SPT — Audit Report / Information 2016

Nov 14, 2016

SCINOPHARM TAIWAN, LTD.

PARENT COMPANY ONLY FINANCIAL

STATEMENTS AND REPORT OF INDEPENDENT

ACCOUNTANTS

DECEMBER 31, 2016 AND 2015

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

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of ScinoPharm Taiwan, Ltd.

Opinion

We have audited the accompanying balance sheets of ScinoPharm Taiwan, Ltd. as at December 31, 2016 and 2015, and the related parent company only statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the parent company only financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the ScinoPharm Taiwan, Ltd. as at December 31, 2016 and 2015, and its parent company only financial performance and its parent company only cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Parent Company Only Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the Company’s parent company only financial statements of 2016. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

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Cutoff of export revenue

Description

Please refer to Note 4(26) to the parent company only financial statements for accounting policy on revenue recognition.

The Company’s sales revenue mainly arose from manufacture and sale of generic drugs and primarily are export sales. The Company recognizes export sales revenue based on the terms and conditions of transactions which vary with different customers. For sales transactions in a certain period around balance sheet date, it is essential to ensure whether the significant risks and rewards of ownership have been transferred to the customers. As revenue recognition of export sales is subject to management’s judgement on whether risks and rewards has been properly transferred, and contains the risk of inappropriate recognition timing, we consider the cutoff of export revenue a key audit matter.

How our audit addressed the matter

Our key audit procedures performed in respect of the above key audit matter included the following:

1. We obtained understanding and assessed the effectiveness of internal controls over cutoff of sales revenue, and tested the effectiveness of internal controls on shipment and billing.

2. We checked the completeness and performed cutoff tests on a random basis on the export sales details in a certain period around balance sheet date, which includes checking the terms and conditions of transaction, verifying against supporting documents, and checking whether inventory changes records and sales cost had been recognized in the proper period.

Inventory valuation

Description

Please refer to Note 4(10) for accounting policies on inventory valuation, Note 5(2) for the uncertainty of accounting estimates and assumptions applied on inventory valuation, and Note 6(3) for detailed items of inventories. As of December 31, 2016, the balances of inventory and allowance for inventory valuation losses were $ 2,059,326 thousand and $ 406,894 thousand, respectively.

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The Company is primarily engaged in antineoplastic drug and advanced generic drugs. As the manufacturing process is long and complex, causing longer materials lead time, in addition, the waiting period for product registration is long, and customers’ product launch time might be deferred, there is higher risk of incurring loss an inventory valuation. For inventories sold in regular way, the Company measures inventories at the lower of cost and net realisable value. For inventories age over a certain period of time and are individually identified as obsolete inventories, the net realisable value is calculated based on the historical information of inventory turn-over. Since the calculation of net realisable value involves subjective judgement and uncertainty and the ending balance of inventory was material to the financial statements, we consider the valuation of inventory a key audit matter.

How our audit addressed the matter

Our key audit procedures performed in respect of the above key audit matter included the following:

1. We assessed the reasonableness of provision policies and procedures on allowance for inventory valuation losses, including the historical data of inventory turn-over and judgement of obsolete inventory.

2. We checked the accuracy of inventory aging report, and recalculated the reasonableness of allowance for inventory valuation losses to ensure the report is consistent with the Company’s policy.

3. We selected inventory part numbers on a random basis and verified its net realizable value to evaluate the reasonableness of allowance for inventory valuation losses.

Responsibilities of management and those charged with governance for the parent company only financial statements

Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error.

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In preparing the parent company only financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including audit committee, are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the parent company only financial statements Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these non-consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the parent company only financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events

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or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

1. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

2. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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Lin, Yung-Chih

Independent Accountants

Lee, Ming-Hsien

PricewaterhouseCoopers, Taiwan

Republic of China March 28, 2017

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The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.

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SCINOPHARM TAIWAN, LTD. PARENT COMPANY ONLY BALANCE SHEETS

(Expressed in thousands of New Taiwan dollars)

Assets	Notes 6(1) 6(2) 7 5(2) and 6(3) 6(4)(15)(24) 6(4)(5)(24) 6(6)(7)(24) and 7 5(2) and 6(22) 6(6)(24) 8	December31,2016 AMOUNT % $ 3,261,712 30 587,329 5 12,018 - 6,780 - 1,652,432 15 198,023 2 5,718,294 52 364,089 3 816,854 8 3,722,375 34 12,633 - 277,852 3 20,401 - 945 - 28,831 - 5,243,980 48 $ 10,962,274 100	December31,2015	December31,2015
		AMOUNT $ 3,261,712 587,329 12,018 6,780 1,652,432 198,023 5,718,294 364,089 816,854 3,722,375 12,633 277,852 20,401 945 28,831 5,243,980 $ 10,962,274	AMOUNT $ 1,981,296 840,479 16,235 5,268 1,942,181 143,031 4,928,490 338,907 1,146,016 3,718,257 12,656 238,020 17,438 1,113 24,734 5,497,141 $ 10,425,631	%
Current assets 1100 Cash and cash equivalents 1170 Accounts receivable, net 1200 Other receivables 1210 Other receivables - related parties 130X Inventory 1410 Prepayments 11XX Total current assets Non-current assets 1543 Financial assets measured at cost - non-current 1550 Investments accounted for under equity method 1600 Property, plant and equipment 1780 Intangible assets 1840 Deferred income tax assets 1915 Prepayments for equipment 1920 Guarantee deposits paid 1980 Other financial assets - non- current 15XX Total non-current assets 1XXX Total assets				19 8 - - 19 1
				47
				3 11 36 - 3 - - -
				53
				100

(Continued)

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SCINOPHARM TAIWAN, LTD. PARENT COMPANY ONLY BALANCE SHEETS

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity	December31,2016 Notes AMOUNT % 6(8) $ 2,822 - 1,001 - 56,926 1 7 33,100 - 6(9)(24) and 7 374,790 3 6(22) 110,910 1 62,384 1 641,933 6 6(22) 877 - 6(10) 70,053 1 21,618 - 92,548 1 734,481 7 6(11)(14) 7,603,262 69 6(12)(13) 1,275,660 12 6(11)(14)(22) 460,196 4 22,829 - 869,300 8 6(15) ( 3,454) - 10,227,793 93 7 and 9 $ 10,962,274 100	December31,2015	December31,2015
		AMOUNT $ 145 995 32,639 - 314,035 100,009 31,196 479,019 3,368 62,854 23,397 89,619 568,638 7,310,829 1,265,544 396,699 22,829 791,997 69,095 9,856,993 $ 10,425,631	%
Current liabilities 2120 Financial liabilities at fair value through profit or loss - current 2150 Notes payable 2170 Accounts payable 2180 Accounts payable - related parties 2200 Other payables 2230 Current income tax liabilities 2310 Advance receipts 21XX Total current liabilities Non-current liabilities 2570 Deferred income tax liabilities 2640 Net defined benefit liabilities - non-current 2645 Guarantee deposits received 25XX Total non-current liabilities 2XXX Total liabilities Equity Share capital 3110 Share capital - common stock 3200 Capital surplus Retained earnings 3310 Legal reserve 3320 Special reserve 3350 Unappropriated earnings 3400 Other equity interest 3XXX Total equity Significant contingent liabilities and unrecognized contract commitments 3X2X Total liabilities and equity			- - - - 3 1 -
			4
			- 1 -
			1
			5
			70 12 4 - 8 1
			95
			100

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

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SCINOPHARM TAIWAN, LTD.

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

(Expressed in thousands of New Taiwan dollars, except for earnings per share amounts)

Items

Years ended December31 2016 2015 Notes AMOUNT % AMOUNT % 6(16) $ 3,888,611 100 $ 3,897,137 100 6(3)(10)(20)(21), 7 and 9 ( 2,040,535 ) ( 53) ( 2,231,449) ( 57) 1,848,076 47 1,665,688 43 6(2)(10)(20)(21), 7 and 9 ( 177,964 ) ( 5) ( 164,464) ( 4) ( 400,236 ) ( 10) ( 346,991) ( 9) ( 203,680 ) ( 5) ( 233,502) ( 6) ( 781,880 ) ( 20) ( 744,957) ( 19) 1,066,196 27 920,731 24 6(2)(17) and 7 40,029 1 38,972 1 6(4)(6)(7)(8)(18) and 12 ( 27,704 ) ( 1) 96,240 2 6(19) ( 11 ) - ( 28) - 6(5) ( 256,704 ) ( 6) ( 285,806) ( 7) ( 244,390 ) ( 6) ( 150,622) ( 4) 821,806 21 770,109 20 6(22) ( 163,113 ) ( 4) ( 135,144) ( 4) $ 658,693 17 $ 634,965 16 6(10) ($ 7,393 ) - $ 6,821 - 6(22) 1,258 - ( 1,160) - 6(15) ( 72,549 ) ( 2) ( 31,579) - ($ 78,684 ) ( 2) ($ 25,918) - $ 580,009 15 $ 609,047 16 6(23) $ 0.87 $ 0.84 $ 0.86 $ 0.83

4000 Operating revenue 5000 Operating costs 5900 Net operating margin Operating expenses 6100 Selling expenses 6200 General and administrative expenses 6300 Research and development expenses 6000 Total operating expenses 6900 Operating profit Non-operating income and expenses 7010 Other income 7020 Other gains and losses 7050 Finance costs 7070 Share of loss of associates and joint ventures accounted for using equity method 7000 Total non-operating income and expenses 7900 Profit before income tax 7950 Income tax expense 8200 Profit for the year Other comprehensive income (loss) Components of other comprehensive income that will not be reclassified to profit or loss 8311 Other comprehensive income, before tax, actuarial gains (losses) on defined benefit plans 8349 Income tax related to components of other comprehensive income that will not be reclassified to profit or loss Components of other comprehensive income that will be reclassified to profit or loss 8361 Other comprehensive income, before tax, exchange differences on translation 8300 Other comprehensive loss for the year 8500 Total comprehensive income for the year Earnings per share (in dollars) 9750 Basic 9850 Diluted

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

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SCINOPHARM TAIWAN, LTD. PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY

(Expressed in thousands of New Taiwan dollars)

