 per cent. of the Conversion Price then in effect, translated into U.S. Dollars at the fixed exchange rate of NT$33.51 = U.S.$1.00, on each such Trading Day. If there shall occur an event giving rise to a change in the Conversion Price during any such 30 Trading Day period, appropriate adjustments for the relevant days shall be made for the purpose of calculating the Closing Price for such days. If the Closing Price cannot be determined for one or more consecutive Trading Days, such day or days will be disregarded in the relevant calculation and will be deemed not to have existed when ascertaining such 30 Trading Day period.

(ii) On or at any time after 17 July 2003, the Company may, having given not less than 40 nor more than 60 days’ notice to the Bondholders in accordance with Conditions 8(H) and 15 (which notice will be irrevocable), redeem all but not some only of the Bonds at their principal amount if 90 per cent. of the Bonds have been previously redeemed, repurchased, or converted and cancelled.

Upon the expiry of any such notice, the Company will be bound to redeem the Bonds to which such notice relates at the price aforesaid applicable at the date fixed for redemption.

The term ‘‘Trading Day’’ means a day on which the ROSE is open for business but does not include a day when (a) no such last transaction price or closing bid and offered prices are reported and (b) (if the Shares are not listed or admitted to trading on such exchange) no such closing bid and offered prices are furnished as aforesaid. The ‘‘Closing Price’’ of the Shares for each Trading Day shall be the last reported transaction price of the Shares on the ROSE for such day or, if no transaction takes place on such day, the last available reported transaction price of the Shares on the ROSE in effect on the Trading Day immediately preceding such day or, if the Shares are not listed or admitted to trading on such exchange, the average of the closing bid and offered prices of Shares for such day as furnished by a leading independent securities firm licensed to trade on the ROSE selected by the Company for the purpose.

(C) Redemption at the Option of Bondholders

The Company will, at the option of the holder of any Bond, redeem the Bonds held by that Bondholder on 17 July 2004 and on 17 July 2005 (each a ‘‘Put Date’’) at 106.75 per cent. and 112.26 per cent. of their principal amount respectively. The premium of the Bond (‘‘Premium’’), as the value of the Bond above its par, will be 6.75 per cent. and 12.26 per cent. in the second anniversary and third anniversary of 17 July 2002, respectively.

To exercise such option the holder must deposit the individual Definitive Certificate in respect of such Bond (if issued) with any Agent and a duly completed redemption notice in the form obtainable from any of the Agents, not more than 60 nor less than 30 days prior to the relevant Put Date. No Bond so deposited may be withdrawn (except as provided in the Agency Agreement) without the prior written consent of the Company and such written consent must be notified by the Company to the Principal Agent no later than seven days prior to the Put Date. The Company shall give the Bondholders not less than 30 nor more than 45 days’ notice of the commencement of the period for the deposit of individual Definitive Certificates for redemption (if issued) and the redemption notice pursuant to this paragraph (C) shall be given to the Bondholders by the Company in accordance with Condition 15. The exercise of the Bondholders’ option under this Condition 8(C) shall override any exercise of the Company’s right under Condition 8(B).

(D) Redemption for Taxation Reasons

At any time, the Company may, having given not less than 40 nor more than 60 days’ notice to the Bondholders in accordance with Conditions 8(H) and 15 (which notice shall be irrevocable) redeem all but not some only of the Bonds at their principal amount, if (i) the Company determines immediately prior to the giving of such notice that it has or will become obliged to pay additional amounts as provided or referred to in Condition 9 as a result of any change in, or amendment to, the laws or regulations of the ROC or any political subdivision or any authority thereof or therein having power to tax, or any change in the general application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after 1 October 2002 and (ii) such obligation cannot be avoided by the Company taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company would be obliged to pay such additional amounts were a payment in respect of the Bonds then due. Prior to the giving of any notice of redemption pursuant to this paragraph, the Company shall deliver to the Trustee a certificate signed by two directors of the Company stating that the obligation referred to in (i) above cannot be avoided by the Company taking reasonable measures available to it and the Trustee shall be entitled to accept such certificate as sufficient evidence of the satisfaction of

the condition precedents set out in (ii) above, in which event it shall be conclusive and binding on the Bondholders. Bonds in respect of which a notice of redemption has been given under Condition 8(B) and Condition 8(C) shall not be affected by any notice given subsequently under this Condition 8(D).

(E) Purchase

The Company may at any time and from time to time purchase Bonds in the open market or otherwise. Bonds so purchased will be surrendered and deemed cancelled and may not be reissued or resold.

(F) Selection of Bonds

In the case of redemption of some only of the Bonds pursuant to Condition 8(B)(i), where individual Definitive Certificates have been issued, the Bonds to be redeemed will be selected individually by lot by the Principal Agent, in such place as the Trustee shall approve and in such manner as the Trustee shall deem to be appropriate and fair not more than 60 days and not less than 30 days prior to the date fixed for redemption.

(G) Cancellation

All Bonds which are redeemed or converted or purchased and surrendered to any Agent will forthwith be cancelled in accordance with the provisions of the Agency Agreement. Certificates in respect of all Bonds cancelled will be forwarded to or to the order of the Principal Agent and such Bonds may not be reissued or resold.

(H) Redemption Notices

All notices to Bondholders given by or on behalf of the Company pursuant to this Condition will specify the date fixed for redemption, the redemption price, the Conversion Price as at the date of the relevant notice, the Closing Price of the Shares and the aggregate principal amount of the Bonds outstanding as at the latest practicable date prior to the publication of the notice and, in the case of a partial redemption, a list of the Bonds called for redemption.

9. Taxation

(A) All payments of principal, premium (if any) and interest (if any) by the Company will be made free and clear of and without any deduction or withholding for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or on behalf of the government of the ROC or any authority thereof or therein having power to tax, unless deduction or withholding of such taxes, duties, assessments or governmental charges is compelled by law.
(B) Where such withholding or deduction is in respect of ROC withholding tax on premium or interest payments at the rate of up to and including 20 per cent., the Company will increase the amount of premium (if any) or interest (if any) paid by it to the extent required so that the net amount of premium (if any) or interest (if any) received by Bondholders (without prejudice to Condition 7) would be equal to the amounts which would have been receivable in the absence of any such withholding or deduction.
(C) In the event that any such withholding or deduction in respect of principal or any additional withholding or deduction in excess of 20 per cent. in respect of interest (if any) or premium (if any) is required, the Company will pay such additional amounts by way of principal, premium (if any) and interest (if any), as will result in the receipt by the Bondholders of the amounts which would have been receivable in the absence of any such withholding or deduction, except that no such additional amounts shall be payable in respect of any Bond:
(i) to, or on behalf of, a holder who is subject to such taxes, duties, assessments or governmental charges in respect of such Bond by reason of his being connected with the ROC otherwise than merely by holding such Bond or by the receipt of principal in respect of the Bond; or

(ii) if the individual Definitive Certificate in respect of such Bond (if issued) is surrendered more than 30 days after the relevant date except to the extent that the holder would have been entitled to such additional amount on surrendering the relevant Certificate for payment on the last day of such 30 day period. For this purpose, the ‘‘relevant date’’ in relation to any Bond means (a) the due date for payment in respect thereof or (b) (if the full amount of the monies payable on such due date has not been received by the Trustee or the Principal Agent on or prior to such due date) the date on which notice is duly given to the Bondholders that such monies have been so received.
(D) References in these Conditions to principal, premium or interest shall be deemed also to refer to any increased or additional amounts which may be payable in respect thereof under this Condition or any undertaking given in addition to or substitution for it under the Indenture.

10. Events of Default

The Trustee at its discretion may, and if so requested in writing by the holders of not less than 25 per cent. in principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution shall (but subject to being indemnified or secured by the holders to its satisfaction), give notice in writing to the Company that the Bonds are immediately due and payable, if any of the following events (each an ‘‘Event of Default’’) shall have occurred and be continuing:

(i) there is failure to pay the principal of or any premium (if any) on any of the Bonds within 15 business days after the same shall become due and payable in accordance with these Conditions; or
(ii) the Company defaults in performance or observance of or compliance with any of its other obligations (other than the covenant to pay the principal, premium (if any) or interest (if any) in respect of the Bonds) set out in the Bonds or the Indenture which default is incapable of remedy or, if in the opinion of the Trustee such default is capable of remedy, such default is not in the opinion of the Trustee remedied within 30 days (or such longer time as the Trustee may consider appropriate in relation to the jurisdiction concerned) after written notice of such default shall have been given to the Company by the Trustee; or
(iii) any other present or future indebtedness of the Company, or any of its Principal Subsidiaries, for or in respect of monies borrowed or raised becomes (or becomes capable of being declared) due and payable prior to its stated maturity by reason of an event of default (howsoever described), or any such indebtedness is not paid when due or, as the case may be, within any applicable grace period originally provided for, or the Company or any of its Principal Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee or indemnity or arrangement or obligation having a like or similar effect (howsoever described) for any monies borrowed or raised by any person, provided that the aggregate amount of the relevant indebtedness and guarantees in respect of which one or more events mentioned above in this paragraph (iii) have occurred and is continuing equals or exceeds U.S.$5,000,000 or its equivalent in any other currency (determined as provided below), and provided further that where two or more of the Company and/or its Principal Subsidiaries are liable for the payment of the same relevant indebtedness or guarantee (whether liable jointly and severally, by way of guarantee, surety or otherwise), any such amount shall be counted once only; or
(iv) an execution by a court having jurisdiction is levied or enforced or sued out, or other legal enforcement process is levied or sued out upon, commenced or issued upon, against or in respect of the whole or any substantial part of the undertaking, property, assets or revenues of the Company and in any such case is not discharged or stayed within 60 days (or such longer period as the Trustee may consider appropriate in relation to the jurisdiction concerned) of having been so levied, sued out, commenced or issued, unless the Company is contesting such proceedings in good faith by appropriate proceedings or an execution by a court having jurisdiction is levied or enforced or sued out or other legal enforcement process is levied or sue out upon, commenced or issued upon, against or in respect of the whole or any substantial part of the undertaking, property, assets or revenues of any of the Principal Subsidiaries; or

(v) any person entitled to the benefit thereof shall institute appropriate legal proceedings to enforce any Encumbrance upon the whole or any substantial part of the assets or revenues of the Company and the same is not stayed, discharged, released or satisfied (as the case may be) within 60 days of such proceedings or any person entitled to the benefit thereof shall institute appropriate legal proceedings to enforce any Encumbrance upon the whole or any substantial part of the assets or revenues of any Principal Subsidiaries of the Company; or
(vi) the Company becomes bankrupt or insolvent, or consents to or suffers the appointment of an administrator, liquidator (except for the purpose of and followed by a voluntary solvent reorganization, merger, consolidation, amalgamation or other similar arrangement the terms of which have previously been approved by the Trustee or an Extraordinary Resolution of the Bondholders) or receiver (or other similar official) in bankruptcy or insolvency of the Company or in respect of the whole or any substantial part of the undertakings, property, assets or revenues of the Company or the Company stops, suspends or threatens to stop or suspend payment of all or a material part of (or of a particular type of) its debts or any of the Company’s Principal Subsidiaries becomes bankruptcy or insolvent, or consents to or suffers the appointment of an administrator, liquidator (except for the purpose of and followed by a voluntary solvent reorganization, merger, consolidation, amalgamation or other similar arrangement the terms of which have previously been approved by the Trustee or an Extraordinary Resolution of the Bondholders) or receiver (or other similar official) in bankruptcy or insolvency of any of the Company’s Principal Subsidiaries or in respect of the whole or any substantial part of the undertakings, property, assets or revenues of any of the Company’s Principal Subsidiaries or any of the Company’s Principal Subsidiaries stops, suspends or threatens to stop or suspends payment of all or a material part of (or of particular type of) its debts; or
(vii) an order issued by a court with competent jurisdiction is made or an effective resolution passed by the Company for the winding-up or dissolution of the Company (except for the purpose of and followed by a solvent reconstruction, merger, consolidation, amalgamation or other similar arrangement the terms of which are approved by the Trustee or an Extraordinary Resolution of the Bondholders) or an order issued by a court with competent jurisdiction is made or an effective resolution passed by any of the Company’s Principal Subsidiaries for the winding-up or dissolution of any of the Company’s Principal Subsidiaries (except for the purpose of and followed by a solvent reorganization, merger, consolidation, amalgamation or other similar arrangement the terms of which are approved by the Trustee or an Extraordinary Resolution of the Bondholders); or
(viii) the Company shall merge, amalgamate or consolidate with any other corporation or entity (with the Company not being the continuing entity) or shall sell or dispose of substantially all its business or assets whether as a single transaction or a number of transactions, related or not, to any person, unless the Company shall have notified the Bondholders of such event in accordance with Condition 15 (with a copy of such notice sent to the Luxembourg Stock Exchange) and the Company and such corporation, entity or person shall have executed an indenture supplemental to the Indenture in form and substance satisfactory to the Trustee providing that such corporation, entity or person shall assume the obligations of the Company under the Bonds, the Indenture and the Agency Agreement and providing that each Bond then outstanding shall be convertible into the class and amount of Shares and other securities, cash and other property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder of the number of Shares into which such Bond would have been convertible immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming for such purpose that the Bonds were convertible at the time of such consolidation, amalgamation, merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the Indenture; provided that such agreement by such other person shall not be required if such assumption shall be effective by operation of law; or
(ix) any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets or shares of the Company or any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or a substantial part of the assets or shares of any of the Company’s Principal Subsidiaries; or

(x) proceedings shall have been initiated against the Company or any of its Principal Subsidiaries under any applicable bankruptcy, insolvency or reorganization law and such proceedings shall not have been discharged or stayed within a period of 60 days (or such longer period as the Trustee may consider appropriate in relation to the jurisdiction concerned); or
(xi) any event occurs which under the laws of the ROC has an analogous effect to any of the events referred to in the foregoing paragraphs.

For the purposes of Condition 10(iii) above, any indebtedness which is in a currency other than U.S. Dollars shall be translated into NT Dollars at the spot rate for the sale of U.S. Dollars against the purchase of the relevant currency quoted by any leading bank in the relevant market selected by the Trustee on any day when the Trustee requests such a quotation for such purposes. If no direct spot rate is available, a rate shall be calculated by reference to the cross-rates through U.S. Dollars and relevant currencies.

Upon any such notice being given to the Company, the Bonds will immediately become due and payable at 100 per cent. of their principal amount, and overdue interest on the amounts due, from the date on which such amounts first become due, shall be payable, to the extent permitted by law, at the rate of six (6) per cent. per annum.

For the purpose of this Condition, ‘‘Subsidiary’’ means any corporation or other business entity more than 50 per cent. of the outstanding voting stock of which is for the time being owned directly or indirectly by the Company, and ‘‘Principal Subsidiary’’ means any subsidiary (i) whose total revenues, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary at the time that event of defaults occurs, are at least 10 per cent. of the total revenues of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company or (ii) whose gross assets, as shown by the latest audited accounts (consolidated in the case of a company which itself has subsidiaries) of such Subsidiary at the time that event of defaults occurs are at least 10 per cent. of the gross assets of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated accounts of the Company.

The term ‘‘business day’’ for the purpose of this Condition 10 means a day (other than a Saturday or Sunday) on which commercial banks and foreign exchange markets are open for business in Taipei, Taiwan, ROC.

11. Prescription

Claims in respect of (a) principal and premium (if any) and (b) interest (if any) will become unenforceable after 10 years (in the case of (a)) and five (5) years (in the case of (b)), from the relevant date for payment in respect thereof.

12. Enforcement

At any time after the Bonds shall have become due and payable, the Trustee may, at its discretion and without further notice, take such proceedings against the Company as it may think fit to enforce payment of the Bonds together with premium (if any) with respect thereto and to enforce the provisions of the Indenture, but it will not be bound to take any such proceedings unless (a) it shall have been so requested in writing by the holders of at least 25 per cent. in principal amount of the Bonds then outstanding or so directed by an Extraordinary Resolution and (b) it shall have been indemnified and/or secured to its satisfaction. No Bondholder will be entitled to proceed directly against the Company, unless the Trustee, having become bound to do so, fails to do so and such failure shall have continued for a period of 60 days and no direction inconsistent with such written request or Extraordinary Resolution has been given to the Trustee during such 60-day period by the holders of a majority in principal amount of the outstanding Bonds.

13. Meetings of Bondholders, Modification and Waiver

(A) Meetings

The Indenture contains provisions for convening meetings of Bondholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of the Bonds or the provisions of the Indenture. The quorum at any such meeting for passing an Extraordinary Resolution will be two or more persons holding or representing over 50 per cent. in principal amount of the Bonds for the time being outstanding or, at any such meeting which has been adjourned, two or more persons being or representing Bondholders whatever the principal amount of the Bonds so held or represented unless the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity date of the Bonds, (ii) to reduce or cancel the amount of principal, premium or interest (if any) payable in respect of the Bonds, (iii) to change the currency of payment of the Bonds, (iv) to modify or cancel the right to convert the Bonds into Shares (except in accordance with Condition 6(B) and 13(B)) or to modify the circumstances in which the Bonds may be redeemed or converted at the option of the Company or to shorten the Conversion Period, (v) to modify the provisions relating to the resetting of the Conversion Price, (vi) to modify the provisions concerning the quorum required at any meeting of the Bondholders or the majority required to pass an Extraordinary Resolution or sign a resolution in writing, in which case the necessary quorum for passing an Extraordinary Resolution will be two or more persons holding or representing 100 per cent., in principal amount of the Bonds for the time being outstanding. An Extraordinary Resolution passed at any meeting of Bondholders will be binding on all Bondholders, whether or not they are present at the meeting, and will be conclusive and binding upon all future Bondholders.

The Indenture provides that a written resolution signed by or on behalf of the holders of not less than 90 per cent. of the aggregate principal amount of Bonds outstanding shall be as valid and effective as a duly passed Extraordinary Resolution.

The Company shall prepare a supplement to this Offering Circular and notify the Bondholders (and the Luxembourg Stock Exchange) in accordance with Condition 15 in respect of any proposed Extraordinary Resolution relating to items (i) to (vi) above in this Condition 13(A).

(B) Modification of Conversion Right

Notwithstanding Condition 13(A)(iv) above, the Trustee may agree, without the consent of the Bondholders, to any modification to or variation of the Conversion Rights (including modification of and additions to the declarations and statements to be made by Bondholders in a Conversion Notice) which is in its opinion necessary or desirable to effect or facilitate conversion as contemplated in these Conditions and which is not materially prejudicial to the interests of the Bondholders. The Trustee’s agreement may be subject to any condition which the Trustee requires; including, but not limited to, obtaining, at the sole expense of the Company, an opinion of a merchant or investment bank or legal or other expert. Any such modification shall be binding on all the Bondholders. The Company shall prepare a supplement to this Offering Circular and notify the Bondholders of such modification in accordance with Condition 15 and to the Luxembourg Stock Exchange as soon as practicable.

(C) Other Modifications and Waivers

The Trustee may (but shall not be in any way be obligated to) agree, without the consent of the Bondholders, to (i) any modification (except as mentioned above) of, or the waiver or authorization of any breach or proposed breach of, the Bonds or the Indenture which is not, in the opinion of the Trustee, materially prejudicial to the interests of the Bondholders or (ii) any modification of the Bonds or the Indenture which, in the Trustee’s opinion, is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provisions of law. In connection with such modification, waiver or authorization, the Trustee may require (at the sole expense of the Company) a certificate from the Company certifying, and a legal opinion advising the Trustee, that the modification, waiver or authorization is of a formal, minor or technical nature or to correct a manifest error or to comply with mandatory provisions of law. Any such modification, waiver or authorization will be binding on the Bondholders and, unless the Trustee agrees otherwise, any such modification will be notified by the Company to the Bondholders in accordance with Condition 15 and to the Luxembourg Stock Exchange as soon as practicable thereafter.

(D) Exercise of Trustee’s Functions

In connection with the exercise of its functions (including but not limited to those in relation to any proposed modification, authorization or waiver) the Trustee shall have regard to the interests of the Bondholders as a class and shall not have regard to the consequences of such exercise for individual Bondholders and the Trustee shall not be entitled to require, nor shall any Bondholder be entitled to claim, from the Company or the Trustee, any indemnification or payment in respect of any tax consequences of any such exercise upon individual Bondholders.

14. Replacement of Certificates

If any Certificate is mutilated, defaced, destroyed, stolen or lost, it may be replaced at the specified office of the Registrar upon payment by the claimant of such costs as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Company may reasonably require (which terms will require, inter alia, that if such Certificate is subsequently deposited for conversion into Shares there shall be paid to the Company on demand NT$33.51 for each U.S.$1.00 of the principal amount of such Bond). Mutilated or defaced Certificates must be surrendered before replacements will be issued.

15. Notices

In addition to the provisions set forth in the Global Certificate, if applicable, all notices to Bondholders shall be validly given if in writing in English and mailed to them at their respective addresses in the register of Bondholders maintained by the Registrar, and, so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).

Any such notice shall be deemed to have been given on the later of the date of such publication and the seventh day after being so mailed.

16. Indemnification

The Indenture contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking proceedings to enforce payment unless indemnified to its satisfaction.

17. Paying, Conversion and Transfer Agent

The names of the initial Agents and Registrar and their specified offices are set out at the end of this Offering Circular. The Company reserves the right, subject to the provisions of the Agency Agreement, at any time to vary or terminate the appointment further or other Agents, provided that the Company will at all times maintain Agents having specified offices in London and so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, a Paying, Conversion and Transfer Agent in Luxembourg, a Registrar and a Principal Agent. Notice of any such termination or appointment, of any changes in the specified offices of the Agents or of any change in the identity or specified office of the Registrar or the Principal Agent will be given promptly in accordance with Condition 15 by the Company to the Bondholders, the Trustee and the Luxembourg Stock Exchange.

18. Governing Law and Jurisdiction

(A) Governing Law

The Indenture and the Bonds are governed by and shall be construed in accordance with the laws of the State of New York, U.S.A.

(B) Jurisdiction

The courts of the State of New York sitting in the Borough of Manhattan, The City of New York, and the federal courts of the United States sitting in the Borough of Manhattan, The City of New York, have jurisdiction to settle any disputes which may arise out of or in connection with the Indenture or

the Bonds and accordingly any legal action or proceedings arising out of or in connection with the Indenture or the Bonds (‘‘Proceedings’’) may be brought in such courts. The Company has in the Indenture irrevocably submitted to the jurisdiction of such courts.

The Company has irrevocably appointed CT Corporation System of 111 Eighth Avenue, New York, NY10011, U.S.A. as its authorized agent for service of process in New York in any Proceedings.

THE FORM OF THE BONDS

The Bonds will be issued in registered form, without coupons, in denominations of U.S.$1,000 and integral multiple thereof. The Bonds are not issuable in bearer form.

The Bonds will be represented by a global certificate (the ‘‘Global Certificate’’) which will be deposited with the Trustee as common depositary for, and registered in the name of a nominee for, Euroclear and Clearstream, Luxembourg. Upon the issuance of the Global Certificate, Euroclear and Clearstream, Luxembourg will credit, on their internal systems, the respective principal amounts of the individual beneficial interests in the Bonds represented by the Global Certificate to the accounts of persons who have accounts with Euroclear and Clearstream, Luxembourg (‘‘participants’’). These accounts will initially be designated by or on behalf of the Managers. Ownership of beneficial interests in the Global Certificate will be limited to participants and persons who hold interests through participants. Beneficial interests in the Global Certificates will be shown on, and transfers thereof will be effective only through, records maintained by Euroclear and Clearstream, Luxembourg and their participants.

The Company expects that Euroclear and Clearstream, Luxembourg, or their nominee, upon receipt of any payment of principal, premium (if any) or interest (if any) in respect of the Bonds represented by the Global Certificate will credit the accounts of the participants with payments of principal, premium (if any) or interest (if any) on the date payable in amounts proportionate to their respective interests in such Bonds as shown on the records of Euroclear and Clearstream, Luxembourg or their nominees. The Company also expects that payments by such participants to owners of beneficial interests in the Bonds held through such participants will be governed by standing instructions and customary practices. Such payments will be the responsibility of the participants.

Payments, transfers, exchanges and other matters relating to interests in the Bonds may be subject to various policies and procedures adopted by Euroclear and Clearstream, Luxembourg from time to time. Transfers between participants in Euroclear and Clearstream, Luxembourg, and conversions through participants in Euroclear and Clearstream, Luxembourg, will be effected in the ordinary way in accordance with the rules and operating procedures of Euroclear and Clearstream, Luxembourg. Neither the Company, the Trustee or any of their respective agents will have any responsibility or liability for the performance by Euroclear and Clearstream, Luxembourg or their participants of their respective obligations under the rules and procedures governing their operations, or for payments made on account of, or records relating to, interests in the Bonds held through Euroclear and Clearstream, Luxembourg and their participants.

Owners of interests in the Bonds will not be entitled to receive definitive physical certificates in respect of their interests in the Bonds except in the limited circumstances described below under ‘‘— Registration of Title’’.

The holder of a registered Bond in definitive certificated form may transfer or exchange such Bond by surrendering it at the office or agency maintained by the Company for such purpose in London and, for so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, in Luxembourg, which offices will initially be the corporate trust offices of the Trustee maintained in The City of New York or such other offices may be notified by the Trustee from time to time and, the offices of the Paying and Transfer Agent in Luxembourg, respectively.

Any such Bond in physical certificated form issued prior to the 41st day following the original issuance of the Bonds shall bear the legend set out under ‘‘Notice to Investors’’.

The Global Certificate

The Global Certificate contains provisions which apply to the Bonds that are represented by the Global Certificate, some of which modify the effect of the terms and conditions of the Bonds (the ‘‘Conditions’’) set out in this Offering Circular. Terms defined in the Conditions have the same meaning in the paragraphs below. The following is a summary of those provisions:

Meetings

The registered holder (as defined in the Conditions) of the Global Certificate will be treated as being two persons for the purposes of any quorum requirements of a meeting of Bondholders and, at any such meeting, as having one vote in respect of each U.S.$1,000 in principal amount of Bonds for which the Global Certificate is issued. The Trustee may allow a person with an interest in Bonds in respect of which the Global Certificate has been issued to attend and speak at a meeting of Bondholders on appropriate proof of his identity and interest.

Cancellation

Cancellation of any Bond following its redemption, conversion or purchase by the Company will be effected by a reduction in the principal amount of the Bonds in the register of Bondholders.

Trustee’s Powers

In considering the interests of Bondholders while the Global Certificate is registered in the name of a nominee for a clearing system, the Trustee may, without being obliged to do so, have regard to any information provided to it by such clearing system or its operator as to the identity (either individually or by category) of its accountholders with entitlements to Bonds and may consider such interests as if such accountholders were the holders of the Bonds.

Conversion

Subject to the requirements of Euroclear and Clearstream, Luxembourg, the Conversion Right attaching to a Bond in respect of which the Global Certificate is issued may be exercised by the presentation to or to the order of the Principal Agent of one or more Conversion Notices duly completed by or on behalf of a holder of a book-entry interest in the Bond. Deposit of the Global Certificate with the Principal Agent together with the relevant Conversion Notice shall not be required. The exercise of the Conversion Right shall be notified by the Principal Agent to the Registrar and the holder of the Global Certificate.

Payment

Payments of principal, premium (if any) and interest (if any) in respect of Bonds represented by the Global Certificate will be made without presentation or if no further payment is to be made in respect of the Bonds, against presentation and surrender of the Global Certificate to or to the order of the Principal Agent or such other Paying Agent as shall have been notified to the Bondholders for such purpose.

Notices

So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on behalf of Euroclear and Clearstream, Luxembourg or the Alternative Clearing System (as defined below), notices to Bondholders may be given by delivery of the relevant notice to Euroclear and Clearstream, Luxembourg, for communication by it to entitled accountholders in substitution for notification as required by the Conditions except that so long as the Bonds are listed on the Luxembourg Stock Exchange and the rules of that exchange so require, notices shall also be published in a leading newspaper having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).

Redemption at the Option of the Company

No drawing of Bonds will be required under Condition 8(F) in the event that the Company exercises its call option pursuant to Condition 8(B) in respect of less than the aggregate principal amount of Bonds in respect of which the Global Certificate is issued. Notices will be made by the Company in accordance with the previous paragraph and the Luxembourg Stock Exchange will be informed should the Company exercise the call option.

Redemption at the Option of Bondholders

The Bondholders’ put option in Condition 8(C) may be exercised by the holders of the Global Certificate giving notice to the Principal Agent of the principal amount of Bonds in respect of which the option is exercised and presenting the Global Certificate for endorsement or exercise within the time limits specified in Condition 8(C).

Registration of Title

Certificates in definitive form for individual holdings of Bonds will not be issued in exchange for interests in Bonds in respect of which the Global Certificate is issued, except in case that (a) either Euroclear or Clearstream, Luxembourg (or any alternative clearing system on behalf of which the Bonds evidenced by the Global Certificate may be held) (the ‘‘Alternative Clearing System’’) is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so, or (b) the Bonds become immediately due and payable in accordance with the provisions of Condition 10 or if in connection with judicial proceedings brought by the Trustee, the Trustee has been advised that it is necessary or appropriate for definitive Certificates to be executed and delivered.

Transfers

Transfers of interests in the Bonds with respect to which the Global Certificate is issued shall be effected through the records of the relevant clearing system and its participants in accordance with the Conditions, the Agency Agreement and the rules and procedures of the relevant clearing system.

Enforcement

For the purposes of enforcement of the provisions of the Indenture against the Trustee, the persons named in a certificate of the holder of the Bonds in respect of which the Global Certificate is issued shall be recognized as the beneficiaries of the trusts set out in the Indenture, to the extent of the principal amount of their interest in the Bonds set out in the certificate of the holder, as if they were themselves the holders of Bonds in such principal amounts.

DESCRIPTION OF THE SHARES

The following is a summary of information relating to the share capital of the Company, including certain provisions of the Company’s Articles of Incorporation (the ‘‘Articles’’), the ROC Securities and Exchange Law (the ‘‘Securities and Exchange Law’’) and regulations promulgated thereunder and the ROC Company Law, all as currently in effect.

General

As of 31 March 2002, the authorized share capital of the Company was NT$1,500,000,000 divided into 150,000,000 common shares (the ‘‘Shares’’) with a par value of NT$10 per Share, of which 30,000,000 Shares have been reserved for conversion of convertible bonds. As of 31 March 2002, the paid-in capital was NT$707,981,160, all of which are issued and outstanding and in registered form.

Under the ROC Company Law, any change in the Company’s authorized share capital requires an amendment to the Articles, which in turn requires approval at the shareholders’ meeting. Authorized but unissued Shares may be issued subject to ROC Company Law, upon terms that the Board of Directors may determine.

Other than the Bonds offered hereby, the Company has issued, in registered form, NT$400,000,000 unsecured domestic convertible bonds due 2006 in the ROC in 2001. The Company has issued no additional warrant, convertible debt securities, exchangeable securities or debt securities with warrant attached.

The Articles of Incorporation

Article Two of the Company’s articles of incorporation sets out the objects for which the Company was organized. These include:

" Sale and purchase of wire, cable, power sockets, connectors, and switches and/or the relevant components;
" Process, manufacture, and trade of electronic components;
" Quoting, bidding and selling of above products for foreign and domestic manufacturers;
" Export and import trade; and
" Manufacture, process, and trade of computer peripheral equipments, communications equipments, network equipments and the respective components of the aforementioned products.

Dividends and Distribution

Under the ROC Company Law, except under certain limited circumstances, an ROC company is not permitted to distribute dividends or make any other distributions to shareholders in any year in which the Company has no earnings.

The ROC Company Law also requires that 10 per cent. of the Company’s annual earnings, less prior years’ losses, if any, and outstanding tax, be set aside as a legal reserve until the accumulated legal reserve equals the paid-in capital. The Company may set aside a special reserve in accordance with applicable laws and regulations. In addition, the Articles provide that, after the Company pays the income taxes, deduct losses incurred in prior years and deduct the legal reserve and any special reserve, the remaining portion of the earnings will be distributed as dividends and bonuses, according to the Board of Directors’ resolution as approved by the shareholders, of which (1) the employee bonuses shall be up to 15 per cent. of the residual earnings approved by the shareholders, and (2) the remuneration of all directors and supervisors shall be no more than four per cent. of the residual earnings approved by the shareholders.

At each annual ordinary shareholders’ meeting, the Board of Directors of the Company submits to the shareholders for their approval any proposal for the distribution of a dividend or the making of any other distribution to shareholders from the Company’s earnings (subject to compliance with the requirements mentioned above) for the preceding fiscal year. All common shares outstanding and fully paid as of the

relevant record date are entitled to share equally in any dividend or other distribution so approved. Dividends may be distributed in cash, in the form of shares or a combination of the two, as determined by the shareholders at the meeting and provided that not more than 20 per cent. of the distributable dividends may be distributed in the form of cash, unless the Company successfully secures sufficient capital from external sources to cover the Company’s major capital expenditure, in which case, the Company shall distribute at least 50 per cent. of the distributable dividends in the form of cash. All or part of the dividends to shareholders may be reserved at the relevant annual shareholders’ meeting as retained earnings for distribution in later years.

In addition, if the Company does not have losses, the Company is also permitted to make distributions to its shareholders of additional Shares by capitalizing reserves (including the legal reserve and capital surplus of premium from issuing stock and earnings from gifts received). However, amounts payable by capitalizing the legal reserve are limited to 50 per cent. of the total accumulated legal reserve and this capitalization can only be effected when the accumulated legal reserve exceeds 50 per cent. of the paid-in capital of the Company.

Preemptive Rights

Under the ROC Company Law, when the Company issues new shares for cash, existing shareholders who are listed on the shareholders’ register as of the record date have preemptive rights to subscribe for the new issue in proportion to their existing shareholdings, while the Company’s employees, whether or not they are existing shareholders, have a similar right to subscribe for 10 per cent. to 15 per cent. of the new issue. Any new shares that remain unsubscribed at the expiration of the subscription period may be offered to the public or specified persons at the discretion of the Board of Directors of the Company.

In addition, in accordance with the ROC Securities and Exchange Law, a public company listed on TSE or whose shares are traded on ROSE that intends to offer new shares for cash must conduct a public offering of at least 10 per cent. of the shares to be sold, except under certain circumstances or when exempted by the ROC SFC. This percentage can be increased by a resolution passed at shareholders’ meeting, which would diminish the number of new shares subject to the preemptive rights of existing shareholders. According to the amended Securities and Exchange Law which became effective on 8 February 2001, the preemptive right provisions will not apply to offerings of new shares through a private placement approved in a shareholders’ meeting.

Meetings of Shareholders

The ordinary meeting of shareholders of the Company is usually held in Miaoli City, Taiwan, as determined by the Board of Directors, within six months after the end of each calendar year. Extraordinary meetings of shareholders may be convened by resolution of the Board of Directors whenever they consider it necessary, and they must do so if requested in writing by shareholders holding not less than three per cent. of the paid-in capital who have held these shares for more than a year. Extraordinary meetings of shareholders may also be convened by a Supervisor of the Company under certain circumstances. Notice in writing of ordinary and extraordinary shareholders’ meetings stating the place, time and purpose thereof must be dispatched to each shareholder of the Company at least 30 days and 15 days, respectively, prior to the date set for the meeting. Also, according to the regulations of the ROC SFC, the Company is required to publish notices of shareholders’ meetings in a national daily newspaper.

Voting Rights

Under the ROC Company Law, a shareholder has one vote for each common share. As previously required by law, the Articles provide that the vote cast by a shareholder of more than three per cent. of the total issued and outstanding common shares will be discounted by one per cent. of that portion of the holding in excess of the three per cent. level. However, the ROC Company Law, amended on 25 October 2001, eliminates this voting discount requirement. As the ROC Company Law will take precedence over any conflicts between the Articles and it, the voting discount requirement provisions of the Articles will no longer have effect.

Except as otherwise provided by law, a resolution can be adopted by the holders of at least a majority of the Shares represented at a shareholders’ meeting at which the holders of a majority of all issued and outstanding Shares are present. The election of directors and supervisors at a shareholders’ meeting is by

means of cumulative voting unless the articles of incorporation of a company provide otherwise. Ballots for the election of directors are cast separately from those for the election of supervisors. Candidates for the offices of directors and supervisors may be nominated at the shareholders’ meeting at which ballots for the election are cast. Under the ROC Company Law, the approval by at least a majority of the Shares represented at a shareholders’ meeting in which a quorum of at least two-thirds of all issued and outstanding Shares are represented is required for major corporate actions, including:

" amendment to the Articles;
" transfer of the whole or substantial part of the Company’s business or assets;
" execute, amend or terminate any contract that leases the Company’s whole business, mandates the Company’s operation to other persons, or operates frequently the business for the joint interest of the Company and other persons;
" taking over of the whole of the business or assets of any other company which would have a significant impact on the Company’s operations;
" distribution of any stock dividend;
" the dissolution or amalgamation of a company;
" the merger or spin-off; and
" the removing of directors or supervisors.

Alternatively, the ROC Company Law provides that in the case of a public company, such as the Company, a resolution may be adopted by the holders of at least two-thirds of the Shares represented at a meeting of shareholders at which holders of at least a majority of issued and outstanding Shares are present. However, if a controlling company holds not less than 90 per cent. of its subordinate company’s outstanding shares, the controlling company’s merger with the subordinate company can be approved by board resolution adopted by majority consent at a meeting with two-thirds of directors present.

A shareholder may be represented at an ordinary or extraordinary meeting by proxy if a valid proxy form is delivered to the Company five days before the commencement of the ordinary or extraordinary shareholders’ meeting. Except for trust enterprises or stock affair agents approved by the ROC SFC, where one person is appointed as proxy by two or more shareholders who together hold more than three per cent. of the total issued common shares, the votes of those shareholders in excess of three per cent. of the outstanding Shares shall not be counted.

Under the ROC Company Law, the Company may, by giving advance public notice, set a record date and close the register of shareholders for a specified period in order to determine the shareholders and pledgees that are entitled to rights pertaining to the Shares. The specified period required is as follows:

" ordinary shareholders’ meeting — sixty days
" extraordinary shareholders’ meeting — thirty days
" relevant record date for distribution of dividends, bonuses or other interests — five days

Other Rights of Shareholders

Under the ROC Company Law, dissenting shareholders of the Company are entitled to appraisal rights in the event of amalgamation, spin-off and various other major corporate actions within 20 days of the resolution approving the event. A dissenting shareholder may request that the Company redeem all of the shares owned by the shareholder at a fair price to be determined by mutual agreement. If an agreement cannot be reached, the valuation will be determined by a court order. For amalgamation or spin off, a dissenting shareholder may exercise its appraisal right by serving written notice on the Company before or during the related shareholders’ meeting or by raising and registering its objection in the shareholders’

meeting. For other major corporate actions, a dissenting shareholder may exercise its appraisal right by serving written notice on the Company before the related shareholders’ meeting and by raising and registering its objection in the shareholders’ meeting.

In addition to appraisal rights, within 30 days after the date of the shareholders’ meeting, any shareholder has the right to annul any resolution adopted at a shareholders’ meeting where the procedures were legally defective. However, if the court is of the opinion that such violation is not material and does not affect the result of the resolution, the court may reject or dismiss the shareholder’s lawsuit. One or more shareholders who have held more than three per cent. of the issued and outstanding shares of the Company for over a year may require a supervisor to bring an action against a director for the director’s liability to the Company as a result of the director’s unlawful actions or failure to act. In addition, one or more shareholders who have held more than three per cent. of the issued and outstanding shares of the Company for over a year may require the Board of Directors of the Company to convene an extraordinary shareholders’ meeting by sending a written request to the Board of Directors.

Annual Financial Statements

Under the ROC Company Law, 10 days before the ordinary shareholders’ meeting, the Company’s annual audited financial statements must be available at the principal office of the Company in the City of Miaoli or Taipei, for inspection by the shareholders. According to the regulations of the ROC SFC, the Company is required to publish its annual, semi-annual and quarterly non-consolidated financial statements in a national daily newspaper, which are also available in the office of the paying and conversion agent in Luxembourg and elsewhere.

Transfers of Common Shares

Under the ROC Company Law, the transfer of Shares (in registered form) is effected by endorsement and delivery of share certificates. In order to assert shareholders’ rights against the Company, the transferee must have his name and address registered on the Company’s register of shareholders. Shareholders are required to register their respective specimen seal or chop with the Company. The settlement of trading of the common stock is normally carried out on the book-entry system maintained by Taiwan Securities Central Depository Co., Ltd.

Acquisition by the Company of its own Common Shares

Under the ROC Company Law, with minor exceptions, the Company cannot acquire its own Shares, and any Share acquired by the Company must be sold by the Company at the current market price within six months after its acquisition.

In addition, under the ROC Securities and Exchange Law, a company whose shares are listed on the TSE or traded on the ROSE may, pursuant to a board resolution adopted by a majority consent at a meeting attended by more than two-thirds of the directors and pursuant to the procedures prescribed by the ROC SFC, purchase its shares on the TSE or ROSE or by a tender offer for the following purposes:

" for transfer of shares to its employees;
" for conversion into shares from bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants issued by the Company; and
" for maintaining its credit and its shareholders’ equity; provided that the shares so purchased shall be cancelled thereafter.

The total Shares purchased by the Company shall not exceed 10 per cent. of its total issued and outstanding Shares. In addition, the total amount for purchase of the Shares shall not exceed the aggregate amount of the retained earnings, the premium from stock issues and the realized portion of the capital reserve.

The Shares purchased by the Company pursuant to the first two items above shall be transferred to the intended transferees within three years after the purchase, otherwise the Shares shall be cancelled. For the Shares to be cancelled pursuant to the third item above, the Company shall complete amendment registration for such cancellation within six months after the purchase.

The Shares purchased by the Company shall not be pledged or hypothecated. In addition, the Company may not exercise any shareholders’ rights attaching to such Shares. The Company’s affiliates (as defined in Article 369-1 of the ROC Company Law), directors, supervisors, managers and their respective spouses and minor children and/or nominees are prohibited from selling the Shares of the Company held by them during the period in which the Company purchases its own shares.

Liquidation Rights

In the event of the liquidation of the Company, the assets remaining after payment of all debts, liquidation expenses, taxes and distributions to holders of preferred shares, if any, will be distributed pro rata to the shareholders in accordance with the ROC Company Law.

Significant Shareholders and Transfer Restrictions

The ROC Securities and Exchange Law currently requires (1) each director, supervisor, manager or significant shareholder (i.e., a shareholder who, together with his or her spouse, minor children or nominees, holds more than 10 per cent. of the shares of a public company) to report any change in that person’s shareholding to the issuer of the shares, and (2) each director, supervisor, manager or significant shareholder to report his or her intent to transfer any shares traded on the TSE or ROSE to the ROC SFC at least three days before the intended transfer, unless the number of shares to be transferred is less than 10,000. The ROC Securities and Exchange Law also limits the number of shares that can be sold or transferred or the TSE or ROSE by each director, supervisor, manager or significant shareholder per day.

Limitation on Shareholdings in the Company and Reporting Obligations

The ROC Securities and Exchange law requires each director, supervisor, manager or significant shareholder to report any change in that person’s shareholding to the Company before each fifth day of each month and the Company shall report the same to the ROC SFC before the fifteenth day of each month. Such persons are also required to report to the Company immediately the pledge of their shares in the Company and the Company shall report the same to the ROC SFC within five days from the pledge date. A person or a person who along with other persons (as defined under the ROC SFC regulations) acquires more than 10 per cent. of the issued and outstanding Shares of the Company shall report to the ROC SFC, within ten days from the acquisition date, the acquisition purpose, funding sources and other information required by the ROC SFC.

TAXATION

The Bonds may be deemed by taxing authorities in various jurisdictions to be issued with original issue discount. Prospective investors should consult their own advisers concerning the tax consequences of an investment in Bonds or Shares.

ROC Taxation of Non-residents

The following is a summary under present law of the principal ROC tax consequences of the ownership and disposition of Bonds and Shares to a Non-Resident Individual or Non-Resident Entity that holds Bonds or Shares (each a ‘‘Non-ROC Holder’’). As used in the preceding sentence, a ‘‘Non-Resident Individual’’ is a foreign national individual who owns Bonds or Shares and is not physically present in the ROC for 183 days or more during any calendar year and a ‘‘Non-Resident Entity’’ is a corporation or a noncorporate body that owns Bonds or Shares and is organized under the laws of a jurisdiction other than the ROC and has no fixed place of business or other permanent establishment in the ROC.

Dividends on the Shares

Dividends (whether in cash or Shares) declared by the Company out of retained earnings and paid out to holders of Shares are normally subject to ROC income tax collected by way of withholding at the time of distribution. The current rate of withholding for Non-ROC Holders adopted by the tax authorities is 20 per cent. of the amount of the distribution (in the case of cash dividends) or the par value of the Shares (in the case of stock dividends). Distributions of stock dividends declared by the Company out of capital reserves are currently not subject to ROC withholding tax. In accordance with the ROC Income Tax Law, a 10 per cent. retained earnings tax will be imposed on a company for its after-tax earnings generated after 1 January 1998 which are not distributed in the following year. The retained earnings tax so paid will further reduce the retained earnings available for future distribution. When the Company declares dividends out of those retained earnings, a maximum amount of up to 10 per cent. of the declared dividends will be credited against the 20 per cent. withholding tax imposed on the Non-ROC Holder.

Capital Gains

Under current ROC law, gain realized upon the sale or other disposition of securities is exempt from ROC income tax. This exemption will apply to a sale or other disposition of Bonds or Shares.

ROC law currently provides no specific provisions regarding the ROC income tax consequences of a conversion of Bonds into Shares. Without further clarification from the ROC tax authorities, it is impossible to conclude definitively that gain on the conversion of Bonds into Shares will not be deemed as taxable gain, additional interest income (subject to the 20 per cent. withholding tax) or otherwise subject to other ROC taxes. Transfers of Bonds by Non-ROC Holders are regarded as transactions outside the ROC and thus any gains derived therefrom are not subject to ROC income tax.

Securities Transaction Tax

The ROC Government imposes a securities transaction tax that will apply to sales of Bonds and Shares. The transaction tax, which is payable by the seller, is generally levied on sales of Shares at the rate of 0.3 per cent. of the transaction price. According to the amended Statute for Upgrading Industries, sales of the Bonds outside of the ROC are exempted from such securities transaction tax.

The securities transaction tax and/or gift tax may be imposed in relation to the converting Bondholder’s designation of other person to be the holder of Shares upon conversion of the Bonds.

There is no ROC stamp, issue or registration tax imposed on the issuance of Shares upon conversion of the Bonds.

Inheritance Tax and Gift Tax

ROC inheritance tax is payable on any property within the ROC of a deceased Non-Resident Individual, and ROC gift tax is payable on any property within the ROC donated by a Non-Resident Individual. Inheritance tax is currently imposed at rates ranging from two per cent. of the first NT$600,000

to 50 per cent. of amounts in excess of NT$100,000,000. Gift tax is imposed at rates ranging from four per cent. of the first NT$600,000 donated to 50 per cent. of amounts donated in excess of NT$45,000,000. Under ROC inheritance and gift tax laws, the Bonds and Shares will be deemed to be located in the ROC without regard to the location of the owner.

Tax Treaty

At present, the ROC has income tax treaties with Indonesia, Singapore, New Zealand, Australia, South Africa, Gambia, Swaziland, Malaysia, Macedonia, Vietnam and The Netherlands. It is unclear whether a Non-ROC Holder will be considered to own Bonds or Shares for the purposes of such treaties. Accordingly, a holder of Bonds or Shares who is otherwise entitled to the benefit of a treaty should consult its own tax advisers concerning eligibility for benefit under the treaty with respect to Bonds or Shares.

Tax Reform

In order to increase Taiwan’s competitiveness, an amendment to the ROC Income Tax Law (‘‘Amendment’’) was enacted on 1 January 1998, to integrate the corporate income tax and the shareholder dividend tax with the aim of eliminating the double taxation effect for resident shareholders of ROC companies. The Amendment will have the following effect upon Non-ROC Holders of the Shares.

A 10 per cent. retained earnings tax will be imposed on a company for its after-tax earnings generated after 1 January 1998 which are not distributed in the following year. The retained earnings tax so paid will further reduce the retained earnings available for future distribution. When the Company declares dividends out of those retained earnings, a maximum amount of up to 10 per cent. of the declared dividends will be credited against the 20 per cent. withholding tax imposed on the Non-ROC Holders of its Shares.

Withholding Tax on Payments of Premium

Premium (if any) and interest (if any) payable on the Bonds to the Non-ROC Holders is currently subject to a withholding tax in the ROC equal to 20 per cent. of the gross amount of such premium (if any) and interest (if any) at the time of payment.

Subscription Rights

Distributions of subscription rights for the Shares in compliance with the ROC Company Law are not subject to ROC tax. Proceeds derived from sales of statutory subscription rights evidenced by securities are currently exempted from income tax but are subject to securities transaction tax, currently at the rate of 0.3 per cent. of the gross amount received. Proceeds derived from sales of statutory subscription rights that are not evidenced by securities are subject to capital gains tax at the rate of (i) 25 per cent. of the gains realized for Non-ROC Entity Holders, and (ii) 35 per cent. of the gains realized for Non-ROC Individual Holders. Subject to compliance with ROC law, the Company has the sole discretion to determine whether statutory subscription rights are evidenced by securities or not.

Proposed European Union (‘‘EU’’) Withholding Tax Directive

In June 2000 the European Council agreed to amend a proposed EU Directive of June 1998 regarding the taxation of interest, discounts and premiums payable to individual residents of other EU Member States. Member States would be obliged either (a) to exchange information with other Member States regarding such savings income paid to individuals resident in another Member State or (b) withhold tax on such income at a rate to be agreed, provided that Member States that operate a withholding system must implement the exchange of information system as soon as conditions permit and in any case no later than seven years after implementation of the proposed Directive. Further to an agreement reached at the ECOFIN meeting in November 2000 the withholding tax and information reporting requirements would only apply to payments after 2002 with respect to debt issued on or after 1 March 2001. It is impossible at this time to predict whether or in what form the proposed EU Directive, which requires the unanimous approval of all Member States, will eventually be adopted or what the effective dates of any withholding tax system that is adopted will be.

SUBSCRIPTION AND SALE

NSC Securities (Asia) Limited (the ‘‘Lead Manager’’), The International Commercial Bank of China, OBU, Taiwan Securities (HK) Co., Ltd. and Fubon Securities (BVI) Limited (together with the Lead Manager, the ‘‘Managers’’) have, pursuant to a Subscription Agreement to be dated 12 July 2002 (the ‘‘Subscription Agreement’’), severally and not jointly agreed with the Company to subscribe and purchase the Bonds at the issue price of 100 per cent. of their principal amount less the combined management and underwriting commission and selling fee of 2.0 per cent. on the aggregate principal amount of the Bonds.

The Company has agreed in the Subscription Agreement to indemnify the Managers with certain liabilities, including the liabilities under the Securities Act, in connection with the offering of the Bonds.

The Company has agreed in the Subscription Agreement that, for a period of 180 days from the date of the Subscription Agreement, neither it nor any person acting on its behalf will, without the prior written consent of the Lead Manager, issue, offer or sell any equity securities, or any securities convertible or exchangeable for equity securities, or any rights, warrants or options to subscribe for equity securities of the Company, or announce plans or otherwise make public an intention to do any of the foregoing, in each case outside of Taiwan or denominated in a currency other than NT Dollars, other than those pursuant to employee benefits plans or employee stock option plans or distributions of dividends or employee bonuses in the form of Shares and conversion of the Bonds.

The Bondholders who purchase the Bonds from the Managers may be required to pay stamp taxes and other charges in accordance with the laws and practice of the country of purchase in addition to the issue price of the Bonds.

Selling Restrictions

No action has been or will be taken in any jurisdiction that would permit a public offering of the Bonds or the Shares issuable upon conversion of the Bonds, or the possession, circulation or distribution of this Offering Circular or any other material relating to the Company, the Bonds or the Shares issuable upon conversion of the Bonds, in any jurisdiction where action for the purpose is required. Accordingly, neither the Bonds nor any Shares issuable upon conversion of the Bonds may be offered or sold, directly or indirectly, and neither this Offering Circular nor any other offering material or advertisements in connection with the Bonds or the Shares issuable upon conversion of the Bonds may be distributed or published, in or from any country or jurisdiction, except in compliance with any applicable rules and regulations of any such country or jurisdiction.

United States

Each Manager has acknowledged and agreed that the Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be registered under the Securities Act, and may not (i) as part of their distribution at any time or (ii) prior to the 40th day after the closing of the offering of the Bonds be offered or sold within the United States or to, or for the account or benefit of, U.S. persons. The Bonds are being offered and sold outside the United States to non-U.S. persons in reliance on Regulation S.

In addition, until 40 days after the closing of the offering of the Bonds, an offer or sale of the Bonds or the Shares to be issued upon conversion of the Bonds within the United States by any dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.

United Kingdom

Each Manager has represented and agreed that:

(1) it has not offered or sold and prior to the date six months after the issue of the Bonds will not offer or sell any Bonds to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offer of Securities Regulations 1995;

(2) it has complied and will comply with all applicable provisions of the Act with respect to anything done by it in relation to the Bonds in, from or otherwise involving the United Kingdom; and
(3) it has only issued or passed onto any person in the United Kingdom any document received by it in connection with the issue of the Bonds, if that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on.

The ROC

Each Manager has acknowledged and agreed that the Bonds may not be offered, sold or delivered, directly or indirectly, in the ROC, as part of the distribution of the Bonds.

Hong Kong

Each Manager has acknowledged and agreed that (1) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Bonds other than to persons whose ordinary business it is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong; and (2) it has not issued and will not issue any invitation or advertisement relating to the Bonds in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Bonds which are intended to be disposed of to persons outside Hong Kong or only to persons whose business involves the acquisition, disposal or holding, of securities, whether as principal or agent.

Japan

The Bonds and Shares have not been and will not be registered under the Securities and Exchange Law of Japan. Accordingly, each Manager has represented and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Bonds or Shares in Japan or to, or for the benefit of, any resident of Japan, except that the Managers may offer and sell such Bonds or Shares pursuant to an exemption from the registration requirements of, and otherwise in compliance with the Securities and Exchange Law of Japan and other applicable laws and regulations of Japan. As used in this paragraph, ‘‘resident of Japan’’ means any person resides in Japan, including any corporation or other entity organized under the laws of Japan.

Singapore

Each Manager has acknowledged and agreed that this Offering Circular has not been and will not be registered as a prospectus with the Registrar of Companies in Singapore. Accordingly, each Manager has represented and agreed that it has not offered or sold and will not offer or sell any Bonds nor has it circulated or distributed nor will it circulate or distribute this Offering Circular or any other offering document or material relating to the Bonds, directly or indirectly, (i) to persons in Singapore other than under circumstances in which such offer or sale does not constitute an offer or sale of the Bonds to the public in Singapore or (ii) to the public or any member of the public in Singapore other than pursuant to, and in accordance with the conditions of, an exemption invoked under Division 5A of Part IV of the Companies Act, Chapter 50 of Singapore and to persons to whom the Bonds may be offered or sold under such exemption.

LEGAL MATTERS

Certain legal matters with respect to the Bonds will be passed upon for the Company by Lee and Li, Attorneys at Law, and for the Managers by Baker & McKenzie, Hong Kong. Baker & McKenzie, Hong Kong will rely upon Lee and Li, Attorneys at Law, with respect to certain matters of ROC law. Lee and Li, Attorneys at Law will rely upon Baker & McKenzie, Hong Kong with respect to certain matters of United States federal and New York laws.

ACCOUNTANTS

The consolidated and non-consolidated financial statements of Sinbon Electronics Co., Ltd. at 31 December 1999, 2000 and 2001 and for the years then ended, appearing in this Offering Circular have been audited by Diwan, Ernst & Young, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given upon the authority of such firm as experts in accounting and auditing.

GENERAL INFORMATION

The Company is registered with the Ministry of Economic Affairs of the ROC under a uniform registration number of 23542766. The Company’s registered office is located at No. 582, Kuo Hwa Road, Miaoli City, Miaoli County, Taiwan, ROC, and the Company’s telephone number is 886-3-330099.

The Company, having made all reasonable inquiries, confirms that this Offering Circular contains all information with respect to the Company, the Bonds, and the Shares which is material in the context of the issue and offering of the Bonds (including all information required by applicable laws of the ROC), that the information contained herein (save as set out below) is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed herein are honestly held and have been reached after considering all relevant circumstances and are based on reasonable assumptions, that there are no other facts, the omission of which would, in the context of the issue and offering of the Bonds, make this Offering Circular as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respects, that all reasonable inquiries have been made by the Company to verify the accuracy of such information, and that this Offering Circular does not contain an untrue statement of a material fact or omit to state a material fact required to be stated herein or necessary in order to make the statements herein, in the light of the circumstances under which they are made, not misleading. The Company accepts responsibility accordingly. Information provided herein with respect to the ROC, its political status and economy, has been derived from government and other public sources, and the Company accepts responsibility only for accurately extracting information from such sources.

The Offering of the Bonds was authorized and approved by the Board of Directors of the Company on 2 April 2002 and by the ROC Securities and Futures Commission (‘‘ROC SFC’’) on 27 June 2002.

The depositary and paying agent of the Company’s Shares is Taiwan Securities Co., Ltd. at Taipei City, Taiwan,

Application has been made to list the Bonds on the Luxembourg Stock Exchange. The legal notice relating to the issue of the Bonds, and the Articles of Incorporation of the Company will be registered prior to the listing with the Chief Registrar of the District Court in Luxembourg (Greffier en Chef du Tribunal d’Arrondissement de et E[`] Luxembourg), where such documents will be available for inspection and where copies thereof can be obtained upon request. According to Chapter VI, Article 3, point A/II/2 of the Rules and Regulations of the Luxembourg Stock Exchange the Bonds shall be freely tradable and therefore no transaction made on the Luxembourg Stock Exchange shall be cancelled.

Copies (and certified English translations where the documents are not in English) of the following documents may be inspected and freely obtainable at the specified office of the Paying and Conversion Agent in Luxembourg for as long as the Bonds are listed on the Luxembourg Stock Exchange:

" Articles of Incorporation of the Company;
" a copy of the reports of the independent accountants, the audited financial statements of the Company as at and for the years ended 31 December 1999, 2000 and 2001;
" the Subscription Agreement relating to the Bonds;
" the Indenture constituting the Bonds (which includes the form of the Global Certificate); and
" the Paying and Conversion Agency Agreement.

In addition, copies of this Offering Circular and the most recent annual consolidated and nonconsolidated financial statements of the Company and quarterly non-consolidated financial statements of the Company (in each case in English), will be available at the specified office of the Paying and Conversion Agent in Luxembourg free of charge for as long as the Bonds are listed on the Luxembourg Stock Exchange. In addition, any annual, semi-annual and quarterly financial statements published by the Company (in English), will be available free of charge at the specified office of the Paying, Conversion and Transfer Agent in Luxembourg for as long as the Bonds are listed on the Luxembourg Stock Exchange. The Company publishes both its annual and interim financial statement. All notices, including all financial

notices concerning the Company and notices of the Company’s general meetings, to holders of the Bonds will be published in a daily newspaper of general circulation (which is expected to be the Luxemburger Wort).

Except as disclosed herein, there has been no adverse material change in the financial position of the Group since 31 December 2001, the date of the latest financial statements contained herein.

The Subscription Agreement, the Paying and Conversion Agency Agreement and the Indenture in connection with the Offering are governed by the laws of the State of New York, U.S.A.

Trading of the Bonds on the Luxembourg Stock Exchange has been accepted for clearance by Euroclear and Clearstream, Luxembourg. Relevant trading information for the Bonds is set forth below:

Common Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 015050152 ISIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . XS0150501525

The Company has not at the date of this Offering Circular established or authorized the establishment of any depositary receipt facility. Accordingly, conversion into DRs is not currently available. If in the future a depositary receipt facility is established or authorized by the Company, the Company will, to the extent permitted by applicable laws and regulations, make arrangements satisfactory to the Trustee for Shares issued on conversion of Bonds to be accepted for deposit (at the option of the converting Bondholder) into such depositary receipt facility, subject always to the terms of such depositary facility, which terms may include certification or other requirements as conditions to the acceptance for deposit of Shares issued on conversion of Bonds. The Company will provide the Bondholders and the Luxembourg Stock Exchange with a supplement to this Offering Circular including the term, conversion rate and other information of such DRs if the DRs have been issued.

SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ROC GAAP AND U.S. GAAP

Financial statements prepared in accordance with ‘‘Rules Governing Preparation of Financial Statements of Securities Issuers’’ and generally accepted accounting principles in the Republic of China (collectively referred herein as ‘‘ROC GAAP’’) differ in certain respects from U.S. GAAP. The following is a summary of the significant differences between ROC GAAP, as applicable to the Company, and U.S. GAAP. The summary below should not be considered to be exhaustive. Additionally, it may exclude certain differences that may affect the disclosure, presentation or classification of classification of transactions or events in the Company’s financial statements. Further, this summary does not take into account numerous projects currently being undertaken by standard setting bodies in the United States and ROC, which could have an impact on the comparison between ROC GAAP and U.S. GAAP, which are applicable to the Company. Finally, no attempt has been made to identify all future differences between ROC GAAP and U.S. GAAP that may affect the financial statements as a result of transactions or events that may occur in the future.

ROC GAAP

U.S. GAAP

Marketable Securities

(a) Under ROC GAAP, short-term marketable equity securities are carried at the lower of aggregate cost or market value. The unrealized loses of short-term marketable equity securities are recorded as investment loss in the incomes statement, while unrealized gains of short-term marketable equity securities are not recognized. Long-term marketable equity securities are carried at cost, or lower of aggregate cost or market value if the market price is available. The unrealized losses of long-term marketable equity securities are reported as a deduction of shareholders’ equity, while the unrealized gains are not recognized.
(a) Under U.S. GAAP Statement of Financial Accounting Standards, (‘‘SFAS’’) 115, ‘‘Accounting for Certain Investments in Debt and Equity Securities,’’ debt and equity securities that have readily determinable fair values are to be classified as either trading, available-for-sale or held-to-maturity securities. Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost. Debt and equity securities that are bought and traded for short-term profit are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Debt and equity securities not classified as either held-to-maturity or trading securities are classified as availablefor-sale securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity.
(b) Under ROC GAAP, if an investor company invests in equity securities that are traded in an open market and uses the cost method for valuation purposes, then an investor company shall recognize losses if evidence suggests that the value of an investment has been impaired and it is unlikely that the stock price will recover. The new cost of the long-term investment is the book value after recognizing the losses.
(b) Under U.S. GAAP, for individual securities classified as either available-for-sale or heldto maturity, an enterprise shall determine whether a decline in fair value below the amortized cost basis is other than temporary. If the decline in fair value is judged to be other than temporary, the cost basis of the individual security shall be written down to fair value as a new cost basis and the amount of the writtendown shall be included in earnings. The new cost basis shall not be changed for subsequent recoveries in fair value. Subsequent increases in the fair value of available-for-sale securities shall be included in the other comprehensive income.

ROC GAAP

U.S. GAAP

Gains on Disposal of Property, Plant & Equipment

Gains on the disposal of property, plant and equipment will first be credited to non-operating income and then transferred, after deducting the applicable income tax, to additional paid-in capital in the applicable fiscal year. The reclassification is no longer required for disposals made on and after 27 December 2001, as a result of amendments to Regulation on Business Entity Accounting Handling in 2001.

Under U.S. GAAP, the transfer of such gain from retained earnings is not permitted.

Impairment of Long-Lived Assets and Long-lived Assets to be disposed of

ROC GAAP has no specific standards, which address impairment of long-lived assets and certain identifiable intangibles; normally such assets would be carried at cost less accumulated depreciation or amortization.

U.S. GAAP SFAS 121 requires entities to perform separate calculations for assets to be held and used to determine whether recognition of an impairment loss is required, and if so, to measure the impairment. If the sum of expected future cash flows, undiscounted and without interest charges, is less than an asset’s carrying value, an impairment loss is recognized; if the sum of the expected future cash flows is greater than an asset’s carrying value, an impairment loss cannot be recognized. Measurement of an impairment loss is based on the fair value of the asset. U.S. GAAP SFAS 121 also generally requires long-lived assets and certain identifiable intangible assets to be disposed of be recorded at the lower of the carrying value or fair value less cost to sell.

Stock Dividends

Under ROC GAAP, stock dividends are recorded at par with a charge to retained earnings.

Under U.S. GAAP, if the ratio of distribution is less than 25 percent of the same class of shares outstanding, the fair value of the shares issued should be charged to retained earnings.

Employee Bonuses

Under ROC GAAP, the employee bonuses and the remuneration to directors and supervisors, paid in accordance with the provisions of the Company’s articles of incorporation applicable to the distribution of earnings, are recorded as an appropriation from retained earnings in the period shareholders’ approval is obtained for the distribution of the Company’s earnings. If the employee bonuses are settled through the issuance of common shares of the Company, the amount transferred from retained earnings is based on the par value of the common shares issued. The remuneration to directors and supervisors may not be settled through the issuance of common shares.

Under U.S. GAAP, remuneration to directors and supervisors should be recorded as compensation expense in the period when services are rendered. Also, employee bonus expense is initially accrued when services are rendered. When a distribution of bonus is approved by the shareholders in the subsequent year, an additional compensation expense is recorded for the difference between the amount initially recorded and the fair market value of shares granted to employees.

ROC GAAP

U.S. GAAP

Convertible Bonds — Convertible Feature

When convertible securities are issued, ROC GAAP does not recognize or account for any beneficial conversion feature embedded in the securities.

Under U.S. GAAP, as prescribed in the Emerging Issues Task Force (‘‘EITF’’) Topic D-60, as amended by EITF 98-5, Accounting for the Issuance of Convertible Preferred Stock and Debt Securities with a Non-detachable Conversion Feature, such beneficial conversion features should be recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to capital reserve. That amount should be calculated at the issuance date as the difference between the conversion price and the fair value of the common stock, multiplied by the number of shares into which the security is convertible (intrinsic value). As a result, a bond discount is recognized by allocating a portion of the proceeds equal to the intrinsic value of that feature to capital reserve.