For the year ended December 31, 2015 Balance at January 1, 2015 Distribution of 2014 net income (Note): Legal reserve Cash dividends Stock dividends Employee stock option compensation cost Net income for the year ended December 31, 2015 Other comprehensive loss for the year ended December 31, 2015 Balance at December 31, 2015 For the year ended December 31, 2016 Balance at January 1, 2016 Distribution of 2015 net income (Note): Legal reserve Cash dividends Stock dividends Employee stock option compensation cost Net income for the year ended December 31, 2016 Other comprehensive loss for the year ended December 31, 2016 Balance at December 31, 2016	Notes		Share capital - common stock		Capital reserves			Retained Earnings	Retained Earnings	Retained Earnings	Other Equity	Total equity
							Legal reserve		Special reserve	Undistributed earnings	Financial statements translation differences of foreign operations
	6(14) 6(11)(14) 6(12)(13) 6(14) 6(11)(14) 6(12)(13)		$ 7,029,643 - - 281,186 - - - $ 7,310,829 $ 7,310,829 - - 292,433 - - - $ 7,603,262		$ 1,257,277 - - - 8,267 - - $ 1,265,544 $ 1,265,544 - - - 10,116 - - $ 1,275,660		$ 348,285 48,414 - - - - - $ 396,699 $ 396,699 63,497 - - - - - $ 460,196		$ 22,829 - - - - - - $ 22,829 $ 22,829 - - - - - - $ 22,829	$ 621,563 ( 48,414) ( 140,592) ( 281,186) - 634,965 5,661 $ 791,997 $ 791,997 ( 63,497) ( 219,325) ( 292,433) - 658,693 ( 6,135) $ 869,300	$ 100,674 - - - - - ( 31,579) $ 69,095 $ 69,095 - - - - - ( 72,549) ($ 3,454)	$ 9,380,271 - ( 140,592) - 8,267 634,965 ( 25,918) $ 9,856,993 $ 9,856,993 - ( 219,325) - 10,116 658,693 ( 78,684) $ 10,227,793

(Note) The employees' compensation were $868 and $77,011, and directors' and supervisors' remuneration were $8,678 and $11,543 in 2014 and 2015, respectively, which has been deducted from net income for the years.

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

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SCINOPHARM TAIWAN, LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments Adjustments to reconcile profit (loss) Provision/(reversal of allowance) for doubtful accounts Loss on inventory market price decline Provision for obsolescence of supplies Share of loss of subsidiaries, associates and joint ventures accounted for under equity method Gain on disposal of investments accounted for under the equity method Depreciation Loss on disposal of property, plant and equipment Impairment loss (gain on reversal) Amortization Loss (gain) on valuation of financial liabilities Employee stock option compensation cost Interest income Interest expense Changes in operating assets and liabilities Changes in operating assets Notes receivable Accounts receivable Other receivables Other receivables - related parties Inventories Prepayments Changes in operating liabilities Notes payable Accounts payable Accounts payable - related parties Other payables Advance receipts Net defined benefit liabilities - non-current Cash inflow generated from operations Interest received Interest paid Income tax paid Net cash flows from operating activities

For theyears ended December31, Notes 2016 2015 $ 821,806 $ 770,109 6(2) 564 ( 43 ) 6(3) 58,489 48,270 9,648 9,119 6(5) 256,704 285,806 6(4)(18) - ( 95,381 ) 6(6)(20) 351,428 395,861 6(18) 744 503 6(6)(7)(18) 889 ( 4,193 ) 6(20) 5,200 4,624 2,677 ( 3,524 ) 6(12)(13) 10,025 7,844 6(17) ( 13,371 ) ( 11,067 ) 6(19) 11 28 - 27 252,586 ( 317,472 ) 4,217 ( 904 ) ( 1,512 ) 5,803 231,260 257,104 ( 64,640 ) ( 19,465 ) 6 ( 158 ) 24,287 ( 11,629 ) 33,100 - 35,067 9,343 31,188 ( 6,760 ) ( 194 ) 971 2,050,179 1,324,816 13,371 10,917 ( 11 ) ( 28 ) ( 193,277 ) ( 103,122 ) 1,870,262 1,232,583

(Continued)

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SCINOPHARM TAIWAN, LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM INVESTING ACTIVITIES Increase in financial assets measured at cost - non-current Cash paid for acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Increase in prepayment for equipment Decrease in pledged deposits Increase in other financial assets - non-current Net cash flows used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in guarantee deposits received Payment of cash dividends Net cash flows used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

For theyears ended December31, Notes 2016 2015 ($ 25,182 ) $ - 6(24) ( 315,517 ) ( 479,227 ) 484 300 ( 5,177 ) ( 10,267 ) ( 19,421 ) ( 25,852 ) 168 451 ( 4,097 ) - ( 368,742 ) ( 514,595 ) ( 1,779 ) 21,741 6(14) ( 219,325 ) ( 140,592 ) ( 221,104 ) ( 118,851 ) 1,280,416 599,137 6(1) 1,981,296 1,382,159 6(1) $ 3,261,712 $ 1,981,296

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

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ScinoPharm Taiwan, Ltd.

NOTES TO THE PARENT COMPANY ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(EXPRESSED IN thousands of New Taiwan dollars, EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANIZATION

• (1) ScinoPharm Taiwan, Ltd. (the Company) was incorporated as a company limited by shares under the provisions of the Company Act of the Republic of China (R.O.C.) on November 11, 1997. The Company is primarily engaged in the manufacture of western medicines and other chemical materials, biological technology services, intellectual property rights, international trade and research, development and manufacture of Active Pharmaceutical Ingredients (API), albumin medicines, oligonucleotide medicines, peptide medicines, injections and new small molecule drugs, as well as the provision of related consulting and technical services.

• The Company’s investment plan for the manufacturing of API was approved by the Industrial Development Bureau of MOEA on May 13, 1998 and complies with the standards of important technical industry application.

• (2) The common shares of the Company have been listed on the Taiwan Stock Exchange since September 2011.

• (3) Uni-President Enterprises Corp., the Company’s ultimate parent company, holds 37.94% equity interest in the Company.

2. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE PARENT COMPANY ONLY

• FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These parent company only financial statements were authorized for issuance by the Board of Directors on March 28, 2017.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

• (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”) None.

• (2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Company

New standards, interpretations and amendments as endorsed by the FSC effective from 2017 are as follows:

Effective date by International Accounting New Standards, Interpretations and Amendments Standards Board Recoverable amount disclosures for non-financial assets (amendments January 1, 2014 to IAS 36)

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New Standards,Interpretations andAmendments

Effective date by International Accounting StandardsBoard

Novation of derivatives and continuation of hedge accounting (amendments to IAS 39) IFRIC 21, ‘Levies’ Defined benefit plans: employee contributions (amendments to IAS 19R) Improvements to IFRSs 2010-2012 Improvements to IFRSs 2011-2013 Investment entities: applying the consolidation exception (amendments to IFRS 10, IFRS 12 and IAS 28) Accounting for acquisition of interests in joint operations (amendments to IFRS 11) IFRS 14, ‘Regulatory deferral accounts’ Disclosure initiative (amendments to IAS 1) Clarification of acceptable methods of depreciation and amortization (amendments to IAS 16 and IAS 38) Agriculture: bearer plants (amendments to IAS 16 and IAS 41) Equity method in separate financial statements (amendments to IAS 27) Improvements to IFRSs 2012-2014

January 1, 2014 January 1, 2014 July 1, 2014 July 1, 2014 July 1, 2014 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2016

Except for the following, the above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment.

• A. Amendments to IAS 36, ‘Recoverable amount disclosures for non-financial assets’

The amendments remove the requirement to disclose recoverable amount when a cash generating unit (CGU) contains goodwill or indefinite lived intangible assets but there has been no impairment. When a material impairment loss has been recognized or reversed for an individual asset, including goodwill, or a CGU, it is required to disclose the recoverable amount of the asset or CGU. If the recoverable amount is fair value less costs of disposal, it is required to disclose the level of the fair value hierarchy, the valuation techniques used and key assumptions.

• B. Amendments to IAS 1, ‘Disclosure initiative’

This amendment clarifies the presentation of materiality, aggregation and subtotals, the framework of financial report, and the guide for accounting disclosure.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs endorsed by the FSC effective from 2017 are as follows:

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New Standards,Interpretations andAmendments

Effective date by International Accounting StandardsBoard

Disclosure initiative (amendments to IAS 7) Recognition of deferred tax assets for unrealised losses (amendments to IAS 12) Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS 12, ‘Disclosure of interests in other entities’ Classification and measurement of share-based payment transactions (amendments to IFRS 2) Applying IFRS 9, ‘Financial instruments’ with IFRS 4, ‘Insurance contracts’ (amendments to IFRS 4) IFRS 9, ‘Financial instruments’ IFRS 15, ‘Revenue from contracts with customers’ Clarifications to IFRS 15, ‘Revenue from contracts with customers’ (amendments to IFRS 15) Transfers of investment property (amendments to IAS 40) IFRIC 22, ‘Foreign currency transactions and advance consideration’ Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS 1, ‘First-time adoption of International Ffinancial Reporting Standards’ Annual improvements to IFRSs 2014-2016 cycle - Amendments to IAS 28, ‘Investments in associates and joint ventures’ IFRS 16, ‘Leases’ Sale or contribution of assets between an investor and its associate or joint venture (amendments to IFRS 10 and IAS 28)

January 1, 2017 January 1, 2017 January 1, 2017 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2018 January 1, 2019 To be determined by International Accounting Standards Board

Except for the following, the above standards and interpretations have no significant impact to the Company’s financial condition and operating results based on the Company’s assessment.

• A. Amendments to IAS 7, ‘Disclosure initiative’

This amendment requires that an entity shall provide more disclosures related to changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

• B. IFRS 9, ‘Financial instruments

Classification of debt instruments is driven by the entity’s business model and the contractual cash flow characteristics of the financial assets, which would be classified as financial asset at fair value through profit or loss, financial asset measured at fair value through other comprehensive income or financial asset measured at amortised cost. Equity instruments would be classified as financial asset at fair value through profit or loss, unless an entity makes an irrevocable election at inception to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading.

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C. IFRS 16, ‘Leases’

• IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognize a 'right-of-use asset' and a lease liability (except for those leases with terms of 12 months or less and leases of low-value assets). The accounting stays the same for lessors, which is to classify their leases as either finance leases or operating leases and account for those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these parent company only financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

The parent company only financial statements of the Company have been prepared in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

(2) Basis of preparation

• A. Except for the following items, these parent company only financial statements have been prepared under the historical cost convention:

• (a)Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

• (b)Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of defined benefit obligation.

• B. The preparation of financial statements in compliance with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the parent company only financial statements are disclosed in Note 5.

(3) Foreign currency translation

• Items included in the parent company only financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the “functional currency”). The parent company only financial statements are presented in NTD, which is the Company’s functional and presentation currency.

• A. Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in profit or loss in the period in which they arise.

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• B. Monetary assets and liabilities denominated in foreign currencies at the period end are retranslated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss.

• C. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are retranslated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.

• D. All foreign exchange gains and losses based on the nature of those transactions are presented in the statement of comprehensive income within “other gains and losses”.