Earnings Per Share

(a) Under ROC GAAP simple earnings per share is calculated by dividing net income by the weighted average number of shares outstanding during the year. Primary earnings per share are computed by taking simple earnings per share into consideration plus additional common share equivalents. Fully diluted earnings per share is calculated by taking primary earnings per share into consideration plus additional common shares that would have been outstanding if the dilutive share equivalents had been issued. The net income would also be adjusted for the interest derived from any underlying dilutive share equivalents. The weighted-average outstanding shares are restated for stock dividends issued and issuances of shares for employee bonuses.
(b) Rights Issues

There are no requirements under ROC GAAP to adjust earnings per share arising from the bonus element of a rights issue.

(a) Under U.S. GAAP, basic earnings per share are calculated by dividing net income by the weighted average number of shares outstanding during the year. Diluted earnings per share are calculated by taking into consideration additional common shares that would have been outstanding if the dilutive share equivalents had been issued. The net income would also be adjusted for the interest derived from any underlying dilutive share equivalents.

(b) Rights Issues

Under U.S. GAAP, a rights issue with exercise price less than the fair value of the stock contains a bonus element that is similar to a stock dividend and is accounted for as such accordingly. As a result, the basic and diluted earnings per share shall be adjusted retroactively for the bonus element for all periods presented.

ROC GAAP

U.S. GAAP

Accounting for Pensions

ROC Statement of Financial Accounting Standards (SFAS) No. 18, ‘‘Accounting for Pensions’’, is similar to U.S. SFAS No. 87 and provides accounting regulation regarding an employer’s accounting for employee retirement plans, including pensions of companies covered by the Labors Standards Law which require contribution of a percentage of wages and salaries costs to an independent fund.

Under U.S. GAAP, companies have been required to recognize net periodic pension costs and related liabilities and assets based on actuarial valuations.

ROC SFSA No. 18 is effective for financial statements beginning in the year ended 31 December 1995. However, net periodic pension cost is not calculated pursuant to an actuarial valuation until the year ending 31 December 1996. Prior to 1996, pension expense under ROC GAAP was generally calculated as a fixed percentage of total annual salaries and wages.

Subsidiaries of listed companies (whether consolidated or not) must adopt this standard in the same period as the listed parent. No schedule has yet been set for implementation by other (i.e. unlisted) companies.

Principle of Consolidation

The consolidated financial statements include the accounts of the parent company and certain majority owned (50 per cent. or more) subsidiaries in accordance with the requirements of ROC Financial Accounting Standard (‘‘FAS No. 7’’) and the regulations of the Taiwan Securities and Futures Commission (‘‘SFC’’). All inter-company accounts and transactions have been eliminated in the consolidated financial statements.

Under U.S. GAAP, there is no exclusion rule for consolidating majority owned (50 per cent. or more) subsidiaries.

Pursuant to FAS No. 7 and the regulations of the SFC, if the total assets and operating revenues of a subsidiary are less than 10 per cent. of the total nonconsolidated assets and operating revenue of the parent company, respectively, the subsidiary’s financial statements may, at the option of the company, not be consolidated. Irrespective of the above test, when the total combined assets or operating revenue of all such non-consolidated subsidiaries constitute more than 30 per cent. of the parent company’s total assets or operating revenue, then each individual subsidiary with total assets or operating revenue greater than 3 per cent. of the parent company’s non-consolidated assets or operating revenue has to be included in the consolidation.

ROC GAAP

U.S. GAAP

Reclassification of Certificates of Deposit

Under ROC GAAP, cash and cash equivalents include certificates of deposit.

Under U.S. GAAP, cash equivalents are short-term, highly liquid investments that are readily convertible to cash with original maturities of three months or less. Thus, certificates of deposit with original maturities of greater than three months are classified as cash equivalents under ROC GAAP but should be included in short-term investments for trading purpose under U.S. GAAP.

Gross Profit and Operating Income

Inventory loss provision and depreciation expenses from both idle assets and assets to be disposed are presented below the operating income subtotal in the statement of operations as permitted under ROC GAAP.

Under U.S. GAAP, the inventory provision and the depreciation expenses from both idle assets and assets to be disposed are included beyond the operating income subtotal in the statement of operations.

Income Tax

Undistributed earnings generated after 1997 are subject to a 10 per cent. tax in compliance with the Income Tax Law of the ROC. Under ROC GAAP the 10 per cent. tax on undistributed earnings is recorded as an expense at the time shareholders resolve that its earnings shall be retained.

Under U.S. GAAP, the Company would measure its income tax expense in the period the earnings incurred, including the tax effects of temporary differences, using the tax rate that includes the tax on undistributed earnings.

INDEX TO FINANCIAL STATEMENTS

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Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-2
Consolidated Balance Sheets
as of 31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-3
Consolidated Statements of Operations for the years ended
31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-5
Consolidated Statements of Changes in Shareholders’ Equity
for the years ended 31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-6
Consolidated Statements of Cash Flows
for the years ended 31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-8
Notes to Consolidated Financial Statements
for the years ended 31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-10
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-29
Non-Consolidated Balance Sheets as of 31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . .	F-30
Non-Consolidated Statements of Operations
for the years ended 31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-32
Non-Consolidated Statements of Changes in Shareholders’ Equity
for the years ended 31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-33
Non-Consolidated Statements of Cash Flows
for the years ended 31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-34
Notes to Non-Consolidated Financial Statements
for the years ended 31 December 1999, 2000 and 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-36
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-57
Non-Consolidated Balance Sheets as of 31 March 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-58
Non-Consolidated Statements of Operations
for the three months ended 31 March 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-60
Non-Consolidated Statements of Cash Flows
for the three months ended 31 March 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-61
Notes to Non-Consolidated Financial Statements
for the three months ended 31 March 2001 and 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	F-63
These English financial statements expressed in thousands of New Taiwan Dollars were translated from the
financial statements prepared originally in Chinese language.

F-1

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders

Sinbon Electronics Co., Ltd.

We have audited the accompanying consolidated balance sheets of Sinbon Electronics Co., Ltd. as of 31 December 1999, 2000 and 2001, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of Tokyo Sinbon Electronics Co., Ltd. and Hong Kong Sinbon Electronics Co., Ltd., two wholly-owned subsidiaries, with total assets of NT$338,891,000, NT$302,636,000 and NT$382,450,000, or 26.63 per cent., 19.98 per cent. and 15.85 per cent. of the total consolidated assets of Sinbon Electronics Co., Ltd. as at 31 December 1999, 2000 and 2001, respectively and represent total revenues of NT$718,491,000, NT$547,693,000 and NT$698,295,000, or 41.82 per cent., 28.56 per cent. and 30.34 per cent. of the total consolidated revenues of Sinbon Electronics Co., Ltd. for the years then ended. Those financial statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to data included for Tokyo Sinbon Electronics Co., Ltd. and Hong Kong Sinbon Electronics Co., Ltd. are based solely on other auditors’ reports.

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

In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sinbon Electronics Co., Ltd. and its subsidiaries as at 31 December 1999, 2000 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of China in Taiwan.

Diwan, Ernst & Young Taichung, Taiwan Republic of China

25 March 2002

F-2

SINBON ELECTRONICS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands)

	31 December	31 December
1999 $ 94,695 6,042 133,962 434,177 1,005 8,291 214,729 10,457 22,799 150,867 1,077,024 20,895 323,607 313 — 313 2,754 7,017 2,188 412 12,371 $1,434,210	2000 NT Dollars $ 229,311 — 82,893 422,589 28,953 8,300 230,071 8,053 22,760 93,881 1,126,811 43,433 331,134 — — — 2,011 5,513 5,629 327 13,480 $1,514,858	2001 $ 462,915 — 79,749 644,488 46,895 13,778 279,372 31,913 13,144 106,577 1,678,831 169,425 522,031 — 27,492 27,492 2,288 7,815 5,065 269 15,437 $2,413,216	2001
			U.S. Dollars (Note 2) $13,234 — 2,280 18,424 1,341 394 7,987 912 376 3,047
			47,995
			4,843
			14,924
			— 786
			786
			65 223 145 8
			441
			$68,989

(The accompanying notes form an integral part of the consolidated financial statements)

F-3

SINBON ELECTRONICS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS — (Continued) 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands)

Liabilities and Shareholders’ Equity Current Liabilities Short-term borrowings (Note 4.g) . . . . . . . . . . . . . . . . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable — related parties (Note 5.(2).e). . . . . . . . . . Other accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other accounts payable-related parties . . . . . . . . . . . . . . . . . . Income taxes payable (Note 2) . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities (Note 4.h) . . . . . . . . . . . . . . . . . . . . . . . . Advance receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans current portion (Note 4.j) . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . Long-term Liabilities Convertible bonds (Note 4.i). . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans (Note 4.j) . . . . . . . . . . . . . . . . . . . . . . . . . . Total Long-term Liabilities. . . . . . . . . . . . . . . . . . . . . . . . Other Liabilities Accrued pension liabilities (Notes 2 and 4.k) . . . . . . . . . . . . . Deferred income tax liabilities — non-current . . . . . . . . . . . . . Minority interests (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated credits (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . Total Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ Equity (Notes 2 and 4.l) Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized losses on long-term investments . . . . . . . . . . . . . . Cumulative translation adjustments . . . . . . . . . . . . . . . . . . . . Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . .		31 December	31 December	2001 U.S. Dollars (Note 2) $ 7,338 842 10,804 39 810 24 1,245 1,889 181 143 286 23,601 11,473 2,179 13,652 558 266 1,894 190 2,908 40,161 17,581 3,298 841 6 6,840 (76) 338 28,828 $68,989
	1999 $ 212,157 170,588 287,566 130 — — 14,611 35,683 1,234 1,164 4,387 727,520 — 136,114 136,114 9,567 — 3,270 9,818 22,655 886,289 400,000 67,313 5,620 — 75,181 — (193) 547,921 $1,434,210	2000 NT Dollars $ 105,627 34,426 278,297 9,531 — — 40,726 45,616 1,564 52,333 15,543 583,663 — 82,740 82,740 14,594 — 28,951 8,227 51,772 718,175 500,000 115,351 13,084 193 164,355 — 3,700 796,683 $1,514,858	2001 $ 256,669 29,444 377,916 1,357 28,324 837 43,544 66,084 6,346 5,000 10,009 825,530 401,332 76,249 477,581 19,510 9,320 66,248 6,638 101,716 1,404,827 615,000 115,351 29,434 193 239,268 (2,663) 11,806 1,008,389 $2,413,216

(The accompanying notes form an integral part of the consolidated financial statements)

F-4

SINBON ELECTRONICS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands Except Earnings Per Share Data)

Net Revenue (Note 2) Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating revenue — commission . . . . . . . . . . . . . . . . . Total Net Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Revenue Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of other operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Cost of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Expenses Selling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management and administrative . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . Total operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating Income Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of property, plant and equipment. . . . . . . . . . Gain on disposal of investments . . . . . . . . . . . . . . . . . . . . . . Inventory gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating income . . . . . . . . . . . . . . . . . . . . . . . Non-operating Expenses Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment. . . . . . . . . . Inventory loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss from market price decline and obsolete and slow-moving inventories. . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating expenses . . . . . . . . . . . . . . . . . . . . . . Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . Income Tax Expense (Notes 2 and 4.n) . . . . . . . . . . . . . . . . . . . Income Before Minority Interests . . . . . . . . . . . . . . . . . . . . . . . Less: Minority Interests (Note 2). . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic Earnings Per Common Share (Note 4.o). . . . . . . . . . . . . . . Diluted Earnings Per Common Share . . . . . . . . . . . . . . . . . . . . .	1999 $1,636,221 81,921 1,718,142 (1,366,453) (38,040) (1,404,493) 313,649 (70,714) (127,253) (5,241) (203,208) 110,441 3,441 5,389 401 — 186 — 15,540 24,957 (10,230) — (689) — (945) (11,562) (5,116) (28,542) 106,856 (29,130) 77,726 (2,784) $ 74,942 $ 1.38 $ —	2000 NT Dollars $1,863,639 53,810 1,917,449 (1,471,765) (22,490) (1,494,255) 423,194 (116,813) (105,495) (15,846) (238,154) 185,040 6,328 2,964 51 167 — 28,208 23,478 61,196 (14,579) — (916) (890) — — (7,502) (23,887) 222,349 (56,904) 165,445 (1,910) $ 163,535 $ 2.81 $ —	2001 $2,278,155 23,658 2,301,813 (1,680,671) (1,591) (1,682,262) 619,551 (131,851) (167,053) (16,394) (315,298) 304,253 6,432 — — 4,591 67 45,930 13,743 70,763 (17,709) (4,036) (302) — (6,082) — (25,176) (53,305) 321,711 (83,439) 238,272 (2,431) $ 235,841 $ 3.83 $ 3.80	2001 U.S. Dollars (Note 2) $65,127 677 65,804 (48,047) (45) (48,092) 17,712 (3,769) (4,776) (469) (9,014) 8,698 184 — — 131 2 1,313 393 2,023 (506) (115) (9) — (174) — (720) (1,524) 9,197 (2,385) 6,812 (70) $ 6,742 $ 0.11 $ 0.11

(The accompanying notes form an integral part of the consolidated financial statements)

F-5

SINBON ELECTRONICS CO., LTD. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands)

Description	Common Stock	Capital Surplus	Legal Reserve	Special Reserve	Retained Earnings	Unrealized Losses on Long-term Investments	Cumulative Translation Adjustments
Balance, 1 January 1999 . . . . . Issuance of common stock for cash . . . . . . . . . . . . . . . Distribution of 1998 earnings: Legal reserve . . . . . . . . . . . Stock dividends. . . . . . . . . . Bonus to employees — stock Bonus to employees — cash . Bonus to directors and supervisors . . . . . . . . . . . Capitalization of capital surplus. . . . . . . . . . . . . . Cumulative translation adjustments . . . . . . . . . . Net Income, 1999 . . . . . . . . . . Gain on disposal of property, plant and equipment transferred to capital surplus. Balance, 31 December 1999 . . . Issuance of common stock for cash . . . . . . . . . . . . . . . . . Distribution of 1999 earnings: Legal reserve . . . . . . . . . . . Special reserve . . . . . . . . . . Stock dividends. . . . . . . . . . Cash dividends . . . . . . . . . . Bonus to employees — stock Bonus to employees — cash . Bonus to directors and supervisors . . . . . . . . . . . Capitalization of capital surplus Cumulative translation adjustments . . . . . . . . . . . . Net Income, 2000 . . . . . . . . . . Gain on disposal of property, plant and equipment transferred to capital surplus. Balance, 31 December 2000 . . .	$300,000 37,000 30,000 3,000 30,000	$ 52,612 44,400 (30,000) 301	$ 1,672 3,948	$ —	$ 40,203 (3,948) (30,000) (3,000) (1,286) (1,429) 74,942 (301)	$—	$(2,855) 2,662
	400,000 32,000 44,000 8,000 16,000	67,313 64,000 (16,000) 38	5,620 7,464	— 193	75,181 (7,464) (193) (44,000) (12,000) (8,000) (666) (2,000) 163,535 (38)	—	(193) 3,893
	$500,000	$115,351	$13,084	$193	$164,355	$—	$3,700

(The accompanying notes form an integral part of the consolidated financial statements)

F-6

SINBON ELECTRONICS CO., LTD. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY — (Continued) FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001 (Expressed in Thousands)

Description	Common Stock	Capital Surplus	Legal Reserve	Special Reserve	Retained Earnings	Unrealized Losses on Long-term Investments	Cumulative Translation Adjustments
Balance, 31 December 2000 . . Distribution of 2000 earnings: Legal reserve . . . . . . . . . . Stock dividends. . . . . . . . . Bonus to employees — stock Cash dividends . . . . . . . . . Bonus to employees — cash Bonus to directors and supervisors . . . . . . . . . . Unrealized losses on long-term investments . . . . . . . . . . . Cumulative translation adjustments . . . . . . . . . . . Net Income, 2001 . . . . . . . . . Balance, 31 December 2001 . . Balance, 31 December 2001 (in U.S.$). . . . . . . . . . . . .	500,000 100,000 15,000	115,351	13,084 16,350	193	164,355 (16,350) (100,000) (15,000) (20,000) (3,795) (5,783) 235,841	— (2,663)	3,700 8,106
	$615,000	$115,351	$29,434	$193	$239,268	$(2,663)	$11,806
	$ 17,581	$ 3,298	$ 841	$ 6	$ 6,840	$ (76)	$ 338

(The accompanying notes form an integral part of the consolidated financial statements)

F-7

SINBON ELECTRONICS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands)

Cash Flows from Operating Activities: Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: Minority interests in consolidated subsidiaries. . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment, net. . . . . . . Loss on disposal of long-term investment, net . . . . . . . . . . . . . Decrease (Increase) in short-term investments . . . . . . . . . . . . . Investment loss (income) . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in notes and accounts receivable, net . . . . . Increase in inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in prepayments . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in other current assets . . . . . . . . . . . . . . . Decrease in deferred pension costs . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in deferred income tax assets — non-current Increase (Decrease) in notes payable . . . . . . . . . . . . . . . . . . . Increase in accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . Increase in accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . Increase (Decrease) in income taxes payable. . . . . . . . . . . . . . Increase in advance receipts . . . . . . . . . . . . . . . . . . . . . . . . . Increase (Decrease) in other current liabilities. . . . . . . . . . . . . Increase (Decrease) in deferred income tax liabilities . . . . . . . . Decrease in deferred profit . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in minority interests . . . . . . . . . . . . . . . . . . . . . . . . Decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in accrued pension liabilities . . . . . . . . . . . . . . . . . . Net Cash Provided by (Used in) Operating Activities . . . . . . . . . . Cash Flows from Investing Activities: Increase in long-term investments . . . . . . . . . . . . . . . . . . . . . Disposal of long-term investments . . . . . . . . . . . . . . . . . . . . . Purchase of property, plant and equipment . . . . . . . . . . . . . . . Proceeds from sales of property, plant and equipment . . . . . . . Increase in intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in restricted deposits . . . . . . . . . . . . . . . . Decrease (Increase) in refundable deposits . . . . . . . . . . . . . . . Increase in deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in other assets. . . . . . . . . . . . . . . . . . . . . Increase (Decrease) in consolidated credits . . . . . . . . . . . . . . . Net Cash Provided by (Used in) Investing Activities . . . . . . . . . .	1999 $74,942 2,784 1,231 12,700 288 — (5,771) (1,820) (329,678) (111,374) (2,238) (16,513) 3,640 1,635 101,499 157,388 17,375 (5,012) 896 3,634 — (1,481) — 324 1,608 (93,943) (1,064) 17,550 (92,151) 1,255 — (136,865) 285 (3,500) (23) 8,237 (206,276)	2000 NT Dollars $163,535 1,910 3,286 17,056 865 — 6,042 (2,964) 34,699 (15,342) 2,404 39 313 (3,441) (136,162) 132 9,933 26,115 330 11,110 (1,298) — 23,818 152 5,026 147,558 (14,384) — (25,773) 326 — 56,986 743 (1,782) (68) (1,589) 14,459	2001 $235,841 2,431 2,484 22,261 2,379 (3,887) — 4,696 (241,593) (49,301) (23,860) 9,616 — 564 (4,982) 120,606 20,468 2,818 4,782 (5,534) 7,356 — 34,866 — 4,916 146,927 (126,510) 6,534 (216,726) 1,066 (27,958) (12,696) (277) (4,197) 58 (1,589) (382,295)	2001 U.S. Dollars (Note 2) $6,742 69 71 636 68 (111) — 134 (6,907) (1,409) (682) 275 — 16 (142) 3,448 585 81 137 (158) 210 — 997 — 141 4,201 (3,617) 187 (6,196) 30 (799) (363) (8) (120) 2 (45) (10,929)

(The accompanying notes form an integral part of the consolidated financial statements)

F-8

SINBON ELECTRONICS CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued) FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands)

Cash Flows from Financing Activities: Increase (Decrease) in short-term borrowings . . . . . . . . . . . . . Increase (Decrease) in long-term loans. . . . . . . . . . . . . . . . . . Increase in convertible bonds payable . . . . . . . . . . . . . . . . . . Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . Bonus to directors and supervisors. . . . . . . . . . . . . . . . . . . . . Bonus to employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Cash Provided by (Used in) Financing Activities . . . . . . . . . . Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . Cash and Cash Equivalents, Beginning of Year . . . . . . . . . . . . . . Cash and Cash Equivalents, End of Year . . . . . . . . . . . . . . . . . . Supplementary Disclosure of Cash Flow Information: Interest paid (net of amount capitalized). . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash Investing and Financing Activities: Current portion of long-term loans payable . . . . . . . . . . . . . . . Transfer of retained earnings and employees’ bonus to common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization of capital surplus to common stock . . . . . . . . . .	1999 100,217 108,777 — 81,400 (1,428) (1,286) (3,769) 283,911 (16,308) 111,003 $94,695 $10,151 $30,056 $ 1,164 $33,000 $30,000	2000 NT Dollars (106,530) (2,205) — 96,000 (2,000) (666) (12,000) (27,401) 134,616 94,695 $229,311 $15,107 $30,796 $52,333 $52,000 $16,000	2001 151,042 (53,824) 401,332 — (5,783) (3,795) (20,000) 468,972 233,604 229,311 $462,915 $ 16,291 $ 67,676 $ 5,000 $115,000 $ —	2001 U.S. Dollars (Note 2) 4,318 (1,539) 11,473 — (165) (108) (572) 13,407 6,679 6,555 $13,234 $ 466 $ 1,935 $ 143 $ 3,288 $ —

(The accompanying notes form an integral part of the consolidated financial statements)

F-9

SINBON ELECTRONICS CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands, unless otherwise stated)

1. ORGANIZATION AND OPERATIONS

(1) Parent Company:

Sinbon Electronics Co., Ltd. (the Company) was incorporated in 1989. The main activities of the Company include manufacturing and selling computer peripherals, connectors, wires and other parts. The shares of the Company commenced trading on Taiwan’s Over-the Counter Market in May 2001.

(2) Consolidated Subsidiaries:

a. Beijing Sinbon Electronics Co., Ltd. (BJSB) was incorporated in Beijing, China. The main activities are manufacturing and selling a wide variety of connectors, wires and cables. The Company owned 75 per cent. of the shares of BJSB as of 31 December 1999, 2000 and 2001.
b. Tokyo Sinbon Electronics Co., Ltd. (TKSB) was incorporated in Tokyo, Japan. The main activities are selling a variety of connectors, wires and cables. The Company owned 100 per cent. of the shares of TKSB as of 31 December 1999, 2000 and 2001.
c. Hong Kong Sinbon Electronics Co., Ltd. (HKSB) was incorporated in Hong Kong. The main activities are selling a wide variety of connectors, wires and cables. The Company owned 100 per cent. of the shares of HKSB as of 31 December 1999, 2000 and 2001.
d. Sinbon International Enterprise Co., Ltd. (Sinbon B.V.I.) was incorporated in the British Virgin Islands (B.V.I.) in 2000. The Company owned 100 per cent. of the shares of Sinbon B.V.I. as of 31 December 2000 and 2001.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Basis of Consolidation

a. Basis of Preparation

The accompanying consolidated financial statements have been prepared using accounting principles, procedures and reporting practices generally accepted in the Republic of China in Taiwan (R.O.C.). Accordingly, the accompanying consolidated balance sheets and related statements of operations and cash flows are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries or jurisdictions other than the Republic of China in Taiwan.

b. Principles of Consolidation
(a) The consolidated financial statements include the accounts of the Company and the consolidated financial statements of Beijing Sinbon Electronics Co., Ltd., Hong Kong Sinbon Electronics Co., Ltd., Tokyo Sinbon Electronics Co., Ltd. and Sinbon International Enterprise Co., Ltd. after eliminating all significant intercompany accounts and transactions.
(b) For long-term investments in which the Company owns more than 50 per cent. of the voting rights of the subsidiaries, consolidated financial statements are prepared. However, pursuant to the R.O.C. Securities and Futures Commission (SFC) regulations, if the total assets and the operating income of a subsidiary are less than 10 per cent. of the respective non-consolidated total assets and operating income of the Company, the subsidiary’s financial statements are not consolidated and are

F-10

accounted for using the equity method of accounting. However, when the total combined assets or operating income of all such non-consolidated subsidiaries represent more than 30 per cent. of the Company’s non-consolidated total assets or operating income then these subsidiaries assets should be consolidated.

(c) Shanghai Sinbon Co., Ltd., Sinbon Shenzhen Electronics Co., Ltd., and Sinbon Technologies, L.L.C. (in which the Company owns more than 50 per cent. of the voting rights) were not included in the consolidated financial statements. These subsidiaries did not meet the criteria for consolidation described above.
c. Change in consolidated entities

An investee company, Sinbon International Enterprise Co., Ltd. in which the Company owns more than 50 per cent. of the voting rights in 2000, did not meet the criteria for consolidation described above. In 2001, Sinbon International Enterprise Co., Ltd. met the criteria for consolidation and was included in the consolidated financial statements. Accordingly, the 2000 consolidated financial statements were restated to include the financial statements of Sinbon International Enterprise Co., Ltd. to conform with the presentation adopted for 2001.

(2) Foreign-currency Transactions

a. The accounts of the Company are maintained in New Taiwan Dollars (NTD). Transactions denominated in foreign currencies are translated into New Taiwan Dollars at the rates of exchange in effect when the transactions occur.
b.
Functional currencies of the respective subsidiaries are presented below:

Subsidiaries Beijing Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hong Kong Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sinbon International Enterprise Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Jiang Yin Sinbon Electronics Co., Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Functional Currency
	RMB HKD JPY USD RMB

Subsidiaries
Beijing Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hong Kong Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sinbon International Enterprise Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jiang Yin Sinbon Electronics Co., Ltd.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Functional Currency

RMB
HKD
JPY
USD
RMB

c. Foreign exchange gains or losses resulting from exchange rate fluctuations between the transaction date and the actual settlement date are recognized as follows:
(a) When the transaction date and the actual settlement date fall in the same accounting period, the differences between the recorded amount and the settled amount are credited to or charged against current income.
(b) When the transaction date and the actual settlement date fall in different accounting periods, receivables and payables denominated in foreign currencies are restated using the spot rates prevailing on the balance sheet date. Any resulting gains or losses are reflected in the statement of operations.

The financial statements of all foreign subsidiaries were prepared in their respective local currencies and translated into New Taiwan Dollars. Assets and liabilities are translated from the foreign subsidiary’s functional currency using the current exchange rate at the balance sheet date. Equity accounts are translated at their historical exchange rates. Profit and loss accounts are translated using the weighted average exchange rate for the period. Gains or losses from translation of foreign subsidiaries are recorded as translation adjustments and are reported as a separate component of shareholders’ equity.

F-11

(3) Convenience Translation into United States Dollars

The Company prepares its financial statements in New Taiwan dollars, its reporting currency. The United States dollar (USD) amounts disclosed in the financial statements as of and for the year ended 31 December 2001, are presented solely for the convenience of the reader and were translated at the average of buying and selling rates of NT$34.98 to U.S.$1.00 in effect as at 31 December 2001. No representation is made that the NT Dollar amounts represent, or have been, or could be, converted into USD at that or any other rate.

(4) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks and all highly liquid investments purchased with an original maturity of three months or less that are readily convertible to known amounts of cash.

(5) Short-term Investments

Short-term Investments are recorded at cost and valued at the lower of cost or market value at the balance sheet date. Cost is determined using the weighted-average method.

(6) Allowance for Doubtful Accounts

Allowance for doubtful accounts represents management estimates of the uncollectible amounts included in notes receivable and accounts receivable at the balance sheet date.

(7) Inventories

Inventories are stated at the lower of cost or market value. Cost is determined using the weighted-average method, while market value represents the net realizable value for finished goods and merchandise, and replacement cost for raw materials, supplies and work in process.

(8) Long-term Investments

Long-term investments in which the Company owns less than 20 per cent. of the investee company’s outstanding shares and has no significant influence on the operational decisions of the investee company, are accounted for by the lower of cost or market value method if the investee company is listed and at cost if the investee company is unlisted.

Investment income or loss from investments in both listed and unlisted companies is accounted for using the equity method of accounting, provided that the Company owns over 20 per cent. of the outstanding shares of the listed and unlisted companies. The difference between the original cost of the investment and the underlying net equity of the investee company at the date of investment is amortized over 5 years.

(9) Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives.

The useful lives are summarized as follows:

Items
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Useful Lives

5–40 years
3–10 years
5 years
3–10 years
2–15 years

Major replacements, renewals and betterments are capitalized, while maintenance and repairs are expensed.

F-12

Interest incurred in connection with the construction or acquisition of property, plant and equipment is capitalized as part of the cost of the assets.

Gains on the disposal of property, plant and equipment are recognized as non-operating income. The amount net of applicable taxes is applied to capital surplus in the year of disposal. Losses on abandonment or disposal of property, plant and equipment are categorized as non-operating expenses.

Effective 2001 further to changes in the regulations by the Ministry of Economic Affairs in the R.O.C., any gains are no longer transferred to capital surplus in the year of disposal.

(10) Convertible Bonds

a. The excess of the estimated redemption price over the par value is recognized as interest expense at the effective interest rate and a liability is recorded as ‘‘Interest Payable on Redemption.’’ The variance between book value as of the redemption date and the actual redemption price is recognized as interest expense.
b. When a bondholder exercises his/her conversion rights, the book value of bonds is credited to common stock at an amount equal to the par value of the stock and the excess is credited to capital surplus. No gain or loss is recognized on bond conversion.

(11) Pensions

According to the Labor Standards Law of the Republic of China (‘‘the Law’’), the Company established an Employee Retirement Fund (‘‘the Fund’’) Its contributions to the Fund are 2 per cent. of the total salaries and wages. The Fund has been administered by the Employee Retirement Fund Committee of the Company as prescribed by the Law, and is maintained under the Committee’s name with a government-approved financial institution. The Fund is totally independent from the Company, and is hence excluded from the financial statements.

Effective from 1997, the Company adopted, on a prospective basis, Statement of Financial Accounting Standards (SFAS) No. 18 of Taiwan ‘‘Accounting for Pensions.’’ Based on the actuarial report with a measurement date of 31 December 1997, the excess of the accumulated benefit obligations over plan assets is recognized as the minimum pension liability. Net pension costs based on the actuarial report are recognized from 1 January 1998, and the unrecognized net asset or obligation at transition is amortized equally over 15 years.

BJSB, HKSB, TKSB and Sinbon B.V.I. did not maintain any pension plans for the benefit of their employees. However, these subsidiaries contributed to the fund administrated by local governments at a certain percentage of salaries and wages and expensed these contribution currently.

(12) Legal Reserve

The Company appropriates 10 per cent. of the Company’s net income to the legal reserve.

(13) Special Reserve

Special reserve is created to account for deficit balances in other components of shareholders’ equity. The special reserve will be subsequently adjusted once the other balances are no longer in a deficit position.

(14) Recognition of Revenue

In general, revenue is recognized only after the earning process is substantially completed and the revenue is realized or realizable.

F-13

(15) Income Taxes

The Company adopted the Statement of Financial Accounting Standard No. 22 of Taiwan (SFAS No. 22), ‘‘Accounting for Income Taxes. ‘‘ Under SFAS No. 22, a current income tax liability or asset is recognized for the estimated taxes payable or refundable for the current year, and a deferred tax or liability is recognized for the estimated future tax effects attributable to temporary differences, tax credits, and loss carryforwards. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company’s undistributed retained earnings are subject to an additional 10 per cent. income tax which is expensed as of the date of the shareholders’ meeting when the appropriation of earnings is resolved.

(16) Earnings Per Common Share

Basic earnings per share (EPS) is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding in the year. Shares issued for cash are weighted for the portion of the period they were outstanding, whereas shares issued as a result of stock dividends , capitalization of employee dividends or capitalization of capital surplus are given retroactive recognition to the appropriate equivalent change in capital structure for the entire period. Diluted EPS reflects the potential dilution that could occur if dilutive securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

3. REASON AND EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE

The transfer of gains on disposal of property, plant and equipment from retained earnings to additional paid-in-capital was required under R.O.C Company Law prior to 1 January 2001. Pursuant to an amendment of the Company Law, a company, effective in 2001, shall no longer make such transfers for gains on disposal of property, plant and equipment. This change had no significant effect on the Company’s financial statements as of 31 December 2001.