• (4) Classification of current and non-current items

• A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:

  • (a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;

  • (b) Assets held mainly for trading purposes;

  • (c) Assets that are expected to be realized within twelve months from the balance sheet date;

  • (d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date.

• B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:

  • (a) Liabilities that are expected to be paid off within the normal operating cycle;

  • (b) Liabilities arising mainly from trading activities;

  • (c) Liabilities that are to be paid off within twelve months from the balance sheet date;

  • (d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

(5) Cash equivalents

• A. Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value.

• B. Time deposits and bills under repurchase agreements that meet the above criteria and are held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents.

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(6) Receivables

Accounts receivable are receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, short-term accounts receivable that bear no interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(7) Available-for-sale financial assets

• A. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.

• B. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting.

• C. Available-for-sale financial assets are initially recognized at fair value plus transaction costs. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in other comprehensive income. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured or derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are presented in ‘financial assets measured at cost’.

(8) Impairment of financial assets

• A. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

• B. The criteria that the Company uses to determine whether there is objective evidence of an impairment loss is as follows:

• (a) Significant financial difficulty of the issuer or debtor;

• (b) The disappearance of an active market for that financial asset because of financial difficulties;

• (c) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;

• (d) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered; or

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• (e) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

• C. When the Company assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:

• (a) Financial assets measured at cost

• The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at current market return rate of similar financial asset, and is recognized in profit or loss. Impairment loss recognized for this category shall not be reversed subsequently. Impairment loss is recognized by adjusting the carrying amount of the asset through the use of an impairment allowance account.

• (b) Financial assets measured at amortized cost

• The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate, and is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortized cost that would have been at the date of reversal had the impairment loss not been recognized previously. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(9) Derecognition of financial assets

The Company derecognizes a financial asset when the contractual rights to receive the cash flows from the financial asset expire.

• (10) Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average method. The cost of finished goods and work in process comprises raw materials, direct labor, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(11) Investments accounted for under the equity method / subsidiaries and associates

• A. A subsidiary is an entity where the Company has the right to dominate its finance and operating policies (including special purpose entities), normally the Company owns more than 50% of the voting rights directly or indirectly in that entity. Subsidiaries are accounted for under the equity method in the Company's non-consolidated financial statements.

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• B. Unrealized gains or losses resulting from inter-company transactions with subsidiaries are eliminated. To meet the consistency of accounting policies of the Company, necessary adjustments are made to the accounting policies of the subsidiaries.

• C. After acquisition of subsidiaries, the Company recognizes proportionately the share of profit and loss and other comprehensive income in the income statement as part of the Company's profit and loss and other comprehensive income, respectively. When the share of loss from a subsidiary exceeds the carrying amount of Company's interest in that subsidiary, the Company continues to recognize its share in the subsidiary's loss proportionately.

• D. Associates are all entities over which the Company has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 per cent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognized at cost.

• E. The Company’s share of its associates’ post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Company’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

• F. Upon loss of significant influence over an associate, the Company remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss.

• G. When the Company disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss. On the same basis as would be required if the relevant assets or liabilities were disposed of. If it retains significant influence over this associate, then the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately in accordance with the aforementioned approach.

• H. When the Company disposes its investment in an associate, and loses significant influence over this associate, the amounts previously recognized as capital reserve in relation to the associate are transferred to profit or loss. If it still retains significant influence over this associate, then the amounts previously recognized as capital reserve in relation to the associate are transferred to profit or loss proportionately.

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• I. According to “Regulations Governing the Preparation of Financial Statements by Securities Issuers”, ‘profit for the year’ and ‘other comprehensive income for the year’ reported in an entity's parent company only statement of comprehensive income, shall equal to ‘profit for the year’ and ‘other comprehensive income’ attributable to owners of the parent reported in that entity’s consolidated statement of comprehensive income. Total equity reported in an entity’s parent company only financial statements, shall equal to equity attributable to owners of parent reported in that entity’s consolidated financial statements.

(12) Property, plant and equipment

• A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.

• B. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.

• C. Except for land, other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. If each component of property, plant and equipment is significant, it is depreciated separately.

• D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at each balance sheet date. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, from the date of the change. The estimated useful lives of property, plant and equipment are as follows:

are as follows:
Assets Buildings and structures Machinery and equipment Transportation equipment Office equipment Other equipment	Estimated useful lives
	2 ～ 35 years 2 ～ 12 years 2 ～ 6 years 2 ～ 9 years 2 ～ 19 years

(13) Intangible assets

Professional skills, computer software, etc. are stated at cost and amortized on a straight-line basis over its estimated useful life of 3 ~ 5 years.

(14) Operating leases (lessee)

Payments made under an operating lease (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the lease term.

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(15) Impairment of non-financial assets

• The Company assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. When the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss shall be reversed to the extent of the loss previously recognized in profit or loss. The increased carrying amount due to reversal should not exceed the depreciated or amortized historical cost if the impairment had not been recognized.

(16) Financial liabilities at fair value through profit or loss

• A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading or financial liabilities designated as at fair value through profit or loss on initial recognition. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges. Financial liabilities that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition:

• (a) Hybrid (combined) contracts; or

• (b) They eliminate or significantly reduce a measurement or recognition inconsistency; or

• (c) They are managed and their performance is evaluated on a fair value basis, in accordance with a documented risk management policy.

• B. Financial liabilities at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognized in profit or loss.

(17) Notes and accounts payable

• Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. However, short-term accounts payable that bear no interest are subsequently measured at initial invoice amount as the effect of discounting is insignificant.

(18) Financial guarantee contracts

• A financial guarantee contract is a contract that requires the Company to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. A financial guarantee contract is initially recognized at its fair value adjusted for transaction costs on the trade date. After initial recognition, the financial guarantee is measured at the higher of the initial fair value less cumulative amortization and the best estimate of the amount required to settle the present obligation

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on each balance sheet date.

(19) Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability specified in the contract is discharged, cancelled or expires.

(20) Offsetting financial instruments

Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

(21) Employee benefits

• A. Short-term employee benefits

Short - term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expenses in that period when the employees render service.

• B. Pensions

• (a) Defined contribution plan

For defined contribution plan, the contributions are recognized as pension expenses when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.

• (b) Defined benefit plan

• i.Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Company in current period or prior periods. The liability recognized in the balance sheet in respect of defined benefit pension plan is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest of government bonds (at the balance sheet date) of a currency and term consistent with the currency and term of the employment benefit obligations. .

• ii. Remeasurement arising on defined benefit plans are recognized in other comprehensive income in the period in which they arise, and recorded as retained earnings.

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• C. Employees’ compensation and directors’ remuneration

• Employees’ compensation and directors’ remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates. If employees’ compensation is distributed by shares, the Company calculates the number of shares based on the closing market price at the previous day of the board meeting resolution.

- (22) Employee share based payment

For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and nonmarket vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognized is based on the number of equity instruments that eventually vest.

(23) Income tax

• A. The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or items recognized directly in equity, in which cases the tax is recognized in other comprehensive income or equity.

• B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.

• C. Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated statements. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been

~24~

enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

• D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. At each balance sheet date, unrecognized and recognized deferred income tax assets are reassessed.

• E. Current income tax assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Deferred tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realize the asset and settle the liability simultaneously.

• F. Deferred tax asset shall be recognized for the carry forward of unused tax credits resulting from acquisitions of equipment or technology, research and development expenditures and equity investments to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilized.

(24) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.

(25) Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are approved by the Company’s shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of new shares issuance.

(26) Revenue recognition

• A. Sales of goods

The Company manufactures and sells Active Pharmaceutical Ingredients (API), intermediates, etc. Revenue is measured at the fair value of the consideration received or receivable taking into account value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Company’s activities. Revenue arising from the sales of goods is recognized when the Company has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.

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B. Sales of services

The Company provides biochemical technology development consultation and processing services. Revenue from rendering services is recognized under the percentage-of-completion method when the outcome of services provided can be estimated reliably. The stage of completion of a service contract is measured by the percentage of the actual services performed as of the financial reporting date to the total services to be performed by surveys of work performed.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF

ASSUMPTION UNCERTAINTY

The preparation of these parent company only financial statements requires management to make critical judgments in applying the Company’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. Such assumptions and estimates have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year, and the related information is addressed below:

• (1) Critical judgments in applying the Company’s accounting policies

• －

• Financial assets impairment of equity investments

• The Company follows the guidance of IAS 39 to determine whether a financial asset—equity investment is impaired. This determination requires significant judgment. In making this judgment, the Company evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

(2) Critical accounting estimates and assumptions

• A. Evaluation of inventories

• (a) As inventories are stated at the lower of cost and net realizable value, the Company must determine the net realizable value of inventories on balance sheet date using judgments and estimates. Due to the rapid technology innovation, the Company evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realizable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation.

• (b) As of December 31, 2016, the carrying amount of inventories was $1,652,432.

• B. Realizability of deferred tax assets

• (a) Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the deductible temporary differences can be utilized. Assessment of the realizability of deferred tax assets involves critical accounting judgments and estimates of the management, including the assumptions of expected future

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sales revenue growth rate and profit rate, tax exempt duration, available tax credits, tax planning, etc. Any variations in global economic environment, industrial environment, and laws and regulations might cause material adjustments to deferred income tax assets.

• (b) As of December 31, 2016, the Company recognized deferred income tax assets amounting to $277,852.

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) CASH AND CASH EQUIVALENTS

Cash: Cash on hand Cash Equivalents: Time deposits Checking accounts and demand deposits Bill under repurchase agreements	December31,2016 34 $ 71,403 71,437 2,904,500 285,775 3,190,275 3,261,712 $	December31,2015
		180 $ 117,201 117,381 1,564,003 299,912 1,863,915 1,981,296 $

• A. The Company associates with a variety of financial institutions all with high credit quality to disperse credit risk, so it expects that the probability of counterparty default is remote.

• B. Details of the Company’s time deposits pledged to others as collateral (listed as ‘other financial －

• assets non-current’) as of December 31, 2016 and 2015 are provided in Note 8.

(2) ACCOUNTS RECEIVABLES, NET

ACCOUNTS RECEIVABLES, NET
	December	31,2016	December	31,2015
Accounts receivable	$	587,946	$	840,532
Less: Allowance for doubtful
accounts	(	617)	(	53)
	$	587,329	$	840,479

• A. As of December 31, 2016 and 2015, the Company had no accounts receivable classified as ‘past due but not impaired’.