4. SUMMARY OF SIGNIFICANT ACCOUNTS

a. Cash and Cash Equivalents

Cash and cash equivalents as of 31 December 1999, 2000 and 2001 consisted of the following:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Allowance for foreign exchange gains . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $ 801 92,545 93,346 1,349 $94,695	2000 NT Dollars $ 2,488 226,738 229,226 85 $229,311	2001 $ 1,150 460,991 462,141 774 $462,915	2001
				U.S. Dollars $ 33 13,179
				13,212 22
				$13,234

b. Short-term Investments

Short-term Investment as of 31 December 1999, 2000 and 2001 consisted of the following:

Investment in mutual funds. . . . . . . . . . . . . . . . . .	1999 $6,042	2000 NT Dollars $—	2001 $—	2001
				U.S. Dollars $—

F-14

c. Notes and Accounts Receivable, Net

Notes and accounts receivables as of 31 December 1999, 2000 and 2001 consisted of the following:

Notes receivable, net . . . . . . . . . . . . . . . . . . . . . . Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for doubtful accounts . . . . . . . . . Add (Less): Allowance for foreign exchange gains (losses). . . . . . . . . . . . . . . . . . Accounts receivable, net. . . . . . . . . . . . . . . . . . . . Accounts receivable — related parties . . . . . . . . . . Add: Allowance for foreign exchange gains . . . . . Accounts receivable — related parties . . . . . . . . . . Notes and accounts receivable, net . . . . . . . . . . . .	1999 $133,962 438,415 (4,112) (126) 434,177 1,005 — 1,005 $569,144	2000 NT Dollars $ 82,893 426,797 (8,504) 4,296 422,589 28,769 184 28,953 $534,435	2001 $ 79,749 649,240 (9,429) 4,677 644,488 46,704 191 46,895 $771,132	2001 U.S. Dollars $ 2,280 18,560 (270) 134 18,424 1,335 6 1,341 $22,045

As at 31 December 1999, 2000, and 2001, accounts receivable denominated in foreign currencies in the financial statements are credited to or charged against current income using the current exchange rate at the balance sheet date and are accounted for separately as an allowance for foreign exchange gains or losses.

d. Inventories, Net

Inventories as of 31 December 1999, 2000 and 2001 included the following:

Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . Supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for decline in market value and obsolescence. . . . . . . . . . . . . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $ 63,974 334 19,288 71,642 66,358 221,596 (6,867) $214,729	2000 NT Dollars $ 87,952 572 12,632 59,709 78,603 239,468 (9,397) $230,071	2001 $124,139 658 17,696 84,873 69,702 297,068 (17,696) $279,372	2001 U.S. Dollars $3,549 19 506 2,426 1,993 8,493 (506) $7,987

Inventories were insured for the sum of NT$76,000, NT$100,000 and NT$150,000 as at 31 December 1999, 2000 and 2001, respectively.

F-15

e. Long-term Investments

Long-term investment as of 31 December 1999, 2000 and 2001 consisted of the following:

Investee Shanghai Sinbon Electronics Co., Ltd. . . Sinbon Technologies, L.L.C. . . . . . . . . . . . . Sinbon Shenzhen Electronics Co., Ltd. . . Korea Sinbon Electronics Co., Ltd. . . . . . . . . . . Niigata Seimitsu Co., Ltd. Mobility Electronics Inc. . Argosy Technology Co., Ltd.. . . . . . . . . . . . . . Golden Bridge Technology Co., Ltd. . . . . . . . . . . Hantechnic, Inc. . . . . . . . General Research of Electronics, Inc. . . . . . Etherwan Systems Inc. . . . Top Taiwan 3 Venture Capital Co., Ltd. . . . . . Less: Allowance for investment losses . Subtotal . . . . . . . . . . . . . Other investments: Club Membership . . . . . . Total . . . . . . . . . . . . . . .	1999 % NT Dollars 100.00 $ — — — — — — — 0.68 13,460 0.03 4,010 0.38 1,064 — — — — — — — — — — — — 18,534 — 2,361 $20,895	2000 % NT Dollars 100.00 $ 2,963 — — — — — — 0.68 13,460 0.03 4,010 0.38 1,064 1.21 14,775 5.00 4,800 — — — — — — — — 41,072 — 2,361 $43,433		2001	U.S. Dollars $ 91 35 190 26 385 115 30 460 319 663 1,133 1,429 (101) 4,775 68 $4,843	Valuation Method
	% 100.00 — — — 0.68 0.03 0.38 — — — — — — —	% 100.00 — — — 0.68 0.03 0.38 1.21 5.00 — — — — —	% 100.00 100.00 100.00 37.50 0.46 0.03 0.38 1.17 6.81 7.50 19.90 5.00	NT Dollars $ 3,184 1,236 6,637 922 13,460 4,010 1,064 16,098 11,175 23,184 39,645 50,000 (3,551) 167,064 2,361 $169,425		Equity method Equity method Equity method Equity method Cost method The lower of cost or market value method Cost method Cost method Cost method Cost method Cost method Cost method The lower of cost or market value method

f. Property, Plant, and Equipment, Net

(1) Property, plant and equipment as of 31 December 1999, 2000 and 2001 consisted of the following:

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment. . . . . . . . . . . . . . Transportation equipment . . . . . . . . . . . . . . Furniture, fixtures and equipment . . . . . . . . Other equipment . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . Leased assets . . . . . . . . . . . . . . . . . . . . . . Prepayments for equipments . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Accumulated depreciation. . . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $124,067 170,532 45,501 2,943 14,121 8,703 1,606 — — 367,473 (43,866) $323,607	2000 NT Dollars $123,608 171,709 57,198 3,327 22,501 8,638 453 194 123 387,751 (56,617) $331,134	2001 $123,608 322,255 103,354 4,240 30,493 12,802 730 527 160 598,169 (76,138) $522,031	2001
				U.S. Dollars $ 3,533 9,213 2,955 121 872 366 21 15 5
				17,101 (2,177)
				$14,924

F-16

(2) Property, plant and equipment were insured for possible losses in the sum of NT$185,498, NT$190,973 and NT$185,455 as at 31 December 1999, 2000 and 2001, respectively.
(3) Interest incurred in connection with the acquisition of property, plant and equipment was capitalized as part of the cost of the assets in the sum of NT$1,796 in 1999. No interest was capitalized in 2000 and 2001.

g.

Short-term Borrowings

(1) Short-term borrowings as of 31 December 1999 are summarized as follows:

Creditors Bank of Taiwan Miaoli Branch. . . . . . . . . . . . . Fuji Bank Taipei Branch . . Hsinchu International Bank Miaoli Branch. . . . . . . . Total . . . . . . . . . . . . . . . . Add: Allowance for foreign exchange loss . . . . . . . . . . . . Net . . . . . . . . . . . . . . . . .	Type Secured loan Secured loan Credit loan Secured loan Secured loan Secured loan	Interest Rate 7.70% 7.70% 7.45%–8.08% 1.28% 8.00% 1.88%	Facility NTD15,000 NTD3,300 NTD40,000 JPY500 million NTD10,000 USD1,200,000	Balance NTD 15,000 3,300 40,000 107,722 10,000 32,447 208,469 3,688 NTD212,157	Collateral
					Land and Building Land — Time Deposits Building Time Deposits

(2) Short-term loans as of 31 December 2000 are summarized as follows:

Creditors Bank of Taiwan Miaoli Branch. . . . . . . . . . . . . Bank of Taiwan Hong Kong Branch. . . . . . . . . . . . . Bank Sinopac . . . . . . . . . . Chailease Finance . . . . . . . Total . . . . . . . . . . . . . . . .	Type Secured loan Credit loan Credit loan Credit loan Credit loan	Interest Rate 7.45% 7.45% 2.30% 1.91% TIBOR 30 DAYS+1%	Facility NTD58,300 NTD20,000	Balance NTD 38,300 10,000 25,824 12,468 19,035 NTD105,627	Collateral
					Land and Building — — — —

F-17

(3) Short-term borrowings as of 31 December 2001 are summarized as follows:

Creditors Bank of Taiwan Miaoli Branch. . . . The Dai-Ichi Kangyo Bank, Ltd. Taipei Branch. . . . . . . . . Hsinchu International Bank Miaoli Branch. . . . . . . . . Ta Chong Bank Ltd. . Bank of Taiwan Hong Kong Branch . . . . Ta Chong Bank Ltd. . Agriculture Bank of China Jiang-Yin Branch. . . . . . . . . Total . . . . . . . . . . . . Less: Allowance for foreign exchange gains Net . . . . . . . . . . . . .	Type Credit loan Secured loan Secured loan Secured loan Credit loan Credit loan Secured loan	Interest Rate 7.45% 7.45% 7.45% 1.30% 1.75% 1.3% 5.85%	Facility NTD43,300 JPY500 million NTD50,000 — — — —	Balance NT Dollars U.S. Dollars $ 43,300 $1,238 33,719 964 50,000 1,429 57,323 1,639 31,896 912 26,580 760 16,911 483 259,729 7,425 (3,060) (87) $256,669 $7,338	Collateral
				NT Dollars $ 43,300 33,719 50,000 57,323 31,896 26,580 16,911 259,729 (3,060) $256,669	Land Time Deposits Building Time Deposits — — Land rights

h. Accrued Liabilities

Accrued expenses as of 31 December 1999, 2000 and 2001 are summarized as follows:

Accrued salaries and wages . . . . . . . . . . . . . . . . . Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Allowance for foreign exchange loss . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $16,623 2,646 683 15,731 — $35,683	2000 NT Dollars $20,493 2,285 1,308 21,487 43 $45,616	2001 $23,456 2,032 4,344 36,249 3 $66,084	2001
				U.S. Dollars $ 671 58 124 1,036 —
				$1,889

i. Convertible Bonds

Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Interest payable on redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December 2001 NT Dollars $400,000 1,332 $401,332	31 December 2001
		U.S. Dollars $11,435 38
		$11,473

On 5 December 2001, the Company issued NT$400 million non-interest bearing convertible bonds (the Bonds). The Bonds have a term of five years and mature on 4 December 2006. The conversion price was initially set at NT$33.06 per share on the issuance date which will be adjusted for any capital increase. The bondholders may require the Company to redeem the bonds for cash at 114.12 per cent. of the bond principal amount as of 5 December 2004 or 121.55 per cent. of the bond principal amount as of 5 December 2005. The investors may convert the Bonds into the Company’s common stock from 5 March 2002 to 24 November 2006.

F-18

j. Long-term Loans

(1) Long-term loans as of 31 December 1999 are summarized as follows:

Creditors Bank of Taiwan . . . . . . Hsinchu International Bank . . . . . . . . . . . . Chailease Finance . . . . . Tokyo Shinyokinko . . . . Bank of Taiwan — Tokyo Branch. . . . . . . . . . . Total . . . . . . . . . . . . . . Less: Current portion . . Net . . . . . . . . . . . . . . .	Type Secured loan Secured loan Credit loan Credit loan Credit loan	Duration 1999.10.6– 2014.10.6 1999.5.4– 2006.5.4 1999.10.14– 2001.10.14 1999.9.24– 2005.9.24 1999.2.27– 2001.2.27	Interest Rate 7.70% 8.00% 1.75% 2.30% 2.00%	Facility NTD65,000 NTD10,000	Balance NTD 65,000 9,364 5,532 20,494 36,888 137,278 (1,164) NTD136,114	Collateral
						Building Building — — —

(2) Long-term loans as of 31 December 2000 are summarized as follows:

Creditors Bank of Taiwan . . . . . . Chailease Finance . . . . . Tokyo Shinyokinko . . . . Bank of Taiwan Tokyo Branch. . . . . . . . . . . Total . . . . . . . . . . . . . . Less: Current portion . . Net . . . . . . . . . . . . . . .	Type Secured loan Credit loan Credit loan Credit loan	Duration 1999.10.6– 2014.10.6 1999.10.14– 2001.10.14 1999.9.24– 2005.9.24 1999.2.27– 2001.2.27	Interest Rate 7.70% 1.75% 2.30% 2.00%	Facility NTD65,000	Balance NTD65,000 43,350 24,989 1,734 135,073 (52,333) NTD82,740	Collateral
						Building — — —

(3) Long-term loans as of 31 December 2001 are summarized as follows:

Creditors Bank of Taiwan . . . Tokyo Shinyokinko . Total . . . . . . . . . . . Less: Current portion. . . . . Net . . . . . . . . . . . .	Type Secured loan Credit loan	Duration 1999.10.6– 2014.10.6 1999.9.24– 2005.9.24	Interest Rate 6.85%– 7.70% 2.06%	Facility NTD65,000 —	Balance NT Dollars U.S. Dollars $64,167 $1,834 17,082 488 81,249 2,322 (5,000) (143) $76,249 $2,179	Collateral
					NT Dollars $64,167 17,082 81,249 (5,000) $76,249	Building —

F-19

k. Pension Plan

(1) The Company has adopted Statement of Financial Accounting Standard (SFAS) No. 18 of Taiwan ‘‘Accounting for Pensions’’ and recognized net pension costs. The net pension costs for 1999, 2000 and 2001 consisted of the following:

Service cost . . . . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . . . . Expected returns on plan assets. . . . . . . . . . Amortization of transitional net obligations. . Net pension cost . . . . . . . . . . . . . . . . . . . .	1999 $5,297 1,503 (238) 808 $7,370	2000 NT Dollars $5,715 1,720 (392) 698 $7,741	2001 $5,763 1,814 (524) 698 $7,751	2001
				U.S. Dollars $165 52 (15) 20
				$222

(2) The reconciliation between the funding status of the pension plan and the accrued pension liabilities as of 31 December 1999, 2000 and 2001 was as follows:

Benefit obligations: Vested benefits . . . . . . . . . . . . . . . . . . . Non-vested benefits . . . . . . . . . . . . . . . . Accumulated benefit obligations . . . . . . . Effect of projected future salary increases Projected benefit obligations . . . . . . . . . . Fair value of plan assets. . . . . . . . . . . . . . . Status of pension plan . . . . . . . . . . . . . . . . Unrecognized transitional net obligations . . . Unrecognized pension losses or gains. . . . . . Accrued pension liabilities . . . . . . . . . . . . .	1999 $ — (13,365) (13,365) (13,097) (26,462) 6,030 (20,432) 10,470 395 $ (9,567)	2000 NT Dollars $ — (18,364) (18,364) (11,875) (30,239) 8,744 (21,495) 9,773 (2,872) $(14,594)	2001 $ — (27,496) (27,496) (14,226) (41,722) 12,098 (29,624) 9,075 1,039 $(19,510)	2001
				U.S. Dollars $ — (786)
				(786) (407)
				(1,193) 346
				(847) 259 30
				$ (558)

(3) The balance of the pension fund of the Company which is deposited with the Central Trust of China, was NT$6,030, NT$8,744 and NT$12,098 as of 31 December 1999, 2000 and 2001, respectively.
(4) As of 31 December 1999, 2000 and 2001, there were no vested benefits in the Company’s pension plan.
(5) The underlying assumptions for determining the actuarial present value of the benefit obligations were as follows:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of increase in future compensation levels . . . . . . . . . . . Expected long-term rate of return on plan assets . . . . . . . . . .	1999 6.50% 4.00% 6.50%	2000 6.00% 3.00% 6.00%	2001
			4.50% 2.50% 4.50%

l. Shareholders’ Equity
(1) Capital stock

As of 1 January 1999, the Company’s authorized capital stock was NT$500,000. The issued and outstanding share capital was NT$300,000, divided into 30,000,000 shares with par value of NT$10 each. Based on the resolution adopted at the annual shareholders’ meeting on 5 June 1999, the Company issued 3,700,000 common shares at NT$22 per share, declared stock dividends paid out of both of retained earnings and capital surplus in the amount of NT$30,000, respectively, and capitalized a bonus to employees in the amount of NT$3,000. As of 31

F-20

December 1999, the Company’s authorized capital stock was NT$500,000. The issued and outstanding share capital was NT$400,000 divided into 40,000,000 shares with par value of NT$10 each.

Based on a resolution adopted at the annual shareholders’ meeting on 12 June 2000 the Company declared stock dividends paid out of retained earnings and capital surplus in the amount of NT$44,000 and NT$16,000, respectively. A capitalized bonus to employees in the amount of NT$8,000 was also approved. Based on a resolution of the board of directors dated 3 October 2000, the Company issued 3,200,000 shares at NT$30 per share. The change in registered capital stock was approved by the Ministry of Economic Affairs on 20 November 2000. As of 31 December 2000, the Company’s authorized, issued and outstanding share capital was NT$500,000 divided into 50,000,000 shares at par value of NT$10 each.

Based on a resolution adopted at the annual shareholders’ meeting on 12 April 2001, the Company declared stock dividends paid out of retained earnings in the amount of NT$100,000 and capitalized a bonus to employees in the amount of NT$15,000. The change in registered capital stock was approved by the Ministry of Economic Affairs on 16 July 2001. Based on a resolution adopted at a shareholders’ meeting on 14 August 2001, the Company changed its authorized share capital to NT$1,500,000. The change in the registered capital stock was approved by the Ministry of Economic Affairs on 19 October 2001. As of 31 December 2001, the Company’s authorized share capital was NT$1,500,000 and the issued and outstanding share capital was NT$615,000 divided into 61,500,000 shares at par value of $10 each.

(2) Capital surplus

Capital surplus as of 31 December 1999, 2000 and 2001 consisted of the following:

Paid-in capital in excess of par . . . . . . . . . . Gain on disposal of property, plant and equipment, net of income tax . . . . . . . . . Acquisition of business . . . . . . . . . . . . . . .	1999 $66,048 560 705 $67,313	2000 NT Dollars $114,048 598 705 $115,351	2001 $114,048 598 705 $115,351	2001
				U.S. Dollars $3,261 17 20
				$3,298

As prescribed by the Company Law of Taiwan, capital surplus can only be applied to offset accumulated deficits and to issue capital. No dividend distribution can be made therefrom.

(3) Legal reserve

The Company Law stipulates that companies must retain at least 10 per cent. of their annual earnings, as defined in the Law, until such retention equals the amount of the paid-in capital. This retention is accounted for as a legal reserve account.

Once the balance of legal reserve equals or exceeds one-half of the amount of the paid-in capital, 50 per cent. of the reserve may be transferred to common stock . The legal reserve can not be distributed as cash dividends to stockholders. However, it can be used at any time to cover deficit.

m. Operating Revenues

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commission revenue . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $1,636,221 81,921 $1,718,142	2000 NT Dollars $1,863,639 53,810 $1,917,449	2001 $2,278,155 23,658 $2,301,813	2001
				U.S. Dollars $65,128 676
				$65,804

F-21

n. Income Taxes

(1) The Company’s income tax returns through 1999 have been assessed by the Tax Authority.
(2) The Company has adopted SFAS No. 22 of Taiwan, ‘‘Accounting for Income Taxes.’’ The enacted tax rate for the Company for the current year is 25 per cent.. The tax rates for Beijing Sinbon Electronics Co., Ltd., Hong Kong Sinbon Electronics Co., Ltd., and Tokyo Sinbon Electronics Co., Ltd. are 12 per cent., 16 per cent. and 40.6 per cent., respectively. Disclosures required under SFAS No. 22 are summarized as follows:

(a) Total deferred income tax assets . . . . (b) Total deferred income tax liabilities . . (c) Temporary differences attributed to the deferred income tax assets/liabilities: Provision to reduce inventory to market value. . . . . . . . . . . . . . . Investment income under equity method . . . . . . . . . . . . . . . . . . Unrealized foreign currency exchange gains . . . . . . . . . . . . . Cumulative translation adjustments . Employee welfare . . . . . . . . . . . . . Unrealized intercompany profits . . . Unfunded pension liability . . . . . . . Imputed profit of consignment . . . . Unrealized loss on long-term investments . . . . . . . . . . . . . . . Other. . . . . . . . . . . . . . . . . . . . . . Operating loss carry forward. . . . . . (d) Deferred income tax assets — current Deferred income tax liabilities — current. . . . . . . . . . . Net deferred income tax assets — current . . . . . . . . . . . . . (e) Deferred income tax assets — non-current. . . . . . . . . . . Deferred income tax liabilities — non-current . . . . . . . Net deferred income tax assets — non-current. . . . . . . . . . . . . . . . .	1999 $4,943 1,101 5,956 (3,436) (970) 930 2,689 943 9,253 — — — — $1,896 (242) $1,654 $3,047 (859) $2,188	2000 NT Dollars $13,587 $7,475 5,956 (13,029) (8,893) (4,261) 2,276 748 14,446 3,366 — — 14,303 $ 3,635 (3,152) $483 $ 9,952 (4,323) $ 5,629	2001 $12,714 20,195 3,917 (45,294) (18,076) (15,668) 1,521 162 19,363 973 3,551 2,307 12,475 $1,729 (4,955) $(3,226) $10,985 (15,240) $(4,255)	2001 U.S. Dollars $ 363 577 112 (1,295) (517) (448) 43 5 554 28 102 66 357 $49 (142) $ (93) $314 (435) $ (121)

F-22

(f) Income tax expense for the years ended 31 December 1999, 2000 and 2001 were as follows:

Income tax — current . . . . . . . . . . . Deferred Income tax Allowance to reduce inventory to market value. . . . . . . . . . . . . . . Investment income from equity method . . . . . . . . . . . . . . . . . . Unrealized foreign currency exchange gains . . . . . . . . . . . . . Reversal of intercompany profits . . . Pension accrual. . . . . . . . . . . . . . . Employee welfare . . . . . . . . . . . . . Consignment sales. . . . . . . . . . . . . Operating loss. . . . . . . . . . . . . . . . Subsidiaries deferred income tax . . . Deferred Income tax expense (benefit) Surtax on undistributed earnings . . . . Income tax expense . . . . . . . . . . . . .	1999 $22,008 — 3,292 2,687 440 (1,312) (501) — — — 4,606 2,516 $29,130	2000 NT Dollars $60,080 — 2,398 1,981 49 (1,298) 103 (842) (5,913) — (3,522) 346 $56,904	2001 $71,820 510 8,066 2,296 146 (1,229) 189 598 742 (277) 11,041 578 $83,439	2001
				U.S. Dollars $2,053 15 231 66 4 (35) 5 17 21 (8)
				316 16
				$2,385

o. Earnings Per Common Share

Outstanding common shares, beginning of year . . . . . . . . . . . . . . . Stock issuance for cash on 7 August 1999 . . . . . . . . . . . . . . . . . . Stock dividends, employee bonus shares and capital surplus transferred to common shares in 1999 (total 21%) . . . . . . . . . . . Stock issuance for cash on 2 November 2000 . . . . . . . . . . . . . . . . Stock dividends declared, employee bonus shares and capital surplus transferred to common shares in 2000 (total 17%) . . . . . . . . . . . Stock dividends declared, employee bonus shares and capital surplus transferred to common shares in 2001 (total 23%) . . . . . . . . . . . Weighted average shares outstanding for basic EPS . . . . . . . . . . . . Weighted average shares outstanding for diluted EPS. . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated interest of convertible bonds (net of tax) . . . . . . . . . . . . Adjusted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per common share — in NT Dollars . . . . . . . . . . . . — in U.S. Dollars . . . . . . . . . . . . Diluted earnings per common share — in NT Dollars . . . . . . . . . . — in U.S. Dollars . . . . . . . . . .	1999 30,000,000 1,459,726 6,300,000 — 6,419,154 10,161,142 54,340,022 — NTD74,942 1.38	2000 40,000,000 — — 534,795 6,800,000 10,887,003 58,221,798 — NTD163,535 2.81	2001
			50,000,000 — — — — 11,500,000
			61,500,000
			62,395,010
			NTD235,841
			NTD 999 NTD236,840
			3.83
			0.11
			3.80
			0.11

5. RELATED PARTY TRANSACTIONS

(1) Names and Relationships of Related Parties

Related Parties

Relationship Shanghai

Sinbon Electronics Co.,Ltd . . . . . . . . . . . . . . . . . Sinbon Technologies, L.L.C.. . . . . . . . . . . . . . . . Sinbon Shenzhen Electronics Co.,Ltd . . . . . . . . . . Kwan & Lei Investment Co., Ltd. . . . . . . . . . . . . Argosy Technology Co., Ltd. . . . . . . . . . . . . . . . Liang Chun Hsin. . . . . . . . . . . . . . . . . . . . . . . .

Subsidiary Subsidiary Subsidiary

The chairman of this company is also the Company’s chairman Legal entity director of the Company President of the Company

F-23

(2) Significant Related Party Transactions

a. Sales

1999 Amount % $20,871 1.20 2,802 0.16 — — — — $23,673 1.36	2001 Amount % $70,284 3.09 3,242 0.14 80 — 378 0.02 $73,984 3.25	2001
Amount $20,871 2,802 — — $23,673	Amount $70,284 3,242 80 378 $73,984	Amount
		U.S. Dollars $2,009 93 2 11
		$2,115

b. Purchases

1999 Amount % $181 0.02 — — $181 0.02	2001 Amount % $2,468 0.25 1,939 0.19 $4,407 0.44	2001
Amount $181 — $181	Amount $2,468 1,939 $4,407	Amount
		U.S. Dollars $ 71 55
		$126

c. Notes receivable and accounts receivable

31 December 1999 Amount % $ — — $ 337 — 9,668 2.22 — — — — 10,005 2.22 (9,000) (0.09) $ 1,005 2.13	31 December 2001 Amount % $ 1,010 1.27 $ 146 0.02 46,338 6.70 28 — 383 0.06 46,895 6.78 — — $46,895 6.78	2001
Amount $ — $ 337 9,668 — — 10,005 (9,000) $ 1,005	Amount $ 1,010 $ 146 46,338 28 383 46,895 — $46,895	Amount
		U.S. Dollars $ 29
		$4 $1,325 1 11
		1,341 —
		$1,341

F-24

d. Other receivables

31 December 1999 Amount % $— — — — — — $— —	31 December 2001 Amount % $ 76 0.55 52 0.38 3,932 28.54 $4,060 29.47	2001
Amount $— — — $—	Amount $ 76 52 3,932 $4,060	Amount
		U.S. Dollars $ 2 2 112
		$116

e. Notes payable and accounts payable

31 December 1999 Amount % $126 0.07 $130 0.05 — — — — — — 130 0.05 — — $130 0.05	31 December 2001 Amount % $ — — $ — — 205 0.05 1,152 0.30 — — 1,357 0.35 — — $1,357 0.35	2001
Amount $126 $130 — — — 130 — $130	Amount $ — $ — 205 1,152 — 1,357 — $1,357	Amount
		U.S. Dollars $—
		$— 6 33 —
		39 —
		$39

1999 Amount % $— — — — $— — 1999 Amount % $— —	2001 Amount % $24 0.04 61 0.09 $85 0.13 2001 Amount % $— —	2001
		Amount
		U.S. Dollars $1 2
		$3
		2001
Amount $—	Amount $—	Amount
		U.S. Dollars $—

g. Other revenues

F-25

h. Operating expenses

The Company paid NT$26,236 in commission to Sinbon Technologies, L.L.C. for the year ended 31 December 2001. There were no such transaction in 1999 and 2000.

i. Fixed asset transaction

A fixed asset transaction with a related party which occurred in 2001 is summarized follow. There were no such transactions in 1999 and 2000:

Name of Related Party Liang Chun Hsin. . . . . . . . . . . . . . . . . .	Category of Property Transportation equipment	Book Value NTD551	Sale Proceeds NTD524	Loss from Sale
				NTD27

6. ASSETS PLEDGED

As of 31 December 1999, 2000 and 2001, the following assets were pledged to banks as collateral for borrowings and hiring foreign labor:

Land (including land improvements, net) . . . . . . . . . . . . . Buildings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Land rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $ 94,451 86,770 150,867 — — $332,088	2000 NTD $ 86,801 100,999 93,881 — — $281,681	2001 $ 86,801 99,134 106,577 28,864 27,492 $348,868	2001
				U.S. Dollars $2,481 2,834 3,047 825 786
				$9,973

7. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIES

The significant commitments and contingent liabilities of the Company as of 31 December 2001 were as follows:

a. As of 31 December 2001, the Company provided TKSB and HKSB guarantee notes and time deposits for NT$50,000 and NT$49,864, respectively, as security for their borrowings.
b. As of 31 December 2001, Hsinchu International Bank provided a guarantee in the amount of NT$1,077 for the Company to hire foreign labor.
c. The Company received bank guarantees amounting to NT$5,000 for importing goods as of 31 December 2001.

8. SIGNIFICANT CASUALTY LOSSES

None.

9. SIGNIFICANT SUBSEQUENT EVENTS

None.

F-26

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents approximates fair value. The carrying values of shortterm loans and notes and accounts receivable and payable also approximate their fair values because of the relatively short period of time between their origination and expected realization. The fair value of longterm borrowings is estimated using the discounted cash flow method based on the borrowing rates currently available to the Company.

Financial Assets: Cash and cash equivalents . . . . . . . Notes and accounts payable . . . . . . . . . Marketable securities . . Financial Liabilities: Short-term borrowings . Notes and accounts payable . . . . . . . . . Long-term loans payable (including current portion) . . . . . . . . .		31 December	31 December
	1999 Carrying Amount Fair Value $ 94,695 $ 94,695 $569,144 $569,144 $ 6,042 $ 6,059 $212,157 $212,157 $458,284 $458,284 $137,278 $137,278	2000 Carrying Amount Fair Value NT Dollars $229,311 $229,311 $534,435 $534,435 $ 41,072 $ 41,072 $105,627 $105,627 $322,254 $322,254 $135,073 $135,073	2001 Carrying Amount Fair Value $462,915 $462,915 $771,132 $771,132 $167,064 $167,064 $256,669 $256,669 $408,717 $408,717 $482,581 $482,581	2001
	Carrying Amount $ 94,695 $569,144 $ 6,042 $212,157 $458,284 $137,278		Carrying Amount $462,915 $771,132 $167,064 $256,669 $408,717 $482,581	Carrying Amount Fair Value U.S. Dollars $13,234 $13,234 $22,045 $22,045 $ 4,776 $ 4,776 $ 7,338 $ 7,338 $11,684 $11,684 $13,796 $13,796	Fair Value

11. SEGMENT INFORMATION

a. Industry Information

(a) 1999

Item Segment revenues . . . . . . . . . . . . . . . . . Segment income (loss) . . . . . . . . . . . . . . General expense, net . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . Income (Loss) before income taxes . . . . . Identifiable assets . . . . . . . . . . . . . . . . . Long-term investments. . . . . . . . . . . . . . General assets. . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . .	Cable Division NTD523,838 NTD 12,474 NTD 55,485 NTD — NTD 12,474 NTD 15,634 NTD — NTD — NTD — NTD 2,526 NTD —	Component Division 465,188 85,488 44,426 — 85,488 162 — — — 34 —	Other 729,116 (215,687) 103,297 — (8,994) 307,811 — — — 6,924 —	Total
				NTD1,718,142 NTD 313,649 NTD 203,208 NTD 10,230 NTD 106,856 NTD 323,607 NTD 20,896 NTD1,110,603 NTD1,434,210 NTD 9,484 NTD 115,959

(b) 2000

Item Segment revenues . . . . . . . . . . . . . . . . . Segment income (loss) . . . . . . . . . . . . . . General expense, net . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . Income (Loss) before income taxes . . . . . Identifiable assets . . . . . . . . . . . . . . . . . Long-term investments. . . . . . . . . . . . . . General assets. . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . .	Cable Division NTD762,160 NTD192,610 NTD 10,019 NTD — NTD190,355 NTD 222 NTD — NTD — NTD — NTD 4 NTD —	Component Division 422,638 128,842 5,617 — 133,688 191 — — — 2 —	Other 732,651 101,742 222,518 — (101,694) 18,585 — — — 17,050 —	Total
				NTD1,917,449 NTD 423,194 NTD 238,154 NTD 14,579 NTD 222,349 NTD 186,263 NTD 43,433 NTD1,328,595 NTD1,514,858 NTD 17,056 NTD 76,831

F-27

(c) 2001

Item Segment revenues . . . . . . . . . . . . . . . . . Segment income (loss) . . . . . . . . . . . . . . General expense, net . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . Income (Loss) before income taxes . . . . . Identifiable assets . . . . . . . . . . . . . . . . . Long-term investments. . . . . . . . . . . . . . General assets. . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . .	Cable Division NTD871,723 NTD222,521 NTD 67,118 NTD — NTD166,789 NTD 211 NTD — NTD — NTD — NTD 76 NTD 120	Component Division 641,338 206,975 13,397 — 196,489 149 — — — 39 —	Other 788,752 190,055 234,787 — (41,567) 181,780 — — — 22,146 226,671	Total
				NTD2,201,813 NTD 619,551 NTD 315,298 NTD 17,709 NTD 321,711 NTD 182,140 NTD 169,425 NTD2,231,076 NTD2,413,216 NTD 22,261 NTD 226,791

b. Geographic Segments

The Company did not engage in any overseas operations.

c.

Exports

The exports for the years ended 31 December 1999, 2000, and 2001 were as follows:

Geographic Area America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $ 23,834 10,560 109,307 $143,701	2000 NT Dollars $ 281,876 27,788 851,187 $1,160,851	2001 $ 392,305 29,383 1,239,178 $1,660,866	2001
				U.S. Dollars $11,215 840 35,425
				$47,480

d. Major Customers

As of 31 December 1999, 2000 and 2001, the customers which accounted for 10 per cent. or more of its net consolidated revenue were as follows:

Customer Symbol Technologies, Inc. Quanta Computer Inc. . . . Acer Incorporated . . . . . . Total . . . . . . . . . . . . . . .	1999 Amount % $ 15,166 0.88 192,446 11.20 181,225 10.45 $388,837 22.53	2000 Amount % NT Dollars $277,542 14.47 79,697 4.16 145,010 7.56 $502,249 26.19	2001 Amount % $385,795 16.76 128,793 5.60 42,705 1.85 $557,293 24.21	2001	2001
	Amount $ 15,166 192,446 181,225 $388,837		Amount $385,795 128,793 42,705 $557,293	Amount % U.S. Dollars $11,029 16.76 3,682 5.60 1,221 1.85 $15,932 24.21	%
					24.21

F-28

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders

Sinbon Electronics Co., Ltd.