• B. Movements on the provision for impairment of accounts receivable are as follows:

At January 1 Provision for (reversal of) impairment At December 31	2016 2015 Group provision Group provision 53 $ 96 $ 564 43) ( 617 $ 53 $

• C. The Company’s accounts receivable that were neither past due nor impaired were fully performing in line with the credit standards prescribed based on counterparties’ industrial

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characteristics, scale of business and profitability.

• D. The Company does not hold any collateral as security for accounts receivable as of December 31, 2016 and 2015.

(3) INVENTORIES

31, 2016 and 2015. NVENTORIES
Raw materials Supplies Work in process Finished goods Raw materials Supplies Work in process Finished goods		December31,2016
	Allowance for Cost market price decline 327,360 $ 66,508) ($ 9,139 593) ( 765,869 83,745) ( 956,958 256,048) ( 2,059,326 $ 406,894) ($ December31,2015		Bookvalue
			260,852 $ 8,546 682,124 700,910
			1,652,432 $
	Allowance for Cost market price decline 214,680 $ 52,413) ($ 11,213 603) ( 992,976 56,161) ( 1,071,717 239,228) ( 2,290,586 $ 348,405) ($		Bookvalue
			162,267 $ 10,610 936,815 832,489
			1,942,181 $

The cost of inventories recognized as expense and losses for the year:

Cost of goods sold Loss on scrap inventory Loss on physical inventory Under applied manufacturing overhead Provision for inventory market price decline	2016 1,687,721 $ 53,811 8,910 199,752 58,489 2,008,683 $	2015 1,964,054 $ 15,956 6,724 173,765 48,270 2,208,769 $

－ － (4) FINANCIAL ASSETS MEASURED AT COST NON CURRENT

	December	31,2016	December	31,2015
Unlisted stocks
Tanvex Biologics, Inc.	$	167,673	$	167,673
SYNGEN, INC.		4,620		4,620
Foresee Pharmaceuticals Co., Ltd.		196,416		171,234
		368,709		343,527
Less: Accumulated impairment	(	4,620)	(	4,620)
	$	364,089	$	338,907

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• A. Based on the Company’s intension, its investment in Tanvex Biologics, Inc. and SYNGEN, INC. should be classified as available-for-sale financial assets. However, as Tanvex Biologics, Inc. and Syngen, Inc. are not traded in an active market and no sufficient industry information and financial information of similar companies can be obtained, the fair value of the investments in Tanvex Biologics, Inc. and Syngen, Inc. cannot be measured reliably. Accordingly, the Company classified those stocks as ‘financial assets measured at cost’.

• B. Foreseeacer Pharmaceuticals, Inc. (hereafter, “ Foreseeacer”), an associate of the Company accounted for under the equity method, entered into a share swap transaction with its controlling shareholder, Foresee Pharmaceuticals, Inc. (hereafter, “ Foresee Cayman”) during the fourth quarter of 2014, whereby Foresee Cayman issued new shares to swap and recall the outstanding shares of Foreseeacer. The Company obtained approval of such transaction during the Board of Directors’ meeting on November 7, 2014, and the related share swap was completed on January 15, 2015. After the swap, the Company obtained 5,400 thousand preferred shares of Foresee Cayman, consisting of 6.12% of its outstanding preferred shares. However, Foresee Cayman announced its second phase of re-organization plan (the Phase II Plan), in which, one of its fully owned subsidiaries, Foresee Pharmaceuticals Co., Ltd. （ hereafter, “ Foresee” ） will issue new shares to swap and recall all outstanding shares of Foresee Cayman. After engaging in the swap, the Company obtained 4,072 thousand common shares, comprising 6.12% of its outstanding common shares. Based on the guidance and accounting policies of the Company, such share swap transaction should be deemed as disposal of associates accounted for under the equity method, and the new investment will be measured at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss. Any amounts previously recognized as capital surplus or as other comprehensive income in relation to the associate are transferred to profit or loss. However, as the Phase II Plan was completed as of June 30, 2015, the uncertainties regarding the fair value of the final share interests received in the swap has been eliminated. The related gain of $95,381 from the share swap transaction has been recognized upon completion of the Phase II Plan. After a comprehensive assessment, the Company does not have the right to exercise significant influence on the investee company, Foresee Cayman, and accordingly, the related share of interest was classified as ‘available-for-sale financial assets’. However, as the shares of Foresee Cayman are not publicly traded in an active market and its fair value cannot be measured reliably, the Company classified those shares as ‘financial assets measured at cost’.

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• C. As of December 31, 2016 and 2015, no financial assets measured at cost held by the Company were pledged to others.

(5) INVESTMENTS ACCOUNTED FOR UNDER THE EQUITY METHOD

SPT International, Ltd. ScinoPharm Singapore Pte Ltd.	December31,2016 816,788 $ 66 816,854 $	December31,2015
		1,145,966 $ 50
		1,146,016 $

A. Subsidiaries

• For information relating to the Company’s subsidiaries, please refer to Note 4(3), “Basis of consolidation” of the Company and its subsidiaries’ consolidated financial statements for the year ended December 31, 2016.

B. Associates

For the years ended December 31, 2016 and 2015, the Company has no significant associate investments, other relevant investment which has effect on financial performance is as follows:

Profit for the year from continuing operations Total comprehensive income	2016 - $ - $	2015
		754 $ 754 $

• C. The Company was involved in swap exchange with controlling shareholders of an investment accounted for under the equity method. Consequently, the Company lost the significant influence over the investee. For relevant information, please refer to Note 6(4).

• D. The share of loss of subsidiaries, associates and joint ventures accounted for under the equity method amounted to ($256,704) and ($285,806) for the years ended December 31, 2016 and 2015, respectively.

• E. The Company does not hold any investment accounted for under the equity method as collateral for the years ended December 31, 2016 and 2015.

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(6) PROPERTY, PLANT AND EQUIPMENT

Machinery and Transportation Office Other January1,2016 Buildings equipment equipment equipment equipment Cost 1,983,537 $ 4,314,922 $ 19,962 $ 145,368 $ 4,832 $ Accumulated depreciation 680,341) ( 3,148,185) ( 13,782) ( 86,661) ( 2,254) ( Accumulated impairment - 13,751) ( - - - 1,303,196 $ 1,152,986 $ 6,180 $ 58,707 $ 2,578 $ At January 1 1,303,196 $ 1,152,986 $ 6,180 $ 58,707 $ 2,578 $ Additions - - - - - Reclassified from prepayment for equipment - - - - - Reclassified upon completion 485,491 87,074 - 9,215 - Depreciation charge 77,630) ( 250,429) ( 1,891) ( 21,272) ( 206) ( Disposals－Cost - 14,206) ( 405) ( 421) ( 876) ( ' －Accumulated depreciation - 12,978 405 421 876 Impairment loss - 889) ( - - - At December 31 1,711,057 $ 987,514 $ 4,289 $ 46,650 $ 2,372 $ December31,2016 Cost 2,469,028 $ 4,387,790 $ 19,557 $ 154,162 $ 3,956 $ Accumulated depreciation 757,971) ( 3,385,636) ( 15,268) ( 107,512) ( 1,584) ( Accumulated impairment - 14,640) ( - - - 1,711,057 $ 987,514 $ 4,289 $ 46,650 $ 2,372 $ For the year ended December 31, 2016

Construction inprogress Total 1,194,610 $ 7,663,231 $ - 3,931,223) ( - 13,751) ( 1,194,610 $ 3,718,257 $ 1,194,610 $ 3,718,257 $ 341,205 341,205 16,458 16,458 581,780) ( - - 351,428) ( - 15,908) ( - 14,680 - 889) ( 970,493 $ 3,722,375 $ 970,493 $ 8,004,986 $ - 4,267,971) ( - 14,640) ( 970,493 $ 3,722,375 $

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				Machinery and	Machinery and	Transportation	Transportation		Office		Other		Construction	Construction
January1,2015		Buildings			equipment		equipment		equipment		equipment			inprogress		Total
Cost	$	1,959,937	$		4,305,887	$	19,962	$	136,667	$	7,693	$		919,307	$	7,349,453
Accumulated depreciation	(	604,736)	(		2,903,815)	(	11,440)	(	69,952)	(	5,154)			-	(	3,595,097)
Accumulated impairment		-	(		17,944)		-		-		-			-	(	17,944)
	$	1,355,201	$		1,384,128	$	8,522	$	66,715	$	2,539	$		919,307	$	3,736,412
For the year ended December 31, 2015
At January 1	$	1,355,201	$		1,384,128	$	8,522	$	66,715	$	2,539	$		919,307	$	3,736,412
Additions		-			-		-		-		-			356,716		356,716
Reclassified from prepayment
for equipment		-			-		-		-		-			17,600		17,600
Reclassified upon completion		23,600			61,918		-		13,269		226	(		99,013)		-
Depreciation charge	(	75,605)	(		296,450)	(	2,342)	(	21,277)	(	187)			-	(	395,861)
Disposals－Cost		-	(		52,883)		-	(	4,568)	(	3,087)			-	(	60,538)
' －Accumulated
depreciation		-			52,080		-		4,568		3,087			-		59,735
Reversal of impairment loss		-			4,193		-		-		-			-		4,193
At December 31	$	1,303,196	$		1,152,986	$	6,180	$	58,707	$	2,578	$		1,194,610	$	3,718,257
December31,2015
Cost	$	1,983,537	$		4,314,922	$	19,962	$	145,368	$	4,832	$		1,194,610	$	7,663,231
Accumulated depreciation	(	680,341)	(		3,148,185)	(	13,782)	(	86,661)	(	2,254)			-	(	3,931,223)
Accumulated impairment		-	(		13,751)		-		-		-			-	(	13,751)
	$	1,303,196	$		1,152,986	$	6,180	$	58,707	$	2,578	$		1,194,610	$	3,718,257

A. As of and for the years ended December 31, 2016 and 2015, the Company has not capitalized any interest.

B. Information about provision for and reversal of impairment on property, plant and equipment is provided in Note 6(7). C. As of December 31, 2016 and 2015, no property, plant and equipment were pledged to others as collateral.

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(7) IMPAIRMENT OF NON-FINANCIAL ASSETS

• A. The Company recognized impairment loss for the years ended December 31, 2016 and 2015 in －

• the amount of $889 and $ , respectively. The Company reversed the impairment loss recognized －

• in prior period amounting to $ and $4,193 for the years ended December 31, 2016 and 2015, respectively, (listed as ‘other gains and losses’) as some of the idle machineries were again utilized in production. For details of accumulated impairment, please refer to Note 6(6).

• B. The impairment loss and the reversal of impairment reported by operating segments are as follows:

Department ScinoPharm Taiwan	Recognized in other Recognized in other Recognized in comprehensive Recognized in comprehensive profit or loss income profit or loss income 889 $ - $ 4,193) ($ - $ For the year ended For the year ended December31,2016 December31,2015	For the year ended December31,2015	For the year ended December31,2015
	Recognized in profit or loss 889 $		Recognized in other comprehensive income
			- $

(8) FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Liabilities Current items: Financial liabilities held for trading Non-hedging derivatives	December31,2016 2,822 $	December31,2015
		145 $

• A. The Company recognized net gain (loss) on financial liabilities held for trading amounting to $3,981 and ($14,941) for the years ended December 31, 2016 and 2015, respectively (listed as ‘other gains and losses’).

• B. Contract information about non-hedging derivative instrument transactions is as follows:

Items Forward foreign exchange contracts Items Forward foreign exchange contracts	ContractAmount USD 6,940,000 ContractAmount USD 5,400,000 December December	31,2016
		ContractPeriod
		11.2016～2.2017 31,2015
		ContractPeriod
		11.2015～2.2016

The Company entered into forward foreign exchange contracts to hedge exchange rate risk of operations. However, these forward foreign exchange contracts are not accounted for under hedge accounting.

(9) OTHER PAYABLES

accounting. OTHER PAYABLES
Accrued salaries and bonuses Payables on equipment Others	December31,2016 137,962 $ 70,505 166,323 374,790 $	December31,2015
		114,164 $ 44,817 155,054
		314,035 $

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(10) PENSIONS

• A. (a) The Company has set up a defined benefit pension plan in accordance with the Labor Standards Law, which applies to all regular employees’ service years prior to the enforcement of the Labor Pension Act (the “Act”) on July 1, 2005 and service years thereafter of employees who chose to continue to be covered under the pension scheme of the Labor Standards Law after the enforcement of the Act. In accordance with the Company's retirement plan, an employee may retire when the employee either (i) attains the age of 55 with 15 years of service, (ii) has more than 25 years of service, (iii) has reached the age of 65, or (iv) is incapacitated to work (compulsory retirement). The employees earn two units for each year of service for the first 15 years, and one unit for each additional year thereafter up to a maximum of 45 units. Any fraction of a year equal to or more than six months shall be counted as one year of service, and any fraction of a year less than six months shall be counted as half a year. According to the provisions, employees who retired due to their duties shall get additional 20%. Pension payments are based on the number of units earned and the average salary of the last six months prior to retirement. Calculation of average salary is in accordance with the Labor Standards Law of the R.O.C. The Company contributes monthly an amount equal to 2% of the employees' monthly salaries and wages to the retirement fund deposited with Bank of Taiwan under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned labor pension reserve account by December 31, every year. If the account balance is not enough to pay the pension calculated by the aforementioned methods to the employees expected to qualify for retirement in the following year, the Company will make contribution for the deficit by the end of March next year.

• (b) The amounts recognized in the balance sheet are as follows:

	December	31,2016	December	31,2015
Present value of defined benefit obligations	$	118,242	$	111,292
Fair value of plan assets	(	48,189)	(	48,438)
Net defined benefit liability	$	70,053	$	62,854

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(c) Movements in net defined liabilities are as follows:

YearendedDecember31,2016		Present value of defined benefit obligation	Fair value of planassets		Net defined benefitliability
	111,292 $ 1,926 1,892 115,110 - 3,950 3,064 7,014 - 3,882) ( 118,242 $ Present value of defined benefit obligation		48,438) ($ - 823) ( 49,261) ( 379 - - 379 3,189) ( 3,882 48,189) ($ Fair value of planassets	62,854 $ 1,926 1,069 65,849 379 3,950 3,064 7,393 3,189) ( - 70,053 $ Net defined benefitliability
At January 1 Current service cost Interest expense (income) Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) Change in financial assumptions Experience adjustments Pension fund contribution Paid pension At December 31 YearendedDecember31,2015
	113,369 $ 2,634 2,267 118,270 - 3,764 10,302) ( 6,538) ( - 440) ( 111,292 $		44,665) ($ - 893) ( 45,558) ( 283) ( - - 283) ( 3,037) ( 440 48,438) ($	68,704 $ 2,634 1,374 72,712 283) ( 3,764 10,302) ( 6,821) ( 3,037) ( - 62,854 $
At January 1 Current service cost Interest expense (income) Remeasurements: Return on plan assets (excluding amounts included in interest income or expense) Change in financial assumptions Experience adjustments Pension fund contribution Paid pension At December 31

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(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s defined benefit pension plan in accordance with the Fund’s annual investment and utilization plan and the “Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund” (Article 6: The scope of utilization for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, overthe-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilization of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. If the earnings is less than aforementioned rates, government shall make payment for the deficit after being authorized by the Regulator. The Company has no right to participate in managing and operating that fund and hence the Company is unable to disclose the classification of plan asset fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2016 and 2015 is given in the Annual Labor Retirement Fund Utilization Report announced by the government.

• (e) The principal actuarial assumptions used were as follows:

Discount rate Future salary increases	2016 1.40% 3.00%	2015
		1.70%
		3.00%

Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience according to Taiwan Life Insurance industry 5[th] Mortality Table for the years ended December 31, 2016 and 2015.

Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

December 31, 2016 Effect on present value of defined benefit obligation December 31, 2015 Effect on present value of defined benefit obligation	Increase 0.25% Decrease 0.25% 3,304) ($ 3,438 $ 2,970) ($ 3,493 $ Discountrate	Increase 0.25% Decrease 0.25% 3,304) ($ 3,438 $ 2,970) ($ 3,493 $ Discountrate	Increase 0.25% Decrease 0.25% 3,304) ($ 3,438 $ 2,970) ($ 3,493 $ Discountrate	Increase 0.25% Decrease 0.25% 3,081 $ 2,982) ($ 3,109 $ 2,719) ($ Future salaryincreases	Increase 0.25% Decrease 0.25% 3,081 $ 2,982) ($ 3,109 $ 2,719) ($ Future salaryincreases	Increase 0.25% Decrease 0.25% 3,081 $ 2,982) ($ 3,109 $ 2,719) ($ Future salaryincreases
	3,304) ($ 2,970) ($		3,438 $ 3,493 $		3,081 $ 3,109 $	2,982) ($ 2,719) ($

The sensitivity analysis above was arrived at based on one assumption which changed while the other conditions remain unchanged. In practice, more than one assumption may change all at once. The method of analysing sensitivity and the method of calculating net pension liability in the balance sheet are the same.

The method and types of assumptions used in preparing the sensitivity analysis did not change compared to the previous year.

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• (f) Expected contribution to the defined benefit pension plan of the Company for 2017 is $3,120.

• (g) As of December 31, 2016, the weighted average duration of that retirement plan is 12 years. The analysis of timing of the future pension payment was as follows:

The analysis of timing of the future pension payment was as follows:
Within 1 year 2～5 years Over 6 years	9,749 $ 17,903 130,480
	158,132 $

• B. Effective July 1, 2005, the Company has established a defined contribution pension plan (the “New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company contributes monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment. The net pension costs recognized under the defined contribution plan were $22,661 and $21,849 for the years ended December 31, 2016 and 2015, respectively.

(11) SHARE CAPITAL

• A. Movements in the number of the Company’s ordinary shares outstanding are as follows (in thousands of shares):

ousands of shares):
At January 1 Capitalization of retained earnings At December 31	For theyears ended December31,
	2016 731,083 29,243 760,326	2015
		702,964 28,119
		731,083

• B. On June 23, 2015, the Company’s shareholders adopted a resolution to issue shares of common stock due to capitalization of retained earnings of $281,186 and obtained approval from the SFC. The effective date of capitalization was set on August 14, 2015. After the event of capitalization mentioned above, the Company’s total authorized capital was $10,000,000, and the paid-in capital was $7,310,829 (731,083 thousand shares) with a par value of $10 (in dollars) per share.

• C. On June 27, 2016, the Company’s shareholders adopted a resolution to issue shares of common stock due to capitalization of retained earnings of $292,433 and obtained approval from the SFC. The effective date of capitalization was set on August 16, 2016. After the capitalization mentioned above, the Company’s total authorized capital was $10,000,000 and the paid-in capital was $7,603,262 (760,326 thousand shares) with a par value of $10 (in dollars) per share.

• D. As of on December 31, 2016, the Company’s authorized capital was $10,000,000 and the paidin capital was $7,603,262 (760,326 thousand shares) with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.

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(12) CAPITAL REAERVE

• A. Pursuant to the R.O.C. Company Act, capital reserve arising from paid-in capital in excess of par value on issuance of common stock and donations shall be exclusively used to cover accumulated deficit or, distribute cash or stocks in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Act requires that the capital reserve to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Capital reserve should not be used to cover accumulated deficit unless the legal reserve is insufficient.

• B. Movements in the Company’s capital reserve are as follows:

Movements in the Company’s	capital reserve are as follows:	capital reserve are as follows:	capital reserve are as follows:
At January 1 Employee stock options compensation －Company －Subsidiaries At December 31 At January 1 Employee stock options cost －Company －Subsidiaries At December 31	For theyear ended December31,2016
	Share premium Stockoptions Total 1,233,286 $ 32,258 $ 1,265,544 $ - 10,025 10,025 - 91 91 1,233,286 $ 42,374 $ 1,275,660 $ Forthe yearendedDecember31,2015		Total
			1,265,544 $ 10,025 91
			1,275,660 $
	Share premium 1,233,286 $ - - 1,233,286 $	Stockoptions 23,991 $ 7,844 423 32,258 $	Total
			1,257,277 $ 7,844 423
			1,265,544 $

(13) SHARE-BASED PAYMENT

• A. The Company issued 1 million units, 1.5 million units and 1.5 million units of employee stock options on December 3, 2013, November 6, 2015 and October 14, 2016, respectively (the Grant Date). The exercise prices of the options were set at $91.70 (in dollars), $41.65 dollars (in dollars) and $40.55 (in dollars), respectively, which were based on the closing market price of the Company’s common shares on the grant date. Each option was granted the right to purchase one share of the Company’s common stocks. The exercise price is subject to further adjustments when there is change in share numbers of the Company’s common stocks after the Grant Date. (As of December 31, 2016, for the issued 1 million units, 1.5 million units and 1.5 million units of employee stock options, the exercise price adjusted based on the specific formula was $80.20 (in dollars) per share, $40.00 (in dollars) per share and $40.55(in dollars) per share, respectively.) Contract period of the employee stock option plans is 10 years, and options are exercisable in 2 years after the Grant Date. The Company recognized compensation cost relating to the employee stock options plan of $10,025 and $7,844 for the years ended December 31, 2016 and 2015,

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respectively.