We have audited the balance sheets of Sinbon Electronics Co., Ltd. as of 31 December 1999, 2000 and 2001, and the related statements of operations, changes in shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Tokyo Sinbon Electronics Co., Ltd. and Hong Kong Sinbon Electronics Co., Ltd., two wholly-owned subsidiaries with total assets of NT$10,450,000, NT$50,001,000 and NT$95,289,000, or 0.88 per cent., 4.14 per cent. and 4.74 per cent. of the total assets of Sinbon Electronics Co., Ltd. as at 31 December 1999, 2000 and 2001, respectively and represent investment income of NT$15,665,000, NT$3,863,000 and NT$33,909,000 or 15.31 per cent., 1.72 per cent. and 10.89 per cent. of the income before income taxes of Sinbon Electronics Co., Ltd. respectively, for the years then ended. Those financial statements were audited by other auditors whose reports have been furnished to us and our opinion, insofar as it relates to data included for Tokyo Sinbon Electronics Co., Ltd. and Hong Kong Sinbon Electronics Co., Ltd. are based solely on other auditors’ reports.

We conducted our audits in accordance with ‘‘Guidelines for Certified Public Accounts’ Examination and Reporting on Financial Statements’’ and auditing standards generally accepted in the Republic of China in Taiwan. 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 and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Sinbon Electronics Co., Ltd. at 31 December 1999, 2000 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Republic of China in Taiwan.

Diwan, Ernst & Young Taichung, Taiwan Republic of China

25 March 2002

F-29

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands)

	31 December	31 December
1999 $ 48,540 6,042 121,165 272,579 30,037 7,420 2,023 165,148 6,880 4,534 150,867 815,235 50,040 315,839 313 2,754 4,135 2,188 306 9,383 $1,190,810	2000 NT Dollars $ 130,223 — 55,133 281,092 9,157 8,301 617 145,652 9,163 6,393 93,881 739,612 151,827 309,705 — 1,388 4,572 — 154 6,114 $1,207,258	2001 $ 359,355 — 46,789 495,412 8,052 9,408 37,681 192,652 30,868 3,389 106,577 1,290,183 404,087 309,628 — 1,704 6,523 — 154 8,381 $2,012,279	2001
			U.S. Dollars (Note 2) $10,273 — 1,338 14,163 230 269 1,077 5,507 882 97 3,047
			36,883
			11,552
			8,852
			—
			49 186 — 4
			239
			$57,526

(The accompanying notes form an integral part of the financial statements)

F-30

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED BALANCE SHEETS — (Continued) AS OF 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands )

Liabilities and Shareholders’ Equity Current Liabilities Short-term borrowings (Note 4.g) . . . . . . . . . . . . . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable — related parties . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable — related parties (Note 5.(2).f) . . . . . . . Income taxes payable (Note 2) . . . . . . . . . . . . . . . . . . . . Accrued liabilities (Note 4.h) . . . . . . . . . . . . . . . . . . . . . Advance receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans payable — current prtion (Note 4.j). . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . Long-term Liabilities Convertible bonds (Note 4.i). . . . . . . . . . . . . . . . . . . . . . Long-term loans (Note 4.j) . . . . . . . . . . . . . . . . . . . . . . . Total Long-term Liabilities. . . . . . . . . . . . . . . . . . . . . Other Liabilities Accrued pension liabilities (Notes 2 and 4.k) . . . . . . . . . . Deferred income tax liabilities — non-current . . . . . . . . . . Deferred profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ Equity (Notes 2 and 4.l ) Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized losses on long-term investments . . . . . . . . . . . Cumulative translation adjustments . . . . . . . . . . . . . . . . . Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . .		31 December	31 December	2001 U.S. Dollars (Note 2) $ 3,544 146 — 7,092 535 1,137 1,630 163 143 190 14,580 11,473 1,691 13,164 558 266 5 125 954 28,698 17,581 3,298 841 6 6,840 (76) 338 28,828 $57,526
	1999 $ 212,157 51,972 126 174,561 74,370 12,312 29,843 1,011 1,164 1,664 559,180 — 73,200 73,200 9,567 — 942 — 10,509 642,889 400,000 67,313 5,620 — 75,181 — (193) 547,921 $1,190,810	2000 NT Dollars $ 48,300 18,175 — 160,870 15,973 40,726 39,916 1,300 833 4,642 330,735 — 64,167 64,167 14,594 331 748 — 15,673 410,575 500,000 115,351 13,084 193 164,355 — 3,700 796,683 $1,207,258	2001 $ 123,959 5,106 — 248,071 18,727 39,784 57,008 5,712 5,000 6,648 510,015 401,332 59,167 460,499 19,510 9,320 162 4,384 33,376 1,003,890 615,000 115,351 29,434 193 239,268 (2,663) 11,806 1,008,389 $2,012,279

(The accompanying notes form an integral part of the financial statements)

F-31

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands Except Earnings Per Share Data)

Net Revenue (Note 2) Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating revenue — commission . . . . . . . . . . . . . . Total Net Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Revenue Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of other operations . . . . . . . . . . . . . . . . . . . . . . . . . Total Cost of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Realized Intercompany Profit . . . . . . . . . . . . . . . . . . . . . . . Net Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Expenses Selling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management and administrative . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . Total Operating Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating Income Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of property, plant and equipment. . . . . . . Gain on disposal of investments . . . . . . . . . . . . . . . . . . . Foreign exchange gains . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating income . . . . . . . . . . . . . . . . . . . . Non-operating Expenses Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment. . . . . . . Inventory loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange losses . . . . . . . . . . . . . . . . . . . . . . . . . Other losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating expenses . . . . . . . . . . . . . . . . . . . Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . Income Tax Expense (Notes 2 and 4.n) . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic Earnings Per Common Share (Note 4.o). . . . . . . . . . . . Diluted Earnings Per Common Share . . . . . . . . . . . . . . . . . .	1999 $ 982,407 81,921 1,064,328 (808,029) (38,040) (846,069) 218,259 1,762 220,021 (2,166) (114,965) (5,241) (122,372) 97,649 3,152 13,220 401 6,111 — 8,351 31,235 (9,385) (689) — (11,419) (5,105) (26,598) 102,286 (27,344) 74,942 $ 1.38 $ —	2000 NT Dollars $1,213,180 53,810 1,266,990 (906,010) (22,490) (928,500) 338,490 194 338,684 (26,948) (102,753) (15,846) (145,547) 193,137 6,167 9,673 51 167 28,373 5,838 50,269 (12,366) (916) — — (5,727) (19,009) 224,397 (60,862) 163,535 $ 2.81 $ —	2001 $1,568,343 23,658 1,592,001 (1,103,842) (1,590) (1,105,432) 486,569 586 487,155 (82,348) (121,580) (16,394) (220,322) 266,833 5,480 32,554 — 521 25,101 9,842 73,498 (14,751) (296) (126) — (13,761) (28,934) 311,397 (75,556) 235,841 $ 3.83 $ 3.80	2001 U.S. Dollars (Note 2) $44,836 676 45,512 (31,556) (46) (31,602) 13,910 17 13,927 (2,354) (3,476) (469) (6,299) 7,628 157 931 — 15 718 281 2,102 (422) (8) (4) — (394) (828) 8,902 (2,160) 6,742 $ 0.11 $ 0.11

(The accompanying notes form an integral part of the financial statements)

F-32

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001 (Expressed in Thousands )

Description	Common Stock	Capital Surplus	Legal Reserve	Special Reserve	Retained Earnings	Unrealized Losses on Long-term Investments	Cumulative Translation Adjustments	Total
Balance, 1 January 1999 . . . . . . . . . . . Issuance of common stock for cash . . . . Distribution of 1998 earnings:. . . . . . . . Legal reserve . . . . . . . . . . . . . . . . Stock dividends. . . . . . . . . . . . . . . Bonus to employees — stock . . . . . Bonus to employees — cash . . . . . . Bonus to directors and supervisors. . Capitalization of capital surplus stock . . Cumulative translation adjustments . . . . Net Income, 1999 . . . . . . . . . . . . . . . . Gain on disposal of property, plant and equipment transferred to capital surplus . . . . . . . . . . . . . . . . . . . . . Balance, 31 December 1999 . . . . . . . . . Issuance of common stock for cash . . . . Distribution of 1999 earnings:. . . . . . . . Legal reserve . . . . . . . . . . . . . . . . Special reserve . . . . . . . . . . . . . . . Stock dividends. . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . Bonus to employees — stock . . . . . Bonus to employees — cash . . . . . . Bonus to directors and supervisors. . Capitalization of capital surplus stock . . Cumulative translation adjustments . . . . Net Income, 2000 . . . . . . . . . . . . . . . . Gain on disposal of property, plant and equipment transferred to capital surplus . . . . . . . . . . . . . . . . . . . . . Balance, 31 December 2000 . . . . . . . . . Distribution of 2000 earnings: Legal reserve . . . . . . . . . . . . . . . . Stock dividends. . . . . . . . . . . . . . . Bonus to employees — stock . . . . . Cash dividends . . . . . . . . . . . . . . . Bonus to employees — cash . . . . . . Bonus to directors and supervisors. . Unrealized losses on long-term investment . . . . . . . . . . . . . . . . . . . Cumulative translation adjustments . . . . Net Income, 2001 . . . . . . . . . . . . . . . . Balance, 31 December 2001 . . . . . . . . . 2001 U.S. dollars (Note 2) . . . . . . . . . . Balance, 31 December 2001 . . . . . . . . .	$300,000 37,000 30,000 3,000 30,000			$ —
	400,000 32,000 44,000 8,000 16,000			— 193
	$500,000	$115,351	$13,084	$193	$164,355	$ —	$ 3,700	$ 796,683
	100,000 15,000		16,350					— — — (20,000) (3,795) (5,783) (2,663) 8,106 235,841
	615,000	115,351	29,434	163	239,268			1,008,389

	$ 17,581	$ 3,298	$ 841	$ 6	$ 6,840			$ 28,828

(The accompanying notes are an integral part of financial statements)

F-33

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands)

Cash Flows from Operating Activities: Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment, net. . . . Gain on disposal of long-term investment, net. . . . . . . . . . Decrease (increase) in short-term investments . . . . . . . . . . Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in notes and accounts receivable, net . . Decrease in other receivables, net . . . . . . . . . . . . . . . . . . Decrease (increase) in inventories, net . . . . . . . . . . . . . . . Increase in prepayments . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (increase) in other current assets . . . . . . . . . . . . Decrease in deferred pension costs . . . . . . . . . . . . . . . . . Decrease in deferred income tax assets-non-current . . . . . . Increase (Decrease) in notes payable . . . . . . . . . . . . . . . . Increase (Decrease) in accounts payable . . . . . . . . . . . . . . Increase in accrued liabilities . . . . . . . . . . . . . . . . . . . . . Increase (Decrease) in income taxes payable. . . . . . . . . . . Increase in advance receipts . . . . . . . . . . . . . . . . . . . . . . Increase in other current liabilities. . . . . . . . . . . . . . . . . . Increase (decrease) in deferred income taxes liabilities. . . . Decrease in deferred profit . . . . . . . . . . . . . . . . . . . . . . . Increase in accrued pension liabilities . . . . . . . . . . . . . . . Net Cash Provided by (Used in) Operating Activities . . . . . . . Cash Flows from Investing Activities: Increase in long-term investments . . . . . . . . . . . . . . . . . . Disposal of long-term investments . . . . . . . . . . . . . . . . . . Purchase of property, plant and equipment . . . . . . . . . . . . Proceeds from sales of property, plant and equipment . . . . Decrease (Increase) in restricted deposits . . . . . . . . . . . . . Decrease (Increase) in refundable deposits . . . . . . . . . . . . Increase in deferred charges . . . . . . . . . . . . . . . . . . . . . . Decrease in other assets . . . . . . . . . . . . . . . . . . . . . . . . . Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . .	1999 $ 74,942 988 9,555 288 (5,840) (6,042) (13,220) (246,523) 12,346 (89,620) (3,453) 3,164 3,640 1,635 4,002 183,354 12,395 (7,311) 851 726 — (1,762) 1,608 (64,277) — 16,745 (89,609) 1,255 (136,865) 94 (1,661) 324 $(209,717)	2000 NT Dollars $163,535 1,410 12,853 865 — 6,042 (9,593) 74,805 525 19,496 (2,282) (1,858) 313 2,188 (33,923) (72,088) 10,073 28,414 289 2,977 (967) (194) 5,027 207,907 (83,410) — (7,910) 326 56,986 1,366 (1,847) 152 $ (34,337)	2001 $ 235,841 2,013 14,598 296 — — (32,112) (240,189) — (47,000) (21,705) 3,004 — — (13,069) 89,955 17,092 (942) 4,412 2,006 7,026 (586) 4,916 25,556 (211,211) — (15,580) 640 (12,696) (316) (3,841) — $(243,004)	2001 U.S. Dollars (Note 2) $ 6,742 58 417 8 — — (918) (6,866) — (1,344) (620) 86 — — (374) 2,572 489 (27) 126 57 201 (17) 141 731 (6,038) — (445) 18 (363) (9) (110) — $(6,947)

(The accompanying notes form an integral part of the financial statements)

F-34

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued) FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands)

Cash Flows from Financing Activities: Increase (Decrease) in short-term borrowings . . . . . . . . . . Increase (Decrease) in long-term loans. . . . . . . . . . . . . . . Increase in convertible bonds . . . . . . . . . . . . . . . . . . . . . Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . Bonus to directors and supervisors. . . . . . . . . . . . . . . . . . Bonus to employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Cash Provided by (Used in) Financing Activities . . . . . . . Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . Cash and Cash Equivalents, Beginning of Year . . . . . . . . . . . Cash and Cash Equivalents, End of Year . . . . . . . . . . . . . . . Supplementary Disclosure of Cash Flow Information: Interest paid (net of amount capitalized). . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash Investing and Financing Activities: Current portion of long-term loans payable . . . . . . . . . . . . Transfer of retained earnings and employees’ bonus to common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization of capital surplus to common stock . . . . . . .	1999 $100,217 74,364 — 81,400 (1,429) (1,286) — 253,266 (20,728) 69,268 $ 48,540 $ 9,238 $ 29,721 $ 1,164 $ 33,000 $ 30,000	2000 NT Dollars $(163,857) (9,364) — 96,000 (2,000) (666) (12,000) (91,887) 81,683 48,540 $130,223 $ 12,896 $ 29,756 $ 838 $ 52,000 $ 16,000	2001 $ 75,659 (833) 401,332 — (5,783) (3,795) (20,000) 446,580 229,132 130,223 $359,355 $ 13,334 $ 64,681 $ 5,000 $115,000 $ —	2001 U.S. Dollars (Note 2) $ 2,163 (24) 11,473 — (165) (108) (572) 12,767 6,551 3,722 $10,273 $ 381 $ 1,849 $ 143 $ 3,288 $ —

(The accompanying notes form an integral part of the financial statements)

F-35

SINBON ELECTRONICS CO., LTD.

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1999, 2000 AND 2001

(Expressed in Thousands, unless otherwise stated)

1. ORGANIZATION AND OPERATIONS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Cash and Cash Equivalents

(2) Foreign-currency Transactions

a. The accounts of the Company are maintained in New Taiwan Dollars (NTD). Transactions denominated in foreign currencies are translated into New Taiwan Dollars at the rates of exchange in effect when the transactions occur.
b. When the transaction date and the actual settlement date fall in the same accounting period, the differences between the recorded amount and the settled amount are credited to or charged against current income.
c. When the transaction date and the actual settlement date fall in different accounting periods, receivables and payables denominated in foreign currencies are restated using the spot rates prevailing on the balance sheet date. Any resulting gains or losses are reflected in the statement of operations.
d. The financial statements of all foreign subsidiaries were prepared in their respective local currencies and translated into New Taiwan Dollars. Assets and liabilities are translated from the foreign subsidiary’s functional currency using the current exchange rate at the balance sheet date. Equity accounts are translated at their historical exchange rates. Profit and loss accounts are translated using the weighted average exchange rate for the period. Gains or losses from translation of foreign subsidiaries are recorded as translation adjustments and are reported as a separate component of shareholders’ equity.

(3) Convenience Translation into U.S. Dollars

The Company prepares its financial statements in New Taiwan dollars (NTD), its reporting currency. The United States dollar (USD) amounts disclosed in the financial statements as of and for the year ended 31 December 2001, are presented solely for the convenience of the reader and were translated at the average of buying and selling rates of NT$34.98 to U.S.$1.00 in effect on 31 December 2001. No representation is made that the NT Dollar amounts represent, or have been, or could be, converted into USD at that or any other rate.

(4) Short-term Investments

Short-term Investments are recorded at cost and valued at the lower of cost or market value at the balance sheet date. Cost is determined using the weighted-average method.

F-36

(5) Allowance for Doubtful Accounts

Allowance for doubtful accounts represents management estimates of the uncollectible amounts included in notes receivable and accounts receivable at the balance sheet date.

(6) Inventories

(7) Long-term Investments

(8) Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives.

The useful lives are summarized as follows:

Items Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . . . Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Useful Lives
	5–40 years 3–10 years 5 years 3–10 years 2–15 years

Major replacements, renewals and betterments are capitalized, while maintenance and repairs are expensed.

Interest incurred in connection with the construction or acquisition of property, plant and equipment is capitalized as part of the cost of the assets.

Gains on disposal of property, plant and equipment are recognized as non-operating income. The amount net of applicable taxes is applied to capital surplus in the year of disposal. Losses on abandonment or disposal of property, plant and equipment are categorized as non-operating expenses.

Effective in 2001 further to changes in the regulations by the Ministry of Economic Affairs in the R.O.C., any gains are is no longer transferred to capital surplus in the year of disposal.

(9) Convertible Bonds

a. The excess of the estimated redemption price over the par value is recognized as interest expense at the effective interest rate and a liability is recorded as ‘‘Interest Payable on Redemption.’’ The variance between book value as of the redemption date and the actual redemption price is recognized as interest expense.

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b. When a bondholder exercises his/her conversion rights, the book value of bonds is credited to common stock at an amount equal to the par value of the stock and the excess is credited to capital surplus. No gain or loss is recognized on bond conversion.

(10) Pensions

According to the Labor Standards Law of the Republic of China (‘‘the Law’’), the Company established an Employee Retirement Fund (‘‘the Fund’’). Its contributions to the Fund are 2 per cent. of the total salaries and wages. The Fund has been administered by the Employee Retirement Fund Committee of the Company as prescribed by the Law, and is maintained under the Committee’s name with a government-approved financial institution. The Fund is totally independent from the Company, and is hence excluded from the financial statements.

(11) Legal Reserve

The Company appropriates 10 per cent. of the Company’s net income to the legal reserve.

(12) Special Reserve

(13) Recognition of Revenue

In general, revenue is recognized only after the earning process is substantially completed and the revenue is realized or realizable.

(14) Deferred profit

The Company estimated the deferred profit using actual gross margin for the year ended. The deferred profit is also derived from the amount of inventory purchased from the Company by the investee but still unsold at year end.

(15) Income Taxes

The Company adopted the Statement of Financial Accounting Standard No. 22 of Taiwan (SFAS No. 22), ‘‘Accounting for Income Taxes’’. Under SFAS No. 22, a current income tax liability or asset is recognized for the estimated taxes payable or refundable for the current year, and a deferred tax or liability is recognized for the estimated future tax effects attributable to temporary differences, tax credits, and loss carryforwards. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company’s undistributed retaining earnings are subject to an additional 10 per cent. income tax which is expensed as of the date of the shareholders’ meeting when the appropriation of earnings is resolved.

(16) Earnings Per Common Share

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as a result of stock dividends, capitalization of employee dividends or capitalization of capital surplus are given retroactive recognition to the appropriate equivalent change in capital structure for the entire period. Diluted EPS reflects the potential dilution that could occur if dilutive securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company.

(17) Basis of consolidation

a. For long-term investments in which the Company owns more than 50 per cent. of the voting rights of the subsidiaries, consolidated financial statements are prepared. However, pursuant to the R.O.C. Securities and Futures Commission (SFC) regulations, if the total assets and the operating income of a subsidiary are less than 10 per cent. of the respective non-consolidated total assets and operating income of the Company, the subsidiary’s financial statements are not consolidated and are accounted for using the equity method of accounting. However, when the total combined assets or operating income of all such nonconsolidated subsidiaries represent more than 30 per cent. of the Company’s nonconsolidated total assets or operating income then these subsidiaries assets should be consolidated.
b. Shanghai Sinbon Co., Ltd., Sinbon Shenzhen Electronics Co., Ltd. and Sinbon Technologies, L.L.C (in which the Company owns more than 50 per cent. of the voting rights) were not included in the consolidated financial statements. These subsidiaries did not meet the criteria for consolidation described above.

3. REASON AND EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE

The transfer of gains on disposal of property, plant and equipment from retained earnings to additional paid-in-capital was required under ROC Company Law prior to 1 January 2001. Pursuant to an amendment of the Company Law, a company, effective in 2001, shall no longer make such transfers for gains on disposal of property, plant and equipment generated. This change had no significant effect on the Company’s financial statements as of 31 December 2001.

4. SUMMARY OF SIGNIFICANT ACCOUNTS

a.
Cash and Cash Equivalents

Cash and cash equivalents as of 31 December 1999, 2000 and 2001 consisted of the following:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . Foreign-currency on hand. . . . . . . . . . . . . . . . Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Allowance for foreign exchange gains . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $ 128 145 46,918 47,191 1,349 $48,540	2000 NT Dollars $ 122 — 130,016 130,138 85 $130,223	2001 $ 109 — 358,472 358,581 774 $359,355	2001
				U.S. Dollars $ 3 — 10,248
				10,251 22
				$10,273

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b. Short-term Investments

Short-term Investment as of 31 December 1999, 2000 and 2001 consisted of the following:

Investment in mutual funds. . . . . . . . . . . . . . .	1999 $6,042	2000 NT Dollars $—	2001 $—	2001
				U.S. Dollars $—

c. Notes and Accounts Receivable, Net

Notes and accounts receivables as of 31 December 1999, 2000 and 2001 consisted of the following:

Notes receivable, net . . . . . . . . . . . . . . . . . . . Accounts receivable. . . . . . . . . . . . . . . . . . . . Less: Allowance for doubtful accounts . . . . . . Add (Less): Allowance for foreign exchange gains(losses) . . . . . . . . . . . . . . . Accounts receivable, net. . . . . . . . . . . . . . . . . Accounts receivable — related parties . . . . . . . Add: Allowance for foreign exchange gains . . Less: Write-down related to a long-term investment . . . . . . . . . . . . . . . . . . . . . Accounts receivable — related parties . . . . . . . Notes and accounts receivable, net . . . . . . . . .	1999 $121,165 275,461 (2,756) (126) 272,579 28,715 1,322 — 30,037 $423,781	2000 NT Dollars $ 55,133 277,240 (443) 4,295 281,092 12,566 184 (3,593) 9,157 $345,382	2001 $ 46,789 491,178 (443) 4,677 495,412 12,371 191 (4,510) 8,052 $550,253	2001
				U.S. Dollars $ 1,338
				14,042 (13) 134
				14,163
				353 6 (129)
				230
				$15,731

The Company has guaranteed obligations of an investee, Tokyo Sinbon Electronics Co., Ltd and accounts for the investment using the equity method of accounting. As the carrying value of this investment using the equity method was a negative value, this excess negative value is applied against the Company’s accounts receivable owing from TKSB. This accounting treatment is in accordance with Statement of Financial Accounting Standard No. 5 of Taiwan (SFAS No. 5) ‘‘Accounting for Long-term Equity Investments.’’

d. Inventories, Net

Inventories as of 31 December 1999, 2000 and 2001 included the following:

Raw materials. . . . . . . . . . . . . . . . . . . . . . . . Supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for decline in market value and obsolescence. . . . . . . . . . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . . . .	1999 $ 44,068 — 19,176 70,821 37,039 171,104 (5,956) $165,148	2000 NT Dollars $ 42,397 305 12,310 58,430 38,166 151,608 (5,956) $145,652	2001 $ 77,115 376 15,102 62,092 41,884 196,569 (3,917) $192,652	2001
				U.S. Dollars $2,204 11 432 1,775 1,197
				5,619 (112)
				$5,507

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Inventories were insured for the sum of NT$76,000, NT$100,000 and NT$150,000 as at 31 December 1999, 2000 and 2001, respectively.

e. Long-term Investments

(1) Long-term investment as of 31 December 1999, 2000 and 2001 consisted of the following:

Investee Beijing Sinbon Electronics Co., Ltd.. . . . . . . . . . Tokyo Sinbon Electronics Co., Ltd.. . . . . . . . . . Hong Kong Sinbon Electronics Co., Ltd.. . . . . . . . . . Sinbon International Enternational Enterprise Co., Ltd.. . . . . . . . . . Sinbon Technologies, L.L.C. . . . . . . . . Korea Sinbon Electronics Co., Ltd.. . . . . . . . . . Niigata Seimitsu Co., Ltd.. . . . . . . . . . Mobility Electronics Inc. . . . . . . . . . . Argosy Technology Co., Ltd. . . . . . . Golden Bridge Technology Co., Ltd.. . . . . . . . . . Hantechnic, Inc. . . . General Research of Electronics, Inc. . Etherwan Systems Inc. . . . . . . . . . . Top Taiwan 3 Venture Capital Co., Ltd. . . . . . . Less: Allowance for investment losses . . . . . Subtotal . . . . . . . . . Other investments: Club membership	1999 % NT Dollars 75.00 $18,695 100.00 587 100.00 9,863 — — — — — — 0.68 13,460 0.03 4,010 0.38 1,064 — — — — — — — — — — — — 47,679 — 2,361 $50,040	2000 % NT Dollars 75.00 $ 24,954 100.00 — 100.00 50,001 100.00 36,402 — — — — 0.68 13,460 0.03 4,010 0.38 1,064 1.21 14,775 5.00 4,800 — — — — — — — — 149,466 — 2,361 $151,827		2001	U.S. Dollars $ 854 — 2,724 3,412 35 26 385 115 30 460 319 663 1,133 1,429 (101) 11,484 68 $11,552	Valuation method
	% 75.00 100.00 100.00 — — — 0.68 0.03 0.38 — — — — — — —	% 75.00 100.00 100.00 100.00 — — 0.68 0.03 0.38 1.21 5.00 — — — — —	% 75.00 100.00 100.00 100.00 51.00 37.50 0.46 0.03 0.38 1.17 6.81 7.50 19.90 5.00	NT Dollars $ 29,871 — 95,289 119,323 1,236 922 13,460 4,010 1,064 16,098 11,175 23,184 39,645 50,000 (3,551) 401,726 2,361 $404,087		Equity method Equity method Equity method Equity method Equity method Equity method Cost method The lower of cost or market value method Cost method Cost method Cost method Cost method Cost method Cost method The lower of cost or market value method

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(2) Investment loss for 1999 and investment income for 2000 and 2001 of Beijing Sinbon Electronics Co., Ltd. amounted to NT$2,497, NT$5,730 and NT$8,373, respectively. Translation adjustments amounted to NT$ 3,280, NT$1,318 and NT$8,373 in 1999, 2000 and 2001, respectively.
(3) In 1995, the Company acquired for NT$9,967 a 100 per cent. ownership interest in Tokyo Sinbon Electronics Co., Ltd. The Company has guaranteed borrowings of the investee since April, 1998. The Company adopted SFAS NO.5 and recognized investment losses amounting to NT$10,197,000. The negative equity of Tokyo Sinbon Electronics Co., Ltd. has been applied against the accounts receivable, and other accounts receivable and as an increase to other liabilities as of 31 December 2001.

Investment income for 1999 and investment losses for 2000 and 2001 were recognized for the investee amounting to NT$9,346, NT$5,515 and NT$6,626. Translation adjustments amounting to NT$102, NT$1,335 and NT$22 were accounted for in 1999, 2000 and 2001, respectively.

(4) The Company acquired for HKD100 a 100 per cent. ownership interest in Hong Kong Sinbon Electronics Co., Ltd. As of 31 December 2001, the Company invested HKD8,000.

Investment income and amortized negative goodwill for 1999, 2000, and 2001 of the investee was recognized amounting to NT$6,319, NT$9,378 and NT$40,535, respectively. Translation adjustments amounting to NT$636, NT$2,538 and 4,753 were accounted for in 1999, 2000 and 2001, respectively.

(5) The Company invested USD1,100 to establish a 100 per cent. owned subsidiary, Sinbon International Enterprise Co., Ltd. in 2000 and reinvested a further USD2,650 in 2001.

Sinbon International Enterprise Co., Ltd. acquired a 100 per cent. ownership in Shanghai Sinbon Electronics Co., Ltd.. Upon acquisition recognized an investment loss of NT$3,500 representing the difference between original cost of the investment and underlying net equity of the investee company.

Investment loss of the investee amounted to NT$11,066 and the translation adjustment amounted to NT$4,494 in 2001.

(6) In January 2001, the Company established a 51 per cent. owned subsidiary, Sinbon Technologies, L.L.C. Investment income of the investee in 2001 amounted to NT$1,194 and the translation adjustment was NT$42.
(7) In October 2001, the Company acquired for USD30 a 37.5 per cent. ownership interest in Korea Sinbon Electronics Co., Ltd. The investment loss for 2001 of the investee amounted to NT$145 and the translation adjustment was NT$30.
(8) As noted above, the investment income or loss of Tokyo Sinbon Electronics Co., Ltd., Hong Kong Sinbon Electronics Co., Ltd., and Sinbon Technologies, L.L.C., were recognized based on the investee companies’ financial statements which were audited by other auditors. The investment losses of Korea Sinbon Electronics Co., Ltd. were recognized based on the investee company’s financial statements which were not audited.

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f. Property, Plant, and Equipment, Net

(1) Property, plant and equipment as of 31 December 1999, 2000 and 2001 consisted of the following:

Land . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment. . . . . . . . . . . Transportation equipment . . . . . . . . . . . Furniture, fixtures and equipment . . . . . Other equipment . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . Leased assets . . . . . . . . . . . . . . . . . . . Prepayments for equipment. . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . Less: Accumulated depreciation. . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $124,066 170,532 29,432 2,065 12,822 8,703 1,493 — — 349,113 (33,274) $315,839	2000 NT Dollars $123,608 170,539 33,814 2,017 14,178 8,638 307 194 123 353,418 (43,713) $309,705	2001 $123,608 171,535 43,704 1,367 15,914 8,525 307 527 160 365,647 (56,019) $309,628	2001
				U.S. Dollars $ 3,533 4,904 1,249 39 455 244 9 15 5
				10,453 (1,601)
				$ 8,852

(2) Property, plant and equipment were insured for possible losses in the sum of NT$185,498, NT$190,973 and NT$185,455 as at 31 December 1999, 2000 and 2001, respectively.
(3) Interest incurred in connection with the acquisition of property, plant and equipment was capitalized as part of the cost of the assets in the sum of NT$1,796 in 1999. No interest was capitalized in 2000 and 2001.
g.

Short-term Borrowings

(1) Short-term borrowings as of 31 December 1999 are summarized as follows:

Creditors Bank of Taiwan Miaoli Branch. . . . . . . . . . . . . Fuji Bank Taipei Branch . . Hsinchu International Bank Miaoli Branch. . . . . . . . Total . . . . . . . . . . . . . . . . Add: Allowance for foreign exchange loss . . . . . . . . . . . . Net . . . . . . . . . . . . . . . . .	Type Secured loan Secured loan Credit loan Secured loan Secured loan Secured loan	Interest Rate 7.70% 7.70% 7.45%–8.08% 1.28% 8.00% 1.88%	Facility NTD15,000 NTD 3,300 NTD40,000 JPY500 million NTD10,000 USD1,200,000	Balance NTD15,000 3,300 40,000 107,722 10,000 32,447 208,469 3,688 NTD212,157	Collateral
					Land and Building Land — Time Deposits Building Time Deposits

(2) Short-term loans as of 31 December 2000 are summarized as follows:

Creditors Bank of Taiwan Miaoli Branch. . . . . . . . . . . . . Total . . . . . . . . . . . . . . . .	Type Secured loan Credit loan	Interest Rate 7.45% 7.45%	Facility NTD58,300 NTD20,000	Balance NTD38,300 10,000 NTD48,300	Collateral
					Land and Building —

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(3) Short-term borrowings as of 31 December 2001 are summarized as follows:

Creditors Bank of Taiwan Miaoli Branch. . . . . . . . . . . . The Dai-Ichi Kangyo Bank, Ltd. Taipei Branch . . . Hsinchu International Bank Miaoli Branch. . . . . . . Total . . . . . . . . . . . . . . . Less: Allowance for foreign exchange gains . . . . . . . . . . Net . . . . . . . . . . . . . . . .	Type Credit loan Secured loan Secured loan	Interest Rate 5.3% 0.96% 5.00%	Facility NTD43,300 JPY500 million NTD50,000	Balance NT Dollars U.S. Dollars $ 43,300 $1,238 33,719 964 50,000 1,429 127,019 3,631 (3,060) (87) $123,959 $3,544	Collateral
				NT Dollars $ 43,300 33,719 50,000 127,019 (3,060) $123,959	Land Time Deposits Building

h. Accrued Liabilities

Accrued expenses as of 31 December 1999, 2000 and 2001 are summarized as follows:

Accrued salaries and wages . . . . . . . . . . . . . . Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $15,794 2,025 990 61 10,973 $29,843	2000 NT Dollars $20,493 2,285 460 1,147 15,531 $39,916	2001 $21,804 2,032 546 4,111 28,515 $57,008	2001
				U.S. Dollars $ 623 58 16 118 815
				$1,630

i. Convertible Bonds

Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Interest payable on redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 December 2001	31 December 2001
	NT Dollars $400,000 1,332 $401,332	U.S. Dollars $11,435 38
		$11,473

On 5 December 2001, the Company issued NT$400 million non-interest bearing convertible bonds (the Bonds). The Bonds have a term of five years and mature on 4 December 2006. The conversion price was initially set at NT$33.06 per share on the issuance date, which will be adjusted for any capital increase. The bondholders may require the Company to redeem the bonds for cash at 114.12 per cent. of the bond principal amount as of 5 December 2004 or 121.55 per cent. of the bond principal amount as of 5 December 2005. The investors may convert the Bonds into the Company’s common stock from 5 March 2002 to 24 November 2006.