• B. Details of the share-based payment arrangement are as follows:

			For theyear ended	December31,2016	December31,2016
				Weighted-average
			No. of options		exercise price
		(unitinthousands )			(indollars)
Options	outstanding at beginning of the year		2,348	$	56.92
Options	granted		1,500		40.55
Options	forfeited	(	391)		62.47
Options	outstanding at end of the year		3,457		48.03
Options	exercisable at end of the year		503		80.20
			Forthe yearended	December31,2015
				Weighted-average
			No. of options		exercise price
		(unit in thousands)			(in dollars)
Options	outstanding at beginning of the year		1,000	$	91.70
Options	granted		1,500		41.65
Options	forfeited	(	152)		80.40
Options	outstanding at end of the year		2,348		56.92
Options	exercisable at end of the year		430		83.40

• C. The exercise prices of the employee stock options outstanding on the balance sheet date is as follows:

follows:
			December31,2016				December31,2015
		No. of stocks		Exercise price		No. of stocks		Exercise price
Grant date	Expiry date	(unitinthousands)		(in	dollars)	(unitinthousands)		(in	dollars)
12.3.2013	12.2.2023		670	$	80.20		859	$	83.40
11.6.2015	11.5.2025		1,299		40.00		1,489		41.65
10.14.2016	10.13.2026		1,488		40.55		-		-

• D. The fair value of the Company’s employee stock option on grant date was evaluated using the combination of Hull & White and the Ritchken trinomial option valuation model. Related information is as follows:

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Fair

					Fair
Type of arrangement Grant date Employee 12.3.2013 stock options Employee 11.6.2015 stock options Employee 10.14.2016 stock options	Stock price (in dollars) 91.70 $ 41.65 40.55	Exercise price (in dollars) 91.70 $ 41.65 40.55	Price volatility 28.50% (Note) 37.63% (Note) 37.20% (Note)	Option Interest life Dividends rate 10 years 1.5% 1.7145% 10 years 1.5% 1.2936% 10 years 1.5% 0.9223%	value per unit (in dollars)
					26.045 $ 13.799 13.171

• Note: According to daily returns of the Company’s stock for the previous year, the annualized volatility is 28.50%, 37.63% and 37.20%, respectively.

(14) RETAINED EARNINGS

• A. Pursuant to the amended R.O.C. Company Act, the current year's after-tax earnings should be used initially to cover any accumulated deficit; thereafter 10% of the remaining earnings should be set aside as legal reserve until the balance of legal reserve is equal to that of paid-in capital. The legal reserve shall be exclusively used to cover accumulated deficit, to issue new stocks, or to distribute cash to shareholders in proportion to their share ownership. The use of legal reserve for the issuance of stocks or cash dividends to shareholders in proportion to their share ownership is permitted, provided that the distribution of the reserve is limited to the portion in excess of 25% of the Company’s paid-in capital

• B. Since the Company is in an ever-changing industry, the Board of Directors takes future budgeted capital expenditure and fund requirements into consideration to make the earnings appropriation decision and adopt proper dividend policies. According to the Company’s Articles of Incorporation, 10% of the annual net income, after offsetting any loss of prior years and paying all taxes and dues, shall be set aside as legal reserve. The remaining net income and the unappropriated retained earnings from prior years can be distributed in accordance with a resolution passed during a meeting of the Board of Directors and approved at the stockholders' meeting. Of the amount to be distributed by the Company, stockholders’ dividends shall comprise 50% to 100% of the unappropriated retained earnings, and the percentage of cash dividends shall not be less than 30% of dividends distributed.

• C. In accordance with the regulations, the Company shall set aside special reserve for the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings. The amounts previously set aside by the Company as special reserve on initial application of IFRSs in accordance with Jin-Guan-Zheng-Fa-Zi Letter No. 1010012865, dated April 6, 2012, shall be reversed proportionately when the relevant assets are used, disposed of or reclassified subsequently.

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• D. The Company recognized cash dividends and stock dividends distributed to owners amounting to $219,325 ($0.30 (in dollars) per share) and $292,433 ($0.40 (in dollars) per share) for the year ended December 31, 2016, respectively, and $140,592 ($0.20 (in dollars) per share) and $281,186 ($0.40 (in dollars) per share) for the year ended December 31, 2015, respectively. On March 28, 2017, the Board of Directors proposed for the distribution of cash dividends of $228,098 ($0.30 (in dollars) per share) and stock dividends of $304,130 ($0.40 (in dollars) per share) for the year 2016.

(15) OTHER EQUITY ITEMS

share) for the year 2016. OTHER EQUITY ITEMS
		Forthe years endedDecember31,
		2016		2015
At January 1	$	69,095	$	100,674
Currency translation differences-group	(	72,549)	(	26,755)
Disposal (Note)		-	(	4,824)
At December 31	($	3,454)	$	69,095

Note: The Company has lost significant influence due to adoption of equity evaluation of investees and stock swap transactions between the controlling shareholders, treated as disposal adapts investment under equity method and be removed original stake holding percentage be listed as other related equity item, please refer to Note 6(4).

(16) OPERATING REVENUE

OPERATING REVENUE
		Forthe years endedDecember31,
		2016		2015
Sales revenue	$	3,865,240	$	3,865,958
Less: Sales returns	(	64,812)	(	18,348)
Sales discounts	(	6,984)	(	31,549)
Technical service revenue		95,167		81,076
	$	3,888,611	$	3,897,137

(17) OTHER INCOME

OTHER INCOME
Interest income from bank deposits Management service revenue Compensation revenue Others	Forthe years endedDecember31,
	2016 13,371 $ 15,226 7,404 4,028 40,029 $	2015
		11,067 $ 11,843 9,741 6,321 38,972 $

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(18) OTHER GAINS AND LOSSES

		Forthe years endedDecember31,	Forthe years endedDecember31,	Forthe years endedDecember31,
		2016		2015
Net gain (loss) on financial assets/liabilities
at fair value through profit or loss	$	3,981	($	14,941)
Gain on disposal of investments		-		95,381
Loss on disposal of property, plant,
and equipment	(	744)	(	503)
(Provision for) reversal of impairment	(	889)		4,193
Net currency exchange (loss) gain	(	13,555)		32,161
Others	(	16,497)	(	20,051)
	($	27,704)	$	96,240

(19) FINANCE COSTS

Interest expense: Bank borrowings	Forthe years endedDecember31,	Forthe years endedDecember31,
	2016 11 $	2015
		28 $

(20) EXPENSES BY NATURE

EXPENSES BY NATURE
Employee benefit expense Depreciation Amortization Employee benefit expense Depreciation Amortization	Forthe yearendedDecember31,2016
	Operating cost Operating expense Total 374,908 $ 322,577 $ 697,485 $ 276,907 74,521 351,428 2,285 2,915 5,200 654,100 $ 400,013 $ 1,054,113 $ Forthe yearendedDecember31,2015		Total
	Operatingcost 371,090 $ 319,960 1,749 692,799 $	Operatingexpense 284,105 $ 75,901 2,875 362,881 $	Total
			655,195 $ 395,861 4,624 1,055,680 $

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(21) EMPLOYEE BENEFIT EXPENSE

Salaries and wages Labor and health insurance expenses Pension costs Other personnel expenses Salaries and wages Labor and health insurance expenses Pension costs Other personnel expenses	Forthe yearendedDecember31,2016	Forthe yearendedDecember31,2016	Forthe yearendedDecember31,2016
	Operating cost Operating expense Total 321,631 $ 282,020 $ 603,651 $ 26,522 17,488 44,010 15,730 9,926 25,656 11,025 13,143 24,168 374,908 $ 322,577 $ 697,485 $ Forthe yearendedDecember31,2015		Total
			603,651 $ 44,010 25,656 24,168
			697,485 $
	Operating cost 319,585 $ 26,783 15,424 9,298 371,090 $	Operating expense 246,737 $ 15,066 10,433 11,869 284,105 $	Total
			566,322 $ 41,849 25,857 21,167
			655,195 $

• A. As of December 31, 2016 and 2015, the Company had 610 and 616 employees, respectively.

• B. According to the Articles of Incorporation of the Company, a ratio of profit of the current year distributable, after covering accumulated losses, shall be distributed as employees’ compensation and directors’ remuneration. The ratio shall not be lower than 2% for employees’ compensation and shall not be higher than 2% for directors’ remuneration.

• C. For the years ended December 31, 2016 and 2015, employees’ compensation was accrued at $82,181 and $67,511, respectively; directors’ remuneration was accrued at $11,734 and $11,429, respectively. The aforementioned amounts were recognized in salary expenses. The expenses recognized for the period were accrued based on the earnings of current year and the percentage specified in the Articles of Incorporation of the Company. The employees’ compensation and directors’ remuneration resolved by the Board of Directors on March 28, 2017 were $82,181 and $11,734, respectively, and the employees’ compensation will be distributed in the form of cash. The actual amount approved at the Board of Directors’ meeting for employees’ compensation and directors’ remuneration for 2015 was $88,554, which was different from the estimated amount of $78,940 recognized in the 2015 financial statements by $9,614. Such difference mainly resulted from estimation, and was recognized in profit or loss for 2016.

Information about the appropriation of employees’ compensation and directors’ remuneration of the Company as resolved by the Board of Directors will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

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(22) INCOME TAX

A. Income tax expense

(a)Components of income tax expense:

ME TAX come tax expense )Components of income tax expense:
Current income tax: Current tax on profits for the year 10% tax on unappropriated retained earnings Prior year income tax under (over) estimate Total current tax Deferred income tax: Origination and reversal of temporary differences ( Income tax expense	2016 2015 195,170 $ 176,862 $ 6,537 1,214 2,471 2,683) ( 204,178 175,393 41,065) 40,249) ( 163,113 $ 135,144 $ Forthe years endedDecember31,
	2016 195,170 $ 6,537 2,471 204,178 41,065) 163,113 $

(b) The income tax relating to components of other comprehensive income is as follows:

		Forthe years ended	Forthe years ended	December31,
		2016		2015
Remeasurement of defined benefit obligation	($	1,258)	$	1,160

B. Reconciliation between income tax expense and accounting profit

		Forthe years ended	Forthe years ended	December31,
		2016		2015
Income tax at statutory tax rate	$	139,707	$	130,919
Effect of items disallowed by tax regulation		14,749		6,058
Effect of investment tax credits	(	351)	(	364)
10% tax on unappropriated retained earnings		6,537		1,214
Prior year income tax under (over) estimate		2,471	(	2,683)
Income tax expense	$	163,113	$	135,144

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C. Amounts of deferred tax assets or liabilities as a result of temporary differences are as follows:

			Forthe yearendedDecember31,	Forthe yearendedDecember31,	Forthe yearendedDecember31,	Forthe yearendedDecember31,	Forthe yearendedDecember31,	Forthe yearendedDecember31,	Forthe yearendedDecember31,	Forthe yearendedDecember31,	Forthe yearendedDecember31,	Forthe yearendedDecember31,	2016	2016	2016
									Recognized
											in other
					Recognized in			comprehensive
		January1				profit or loss					income			December31
Temporary differences:
Deferred tax assets:
Investment loss	$		200,515			$	41,900			$		-			$	242,415
Technology know-how			21,570		(		3,698)					-				17,872
Pensions			10,685		(		33)				1,258					11,910
Employee benefits - unused			2,888		(		202)					-				2,686
compensated absences
Impairment of assets			2,337				152					-				2,489
Unrealized loss on
financial liabilities			25				455					-				480
	$		238,020			$	38,574			$	1,258				$	277,852
Deferred tax liabilities:
Unrealized gain on
currency exchange	(		3,368)				2,491					-		(		877)
	$		234,652			$	41,065			$	1,258				$	276,975
			For		the yearended			December31,2015
								Recognized
										in other
				Recognized in				comprehensive
		January1			profit or loss					income			December31
Temporary differences:
Deferred tax assets:
Investment loss		155,012 $		$			45,503		$		-		$			200,515
Technology know-how			25,268	(			3,698)				-					21,570
Pensions			11,680				165	(			1,160)					10,685
Employee benefits - unused
compensated absences			3,085	(			197)				-					2,888
Impairment of assets			3,050	(			713)				-					2,337
Unrealized loss on
financial liabilities			624	(			599)				-					25
		198,719 $		$			40,461	($			1,160)		$			238,020
Deferred tax liabilities:
Unrealized gain on
currency exchange	(		3,156)	(			212)				-		(			3,368)
		195,563 $		$			40,249	($			1,160)		$			234,652

~45~

• D. The Company has not recognized taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2016 and 2015, the amounts of temporary differences unrecognized as deferred tax liabilities were $277,644 and $287,871, respectively.

• E. The Company’s income tax returns through 2015 have been assessed and approved by the Tax Authority, and there were no disputes existing between the Company and the Authority as of March 28, 2017.

• F. The Company’s unappropriated retained earnings listed on the balance sheet as of December 31, 2016 and 2015 were all generated after the year 1998.

• G. As of December 31, 2016 and 2015, the balance of the Company’s imputation tax credit account was $240,791 and $180,052, respectively. The earnings distribution for 2015 and 2014 were approved at the stockholders’ meeting on June 27, 2016 and June 23, 2015, respectively, and the date of dividend distribution were set on August 16, 2016 and August 14, 2015, respectively, by the Board of Directors. The creditable tax rate were 23.04% and 23.48%, respectively. The creditable tax rate for 2016 is expected to be 23.81%. The creditable tax rate will be based on the actual imputation tax credit account on the distribution date for the earnings of 2016, thus, the credit account may be subject to appropriate adjustments according to tax regulations.

(23) EARNINGS PER SHARE (“EPS”)

Basic earnings per share Profit attributable to ordinary stockholders Diluted earnings per share Profit attributable to ordinary stockholders Assumed conversion of all dilutive potential ordinary shares Employees' stock option Employees' bonus Profit attributable to ordinary stockholders plus assumed conversion of all dilutive potential ordinary shares	For theyear ended December31,2016	For theyear ended December31,2016
	Amount aftertax 658,693 $ 658,693 $ - - 658,693 $	Weighted average number of shares outstanding (sharesinthousands) 760,326 760,326 253 2,613 763,192	EPS (indollars)
			0.87 $
			0.86 $

~46~

Basic earnings per share Profit attributable to ordinary stockholders Diluted earnings per share Profit attributable to ordinary stockholders Assumed conversion of all dilutive potential ordinary shares Employees' bonus Profit attributable to ordinary stockholders plus assumed conversion of all dilutive potential ordinary shares	For theyear ended December31,2015	For theyear ended December31,2015
	Amount after tax 634,965 $ 634,965 $ - - 634,965 $	Weighted average number of shares outstanding (shares in thousands) 760,326 760,326 1,375 21 761,722	EPS (in dollars)
			0.84 $
			0.83 $

• A. The stock options issued in 2013 are anti-dilutive, and are not included in the calculation of the diluted EPS.

• B. The abovementioned weighted average number of ordinary shares outstanding have been adjusted to unappropriated retained earnings as proportional increase in capital for the year ended December 31, 2015.

(24) SUPPLEMENTAL CASH FLOW INFORMATION

• A. Investing activities with partial cash payments

		Forthe years ended	Forthe years ended	December31,
		2016		2015
Purchase of property, plant and
equipment	$	341,205	$	356,716
Add : Beginning balance of payable
on equipment		44,817		167,328
Less : Ending balance of payable on
equipment	(	70,505)	(	44,817)
Cash paid for purchase of property,
plant and equipment	$	315,517	$	479,227

~47~

B. Investing activities with no cash flow effects

a. Investment accounted for under the equity method reclassified to financial assets measured at cost b. Prepayments for equipment reclassified to property, plant and equipment	Fortheyears endedDecember31,,	Fortheyears endedDecember31,,
	2016 2015 - $ 171,234 $ Fortheyears endedDecember31,,	2015
		171,234 $
	2016 16,458 $	2015
		17,600 $

7. RELATED PARTY TRANSACTIONS

• (1) Parent and ultimate controlling party

The ultimate parent the ultimate controlling party of the Company is Uni-President Enterprises Corp. For names and relationship of other related parties with substantive control, please refer to Note 13(2).

• (2) Significant transactions and balances with related parties

• A. Purchases

Purchases
Purchase of goods: －Subsidiaries	Forthe years endedDecember31,
	2016 181,331 $	2015
		234,851 $

Goods are purchased from subsidiaries on normal commercial terms and conditions. Payments are made in 90 days after receipt of goods.

~48~

B. Other expenses

B.	Other expenses
C. D. E. F.	Management consultancy revenue Other receivables Accounts payable Other payables Rental expenses: －Entities controlled by key management individuals Repairs and maintenance fees: －Entities controlled by key management individuals Management service fees: －Subsidiaries －Ultimate parent company －Associates of ultimate parent company Research and development expenses －Subsidiaries Technical consultancy revenue: －Subsidiaries Other receivables from related parties: －Subsidiaries Accounts payable from related parties: －Subsidiaries －Subsidiaries －Entities controlled by key management individuals Other payables to related parties:	2016 2015 1,583 $ 1,663 $ 462 $ 3,697 $ 12,791 $ 10,945 $ 5,397 4,755 2,186 2,040 20,374 $ 17,740 $ 2,791 $ - $ For theyears ended December31, Forthe years endedDecember31,
		2016 15,226 $ December31,2016 6,780 $ December31,2016 33,100 $ December31,2016 2,075 $ 110 2,185 $	2015 11,843 $ December31,2015 5,268 $ December31,2015 - $ December31,2015 5,563 $ 2,231 7,794 $

~49~

G. Property transactions

Property transactions
Endorsements and guarantees provided to related Acquisition of property, plant and equipment: －Entities controlled by key management individuals	Forthe years endedDecember31,
	parties 2016 - $ December31,2016 1,625,270 $	2015
		1,656 $
		December31,2015
Nature ofsuretyship Subsidiaries Financial gurantee Details of endorsement and guarantees
		- $

• H. Endorsements and guarantees provided to related parties Details of endorsement and guarantees

As of December 31, 2016 and 2015, the actual drawn amounts, which is guaranteed by the － Company to the subsidiaries, were $802,993 and $ , respectively.

(3) Key management compensation

For the years ended December 31, 2016 2015 Salaries and other short-term employee benefits $ 58,158 $ 59,808 PLEDGED ASSETS The Company’s assets pledged as collateral are as follows: Pledged asset December 31, 2016 December 31, 2015 Purpose of collateral Customs duty and performance Time deposits (Note) $ 28,831 $ 24,734 guarantee

8. PLEDGED ASSETS

Note: Listed as ‘other financial assets-non-current’

9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT

COMMITMENTS

• －

• (1) As of December 31, 2016 and 2015, the Company’s unused letters of credit amounted to $ and $7,508, respectively.

• (2) As of December 31, 2016 and 2015, the Company’s remaining balance due for construction in progress and prepayments for equipment was $274,146 and $463,663, respectively.

• (3) The Company entered into a non-cancellable operating lease agreement from June 1, 2011 to February 28, 2018 for the land in Tainan Science Park, with a lease term of less than twenty years. The lease agreement is renewable at the end of the lease term. The Company pays monthly rent. If the announced land values, state-owned land rent rate, or other factors change, the monthly rent paid by the Company will be adjusted accordingly on the following month. The Company may have to pay additional rent or get a refund on its last rental payment because of such adjustment. The rent expense of $22,276 and $21,291 listed as ‘operating cost’ and ‘operating expense’) was recognized

~50~

in profit or loss for the years ended December 31, 2016 and 2015. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

Within one year Later than one year but not exceeding five years	December31,2016 22,276 $ 3,713 25,989 $	December31,2015
		21,291 $ 24,840
		46,131 $

Information about endorsement and guarantee to others is provided in Note 7(2) H.

10. SIGNIFICANT DISASTER LOSS: None.

11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE: None.

12. OTHERS

(1) Capital risk management

The Company’s objectives on managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for shareholders, to maintain an optimal capital structure, to reduce the cost of capital and to maintain an adequate capital structure to enable the expansion and enhancement of equipment. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return of capital to shareholders, and issue new shares or sell assets to reduce debts.

(2) Financial instruments

• A. Fair value information of financial instruments

The Company’s financial instruments which are not measured at fair value (including cash and cash equivalents, accounts receivable (including related parties), other receivables (including related parties), guarantee deposits paid, other financial assets-non-currant, notes payable, accounts payable (including related parties), other payables and guarantee deposits received) is approximate to their fair value. Please refer to Note 12(3) for details of fair value information of financial instruments measured at fair value.

• B. Financial risk management policies

• (a) The Company’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial position and financial performance.

• (b) The Company’s central treasury department identifies, evaluates and hedges financial risks closely with the Company’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

~51~

• C. Significant financial risks and degrees of financial risks

• (a) Market risk

  • I. Foreign exchange risk

  • (i) The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

  • (ii) To manage the foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, the Company is required to hedge the foreign exchange risk exposure using forward foreign exchange contracts. However, hedge accounting is not applied as transactions did not meet all criteria of hedge accounting. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency.