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j. Long-term Loans

(1) Long-term loans as of 31 December 1999 are summarized as follows:

Creditors Bank of Taiwan . . . Hsinchu International Bank . . . . . . . . . Total . . . . . . . . . . . Less: Current portion. . . . . Net . . . . . . . . . . . .	Type Secured loan Secured loan	Duration 6 October 1999– 6 October 2014 4 May 1999– 4 May 2006	Interest Rate 7.70% 8.00%	Facility NTD65,000 NTD10,000	Balance NTD65,000 9,364 74,364 (1,164) NTD73,200	Collateral
						Building Building

(2) Long-term loans as of 31 December 2000 are summarized as follows:

Creditors Bank of Taiwan . . . Less: Current portion. . . . . Net . . . . . . . . . . . .	Type Secured loan	Duration 6 October 1999–6 October 2014	Interest Rate 7.70%	Facility NTD65,000	Balance NTD65,000 (833) NTD64,167	Collateral
						Building

(3) Long-term loans as of 31 December 2001 are summarized as follows:

Creditors Bank of Taiwan Less: Current portion. . Net . . . . . . . . .	Type Secured loan	Duration 6 October 1999–6 October 2014	Interest Rate 6.85%	Facility NTD65,000	Balance NT Dollars U.S. Dollars $64,167 $1,834 (5,000) (143) $59,167 $1,691	Collateral
					NT Dollars $64,167 (5,000) $59,167	Building

k. Pension Plan
(1) The Company has adopted Statement of Financial Accounting Standard (SFAS) No. 18 of Taiwan ‘‘Accounting for Pensions’’ and recognized net pension costs. The net pension costs for 1999, 2000 and 2001 consisted of the following:

Service cost . . . . . . . . . . . . . . . . . . . . Interest cost . . . . . . . . . . . . . . . . . . . . Expected returns on plan assets. . . . . . . Amortization of transitional net obligations . . . . . . . . . . . . . . . . . . . Net pension cost . . . . . . . . . . . . . . . . .	1999 $5,297 1,503 (238) 808 $7,370	2000 NT Dollars $5,715 1,720 (392) 698 $7,741	2001 $5,763 1,814 (524) 698 $7,751	2001
				U.S. Dollars $165 52 (15 20
				$222

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(2) The reconciliation between the funding status of the pension plan and the accrued pension liabilities as of 31 December 1999, 2000 and 2001 was as follows:

Benefit obligations: Vested benefits . . . . . . . . . . . . . . . . Non-vested benefits . . . . . . . . . . . . . Accumulated benefit obligations . . . . Effect of projected future salary increases . . . . . . . . . . . . . . . . . . Projected benefit obligations . . . . . . . Fair value of plan assets. . . . . . . . . . . . Status of pension plan . . . . . . . . . . . . . Unrecognized transitional net obligations Unrecognized pension losses or gains. . . Accrued pension liabilities . . . . . . . . . .	1999 $ — (13,365) (13,365) (13,097) (26,462) 6,030 (20,432) 10,470 395 $ (9,567)	2000 NT Dollars $ — (18,364) (18,364) (11,875) (30,239) 8,744 (21,495) 9,773 (2,872) $(14,594)	2001 $ — (27,496) (27,496) (14,226) (41,722) 12,098 (29,624) 9,075 1,039 $(19,510)	2001
				U.S. Dollars $ — (786)
				(786) (407)
				(1,193) 346
				(847) 259 30
				$ (558)

(3) The balance of the pension fund of the Company which is deposited with the Central Trust of China, was NT$6,030, NT$8,744 and NT$12,098 as of 31 December 1999, 2000 and 2001, respectively.
(4) As of 31 December 1999, 2000 and 2001, there were no vested benefits in the Company’s pension plan.
(5) The underlying assumptions for determining the actuarial present value of the benefit obligations were as follows:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Rate of increase in future compensation level . . . . . . . . . Expected long-term rate of return on plan assets . . . . . . .	1999 6.50% 4.00% 6.50%	2000 6.00% 3.00% 6.00%	2001
			4.50% 2.50% 4.50%

l. Shareholders’ Equity

(1) Capital stock

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(2) Capital surplus

Capital surplus as of 31 December 1999, 2000 and 2001 consisted of the following:

Paid-in capital in excess of par . . . . . . . Gain on disposal of property, plant and equipment, net of income tax . . . . . . Acquisition of business . . . . . . . . . . . .	1999 $66,048 560 705 $67,313	2000 NT Dollars $114,048 598 705 $115,351	2001 $114,048 598 705 $115,351	2001
				U.S. Dollars $3,261 17 20
				$3,298

As prescribed by the Company Law of Taiwan, capital surplus can only be applied to offset accumulated deficits and to issue capital. No dividend distribution can be made therefrom.

m. Operating Revenues

Intercompany sales . . . . . . . . . . . . . . . . . . . . External sales . . . . . . . . . . . . . . . . . . . . . . . . Commission revenue . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $ 158,112 824,295 81,921 $1,064,328	2000 NT Dollars $ 383,353 829,827 53,810 $1,266,990	2001 $ 753,876 814,467 23,658 $1,592,001	2001
				U.S. Dollars $21,552 23,284 676
				$45,512

n. Income Taxes

(1) The Company’s income tax returns through 1999 have been assessed by the Tax Authority.

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(2) The Company has adopted SFAS No. 22 of Taiwan, ‘‘Accounting for Income Taxes.’’ The enacted tax rate for the current year is 25 per cent.. Disclosures required under SFAS No. 22 are summarized as follows:

(a) Total deferred income tax assets . (b) Total deferred income tax liabilities . . . . . . . . . . . . . . . (c) Temporary differences attributed to the deferred income tax assets/ liabilities: Provision to reduce inventory to market value. . . . . . . . . . . Investment income under equity method . . . . . . . . . . . . . . Unrealized foreign currency exchange gains . . . . . . . . . Cumulative translation adjustments . . . . . . . . . . . Employee welfare . . . . . . . . . Unrealized intercompany profits . . . . . . . . . . . . . . . Unfunded pension liability . . . Imputed profit of consignment . . . . . . . . . . . Unrealized loss on long-term investments . . . . . . . . . . . (d) Deferred income tax assets — current . . . . . . . . . . Deferred income tax liabilities — current. . . . . . . . Net deferred income tax assets — current . . . . . . . . . . (e) Deferred income tax assets — non-current . . . . . . . Deferred income tax liabilities — non-current . . . . Net deferred income tax assets — non-current	1999 $ 4,943 1,101 5,956 (3,436) (970) 930 2,689 943 9,253 — — $ 1,896 (242) $1,654 $ 3,047 (859) $2,188	2000 NT Dollars $ 7,627 $7,475 5,956 (13,029) (8,893) (4,261) 2,276 748 14,446 3,366 — $ 3,635 (3,152) $483 $ 3,992 (4,323) $ (331)	2001 $ 7,372 19,759 3,917 (45,294) (18,076) (15,668) 1,521 162 19,363 973 3,551 $1,452 (4,519) $ (3,067) $ 5,920 (15,240) $ (9,320)	2001 U.S. Dollars $ 211 565 112 (1,295) (517) (448) 43 5 554 28 102 $ 42 (129) $ (87) $ 169 (435) $ (266)

F-48

Income tax expense for the years ended	31 December	1999, 2000 and 2001 were as follows:	1999, 2000 and 2001 were as follows:	1999, 2000 and 2001 were as follows:
	1999	2000	2001	2001
		NT Dollars		U.S. Dollars
Income tax expense — current . .	$20,222	$58,125	$64,401	$1,841
Deferred income tax
Allowance to reduce inventory
to market value. . . . . . . . .	—	—	510	15
Investment income from equity
method . . . . . . . . . . . . . .	3,292	2,398	8,066	231
Unrealized foreign currency
exchange gains . . . . . . . . .	2,687	1,981	2,296	66
Reversal of intercompany
profits . . . . . . . . . . . . . . .	440	49	147	4
Pension accrual. . . . . . . . . . .	(1,312)	(1,298)	(1,229)	(35)
Employee welfare . . . . . . . . .	(501)	103	189	5
Consignment sales. . . . . . . . .	—	(842)	598	17
Deferred Income tax expense . . .	4,606	2,391	10,577	303
Surtax on undistributed
earnings . . . . . . . . . . . . . . . .	2,516	346	578	16
Income tax expense . . . . . . . . . .	$27,344	$60,862	$75,556	$2,160

o. Earnings Per Common Share

Outstanding common shares, beginning of year . . . . . . . . . . . . . Stock issuance for cash on 7 August 1999 . . . . . . . . . . . . . . . . Stock dividends, employee bonus shares and capital surplus transferred to common shares in 1999 (total 21%) . . . . . . . . . Stock issuance for cash on 2 November 2000 . . . . . . . . . . . . . . Stock dividends declared, employee bonus shares and capital surplus transferred to common shares in 2000 (total 17%) . . . Stock dividends declared, employee bonus shares and capital surplus transferred to common shares in 2001 (total 23%) . . . Weighted average shares outstanding for basic EPS . . . . . . . . . . Weighted average shares outstanding for diluted EPS. . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated interest of convertible bonds (net of tax) . . . . . . . . . . Adjusted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per common share — in NTD . . . . . . . . . . . . . . — in USD . . . . . . . . . . . . . . Diluted earnings per common share — in NTD . . . . . . . . . . . . . — in USD . . . . . . . . . . . . .	1999 30,000,000 1,459,726 6,300,000 — 6,419,154 10,161,142 54,340,022 — NTD74,942 1.38	2000 40,000,000 — — 534,795 6,800,000 10,887,003 58,221,798 — NTD163,535 2.81	2001
			50,000,000 — — — — 11,500,000
			61,500,000
			62,395,010
			NTD235,841
			NTD 999 NTD236,840
			3.83
			0.11
			3.80
			0.11

F-49

5. RELATED PARTY TRANSACTIONS

(1) Names and Relationships of Related Parties

Related Parties
Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . .
Beijing Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . .
Shanghai Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . .
Hong Kong Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . .
Jiangyin Sinbon Electronics Co., Ltd.. . . . . . . . . . . . . . . . . .
Sinbon Shenzhen Electronics Co., Ltd. . . . . . . . . . . . . . . . . .
Sinbon International Enterprise Co., Ltd. . . . . . . . . . . . . . . .
Sinbon Technologies, L.L.C.. . . . . . . . . . . . . . . . . . . . . . . .
Argosy Technology Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . .
Liang Chun Hsin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relationship

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Legal entity director of the Company
President of the Company

(2) Significant Related Party Transactions

a. Sales

1999 Amount % $43,363 4.41 1,224 0.12 1,096 0.11 862 0.08 2,802 0.29 — — $49,347 5.01	2001 Amount % $ 6,561 0.42 2,824 0.18 1,210 0.08 — — 3,242 0.21 378 0.02 $14,215 0.91	2001
Amount $43,363 1,224 1,096 862 2,802 — $49,347	Amount $ 6,561 2,824 1,210 — 3,242 378 $14,215	Amount
		U.S. Dollars $187 81 34 — 93 11
		$406

b. Purchases

1999 Amount % $143,034 18.66 — — — — 181 0.02 — — — — $143,215 18.68	2001 Amount % $ 9,219 0.93 72,366 7.27 — — — — 1,940 0.19 — — $83,525 8.39	2001
Amount $143,034 — — 181 — — $143,215	Amount $ 9,219 72,366 — — 1,940 — $83,525	Amount
		U.S. Dollars $ 264 2,069 — — 55 —
		$2,388

F-50

c. Notes receivable and accounts receivable

Argosy Technology Co., Ltd. . . . . . Accounts receivable Tokyo Sinbon Electronics Co., Ltd. . Hong Kong Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . Beijing Sinbon Electronics Co., Ltd. Shanghai Sinbon Electronics Co., Ltd.. . . . . . . . . . . . . . . . . . . . . Jiangyin Sinbon Electronics Co., Ltd.. . . . . . . . . . . . . . . . . . . . . Argosy Technology Co., Ltd. . . . . . Sinbon Technologies, L.L.C.. . . . . . Add: Allowance for exchange gains Less: Write-down related to a long-term investment . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . .	1999 Amount % $ — — $ 745 0.25 13,013 4.30 4,952 1.64 9,668 3.19 — — 337 0.11 — — 28,715 9.49 1,322 0.44 — — $30,037 9.93	2000 Amount % NT Dollars $ 90 0.16 $ 6,660 2.29 621 0.21 3,995 1.38 1,290 0.45 — — — — — — 12,566 4.33 184 0.06 (3,593) (1.24) $ 9,157 3.15	2001 Amount % $1,010 2.16 $ 4,510 0.90 1,974 0.39 4,055 0.81 1,291 0.26 17 — 146 0.03 378 0.07 12,371 2.46 191 0.04 (4,510) (0.90) $8,052 1.60	2001 Amount U.S. Dollars $ 29 129 56 116 37 1 4 11 354 5 (129) $230
	Amount $ — $ 745 13,013 4,952 9,668 — 337 — 28,715 1,322 — $30,037		Amount $1,010 $ 4,510 1,974 4,055 1,291 17 146 378 12,371 191 (4,510) $8,052

d. Other receivables

Tokyo Sinbon Electronics Co., Ltd. . Hong Kong Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . Beijing Sinbon Electronics Co., Ltd. Shanghai Sinbon Electronics Co., Ltd.. . . . . . . . . . . . . . . . . . . . . Jiangyin Sinbon Electronics Co., Ltd. Sinbon Shenzhen Electronics Co., Ltd. . . . . . . . . . . . . . . . . . Sinbon International Enterprise Co., Ltd.. . . . . . . . . . . . . . . . . . . . . Sinbon Technologies, L.L.C.. . . . . . Add: Allowance for exchange gains Less: Write-down related to a long-term investment . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . Prepayments Tokyo Sinbon Electronics Co., Ltd. .	31 December 1999 Amount % $ — — — — 2,023 21.42 — — — — — — — — — — 2,023 21.42 — — — — $2,023 21.42 31 December 1999 Amount % $— —	31 December 2000 Amount % NT Dollars $116 1.30 — — 501 5.62 — — — — — — — — — — 617 6.92 — — — — $617 6.92 31 December 2000 Amount % NT Dollars $1,686 18.40	31 December 2001 Amount % $ 1,303 2.77 1,184 2.51 5,579 11.85 71 0.15 825 1.75 52 0.11 25,635 54.44 3,930 8.35 38,579 81.93 405 0.86 (1,303) (2.77) $37,681 80.02 31 December 2001 Amount % $— —	2001 Amount U.S. Dollars $ 37 34 159 2 24 1 733 112 1,102 12 (37) $1,077 2001 Amount U.S. Dollars $—
	Amount $—		Amount $—

e. Prepayments

F-51

f. Notes and accounts payable

31 December 1999 Amount % $ 126 0.24 $73,534 29.54 — — — — 130 0.05 — — — — 73,664 29.59 706 0.28 $74,370 29.87	31 December 2001 Amount % $ — — $ 3,826 1.44 14,142 5.30 — — — — 53 0.02 720 0.27 18,741 7.03 (14) (0.01) $18,727 7.02	2001
Amount $ 126 $73,534 — — 130 — — 73,664 706 $74,370	Amount $ — $ 3,826 14,142 — — 53 720 18,741 (14) $18,727	Amount
		U.S. Dollars $ —
		$109 404 — — 1 21
		535 —
		$535

g. Accrued liabilities

31 December 1999 Amount % $1,025 0.03 — — — — — — 1,025 0.03 — — $1,025 0.03	31 December 2001 Amount % $ 9 0.01 950 1.67 23 0.04 60 0.11 1,042 1.83 2 — $1,044 1.83	2001
Amount $1,025 — — — 1,025 — $1,025	Amount $ 9 950 23 60 1,042 2 $1,044	Amount
		U.S. Dollars $— 27 1 2
		30 —
		$30

h. Temporary credits

Sinbon International Enterprise Co., Ltd. . . . . . . . . . . . . . . . . .	1999 Amount % $— —	2000 Amount % NT Dollars $— —	2001 Amount % $1,044 41.74	2001
	Amount $—		Amount $1,044	Amount
				U.S. Dollars $30

i. Other revenues

1999 Amount % $— — — — — — — — $— —	2001 Amount % $ 16 0.16 700 7.11 54 0.55 941 9.56 $1,711 17.38	2001
Amount $— — — — $—	Amount $ 16 700 54 941 $1,711	Amount
		U.S. Dollars $— 20 2 27
		$49

F-52

j. Operating expenses

1999 Amount % $8,069 6.59 — — — — $8,069 6.59	2001 Amount % $ 47 0.02 11 — 26,236 11.91 $26,294 11.93	2001
Amount $8,069 — — $8,069	Amount $ 47 11 26,236 $26,294	Amount
		U.S. Dollars $ 1 — 750
		$751

k. Factory overheads

1999 Amount % $— — — — — — $— —	2001 Amount % $ 147 0.10 9,901 6.71 165 0.11 $10,213 6.92	2001
Amount $— — — $—	Amount $ 147 9,901 165 $10,213	Amount
		U.S. Dollars $ 4 283 5
		$292

l. The Company purchased equipment from Tokyo Sinbon Electronics Co., Ltd. for $950 in 2000.
m. The Company sold equipment to the following related parties in 2001:

Name of Related Parties Hong Kong Sinbon Electronics Co., Ltd. . . Liang Chun Hsin. . . . . . . Total . . . . . . . . . . . . . . .	Sales Proceeds NT Dollars U.S. Dollars $116 $ 3 524 15 $640 $18	Book	Value U.S. Dollars $ 4 16 $20	Loss on sale of fixed assets	Loss on sale of fixed assets
	NT Dollars $116 524 $640	NT Dollars $151 551		NT Dollars $(35) (27) $(62)	U.S. Dollars $(1 (1
		$702			$(2

n. The Company issued guarantee notes and provided time deposits for the following related parties as security for their borrowings:

Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . . Hong Kong Sinbon Electronics Co., Ltd. . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $46,513 33,300 $79,813	2000 NT Dollars $42,001 55,311 $97,312	2001 $50,000 49,864 $99,864	2001
				U.S. Dollars $1,429 1,426
				$2,855

6. ASSETS PLEDGED

As of 31 December 1999, 2000 and 2001, the following assets were pledged to banks as collateral for borrowings and hiring foreign labor:

Land (including land improvements, net) . . . . . . . . . . . . . . . Buildings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $ 94,451 86,770 150,867 — $332,088	2000 NT Dollars $ 86,801 100,999 93,881 — $281,681	2001 $ 86,801 99,134 106,577 28,864 $321,376	2001
				U.S. Dollars $2,481 2,834 3,047 825
				$9,187

F-53

7. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIES

The significant commitments and contingent liabilities of the Company as of 31 December 2001 were as follows:

a. As of 31 December 2001, the Company provided TKSB and HKSB guarantee notes and time deposits for NT$50,000 and NT$49,864, respectively, as security for their borrowings.
b. As of 31 December 2001, Hsinchu International Bank provided a guarantee in the amount of NT$1,077 for the Company to hire foreign labor.
c. The Company received bank guarantees amounting to NT$5,000 for importing goods as of 31 December 2001.
SIGNIFICANT CASUALTY LOSSES

None.

9. SIGNIFICANT SUBSEQUENT EVENTS

None.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash and cash equivalents approximates fair value. The carrying values of shortterm loans and notes and accounts receivable and payable also approximate their fair values because of the relatively short period of time between their origination and expected realization The fair value of long-term borrowings is estimated using the discounted cash flow method based on the borrowing rates currently available to the Company.

Financial Assets: Cash and cash equivalents . . . Notes and accounts payable . . Marketable securities . . . . . . . Financial Liabilities: Short-term borrowings . . . . . . Notes and accounts payable . . Long-term loans payable (including current portion) .		31 December	2001 Carrying Amount Fair Value $359,355 $359,355 550,253 550,253 404,087 404,087 123,959 123,959 271,904 271,904 465,499 465,499	2001	2001
	1999 Carrying Amount Fair Value $ 48,540 $ 48,540 423,781 423,781 53,721 53,738 212,157 212,157 301,029 301,029 74,364 74,364	2000 Carrying Amount Fair Value NT Dollars $130,223 $130,223 345,382 345,292 151,827 151,827 48,300 48,300 195,018 195,018 65,000 65,000
	Carrying Amount $ 48,540 423,781 53,721 212,157 301,029 74,364		Carrying Amount $359,355 550,253 404,087 123,959 271,904 465,499	Carrying Amount Fair Value U.S. Dollars $10,273 $10,273 15,731 15,731 11,552 11,552 3,544 3,544 7,773 7,773 13,308 13,308	Fair Value

F-54

11. SEGMENT INFORMATION

a. Industry Information

(a) 1999

Item Segment revenues . . . . . . . . . . . . . . . . . Segment income (loss) . . . . . . . . . . . . . . General expense, net . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . Income (Loss) before income taxes . . . . . Identifiable assets . . . . . . . . . . . . . . . . . Long-term investments. . . . . . . . . . . . . . General assets. . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . .	Cable Division NT Dollars 523,838 71,025 55,485 — 15,540 15,634 — — — 2,526 —	Component Division 466,772 131,518 44,426 — 87,093 162 — — — 34 —	Other 73,718 15,716 22,461 — (6,745) 187,244 — — — 6,924 —	Total
				NT Dollars 1,064,328 218,259 122,372 9,385 102,286 203,040 50,040 987,770 1,190,810 9,484 115,288

(b) 2000

Item Segment revenues . . . . . . . . . . . . . . . . . Segment income (loss) . . . . . . . . . . . . . . General expense, net . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . Income (Loss) before income taxes . . . . . Identifiable assets . . . . . . . . . . . . . . . . . Long-term investments. . . . . . . . . . . . . . General assets. . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . .	Cable Division NT Dollars 762,160 192,610 10,019 — 190,355 222 — — — 4 —	Component Division 422,638 128,842 5,617 — 133,688 191 — — — 2 —	Other 82,192 17,232 129,911 — (99,646) 185,850 — — — 12,847 —	Total
				NT Dollars 1,266,990 338,684 145,547 12,366 224,397 186,263 151,827 1,020,995 1,207,258 12,853 91,320

(c) 2001

Item Segment revenues . . . . . . . . . . . . . . . . . Segment income (loss) . . . . . . . . . . . . . . General expense, net . . . . . . . . . . . . . . . Interest expense, net . . . . . . . . . . . . . . . Income (Loss) before income taxes . . . . . Identifiable assets . . . . . . . . . . . . . . . . . Long-term investments. . . . . . . . . . . . . . General assets. . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . Depreciation expense . . . . . . . . . . . . . . . Capital expenditures . . . . . . . . . . . . . . .	Cable Division NT Dollars 871,723 222,521 67,118 — 166,789 211 — — — 76 120	Component Division 641,338 206,975 13,397 — 196,489 149 — — — 39 —	Other 78,940 (57,659) 139,807 — (51,881) 181,780 — — — 14,483 226,671	Total
				NT Dollars 1,592,001 487,155 220,322 14,751 311,397 182,140 404,087 1,830,139 2,012,279 14,598 226,791

b. Geographic Segments

The Company did not engage in any overseas operations.

F-55

c. Exports

The exports for the years ended 31 December 1999, 2000, and 2001 were as follows:

Geographic Area America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1999 $ 23,834 10,560 109,302 $143,696	2000 NT Dollars $281,876 27,788 127,498 $437,162	2001 $392,305 29,383 355,846 $777,534	2001
				U.S. Dollars $11,215 840 10,173 $22,228

d. Major Customers

As of 31 December 1999, 2000 and 2001, the customers which accounted for 10 per cent. or more of its net revenue were as follows:

Customer Symbol Technologies, Inc. Quanta Computer Inc. . . . Acer Incorporated . . . . . . Total . . . . . . . . . . . . . . .	1999 Amount % $ 15,166 1.42 192,446 18.08 181,225 17.03 $388,837 36.53	2000 Amount % NT Dollars $277,542 21.91 79,697 6.29 145,010 11.45 $502,249 39.65	2001 Amount % $385,795 24.23 128,793 8.09 42,705 2.68 $557,293 35.00	2001	2001
	Amount $ 15,166 192,446 181,225 $388,837		Amount $385,795 128,793 42,705 $557,293	Amount % U.S. Dollars $11,029 24.23 3,682 8.09 1,221 2.68 $15,932 35.00	%
					35.00

F-56

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders

Sinbon Electronics Co., Ltd.

We have reviewed the balance sheets of Sinbon Electronics Co., Ltd. as of 31 March 2001 and 2002, and the related statements of operations and cash flows for the three-month periods then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our review.

Except as discussed in the following paragraph, we planned and conducted our review in accordance with the Statement of Auditing Standards No. 36 of Taiwan ‘‘Review of Financial Statements’’, which consist principally of conducting inquiries, comparisons and analytical procedures. A review is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards. Accordingly, we do not express an opinion on these financial statements.

We did not review the financial statements of Tokyo Sinbon Electronics Co., Ltd. and Hong Kong Sinbon Electronics Co., Ltd., two wholly-owned subsidiaries with total assets of NT$136,205,000 and NT$274,080,000, or 10.44 per cent. and 14.05 per cent. of the total assets of Sinbon Electronics Co., Ltd. as at 31 March 2001 and 2002, respectively, which represent investment income of NT$12,479,000 and NT$3,986,000 or 17.52 per cent. and 5.79 per cent. of the income before income taxes of Sinbon Electronics Co., Ltd. respectively, for the three-month periods then ended. The financial statements of these subsidiaries were not reviewed.

Based on our review, except for the matters referred to above and the effect of such adjustment , if any , as might have been determined to be necessary had the investee’s financial statements been reviewed, we are not aware of any material modifications or adjustments that should be made to the financial statements of Sinbon Electronics Co., Ltd. at 31 March 2001 and 2002 in order for them to be in conformity with accounting principles generally accepted in the Republic of China in Taiwan.

Diwan, Ernst & Young Taichung, Taiwan Republic of China

15th April, 2002

F-57

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED BALANCE SHEETS AS OF 31 MARCH 2001 AND 2002

(Expressed in Thousands)

Assets Current Assets Cash and cash equivalents (Notes 2 and 4.a). . . . . . . . . . . . . . . . . . . . . . . . . Short-term investments (Notes 2 and 4.b). . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable, net (Notes 2 and 4.c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable — related parties (Notes 2 and 4.c). . . . . . . . . . . . . . . . . . . Accounts receivable, net (Notes 2 and 4.c). . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable — related parties (Notes 2 , 4.c and 5.(2).c) . . . . . . . . . . Other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables — related parties, net (Notes 5.(2).d) . . . . . . . . . . . . . . . . . Inventories, net (Notes 2 and 4.d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted deposits (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term investments (Notes 2 and 4.e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property, Plant and Equipment, net (Notes 2 , 4.f and 6) . . . . . . . . . . . . . . . . . . Other Assets Refundable deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred charges (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		31 March
	2001 2002 NT Dollar $ 143,980 $ 187,339 15,000 112,169 45,478 66,909 245 — 288,783 486,917 8,558 9,527 6,371 9,325 878 43,475 152,610 183,369 21,348 8,159 6,842 11,138 100,377 72,077 790,470 1,190,404 199,859 442,293 308,637 309,860 1,366 2,241 4,122 5,632 154 154 5,642 8,027 $1,304,608 $1,950,584		2002
			U.S. Dollar (Note 2) $ 5,353 3,205 1,912 — 13,912 272 267 1,242 5,239 233 318 2,059
			34,012
			12,637
			8,853
			64 161 4
			229
			$55,731

(The accompanying notes form an integral part of the financial statements)

F-58

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED BALANCE SHEETS — (Continued) AS OF 31 MARCH 2001 AND 2002

(Expressed in Thousands)

Liabilities and Shareholders’ Equity Current Liabilities Short-term borrowings (Note 4.g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable — related parties (Note 5.(2).f) . . . . . . . . . . . . . . . . . . . . . Income taxes payable (Note 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities (Note 4.h) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Advance receipts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans payable — current portion (Note 4.j) . . . . . . . . . . . . . . . . . . Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term Liabilities Convertible bonds (Note 4.i). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term loans (Note 4.j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Long-term Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Liabilities Accrued pension liabilities (Notes 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income tax liabilities — non-current . . . . . . . . . . . . . . . . . . . . . . . . Deferred profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shareholders’ Equity (Notes 2 and 4.k) Capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deed of bond for equity swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Special reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Liabilities and Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .		31 March
	2001 2002 NT Dollar $ 93,300 $ — 8,295 4,814 153,354 216,807 13,690 35,040 57,726 60,488 40,897 48,346 1,758 7,472 833 5,000 1,888 4,951 371,741 382,918 — 87,358 64,167 57,917 64,167 145,275 15,841 21,094 3,207 10,740 162 162 — 10,775 19,210 42,771 455,118 570,964 500,000 707,981 — 1,966 115,351 338,141 13,084 29,434 193 193 216,955 289,998 3,907 11,907 849,490 1,379,620 $1,304,608 $1,950,584		2002
			U.S. Dollar (Note 2) $ — 138 6,195 1,001 1,728 1,381 213 143 141
			10,940
			2,496 1,655
			4,151
			602 307 5 308
			1,222
			16,313
			20,228 56 9,661 841 6 8,286 340
			39,418
			$55,731

(The accompanying notes form an integral part of the financial statements)

F-59

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED 31 MARCH 2001 AND 2002

(Expressed in Thousands Except Earnings Per Share Data)

Net Revenue (Note 2) Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other operating revenue — commission . . . . . . . . . . . . . . . . . . . . . Total Net Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of Revenue Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cost of other operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Cost of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Realized Intercompany Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Gross Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Expenses Selling. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management and administrative . . . . . . . . . . . . . . . . . . . . . . . . . . Research and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Operating Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating Income Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of investments . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-operating Expenses Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment. . . . . . . . . . . . . . Other losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total non-operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income Tax Expense (Notes 2 and 4.m) . . . . . . . . . . . . . . . . . . . . . . . Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic Earnings Per Common Share (Note 2 and 4.n) . . . . . . . . . . . . . . Diluted Earnings Per Common Share (Note 2 and 4.n). . . . . . . . . . . . .		31 March	2002 U.S. Dollar (Note 2) $13,771 160 13,931 (10,206) (9) (10,215) 3,716 — 3,716 (873) (888) (150) (1,911) 1,805 28 114 2 102 82 328 (162) (3) — (165) 1,968 (519) $ 1,449 $ 0.02 $ 0.02
	2001 2002 NT Dollar $314,966 $481,985 4,854 5,605 319,820 487,590 (201,772) (357,219) (414) (311) (202,186) (357,530) 117,634 130,060 586 — 118,220 130,060 (35,236) (30,539) (24,670) (31,085) (2,686) (5,255) (62,592) (66,879) 55,628 63,181 1,040 974 12,479 3,986 — 73 2,108 3,578 2,829 2,857 18,456 11,468 (2,592) (5,653) — (115) (285) — (2,877) (5,768) 71,207 68,881 (18,607) (18,151) $ 52,600 $ 50,730 $ 0.86 $ 0.82 $ — $ 0.72

(The accompanying notes form an integral part of the financial statements)

F-60

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE-MONTH PERIODS ENDED 31 MARCH 2001 AND 2002

(Expressed in Thousands)

Cash Flows from Operating Activities: Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment , net . . . . . . . . . . Increase in short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of investments . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in notes and accounts receivable, net . . . . . . . . . Decrease (Increase) in inventories, net . . . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in prepayments . . . . . . . . . . . . . . . . . . . . . . . . Increase in other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase(Decrease) in accrued liabilities . . . . . . . . . . . . . . . . . . . . . Increase in income taxes payable. . . . . . . . . . . . . . . . . . . . . . . . . . Increase in advance receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Decrease in other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . Increase in deferred income tax liabilities. . . . . . . . . . . . . . . . . . . . Decrease in deferred profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in accrued pension liabilities . . . . . . . . . . . . . . . . . . . . . . Net Cash Provided by (Used in) Operating Activities . . . . . . . . . . . . Cash Flows from Investing Activities: Increase in long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . Disposal of long-term investments . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of property, plant and equipment . . . . . . . . . . . . . . . . . . . Decrease (Increase) in restricted deposits . . . . . . . . . . . . . . . . . . . . Decrease (Increase) in refundable deposits . . . . . . . . . . . . . . . . . . . Increase in deferred charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Cash Used in Investing Activities . . . . . . . . . . . . . . . . . . . . . .		31 March	2002 U.S. Dollar (Note 2) $1,449 40 117 3 (3,205) (114) (2) (382) 265 649 (221) (8) (427) (247) 592 50 (48) 18 — 45 (1,426) (895) 48 (127) 985 (15) (15) (19)
	2001 2002 NT Dollar $52,600 $50,730 451 1,409 3,580 4,100 — 115 (15,000) (112,169) (12,479) (3,986) — (73) 4,856 (13,387) (6,959) 9,283 (12,185) 22,710 (450) (7,749) (9,881) (292) (9,799) (14,951) 981 (8,662) 17,000 20,703 458 1,760 (2,754) (1,697) 2,808 648 (586) — 1,248 1,583 13,889 (49,925) (36,146) (31,320) — 1,677 (2,513) (4,448) (6,496) 34,500 23 (537) — (518) (45,132) (646)

(The accompanying notes form an integral part of the financial statements)

F-61

SINBON ELECTRONICS CO., LTD.

NON-CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued) FOR THE THREE-MONTH PERIODS ENDED 31 MARCH 2001 AND 2002

(Expressed in Thousands)

Cash Flows from Financing Activities: Increase (Decrease) in short-term borrowings . . . . . . . . . . . . . . . . . Decrease in long-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in interest payable on redemption . . . . . . . . . . . . . . . . . . . Net Cash Provided by (Used in) Financing Activities . . . . . . . . . . . . . . Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . Cash and Cash Equivalents, Beginning of Year . . . . . . . . . . . . . . . . . . Cash and Cash Equivalents, End of Year . . . . . . . . . . . . . . . . . . . . . . Supplementary Disclosure of Cash Flow Information: Interest paid (net of amount capitalized). . . . . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Non-cash Investing and Financing Activities: Current portion of long-term loans payable . . . . . . . . . . . . . . . . . . . Common stock converted from bonds. . . . . . . . . . . . . . . . . . . . . . .		31 March	2002 U.S. Dollar (Note 2) (3,542) (36) 108 (3,470) (4,915) 10,267 $5,352 $ 107 $ 2 $ 143 $2,713
	2001 2002 NT Dollar 45,000 (123,959) — (1,250) — 3,764 45,000 (121,445) 13,757 (172,016) 130,223 359,355 $143,980 $187,339 $ 2,528 $ 3,737 $ — $ 59 $ 833 $ 5,000 $ — $94,947

(The accompanying notes form an integral part of the financial statements)

F-62

SINBON ELECTRONICS CO., LTD.

NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE-MONTH PERIODS ENDED 31 MARCH 2001 AND 2002

(Expressed in Thousands, unless otherwise stated)

1. ORGANIZATION AND OPERATIONS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(1) Cash and Cash Equivalents

(2) Foreign-currency Transactions

a. The accounts of the Company are maintained in New Taiwan Dollars (NTD). Transactions denominated in foreign currencies are translated into New Taiwan Dollars at the rates of exchange in effect when the transactions occur.
b. When the transaction date and the actual settlement date fall in the same accounting period, the differences between the recorded amount and the settled amount are credited to or charged against current income.
c. When the transaction date and the actual settlement date fall in different accounting periods, receivables and payables denominated in foreign currencies are restated using the spot rates prevailing on the balance sheet date. Any resulting gains or losses are reflected in the statement of operations.
d. The financial statements of all foreign subsidiaries were prepared in their respective local currencies and translated into New Taiwan Dollars. Assets and liabilities are translated from the foreign subsidiary’s functional currency using the current exchange rate at the balance sheet date. Equity accounts are translated at their historical exchange rates. Profit and loss accounts are translated using the weighted average exchange rate for the period. Gains or losses from translation of foreign subsidiaries are recorded as translation adjustments and are reported as a separate component of shareholders’ equity.

(3) Convenience Translation into U.S. Dollars

The Company prepares its financial statements in New Taiwan dollars (NTD), its reporting currency. The United States dollar (USD) amounts disclosed in the financial statements as of and for the three-month period ended 31 March 2002, are presented solely for the convenience of the reader and were translated at the average of buying and selling rates of NT$35 to U.S.$1.00 in effect on 31 March 2002. No representation is made that the NT Dollar amounts represent, or have been, or could be, converted into USD at that or any other rate.

(4) Short-term Investments

Short-term Investments are recorded at cost and valued at the lower of cost or market value at the balance sheet date. Cost is determined using the weighted-average method.

F-63

(5) Allowance for Doubtful Accounts

Allowance for doubtful accounts represents management estimates of the uncollectible amounts included in notes receivable and accounts receivable at the balance sheet date.

(6) Inventories

(7) Long-term Investments

Long-term investments in which the Company own less than 20 per cent. of the investee company’s outstanding shares and has no significant influence on the operational decisions of the investee company, are accounted for by the lower of cost or market value method if the investee company is listed and at cost if the investee company is unlisted.

(8) Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives.

The useful lives are summarized as follows:

Items Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment. . . . . . . . . . . . . . . . . . . . . . . . Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . . Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . . Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Useful Lives
	5–40 years 3–10 years 5 years 3–10 years 2–15 years

Major replacements, renewals and betterments are capitalized, while maintenance and repairs are expensed.

Interest incurred in connection with the construction or acquisition of property, plant and equipment is capitalized as part of the cost of the assets.

Effective in 2001 further to changes in the regulations by the Ministry of Economic Affairs in the R.O.C., any gains are no longer transferred to capital surplus in the year of disposal.

(9) Convertible Bonds

a. The excess of the estimated redemption price over the par value is recognized as interest expense at the effective interest rate and a liability is recorded as ‘‘Interest Payable on Redemption.’’ The variance between book value as of the redemption date and the actual redemption price is recognized as interest expense.

F-64

b. When a bondholder exercises his/her conversion rights, the book value of bonds is credited to common stock at an amount equal to the par value of the stock and the excess is credited to capital surplus. No gain or loss is recognized on bond conversion.

(10) Pensions

Effective from 1997, the Company adopted, on a prospective basis, Statement of Financial Accounting Standards (SFAS) No. 18 of Taiwan ‘‘Accounting for Pensions.’’ Based on the actuarial report with a measurement date of 31 March 1997, the excess of the accumulated benefit obligations over plan assets is recognized as the minimum pension liability. Net pension costs based on the actuarial report are recognized from 1 January 1998, and the unrecognized net asset or obligation at transition is amortized equally over 15 years.

(11) Legal Reserve

The Company appropriates 10 per cent. of the Company’s net income to the legal reserve.

(12) Special Reserve

(13) Recognition of Revenue

In general, revenue is recognized only after the earning process is substantially completed and the revenue is realized or realizable.

(14) Deferred profit

(15) Income Taxes

The Company adopted the Statement of Financial Accounting Standard No. 22 of Taiwan (SFAS No. 22), ‘‘Accounting for Income Taxes.’’ Under SFAS No. 22, a current income tax liability or asset is recognized for the estimated taxes payable or refundable for the current year, and a deferred tax or liability is recognized for the estimated future tax effects attributable to temporary differences, tax credits, and loss carryforwards. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized.

F-65

(16) Earnings Per Common Share

3. REASON AND EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE

The transfer of gains on disposal of property, plant and equipment from retained earnings to additional paid-in-capital was required under R.O.C. Company Law prior to 1 January 2001. Pursuant to an amendment to the Company Law, a company shall not make such transfers for gains on disposal of property, plant and equipment generated in 2001. This change had no significant effect on the Company’s financial statements.

4. SUMMARY OF SIGNIFICANT ACCOUNTS

a.

Cash and Cash Equivalents

Cash and cash equivalents as of 31 March 2001and 2002 consisted of the following:

Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash in banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for foreign exchange losses. . . . . . . . . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2001 2002 NT Dollar $ 114 $ 149 144,231 187,198 144,345 187,347 (365) (8) $143,980 $187,339	2002
		U.S. Dollar $ 4 5,349
		5,353 —
		$5,353

b. Short-term Investments

Short-term investments as of 31 March 2001 and 2002 consisted of the following:

Investment in mutual fund . . . . . . . . . . . . . . . . . . . . . . . . . . . Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2001 2002 NT Dollar $15,000 $ 95,000 — 17,169 $15,000 $112,169	2002
		U.S. Dollar $2,714 491
		$3,205

F-66

c.

Notes and Accounts Receivable, Net

Notes and accounts receivable as of 31 March 2001 and 2002 consisted of the following:

Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable — related parties. . . . . . . . . . . . . . . . . . . . . . Notes receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . Add: Allowance for foreign exchange gains . . . . . . . . . . . . . . . Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts receivable — related parties . . . . . . . . . . . . . . . . . . . Add (Less): Allowance for foreign exchange gains(losses) . . . . . Less: Write-down related to a long-term investment. . . . . . . . . . Accounts receivable — related parties . . . . . . . . . . . . . . . . . . . Notes and accounts receivable, net . . . . . . . . . . . . . . . . . . . . .	2001 2002 NT Dollar $ 45,478 $ 66,909 245 — 45,723 66,909 288,807 485,185 (442) (442) 418 2,174 288,783 486,917 11,644 9,539 (362) 352 (2,724) (364) 8,558 9,527 $343,064 $563,353	2002 U.S. Dollar $ 1,912 — 1,912 13,863 (13) 62 13,912 273 10 (11) 272 $16,096

The Company has guaranteed obligations of an investee, Tokyo Sinbon Electronics Co., Ltd and accounts for the investment using the equity method of accounting. As the carrying value of this investment using the equity method has a negative value, this excess negative value is applied against the Company’s accounts receivable owing from TKSB. This accounting treatment is in accordance with Statement of Financial Accounting Standard No.5 of Taiwan (SFAS No. 5) ‘‘Accounting for Long-term Equity Investments.’’

As at 31 March 2001 and 2002, accounts receivable denominated in foreign currencies in the financial statements are credited to or charged against current income using the current exchange rate at the balance sheet date and are accounted for separately as an allowance for foreign exchange gains or losses.

d. Inventories, Net

Inventories as of 31 March 2001 and 2002 are categorized as follows:

Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work in process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Merchandise . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Allowance for decline in market value and obsolescence . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2001 2002 NT Dollar $ 48,085 $ 76,294 316 399 22,470 20,834 62,913 57,279 24,782 32,480 158,566 187,286 (5,956) (3,917) $152,610 $183,369	2002 U.S. Dollar $2,181 11 595 1,636 928 5,351 (112) $5,239

Inventories were insured for the sum of $30,000 and $150,000 as at 31 March 2001 and 2002, respectively.

F-67

e. Long-term investments

(1) Long-term investments as of 31 March 2001 and 2002 consisted of the following:

Investee Beijing Sinbon Electronics Co., Ltd. . . . . . . . . . Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . . Hong Kong Sinbon Electronics Co., Ltd. . Sinbon International Enternational Enterprise Co., Ltd. . . Sinbon Technologies, L.L.C. . . . . . . . . . . . Korea Sinbon Electronics Co., Ltd. . . . . . . . . . Niigata Seimitsu Co., Ltd. Mobility Electronics Inc. Argosy Technology Co., Ltd.. . . . . . . . . . . . . Golden Bridge Technology Co., Ltd. . Hantechnic, Inc. . . . . . . General Research of Electronics, Inc. . . . . Etherwan Systems Inc. . . Top Taiwan 3 Venture Capital Co., Ltd. . . . . Other investments: Club membership . . . . . Total . . . . . . . . . . . . . .	2001 % NT Dollar 75.00 $ 28,086 100.00 — 100.00 55,755 100.00 49,364 51.00 3,000 — — 0.60 13,460 0.03 4,010 0.38 1,064 1.21 14,775 5.00 4,800 7.5 23,184 — — — — — 2,361 $199,859		2002	U.S. Dollar $ 875 — 3,626 3,182 128 20 385 115 30 414 571 662 1,133 1,429 67 $12,637	Valuation method
	% 75.00 100.00 100.00 100.00 51.00 — 0.60 0.03 0.38 1.21 5.00 7.5 — — —	% 75.00 100.00 100.00 100.00 51.00 37.50 0.46 0.03 0.38 1.06 11.71 7.50 19.90 5.00	NT Dollar $ 30,616 — 126,910 111,361 4,479 714 13,460 4,010 1,064 14,494 19,995 23,184 39,645 50,000 2,361 $442,293		Equity method Equity method Equity method Equity method Equity method Equity method Cost method The lower of cost or market value method Cost method The lower of cost or market value method Cost method Cost method Cost method Cost method The lower of cost or market value method

(2) Investment income for the first quarter of 2001 and 2002 of Beijing Sinbon Electronics Co., Ltd. amounted to NT$3,301 and NT$748, respectively. Translation adjustments amounted to NT$170 and NT$3 for the first quarter 31 of 2001 and 2002.
(3) In 1995, the Company acquired for NT$9,967 a 100 per cent. ownership interest in Tokyo Sinbon Electronics Co., Ltd. The Company has guaranteed borrowings of the investee since April 1998. The Company adopted SFAS No. 5 and recognized investment losses amounting to NT$11,165. The negative equity of Tokyo Sinbon Electronics Co., Ltd. has been applied against the accounts receivable and other accounts receivable and as an increase to other liabilities as of 31 March 2002.

Investment losses and investment income for the first quarter of 2001 and 2002 were recognized for the investee amounting to NT$413 and NT$1,053, respectively. Translation adjustments amounting to NT$456 and NT$85 were accounted for in the first quarter of 2001 and 2002, respectively.

(4) The Company acquired for HKD100 a 100 per cent. ownership interest in Hong Kong Sinbon Electronics Co., Ltd. Investment income and amortized negative goodwill for the first quarter of 2001 and 2002 of the investee was recognized amounting to NT$5,765 and NT$9,216, respectively. Translation adjustments amounting to NT$95 and NT$11 were accounted for the first quarter of 2001 and 2002, respectively.

F-68

(5) The Company invested USD1,100 to establish a 100 per cent. owned subsidiary, Sinbon International Enterprise Co., Ltd. in 2000 and reinvested a further USD2,650 in 2001.

Investment loss of the investee amounted to NT$7,983 and the translation adjustment amounted to NT$21 in the first quarter of 2002.

(6) In January 2001, the Company established a 51 per cent. owned subsidiary, Sinbon Technologies, L.L.C. Investment income and amortized negative goodwill for the first quarter of 2001 and 2002 of the investee was recognized amounting to NT$3,000 and NT$3,245, respectively. Translation adjustments amounting to NT$3 were accounted for in the first quarter of 2002.
(7) In October 2001, the Company acquired for USD30 a 37.5 per cent. ownership interest in Korea Sinbon Electronics Co., Ltd. The investment loss for the first quarter of 2002 of the investee amounted to NT$187 and the translation adjustment was NT$20.
(8) As noted above the investment income or losses of the investees were recognized based on the investee company’s financial statements which were not audited or reviewed.

f. Property, Plant, and Equipment, Net

(1) Property, plant and equipment as of 31 March 2001 and 2002 consisted of the following:

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery equipment. . . . . . . . . . . . . . . . . . . . . . . . . . Transportation equipment . . . . . . . . . . . . . . . . . . . . . . . Furniture, fixtures and equipment . . . . . . . . . . . . . . . . . Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . Leased assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepayments for equipment. . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2001 2002 NT Dollar $123,608 $123,608 170,539 171,535 35,653 44,566 2,016 1,366 14,492 16,652 8,638 8,489 307 307 194 527 483 2,392 355,930 369,442 (47,293) (59,582) $308,637 $309,860	2002 U.S. Dollar $3,532 4,901 1,273 39 476 242 9 15 68 10,555 (1,702) $8,853

(2) Property, plant and equipment were insured for possible losses in the sum of $190,863 and $185,413 as at 31 March 2001 and 2002, respectively.
(3) No interest was capitalized for the first quarter of 2001 and 2002.

F-69

g. Short-term Borrowings

Short-term loans as of 31 March 2000 are summarized as follows:

Creditors Bank of Taiwan Miaoli Branch . . . . . . . Asia Pacific Bank . . . . . . . . . . . . . . . . Ta Chong Bank Ltd. . . . . . . . . . . . . . . Hua Nan Commercial Bank Ltd. — Miaoli Branch . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . .	Type Secured loan Secured loan Credit loan Credit loan Secured loan Credit loan	Interest Rate 7.04% 7.04% 7.04% 7.20% 7.20% 7.20%	Facility $43,300 15,000 10,000 15,000 30,000 15,000	Balance $43,300 15,000 10,000 10,000 5,000 10,000 $93,300	Collateral
					Land Building — — Time Deposits —

h. Accrued Liabilities

Accrued expenses as of 31 March 2001 and 2002 are summarized as follows:

Accrued salaries and wages . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2001 2002 NT Dollar $13,578 $15,848 2,492 2,903 524 295 1,136 1,859 9,789 5,330 13,378 22,111 $40,897 $48,346	2002
		U.S. Dollar $ 453 83 8 53 152 632
		$1,381

i. Convertible Bonds

Convertible bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Add: Interest payable on redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 March 2002	31 March 2002
	NT Dollar $86,100 1,258 $87,358	U.S. Dollar $2,460 36
		$2,496

On 5 December 2001, the Company issued NT$400 million non-interest bearing convertible bonds (the Bonds). The Bonds have a term of five years and mature on 4 December 2006, The conversion price was initially set at NT$33.06 per share on the issuance date, which will be adjusted for any capital increase. The bondholders may require the Company to redeem the bonds for cash at 114.12 per cent. of the bond principal amount as of 5 December 2004 or 121.55 per cent. of the bond principle amount as of 5 December 2005. The investors may convert the Bonds into the Company’s common stock from 5 March 2002 to 24 November 2006. The last conversion price was NT$33.06 per share.

F-70

j. Long — term Loans

(1) Long-term loans as of 31 March 2001 are summarized as follows:

Creditors Bank of Taiwan . . . . . . Less: Current portion . . . Net . . . . . . . . . . . . . . .	Type Secured loan	Duration 1999.10.6– 2014.10.6	Interest Rate 7.31%	Facility NTD65,000	Balance NTD65,000 (833) NTD64,167	Collateral
						Building

(2) Long-term loans as of 31 March 2002 are summarized as follows:

Creditors Bank of Taiwan . . Less: Current portion Net . . . . . . .	Type Secured loan	Duration 1999.10.6– 2014.10.6	Interest Rate 7.31%	Facility NTD65,000	Balance NT Dollar U.S. Dollar $62,917 $1,798 (5,000) (143) $57,917 $1,655	Collateral
					NT Dollar $62,917 (5,000) $57,917	Building

k. Shareholders’ Equity

(1) Based on a resolution adopted at the annual shareholders’ meeting on 12th April, 2001, the Company declared stock dividends paid out of retained earnings in the amount of NT$100,000 and capitalized a bonus to employees in the amount of NT$15,000. The change in registered capital stock was approved by the Ministry of Economic Affairs on 16 July 2001. Based on a resolution adopted at shareholders’ meeting on 14 August 2001, the Company changed its authorized capital stock to NT$1,500,000. The change in the registered capital stock was approved by the Ministry of Economic Affairs on 19 October 2001. After this charge, the Company’s authorized share capital was NT$1,500,000 and its issued and outstanding share capital was NT$615,000 divided into 61,500,000 shares at par value of NT$10 each. On 27 March 2002, convertible bonds were converted into 9,298,116 common shares. As of 31 March 2002, the Company’s authorized share capital was NT$1,500,000. The issued and outstanding share capital was NT$707,981.

(2) Capital surplus

Capital surplus as of 31 March 2001 and 2002 consisted of the following:

Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . Premium on the bonds . . . . . . . . . . . . . . . . . . . . . . . . . Gain on disposal of property, plant and equipment, net of income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition of business . . . . . . . . . . . . . . . . . . . . . . . .	2001 2002 NT Dollar $114,048 $114,048 — 222,790 598 598 705 705 $115,351 $338,141	2002
		U.S. Dollar $3,259 6,365 17 20
		$9,661

As prescribed by the Company Law of Taiwan, capital surplus can only be applied to offset accumulated deficits and to issue capital. No dividend distribution shall be made therefrom.

F-71

l. Operating Revenues

Foreign sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Domestic sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commission revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2001 2002 NT Dollar $136,879 $241,180 178,087 240,805 4,854 5,605 $319,820 $487,590	2002
		U.S. Dollar $ 6,891 6,880 160
		$13,931

m. Income Taxes

(1) The Company’s income tax returns through 1999 have been assessed by the Tax Authority.
(2) The Company has adopted SFAS No. 22 of Taiwan, ‘‘Accounting for Income Taxes.’’ The enacted tax rate for the current year is 25 per cent.. Disclosures required under the statement as of 31 March 2001 and 2002 are summarized as follows:

(a) Total deferred income tax assets . . . . . . . . . . . . . (b) Total deferred income tax liabilities . . . . . . . . . . . (c) Temporary differences attributed to the deferred income tax assets/liabilities: Provision to reduce inventory to market value. . . Investment income under equity method. . . . . . . Unrealized foreign currency exchange gains . . . . Cumulative translation adjustments . . . . . . . . . . Employee welfare . . . . . . . . . . . . . . . . . . . . . . Unrealized intercompany profits . . . . . . . . . . . . Unfunded pension liability . . . . . . . . . . . . . . . . Imputed profit of consignment . . . . . . . . . . . . . (d) Deferred income tax assets — current . . . . . . . . . Deferred income tax liabilities — current . . . . . . Net deferred income tax assets — current . . . . . . . (e) Deferred income tax assets — non-current . . . . . . Deferred income tax liabilities — non-current . . . . Net deferred income tax assets — non-current. . . .	2001 $ 6,682 8,206 5,956 (25,508) (2,779) (4,537) 2,276 162 15,693 2,640 $ 3,074 (1,391) $1,683 $ 4,304 (7,511) $(3,207)	2002 NT Dollar $ 6,819 17,427 3,917 (49,280) (5,224) (15,204) 1,333 162 20,946 918 $ 1,438 (1,306) $ 132 $ 5,381 (16,121) $(10,740)	2002
			U.S. Dollar $ 195 498 112 (1,408) (149) (434) 38 5 598 26 $ 41 (37)
			$ 4
			$ 154 (461)
			$(307)

(f) Income tax expense for the first quarter of 2001 and 2002 were as follows:

Income tax expense — current . . . . . . . . . . . . . . Deferred income tax Investment income from equity method . . . . . . Unrealized foreign currency exchange gains . . . Reversal of intercompany profits . . . . . . . . . . . Pension accrual. . . . . . . . . . . . . . . . . . . . . . . Employee welfare . . . . . . . . . . . . . . . . . . . . . Consignment sales. . . . . . . . . . . . . . . . . . . . . Deferred Income tax expense (benefit) . . . . . . . . . Income tax expense . . . . . . . . . . . . . . . . . . . . . .	2001 2002 NT Dollar $17,000 $20,703 3,120 996 (1,529) (3,213) 147 — (312) (396) — 47 181 14 1,607 (2,552) $18,607 $18,151	2002
		U.S. Dollar $592
		29 (92) — (11) 1 —
		(73)
		$519

F-72

n. Earnings Per Common Share

Outstanding common shares, beginning of year . . . . . . . . . . . . . . . . . . . Stock dividends declared and employee bonus shares transferred to common shares in 2000 (total 21%) . . . . . . . . . . . . . . . Convertible bonds transferred to capital in March . . . . . . . . . . . . . . . . . Weighted average shares outstanding for basic EPS . . . . . . . . . . . . . . . . Weighted average shares outstanding for diluted EPS. . . . . . . . . . . . . . . Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Estimated interest on convertible bonds payable (net of tax) . . . . . . . . . . Adjusted net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Basic earnings per common share — in NT Dollar . . . . . . . . . . . . . . . . — in U.S. Dollar. . . . . . . . . . . . . . . . . Diluted earnings per common share — in NT Dollar . . . . . . . . . . . . . . . — in U.S. Dollar. . . . . . . . . . . . . . .	31 March 2001 31 March 2002 NT Dollar 50,000,000 61,500,000 11,500,000 — — 505,332 61,500,000 62,005,332 71,645,815 NTD52,600 NTD50,730 NTD726 NTD51,456 $ 0.86 $ 0.82 $ 0.02 $ 0.72 $ 0.02	31 March 2002
		62,005,332
		71,645,815
		NTD50,730
		NTD726
		NTD51,456
		$ 0.82
		$ 0.02
		$ 0.72
		$ 0.02

5. RELATED PARTY TRANSACTIONS

(1) Names and Relationships of Related Parties

Related Parties
Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . .
Beijing Sinbon Electronics Co., Ltd. Subsidiary Shanghai Sinbon
Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hong Kong Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . .
Jiangyin Sinbon Electronics Co., Ltd.. . . . . . . . . . . . . . . . . . . . . .
Sinbon Shenzhen Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . .
Korea Sinbon Electronics Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . .
Sinbon International Enterprise Co., Ltd. . . . . . . . . . . . . . . . . . . .
Sinbon Technologies, L.L.C.. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Argosy Technology Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relationship

Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary
Legal entity director of the Company

(2) Significant Related Party Transactions

a. Sales

Tokyo Sinbon Electronics Co., Ltd. . . . Hong Kong Sinbon Electronics Co., Ltd. Beijing Sinbon Electronics Co., Ltd. . . Jiangyin Sinbon Electronics Co.,Ltd. . . Korea Sinbon Electronics Co., Ltd. . . . Argosy Technology Co., Ltd. . . . . . . . Sinbon Technologies, L.L.C.. . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . .	First Quarter of 2001 First Quarter of 2002 Amount % Amount % NT Dollar $2,454 0.78 $ 938 0.19 17 0.01 484 0.10 445 0.14 701 0.15 — — 215 0.04 — — 41 0.01 333 0.11 684 0.14 — — 86 0.02 $3,249 1.04 $3,149 0.65	First Quarter of 2002
	Amount $2,454 17 445 — — 333 — $3,249	Amount
		U.S. Dollar $27 14 20 6 1 20 2
		$90

F-73

b. Purchases

First Quarter of 2001
First Quarter of 2002
Amount
%
Amount
%
NT Dollar
Tokyo Sinbon Electronics Co., Ltd. . . .
$ 3,261
1.86
$ 4,575
1.52
Hong Kong Sinbon Electronics Co., Ltd.
17,449
9.95
13,607
4.51
Jiangyin Sinbon Electronics Co.,Ltd. . .
—
—
8,209
2.72
Sinbon Technologies, L.L.C.. . . . . . . .
—
—
1,930
0.64
Total . . . . . . . . . . . . . . . . . . . . . . . .
$20,710
11.81
$28,321
9.39
Notes receivable and accounts receivable
31 March 2001
31 March 2002
Amount
%
Amount
%
NT Dollar
Notes receivable
Argosy Technology Co., Ltd. . . . . . . . . . . . .
$ 245
0.54
$ —
—
Accounts receivable
Tokyo Sinbon Electronics Co., Ltd. . . . . . . . .
$ 5,861
1.97
$ 364
0.07
Hong Kong Sinbon Electronics Co., Ltd. . . . .
17
0.01
2,345
0.47
Beijing Sinbon Electronics Co., Ltd. . . . . . . .
4,371
1.47
4,989
1.00
Shanghai Sinbon Electronics Co., Ltd. . . . . . .
1,290
0.43
1,290
0.26
Korea Sinbon Electronics Co., Ltd. . . . . . . . .
—
—
41
0.01
Jiangyin Sinbon Electronics Co., Ltd.. . . . . . .
—
—
215
0.04
Argosy Technology Co., Ltd. . . . . . . . . . . . .
105
0.04
208
0.04
Sinbon Technologies, L.L.C.. . . . . . . . . . . . .
—
—
86
0.02
11,644
3.92
9,538
1.91
Add (Less): Allowance for exchange gains or
losses . . . . . . . . . . . . . . . . . . . .
(362)
(0.12)
353
0.07
Less: Write-down related to a long-term
investment . . . . . . . . . . . . . . . . . . . . .
(2,724)
(0.92)
(364)
(0.07)
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,558
2.88
$9,527
1.91

c. Notes receivable and accounts receivable

d. Other receivables

Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . Hong Kong Sinbon Electronics Co., Ltd. . . . . Beijing Sinbon Electronics Co., Ltd. . . . . . . . Shanghai Sinbon Electronics Co.,Ltd.. . . . . . . Jiangyin Sinbon Electronics Co., Ltd.. . . . . . . Sinbon Shenzhen Electronics Co.,Ltd. . . . . . . Sinbon International Enterprise Co., Ltd. . . . . Sinbon Technologies, L.L.C.. . . . . . . . . . . . . Argosy Technology Co., Ltd. . . . . . . . . . . . . Add: Allowance for exchange gains. . . . . . . . Less: Write-down related to a long-term investment . . . . . . . . . . . . . . . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 March 2001 31 March 2002 Amount % Amount % NT Dollar $ 54 0.74 $ 26 0.05 243 3.35 2,993 5.67 565 7.80 5,492 10.40 — — 71 0.13 — — 5,809 11.00 — — 52 0.10 — — 28,117 53.25 — — 407 0.77 — — 2 — 862 11.89 42,969 81.37 16 0.22 532 1.10 — — (26) (0.05) $878 12.11 $43,475 82.42	31 March 2002 Amount U.S. Dollar $ 1 86 157 2 166 1 803 12 — 1,228 15 (1) $1,242
	Amount $ 54 243 565 — — — — — — 862 16 — $878

F-74

e. Prepayments

Hong Kong Sinbon Electronics Co., Ltd. . . . .	31 March 2001 31 March 2002 Amount % Amount % NT Dollar $13,035 61.06 $— —	31 March 2002
	Amount $13,035	Amount
		U.S. Dollar $—

f. Accounts payable

Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . Hong Kong Sinbon Electronics Co., Ltd. . . . . Beijing Sinbon Electronics Co., Ltd. . . . . . . . Argosy Technology Co., Ltd. Shanghai Sinbon Electronics Co.,Ltd.. . . . . . . Jiangyin Sinbon Electronics Co., Ltd.. . . . . . . Sinbon Technologies L.L.C. . . . . . . . . . . . . . Add: Allowance for exchange gains. . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities Tokyo Sinbon Electronics Co., Ltd. . . . . . . . . Hong Kong Sinbon Electronics Co., Ltd. . . . . Shanghai Sinbon Electronics Co.,Ltd.. . . . . . . Jiangyin Sinbon Electronic Co., Ltd. . . . . . . . Sinbon Technologies L.L.C. . . . . . . . . . . . . . Less: Allowance for exchange gains . . . . . . . Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commission payable Tokyo Sinbon Electronics Co., Ltd. . . . . . . . .	31 March 2001 31 March 2002 Amount % Amount % NT Dollar $ 384 0.23 $ 2,048 0.81 13,184 7.89 21,974 8.73 1 — — — 53 0.03 53 0.02 — — 8,209 3.26 — — 2,650 1.05 13,622 8.15 34,934 13.87 68 0.04 106 0.04 $13,690 8.19 $35,040 13.91 31 March 2001 31 March 2002 Amount % Amount % NT Dollar $ 4 0.01 $ 6 0.01 824 2.01 1,450 3.00 — — 23 0.04 — — 120 0.25 — — 105 0.22 828 2.02 1,704 3.52 — — (2) — $828 2.02 $1,702 3.52 31 March 2001 31 March 2002 Amount % Amount % NT Dollar $9,789 23.94 $5,330 11.02	31 March 2002
		Amount
		U.S. Dollar $ 58 628 — 2 234 76
		998 3
		$1,001
		31 March 2002
		Amount
		U.S. Dollar $— 41 1 3 3
		48 —
		$48
		31 March 2002
	Amount $9,789	Amount
		U.S. Dollar $152

g. Accrued liabilities

h. Commission payable

F-75

i. Other revenues

Tokyo Sinbon Electronics Co., Ltd. . . . Hong Kong Sinbon Electronics Co., Ltd. Beijing Sinbon Electronics Co., Ltd. . . Jiangyin Sinbon Electronics Co., Ltd.. . Total . . . . . . . . . . . . . . . . . . . . . . . . j. Commissions Sinbon Technologies L.L.C. . . . . . . . . k. Factory overheads	First Quarter of 2001 First Quarter of 2002 Amount % Amount % NT Dollar $ 49 1.73 $ 7 0.25 239 8.45 7 0.25 202 7.14 — — — — 8 0.27 $490 17.32 $22 0.77 First Quarter of 2001 First Quarter of 2002 Amount % Amount % NT Dollar $23,999 96.90 $13,757 83.46	First Quarter of 2002
		Amount
		U.S. Dollar $— — — 1
		$ 1
		First Quarter of 2002
	Amount $23,999	Amount
		U.S. Dollar $393

Tokyo Sinbon Electronics Co., Ltd . . . Hong Kong Sinbon Electronics Co., Ltd Total . . . . . . . . . . . . . . . . . . . . . . . .	First Quarter of 2001 First Quarter of 2002 Amount % Amount % NT Dollar $ 114 0.42 $ — — 1,661 4.90 1,257 3.11 $1,775 5.32 $1,257 3.11	First Quarter of 2002
	Amount $ 114 1,661 $1,775	Amount
		U.S. Dollar $— 36
		$36

l. The Company issued guarantee notes and provided time deposits for the following related parties as security for their borrowings:

Tokyo Sinbon Electronics Co., Ltd . . . . . . . . . . . . . . . . Hong Kong Sinbon Electronics Co., Ltd . . . . . . . . . . . . . Jiangyin Sinbon Electronics Co., Ltd.. . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31 March 2001 31 March 2002 Amount Amount NT Dollar $ 50,000 $ 50,000 50,267 49,294 — 37,128 $100,267 $136,422	31 March 2002
		Amount
		U.S. Dollar $1,429 1,408 1,061
		$3,898

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6. ASSETS PLEDGED

As of 31 March 2001 and 2002, the following assets were pledged to banks as collateral for borrowings and hiring foreign labor:

Land (including land improvements, net) . . . . . . . . . . . . . . . . . . . . . . Buildings, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restricted deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2001 2002 Amount Amount NT Dollar $ 86,801 $ 86,801 100,106 98,263 100,377 72,077 — 28,294 $287,284 $285,435	2002
		Amount
		U.S. Dollar $2,480 2,808 2,059 808
		$8,155

7. SIGNIFICANT COMMITMENTS AND CONTINGENT LIABILITIES

The significant commitments and contingent liabilities of the Company as of 31 March 2002 were as follows.

a. As of 31 March 2002, the Company provided TKSB and HKSB guarantee notes and time deposits for NT$28,294 and NT$71,000 respectively, as security for their borrowings.
b. As of 31 March 2002, Hsinchu International Bank provided a guarantee in the amount of NT$1,077 for the Company to hire foreign labor.
c. The Company received bank guarantees amounting to NT$5,000 for importing goods as of 31 March 2002.
d. As of 31 March 2002, the Company issued standby letters of credit in the amount of USD1,000 for JYSB as security for their borrowings.

8. SIGNIFICANT CASUALTY LOSSES

None.

9. SIGNIFICANT SUBSEQUENT EVENTS

None.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Assets: Cash and cash equivalents . . . Notes and accounts payable . . Marketable securities . . . . . . . Financial Liabilities: Short-term borrowings . . . . . . Notes and accounts payable . . Long-term loans payable (including current portion) .	31 March 2001 31 March 2002 Carrying Amount Fair Value Carrying Amount Fair Value NT Dollar $143,980 $143,980 $187,339 $187,339 343,064 343,064 563,353 563,353 212,498 212,521 552,101 552,101 93,300 93,300 — — 175,339 175,339 256,661 256,661 65,000 65,000 150,275 150,275	31 March 2002	31 March 2002
	Carrying Amount $143,980 343,064 212,498 93,300 175,339 65,000	Carrying Amount Fair Value U.S. Dollar $5,353 $5,353 16,096 16,096 15,774 15,774 — — 7,333 7,333 4,294 4,294	Fair Value

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APPENDIX A — TAIWAN, THE REPUBLIC OF CHINA

The information set forth in this section has been extracted from various government and other publicly available publications, which have not been prepared or independently verified by the Company, the Managers or the Trustee or any of their respective affiliates or advisors in connection with the offering.

General

Taiwan is an island of 36,000 square kilometers located across the Taiwan Strait from the PRC. About one quarter of the island is arable and the remainder is mainly mountainous. Taiwan has a population of approximately 23 million and is one of the most densely populated areas of the world.

Political Status and International Relations

The ROC has a unique international political status. Although the Chinese nation has existed for several thousand years, since 1949, Taiwan and the Chinese mainland have been separately governed. The ROC, which was founded in 1912, governs Taiwan while the Peoples’ Republic of China (the ‘‘PRC’’), which was founded in 1949, has governed the Chinese mainland for the past 51 years. The ROC asserted that the ROC and the PRC are equal political entities which should enter into ‘‘state to state’’ relations while the PRC claims that it is the sole government in China and that Taiwan is part of China. Although relations between the ROC and the PRC have improved in a number of significant respects, the PRC has consistently refused to renounce the possibility that it may at some time use force to gain control over Taiwan.

Although the ROC is no longer a member of the United Nations, it maintains active trade and financial relations with most major economic powers and maintains trade missions in locations around the world. On 1 January 2002, the ROC became the 14th member of the World Trade Organization and the ROC Government is currently seeking re-admission to the United Nations.

The ROC Government is organized into five branches or ‘‘Yuans’’, namely: the Executive Yuan, the Legislative Yuan, the Judicial Yuan, the Examination Yuan and the Control Yuan. The Executive Yuan formulates and implements national economic policy.

The ROC Government is headed by the President, who also serves as the commander-in-chief of the armed forces and is partially entrusted with the exercise of emergency powers. In the past, the National Assembly has elected the President and Vice President to six-year terms. However, beginning in 1996 the President and Vice President have been directly elected by the people for four-year terms. The President appoints the Premier and the Deputy Premier and Cabinet ministers on the recommendation of the Premier. The Premier heads the Executive Yuan (the Cabinet). The Legislative Yuan is the ROC’s sitting legislative body, and is responsible for the enactment of all national laws. The Judicial Yuan administers the judicial system and vests judicial review powers in the Council of Grand Justices. The Control Yuan audits government accounts and has the power to investigate and impeach government officials. The Examination Yuan is empowered to examine and select government officials and establish pay scales and other terms of employment for the civil service.

Since 1986, the ROC Government has been implementing political liberalization. The ROC Government has made progress in democratizing the political process, resulting in the development of opposition political parties, the beginning of open elections, and tolerance for open public debates. As a result of these changes, one of the opposition parties, Democratic Progressive Party (‘‘DPP’’), has obtained a greater representation in the government. On 18 March 2000, Mr. Chen Shui-bien, the DDP candidate, was elected President of the ROC.

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Economy

The table below sets forth selected economic data relating to the ROC for the periods indicated.

Real gross national product (percentage change) . . . . . . . . Consumer price index (age change). . . . . . . . . . . . . . Industrial production index(1) . . . . Exports . . . . . . . . . . . . . . . . . . . Imports . . . . . . . . . . . . . . . . . . . Trade balance . . . . . . . . . . . . . . Current balance . . . . . . . . . . . . . Foreign exchange reserves . . . . . . Government surplus (deficit) (NT$ billions) . . . . . . . . . . . .		Year Ended 31 December (except where indicated)	2000 6.0% 1.3% 126.9 148.4 140.0 8.4 8.9 106.7 (434.9)
	1994 6.1% 4.1% 126.4 93.0 85.3 7.7 6.5 92.5 (237.5)	1995 1996 1997 1998 1999 (billions of U.S. Dollars, except where indicated) 5.9% 5.4% 6.4% 4.3% 5.4% 3.7% 3.1% 0.9% 1.7% 0.2% 122.9 132.1 144.4 116.8 129.6 111.7 116.0 122.1 110.6 121.6 103.6 101.3 114.4 106.7 110.7 8.1 14.7 7.7 5.9 10.9 5.5 10.9 7.1 3.4 8.4 90.3 88.0 83.5 90.3 106.2 (313.4) (395.0) (319.8) (302.5) (557.9)

Note:

(1) Industrial production index represents an index of the total annual value of ROC industrial production based on a scale with the year 1991 equaling 100.

Sources: Taiwan Statistical Data Book, Council for Economic Planning and Development, ROC; Quarterly National Economic Trends, Taiwan Area, Directorate General of Budget, Accounting and Statistics, Executive Yuan, ROC; Financial Statistics Monthly, Taiwan District, ROC; Economic Research Department, the Central Bank of China; and Monthly Statistics of the Republic of China, Directorate-General of Budget, Accounting and Statistics, Executive Yuan, ROC.

From 1981 to 1987, Taiwan’s economy built up a significant current account surplus, peaking at U.S.$18 billion in 1987. With exchange controls in place, the capital account stayed roughly in balance over the period, allowing Taiwan to accumulate official foreign exchange reserves in excess of U.S.$76 billion by the end of that period. During the 1990’s, the foreign exchange reserve increased to approximately U.S.$90.5 billion by the end of 1998, making it one of the largest in the world. The increase in capital was one reason for the rapid share price inflation in the 1980’s and early 1990’s. The Central Bank of China acted to reduce the inflationary impact of this rapid acceleration in monetary growth through two measures. First, beginning in 1987, the Central Bank of China liberated outflow and restricted inflow of foreign currency and the NT Dollar was allowed to appreciate 50 per cent. against the U.S. Dollar by the end of 1989. Second, the Central Bank of China has since gradually relaxed monetary control as the demand for funds has risen due to increasing overseas investment, strong government spending on infrastructure and other capital projects and the revival of domestic private investment. However, since the Asian crisis in the fall of 1997, the NT Dollar has depreciated against the U.S. Dollar. In addition, inflation since the Asian crisis has been mild and was slightly negative in 2001.

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APPENDIX B — FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC

The information presented in this appendix has been extracted from publicly available documents which have not been prepared or independently verified by the Company, the Managers, the Trustee or any of their respective affiliates or advisors in connection with the offering.

Foreign Investment

Historically, foreign investment in the ROC securities market has been restricted. From 1983 onwards, however, the ROC Government has from time to time enacted legislation and adopted regulations to permit foreign investment in the ROC securities market.

Overseas Corporate Bonds

Since 1989, the ROC SFC has approved a series of overseas corporate bond issues (‘‘OCBs’’) by ROC companies listed on the TSE in offerings directed outside the ROC. Since December 1994, the ROC SFC has also permitted ROC companies whose shares are traded on the ROSE to issue and offer OCBs.

Under the current ROC laws and policies, OCBs can be converted by bondholders (other than PRC persons) into shares of the relevant ROC companies or (subject to the ROC SFC approval) may be converted into depositary receipts issued under the sponsorship of the same ROC company or the shares of other companies, in case of exchangeable bonds. Public issuing companies may issue corporate debt in offerings outside the ROC. Proceeds from sales of the shares converted from OCBs may be used for re-investment in securities listed on the TSE or traded on the ROSE. These reinvestments will need to comply with the limitations and restrictions which apply to qualified foreign institutional investors or general foreign investors discussed below.

Under current ROC law, a converting bondholder when exercising the conversion right to convert the bonds into shares of an ROC company is required to appoint a local agent (with such qualifications as are set by the ROC SFC) to open a securities trading account with a local brokerage firm, remit funds, exercise shareholders’ rights and perform such other actions as may be designated by such converting bondholder, on behalf of and as agent for such converting bondholder. In addition, the converting bondholder is required to appoint a custodian bank to hold the securities and cash proceeds in safekeeping, make confirmations and settle trades and report all relevant information and such converting bondholder is also required to appoint a tax guarantor for filing tax returns and making tax payments.

Unless otherwise limited by the Central Bank of China, an ROC Company may, without obtaining further approvals from the Central Bank of China or any other government authority of the ROC, convert NT Dollars to other currencies, including U.S. Dollars, in respect of the proceeds of the redemption of the Bonds or payment of interest on, or the repayment of principal upon maturity of, the Bonds.

In addition, a non-ROC converting bondholder may, through its local agent and without obtaining prior approval from the Central Bank of China, convert NT Dollars into foreign currencies of net proceeds realized from the sale of the converted shares or any stock dividends relating to such shares, or any cash dividend or other cash distribution in respect of such shares, as well as for inward remittances of subscription payments in connection with a rights offering and tax payment.

Depositary Receipts

In April 1992, the ROC SFC promulgated regulations permitting ROC companies with securities listed on the TSE, with the prior approval of the ROC SFC, to sponsor the issuance and sale to foreign investors of depositary receipts. Depositary receipts evidence depositary shares representing deposited shares of ROC companies. In December 1994, a series of new regulations (the ‘‘Regulations’’) was promulgated by the ROC Ministry of Finance allowing companies whose shares are traded on the ROSE or listed on the TSE to sponsor, upon approval by the ROC SFC, the issuance and sale of depositary receipts. Any such approval will be granted (1) if the underlying shares are newly issued shares, for a fixed number of depositary receipts or (2) if the underlying shares are not newly issued shares, for a maximum number of depositary receipts and, with limited exceptions (as described below), may not be increased without additional approvals by the ROC SFC.

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The Regulations, as amended, provide that any depositary receipt holder may, from three months after the issue date of the depositary receipts (in the case that the deposited shares are new shares) or immediately (in the case that the deposited shares are existing shares), request the depositary bank either to cause the underlying shares to be sold in the ROC and distribute the proceeds of such sale to the depositary receipt holder or to withdraw the underlying shares from the depositary receipt facility and deliver such shares to such holder. A citizen of the PRC is not permitted to withdraw and hold the Shares.

Under existing ROC laws and regulations, a depositary may, without obtaining further approvals from the Central Bank of China or any other government authority or agency of the ROC, convert NT Dollars into other currencies, including U.S. Dollars, in respect of the proceeds of the sale of shares represented by depositary receipts or received as stock dividends in respect of such shares and deposited into the depositary receipt facility and any cash dividends or distributions received in respect of such shares. In addition, a depositary may convert inward remittances of payments into NT Dollars for purchases of underlying shares for deposit in the depositary receipt facility against the creation of additional depositary receipts. A depositary must obtain foreign exchange approval from the Central Bank of China on a payment-bypayment basis for conversion from NT Dollars into foreign currencies in respect of the proceeds from the sale of subscription rights for new shares or the depositary’s conversion from foreign currencies into NT Dollars for subscription payments in respect of rights offerings. It is expected that the Central Bank of China will grant such foreign exchange approval as a routine matter.

In addition, any such cash received by the depositary receipt holder (qualified as a QFII (as hereinafter defined) or a non-ROC resident foreign investor (‘‘General Foreign Investor’’)) may be used for further investment in ROC securities, subject to the requirements and restrictions generally applicable to QFIIs and General Foreign Investors (as applicable).

Direct Share Offerings

The ROC Government has permitted ROC companies listed on the TSE or the ROSE to issue shares directly (not through depositary receipt facilities) overseas.

Qualified Foreign Institutional Investors

The Executive Yuan has approved guidelines for direct investment in ROC securities listed on the TSE or ROSE or other ROC securities approved by the ROC SFC by certain qualified foreign institutional investors (each a ‘‘QFII’’) that applied for and received, ROC SFC and, if applicable, Central Bank of China approval, including:

(i) banks which hold securities assets of at least U.S.$200 million and have experience in safekeeping or management of securities of assets and in international financial, securities or trust business;
(ii) insurance companies which hold securities assets of at least U.S.$200 million;
(iii) fund management institutions which manage assets of at least U.S.$200 million;
(iv) general securities firms which have a net worth of at least U.S.$100 million and experience in international securities investments;
(v) offshore fund management companies which are more than 50 per cent. owned by a ROC securities investment trust enterprise provided that the funds to be invested do not come from sources in the ROC or PRC and are not owned by such offshore fund management companies;
(vi) offshore securities firms which are more than 50 per cent. owned by a ROC securities firm, or other offshore securities firms which are wholly-owned by such offshore securities firms;
(vii) offshore securities firms which are wholly-owned by a ROC securities firms, or other offshore securities firms which are more than 51 per cent. owned by such offshore securities firms;
(viii) foreign government-owned investment institutions provided that all the funds to be invested shall be owned by the foreign government;

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(ix) pension funds;
(x) mutual funds, unit trusts or investment trusts which have assets of at least U.S.$200 million;
(xi) trust companies which hold securities assets in trust of at least U.S.$200 million and have experience in safekeeping or management of securities or assets and in international financial or trust businesses; and
(xii) any other professional institutional investors which hold securities or assets of at least U.S.$200 million.

Each QFII who wishes to invest directly in the ROC securities market is required to apply for an investment permit from the ROC SFC, provided that any application for investment exceeding U.S.$50 million will require approvals from both the Central Bank of China and the ROC SFC. QFIIs who receive the permit(s) may currently invest up to U.S.$3 billion, with certain limited exceptions. Except some restrictions imposed by specific law and regulation, from 1 January 2001, the individual and aggregate foreign ownership of the issued share capital in a TSE listed company or a ROSE quoted company is not restricted. ROC custodians for QFIIs are required to submit to the Central Bank of China and the ROC SFC a report of trading activities and status of assets under custody and other matters every month. Capital remitted to the ROC under these guidelines may be remitted out of the ROC at any time after the date such capital is remitted to the ROC. Capital remitted out of the ROC may be returned to the ROC within the approved years of the outward remittance without ROC SFC approval so long as its aggregate inward remittance after netting off its aggregate outward remittance does not exceed the investment amount approved by the ROC SFC and the Central Bank of China (if applicable). Capital gains and income on investments may be remitted out of the ROC at any time.

General Foreign Investors

Except for QFIIs, General Foreign Investors (‘‘GFIs’’) may currently invest in ROC securities up to U.S.$5 million (in the case of individual investors) and U.S.$50 million (in the case of institutional investors) after obtaining approval issued by the TSE.

Foreign Investment Approval

With the exception of QFIIs, GFIs and investors in OCBs and depositary receipts, under existing ROC laws and regulations relating to foreign investment, investors (both institutional and individual) who are not ROC persons and wish to make direct investment in the shares of ROC companies are required to submit a Foreign Investment Approval (‘‘FIA’’) application to the Investment Commission of the MOEA or other government authority. The Investment Commission or such other government authority reviews each FIA application and approves or disapproves each application after consultation with other government agencies (such as the Central Bank of China and the ROC SFC). Under current law, any non-ROC person possessing an FIA may remit capital for the approved investment and is entitled to repatriate annual net profits, interest and cash dividends attributable to such investment. Stock dividends, investment, capital and capital gains attributable to such investment may be repatriated after approvals of the Investment Commission or other government authorities have been obtained.

Prohibited and Restricted Industries

In addition to the general restriction against direct investment by non-ROC persons in shares of ROC companies, non-ROC persons are currently prohibited from investing in certain industries in the ROC pursuant to the Negative List as amended by the Executive Yuan from time to time. The prohibition on foreign investment in the prohibited industries specified in the Negative List is absolute and provides no specific exemption from its application. Pursuant to the Negative List, certain other industries are restricted so that non-ROC persons may invest in such industries only up to a specified level and with the specific approval of the relevant competent authority which is responsible for enforcing the relevant legislation which the Negative List is intended to implement. The businesses the Company being engaged are not a prohibited or restricted industry under the Negative List.

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Exchange Controls

The ROC’s Foreign Exchange Control Statute and regulations thereunder provide that all foreign exchange transactions must be executed by banks designated to handle such business by the ROC Ministry of Finance and by the Central Bank of China. Current regulations favor trade-related foreign exchange transactions.

Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters, and all foreign currency needed for the import of merchandise and services may be purchased freely from the designated banks for conducting foreign exchange.

ROC companies and resident individuals may also, without foreign exchange approval, remit into and out of the ROC foreign currencies of up to U.S.$50 million (or its equivalent) and U.S.$5 million (or its equivalent), respectively, in each calendar year. The above limits apply to remittances involving a conversion between NT Dollars and U.S. Dollars or other foreign currencies. Furthermore, any remittance of foreign currency into the ROC by an ROC company or resident individual in a year will be offset by the amount remitted out of the ROC by the company or individual (as applicable) within its annual quota and will not use up its annual inward remittance quota to the extent of such offset. The above limits apply to remittance involving a conversion between NT Dollars and U.S. Dollars or other foreign currencies. A requirement is also imposed on all enterprises to register medium-and-long-term foreign debt with the Central Bank of China.

In addition, foreign persons may, subject to certain required documents, but without foreign exchange approval of the Central Bank of China, remit outside and into the ROC foreign currencies of up to U.S.$100,000 (or its equivalent) for each remittance. The above limit applies only to remittances involving a conversion between NT Dollars and U.S. Dollars or other foreign currencies.

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APPENDIX C — THE SECURITIES MARKET OF THE ROC

In 1960, the ROC Government established the Securities and Exchange Commission to supervise and control all aspects of the securities market. The Securities and Exchange Commission of the ROC was restructured in early 1997 and renamed as the Securities and Futures Commission (‘‘SFC’’). In the 1970’s and the early 1980’s, the ROC Government implemented a number of steps designed to upgrade the quality and importance of the ROC securities market, such as encouraging listing on the TSE and establishing an over-the-counter market. In the mid-1980’s, the ROC Government began to revise its laws and regulations in a manner designed to facilitate the gradual internationalization of the ROC securities market.

The Taiwan Stock Exchange

In 1961, the ROC SFC established the Taiwan Stock Exchange (‘‘TSE’’) to provide a marketplace for securities trading. The TSE is a corporation owned by government-controlled and private banks and enterprises. The TSE is independent of entities transacting business through it, each of which pays a user’s fee. Generally, all transactions in listed securities by brokers, traders and integrated securities firms must be made through the TSE.

The TSE commenced operations in 1962. During the early 1980s, the ROC SFC actively encouraged new listings on the TSE and the number of listed companies grew from 119 in 1983 to 593 by the end of April 2002. As of the end of April 2002, the market capitalization of companies listed on the TSE was NT$11,409 billion.

Historically, Taiwan companies have listed only shares and bonds on the TSE. However, the ROC SFC has encouraged companies to list other types of securities. In 1988, the ROC SFC permitted the issuance of the Taiwan’s first convertible bonds. Since 1989, there have been offerings of domestic convertible bonds and convertible preferred shares. In addition, beneficiary units evidencing beneficiary interests in closed-end investment funds and Dragon Bonds issued by Asian Development Bank are also listed on the TSE or traded on the ROSE. The ROSE also has regulations which permit foreign issuers to list their equity securities directly on the TSE or through the use of depositary receipts. To date, two foreign issuers have listed their equity securities on the TSE through the use of depositary receipts in accordance with these regulations.

The TSE requirements for listing are based on the following company attributes:

" the number and distribution of stockholders;
" length of time in business;
" amount of capital; and
" profitability.

However, special listing criteria apply to technology companies and key business engaging in national economic development.

The Over-the-Counter Market and the ROC Over-the-Counter Securities Exchange

To complement the TSE, the ROSE was established in September 1982 on the initiative of the ROC SFC to encourage the trading of securities of companies who do not qualify for listing on the TSE. As of 27 June 2002, 397 companies have listed equity securities on the ROSE and the total market capitalization of those companies was NT$705 billion.

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In addition, the Emerging Market on the OTC was established on 2 January 2002 on the initiative of the ROC SFC to encourage trading of securities of companies that the public companies but do not qualify for listing on the TSE or the ROSE. The price of shares is decided by negotiation between securities firms and investors. As of 27 June 2002, 101 companies have registered equity securities on the Emerging Market on the OTC.

The following table sets forth, for the periods indicated, certain information relating to the ROSE Index:

Period Ended 1995 . . . . . . . . . . . . . . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . . . . 1998 . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . 2002 (through 27 June) . . . . . . . . .	Number of Listed Companies at Period End 41 79 114 176 264 300 333 397	Trading Value 2,796 453,509 2,310,659 1,198,158 1,994,031 4,479,660 2,326,889 1,913,824	Index High 101.96 234.83 343.99 281.41 207.18 329.47 136.23 163.00	Index Low 94.02 99.92 210.22 163.89 138.99 99.86 106.74 121.52	Index at Period End
					101.96 233.09 245.05 165.80 207.18 104.93 136.23 121.52

Sources: OTC Monthly Review; OTC Data Base; Taiwan Economic Journal.

Taiwan Stock Exchange Index

The TSE Index is calculated on the basis of a wide selection of listed shares weighted according to the number of shares outstanding. This weighted average method is also used for the Standard and Poor’s Index in the United States and the Nikkei Stock Average in Japan. The TSE Index is compiled by dividing the market value by the base day’s total market value for the index shares. The TSE Index is the oldest and most widely quoted market index in Taiwan.

The weighting of stocks in the index is fixed as long as the number of shares outstanding remains constant. When the total number of shares outstanding changes, the weight of each stock is adjusted. Stock splits and stock dividends are adjusted automatically. Cash dividends are not included in the calculation.

The following table shows for the periods indicated information relating to the TSE Index.

Period Ended 1990 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1991 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2002 (through 27 June) . . . . . . . . . . . . . . . . . . . . .	Number of Listed Companies at the Period End 199 221 256 285 313 347 375 404 437 462 474 584 686	Index High 12,495.34 6,305.22 5,391.63 6,070.56 7,183.75 7,051.49 6,982.81 10,116.84 9,277.09 8,608.91 10,202.20 6,104.24 6,462.30	Index Low 2,560.47 3,316.26 3,327.67 3,135.56 5,194.63 4,503.37 4,690.22 6,820.35 6,251.38 5,475.00 8,349.91 3,446.26 5,071.76	Index at Period End
				4,530.16 3,377.06 4,600.67 6,070.56 7,124.66 5,173.73 6,933.94 8,187.27 6,418.43 8,448.84 8,842.63 5,551.24 5,071.76

Source: Status of Securities Listed on Taiwan Stock Exchange.

As indicated above, the performance of the TSE has in recent years been characterized by extreme price volatility.

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Price Limits, Commissions, Transaction Tax and Other Matters

The TSE has placed limits on block trading and on the range of daily price movements. Transactions that involve 500 trading lots or more must be registered and executed pursuant to certain TSE guidelines. Fluctuations in the price of stock traded on the TSE are currently subject to a restriction of 7 per cent. above and below the previous day’s closing price (or reference price set by the TSE if the previous day’s closing price is not available because of lack of trading activity) in the case of equity securities, and 5 per cent. in the case of debt securities. Brokerage commissions are proposed by the TSE and approved by the ROC SFC. The current approved maximum brokerage commission is 0.1425 per cent. of the transaction price for equity securities; however, a lower rate may be charged to clients by securities firms at their sole discretion, provided that they must report such rate to the TSE. A securities transaction tax, currently levied at the rate of 0.3 per cent. of the transaction price, is payable by the seller of equity securities and a tax at the rate of 0.1 per cent. of the transaction price is payable by the seller of debt securities other than government bonds. Such securities transaction taxes are withheld at the time of the transaction giving rise to such taxes. According to the amended Statute for Upgrading Industries effective as of 1 February 2002, no securities transaction tax will be imposed on the sale of the Bonds from 1 February 2002 to 31 December 2009. Sales of shares of companies listed on the TSE are currently sold in lots of 1,000 shares. Odd lot trading, or the purchase or sale of less than 1,000 shares, can be conducted in after-hours trading. Investors who desire to sell odd lots of shares of a listed company occasionally experience delays in effecting such sales.

Regulation and Supervision

The ROC SFC has been under the jurisdiction of the Ministry of Finance since 1981. The ROC SFC has extensive regulatory authority over companies listed on the TSE, companies whose shares are traded on the ROSE and unlisted publicly issuing companies whose capital exceeds the currently specified minimum amount of NT$500 million. Such companies are generally required to obtain approval from, or registration with, the ROC SFC for all securities offerings. The ROC SFC has promulgated regulations requiring, unless otherwise exempted, periodic reporting of financial and operating information by all public companies. In addition, the ROC SFC is responsible for the establishment of standards for financial reporting and carries out licensing and supervision with respect to the other participants in the ROC securities markets. The ROC SFC has responsibility for implementation of the ROC Securities and Exchange Law and for overall administration of governmental policies in the ROC securities markets. It has extensive regulatory authority over the offering, issuing and trading of securities. In addition, the ROC Securities and Exchange Law specifically empowers the ROC SFC to promulgate rules under certain circumstances.

The ROC Securities and Exchange Law prohibits market manipulation. It permits a company to recover certain short-term trading profits made through purchases and sales within six months by directors, managerial personnel, supervisors and shareholders, together with their spouses, minor children and nominees, holding 10 per cent. or more of the shares of the company. The ROC Securities and Exchange Law prohibits trading by ‘‘insiders’’ based on non-public information that materially affects share price movement. Pursuant to the ROC Securities and Exchange Law, the term ‘‘insiders’’ includes directors, supervisors, managers and shareholders having more than 10 per cent. or more shareholding, together with their spouses, minor children and nominees, or any person who has learned such information due to an occupational or controlling relationship with the issuing company and any person who has learned such information from any of the foregoing. Sanctions can include prison terms. In addition, damages may be awarded to persons injured by the transaction.

The ROC Securities and Exchange Law also imposes criminal liability on certified public accountants and lawyers who make false certifications in their examination and audit of a company’s contracts, reports and other evidentiary documents that are related to securities transactions. ROC SFC regulations require that financial reports of listed companies be audited by accounting firms consisting of at least three certified public accountants and be signed by at least two certified public accountants.

The ROC Securities and Exchange Law also provide for, among other things, regulations relating to public offerings of securities; measures to strengthen the capital structure of issuers; civil liability for material misstatements or omissions made by issuers; more stringent regulation of the securities activities of officers, supervisors, directors and major shareholders of issuers; regulations regarding tender offers; and a significant expansion of the prohibitions against insider trading, including the imposition of treble civil damages and criminal sanctions.

C-3

The ROC SFC does not have criminal or civil enforcement powers under the ROC Securities and Exchange Law. Criminal actions may be pursued only by prosecutors. Under ROC law, civil actions may only be brought by plaintiffs who assert that they have suffered damages. The ROC SFC is directly empowered to curb abuses and violations of applicable laws and regulations only through administrative measures.

In addition to providing a market for securities trading, the TSE has primary responsibility for reviewing applications by issuers to list securities on the TSE and the ROSE has primary responsibility for reviewing applications by issuers to list securities on the ROSE. The ROC SFC reviews all securities offerings by listed companies. If issuers of listed securities violate relevant laws and regulations or encounter significant difficulties, the TSE and the ROSE may, with the approval of the ROC SFC, delist securities of such issuers.

C-4

REGISTERED OFFICE OF THE COMPANY

Sinbon Electronics Co., Ltd. No. 582, Kuo Hwa Road Miaoli City Miaoli County, Taiwan ROC

REGISTRAR

The Bank of New York 101 Barclay Street 21st Floor West New York, NY10286 U.S.A.

PAYING, TRANSFER

AND CONVERSION AGENT PRINCIPAL PAYING, TRANSFER The Bank of New York (Luxembourg) S.A. AND CONVERSION AGENT Aerogolf Center The Bank of New York 1A, Hoehenhof One Canada Square L-1736 Senningerberg 48th Floor, London E14 5AL Grand Duchy of Luxembourg England

AUDITORS TO THE COMPANY

Diwan, Ernst & Young 7F, 239, Min Chuang Road Taichung, Taiwan ROC

ROC LEGAL ADVISOR LEGAL ADVISOR TO THE COMPANY TO THE MANAGERS Lee and Li Baker & McKenzie 7th Floor, 201 Tun-Hwa N. Road 14th Floor Hutchison House Taipei, Taiwan 10 Harcourt Road ROC Hong Kong

LUXEMBOURG LISTING, PAYING, TRANSFER AND CONVERSION AGENT

The Bank of New York (Luxembourg) S.A.

Aerogolf Center 1A, Hoehenhof L-1736 Senningerberg Grand Duchy of Luxembourg

Printed in Hong Kong by ROMAN 8313-1

AI assistant

SINBON Electronics — Capital/Financing Update 2014

52256_rns_2014-06-13_6b5a59ba-7bb7-4449-9c68-3786917155f0.pdf

Sinbon Electronics Co., Ltd.

U.S.$45,000,000 Zero Coupon Convertible Bonds due 2007

Issue Price: 100 per cent.

NSC Securities (Asia) Limited

Managers

Local Advisor

National Securities Corporation

NOTICE TO INVESTORS

THIS LEGEND MAY BE REMOVED AFTER THE EXPIRATION OF FORTY DAYS FROM THE ORIGINAL ISSUANCE OF THE ZERO COUPON CONVERTIBLE BONDS DUE 2007 OF SINBON ELECTRONICS CO., LTD.’’; and

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

ENFORCEABILITY OF FOREIGN JUDGMENT IN THE ROC

TABLE OF CONTENTS

CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION

SUMMARY

Sinbon Overview

Competitive Strengths

Well established customer relationships and sales and marketing channels

Established material and component supply network

Strong research and development programs

Flexible production process

Strong sales and marketing teams with technical knowledge

Strict quality control processes and standards

Experienced management team

Strategy

Utilizing surface mounting technology to provide total solution for customers

Focus on high-growth markets

Establish strategic alliances to improve technology and develop new customers

Undertake acquisition strategy to integrate supply chain

The Offering

SUMMARY FINANCIAL DATA

Risks Relating to the Company’s Business

The Company’s customers may cancel their orders, change production quantities or delay production

There are relatively low entry barriers in the Company’s cable assembly business

The Company’s business is dependent on certain major supplier

The Company’s business is highly dependent on the computers, communications and commercial electronics businesses

The Company may experience shortages of raw materials and components

The computers, communications and commercial electronics components manufacturing industries are highly competitive

The Company’s historical sales growth and historical margins may not be sustainable

The Company’s business depends on a limited number of customers

The Company is subject to operational risks and its insurance may not be adequate

The Company may not be able to develop new products or keep pace with technological change

Errors or defects in the Company’s products could cause it to lose customers and harm its reputation

The Company may be unable to manage its growth effectively

The Company is dependent on its ability to attract and retain qualified employees

The Company may not be able to protect its intellectual property

Disruptions in the international trading environment may seriously decrease the international sales of the Company

The Company is exposed to the risks of currency exchange rate fluctuations

The Company may be subject to changes in tax benefits and increased taxes

Risks Relating to the Offering

The Bondholders’ ability to exercise their conversion rights may be limited

A liquid market for the Bonds and Shares may not develop

Shares eligible for future sale by the current shareholders may adversely affect the market price of the Shares

The political status and international relations of the ROC may affect the Company and the Bonds

The adverse economic conditions in Taiwan and Asia may affect the Company and the Bonds

Foreign exchange approvals may be required

Financial reporting and accounting standards in the ROC differ from other countries; bonus share issuance

The Company’s operation may be adversely affected by natural disaster in Taiwan

Risks relating to the PRC

The Company is subject to the political and economic situation and legal developments in the PRC

The Company is subject to risks associated with the PRC legal system

USE OF PROCEEDS

MARKET PRICE INFORMATION

DIVIDENDS AND DIVIDEND POLICY

EXCHANGE RATES

CAPITALIZATION

BUSINESS

Overview

Competitive Strengths

Well established customer relationships and sales and marketing channels

Established material and component supply network

Strong research and development programs

Flexible production process

Strong sales and marketing teams with technical knowledge

Strict quality control processes and standards

Experienced management team

Strategy

Utilizing surface mounting technology to provide total solution for customers

SINBON Electronics Capital/Financing Update 2014