  • (iii) The Company’s businesses involve some non-functional currency operations (the Company’s functional currency: NTD). The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

(Foreign currency: functional currency) Financial assets Monetary items USD:NTD EUR:NTD CNY:NTD Financial liabilities Monetary items USD:NTD CNY:NTD		December31,2016	December31,2016	Book value (NTD)
		Foreign currency amount (inthousands) 19,467 $ 413 510 1,567 435	Exchangerate 32.25 33.90 4.644 32.25 4.644
				627,811 $ 14,001 2,368 50,536 2,020

~52~

(Foreign currency: functional currency) Financial assets Monetary items USD:NTD EUR:NTD CNY:NTD Financial liabilities Monetary items USD:NTD CNY:NTD EUR:NTD		December31,2015	December31,2015	Book value (NTD)
		Foreign currency amount (inthousands) 35,002 $ 1,664 2,723 732 562 16	Exchangerate 32.83 35.88 4.995 32.83 4.995 35.88
				1,149,116 $ 59,704 13,601 24,028 2,807 574

• (iv)As of December 31, 2016 and 2015, if the USD:NTD exchange rate had appreciated/depreciated by 5% with all other factors remaining constant, the Company’s net profit after tax for the years ended December 31, 2016 and 2015 would have increased/decreased by $28,864 and $56,254, respectively. If the EUR:NTD exchange rate had appreciated/depreciated by 5% with all other factors remaining constant, the Company’s net profit after tax for the years ended December 31, 2016 and 2015 would have increased/decreased by $700 and $2,957, respectively. If the CNY:NTD exchange rate had appreciated/depreciated by 5% with all other factors remaining constant, the Company’s net profit after tax for the years ended December 31, 2016 and 2015 would have increased/decreased by $17 and $540, respectively.

• (v) Total exchange (loss) gain including realized and unrealized arising from significant foreign exchange variation on the monetary items held by the Company for the years ended December 31, 2016 and 2015 amounted to ($13,555) and $32,161, respectively.

• II. Price risk

The Company has investments classified as financial assets and liabilities at fair value through profit or loss and available-for-sale financial assets (shown in ‘financial assets － measured at cost non-current’). Therefore, the Company is exposed to price risk on equity instruments investments. To manage this risk, the Company has set stop-loss amounts for these instruments. Therefore, the Company is not to exposed to significant market risk.

~53~

III. Interest rate risk

  - For the years ended December 31, 2016 and 2015, the Company’s liabilities bear little significance and a small range of interest rate, thus, the Company does not bear significant interest rate risk.

• (b) Credit risk

• I. Credit risk refers to the risk of financial loss to the Company arising from default by the clients or counterparties of financial instruments on the contract obligations. According to the Company’s credit policy, each local entity in the Company is responsible for managing and analyzing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors with limits set by the board of directors. The utilization of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, and outstanding receivables. The Company also transacts with many different banks and financial institutions to diversify risk.

• II. No credit limits were exceeded during the years ended December 31, 2016 and 2015.

• III. For more information regarding the Company’s credit ratings on its financial assets, please refer to detailed explanation on financial assets in Note 6.

• (c). Liquidity risk

• I. Cash flow forecasting is performed by the Company’s treasury department, which monitors rolling forecasts of the Company’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Company does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities.

• II. The following table comprises the Company’s non-derivative financial liabilities and derivative financial liabilities with gross-amount settlement that are grouped by their maturity. Non-derivative financial liabilities are analyzed from the balance sheet date to the contract maturity date, and derivative financial liabilities are analyzed from the balance sheet date to the expected maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

~54~

December31,2016 Notes payable Accounts payable Accounts payable －related parties Other payables Guarentee deposits received Forward exchange contracts Non-derivative financial liabilities: Derivative financial liabilities: December31,2015 Notes payable Accounts payable Other payables Guarentee deposits received Forward exchange contracts Non-derivative financial liabilities: Derivative financial liabilities:	Less than 1year	Between 1 and 2years	Between 2 and5 years	More than 5 years
	1,001 $ 56,926 33,100 374,790 21,618 2,822 Less than 1year	- $ - - - Between 1 and2years	- $ - - - Between 2 and 5 years	- $ - - - More than 5 years
	995 $ 32,639 314,035 23,397 145	- $ - - -	- $ - - -	- $ - - -

(3) Fair value estimation

• A. Details of the fair value of the Group’s financial liabilities not measured at fair value are provided in Note 12(2) A.

• B. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:

• Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

• Level 3: Inputs for the asset or liability that are not based on observable market data.

• C. The following table presents the Company’s financial assets and liabilities that are measured at fair value at December 31, 2016 and 2015.

~55~

December31,2016 Liabilities: Financial liabilities at fair value through profit or loss – forward foreign exchange contracts December31,2015 Liabilities: Financial liabilities at fair value through profit or loss – forward foreign exchange contracts	Level 1 - $ Level 1 - $	Level 2 2,822 $ Level 2 145 $	Level3 - $ Level3	Total 2,822 $ Total
				145 $

• D. The methods and assumptions the Company used to measure fair value are as follows:

• (a) Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the parent Company only balance sheet date.

• (b) When assessing non-standard and low-complexity financial instruments, for example, debt instruments without active market, interest rate swap contracts, foreign exchange swap contracts and options, the Group adopts valuation technique that is widely used by market participants. The inputs used in the valuation method to measure these financial instruments are normally observable in the market.

• (c) Forward exchange contracts are usually valued based on the current forward exchange rate.

• E. For the years ended December 31, 2016 and 2015, there was no transfer between Level 1 and Level 2.

• F. The Company did not have financial instruments that meet the definition of level 3 instruments as of and for the years ended December 31, 2016 and 2015.

13. SUPPLEMENTARY DISCLOSURES

• According to the policies, only the financial information of the investee for 2016 is supposed to be disclosed based on the financial statements prepared by the same-period auditors. Instead of the adjustments taking into account the consolidation, the financial information is presented in every consolidated entity.

(1) Significant transactions information

• A. Loans to others: Please refer to table 1.

• B. Provision of endorsements and guarantees to others: Please refer to table 2.

• C. Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures): Please refer to table 3.

~56~

• D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company’s paid-in capital: None.

• E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None.

• F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None.

• G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more: Please refer to table 4.

• H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: None.

• I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Note 6(8).

• J. Significant inter-company transactions during the reporting periods: Please refer to table 5.

• (2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China) ： Please refer to table 6.

(3) Information on investments in Mainland China

• A. General information: Please refer to table 7.

• B. Significant transactions, either directly or indirectly through a third area, with investee companies in the Mainland Area: Please refer to table 8.

14. SEGMENT INFORMATION

Not applicable.

~57~

Loans to others

Table 1

Expressed in thousands of NTD

ScinoPharm Taiwan, Ltd.

For the year ended December 31, 2016

Number	Name	Name of counterparty	Account	Related parties	Maximum balance	Ending balance	Actual amount drawn down	Interest rate	Nature of financial activity (Note 1)	Total transaction amount	Reason for financing	Allowance for doubtful accounts	Assetspledged	Assetspledged	Loan limit per entity	Maximum amount available for loan	Footnote
1	ScinoPharm (Kunshan) Biochemical Technology Co., Ltd.	ScinoPharm (Changshu) Pharmaceuticals, Ltd.	Other receivables	Y	88,236 $	85,907 $	85,907 $	2.00	2	- $	Additional operating capital	- $	－	- $	431,461 $	431,461 $	(Note 2)

Note 1: The code represents the nature of financing activities as follows:

• 1.Trading partner.

2.Short-term financing.

Note 2: (1) For trading partner: the maximum amount for individual trading partner shall not exceed the higher of purchase or sales amount of the most recent year or the current year, the maximum amount for total loan is 20% of its net worth.(2) For short-term financing: the maximum amount for individual is 20% of its net worth, the maximum amount for total loan is 40% of its net worth. If the Company loans to foreign subsidiaries, which the Company holds 100% ownership directly or indirectly, the maximum amount for the subsidiary is 100% of the Company's net worth.

Note 3: The numbers in the table that involves foreign currencies are expressed in New Taiwan Dollars according to the exchange rate posted on the date of the consolidated financial statements (CNY:NTD 1:4.644).

Table 1, Page 1

ScinoPharm Taiwan, Ltd.

Table 2

Expressed in thousands of NTD

Provision of endorsements and guarantees to others

For the year ended December 31, 2016

Number	Endorser/ guarantor	Party being endorsed/guaranteed	Party being endorsed/guaranteed	Limit on endorsements/ guarantees provided for a single party （Note 2）	Maximum outstanding endorsement/ guarantee amount as of December 31, 2016	Outstanding endorsement/ guarantee amount at December 31, 2016	Actual amount drawn down	Amount of endorsements/ guarantees secured with collateral	Ratio of accumulated endorsement/ guarantee amount to net asset value of the endorser/ guarantor company	Ceiling on total amount of endorsements/ guarantees provided （Note 2）	Provision of endorsements/ guarantees by parent company to subsidiary	Provision of endorsements/ guarantees by subsidiary to parent company	Provision of endorsements/ guarantees to the party in Mainland China	Footnote
		Companyname	Relationship with the endorser/ guarantor （Note 1）
0	ScinoPharm Taiwan, Ltd.	ScinoPharm (Changshu) Pharmaceuticals, Ltd.	1	10,227,793 $	1,740,200 $	1,625,270 $	802,993 $	- $	15.89%	10,227,793 $	Y	N	Y	－

Note 1: The following code represents the relationship with the Company:

• 1.The endorsed/ guaranteed parent company and its subsidiaries jointly own more than 50% voting shares of the endorser/ guarantor subsidiary.

• Note 2: 1.The limit of total amount of endorsement is 50% of the Company's net worth, for 100% directly or indirectly owned subsidiaries, the maximum amount is 100% of its net worth.

The limit of total amount of the Group's endorsement and guarantee is 100% of the Group's net worth.

1. For any endorsement or guarantee provided by the Company due to business dealings, the amount of endorsement or guarantees shall be limited to the business dealing amount of the most recent year or the current year. The business dealing amount is product purchase or sale amount between the entities, whichever is higher.

Note 3: The numbers in the table that involves foreign currencies are expressed in New Taiwan Dollars according to the exchange rate posted on the date of the consolidated financial statements (CNY:NTD 1:4.644).

Table 2, Page 1

ScinoPharm Taiwan, Ltd.

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures) December 31, 2016

Table 3

Expressed in thousands of NTD

Securities held by	Marketable securities	Relationship with the securities issuer	General ledger account		As of December31,2016	As of December31,2016		Footnote
				Number of shares	Bookvalue	Ownership (%)	Fairvalue
ScinoPharm Taiwan, Ltd.	Stocks: Tanvex Biologics, Inc. SYNGEN, INC. Foresee Pharmaceuticals Co., Ltd.	The Company is a director of Tanvex Biologics, Inc. － －	Financial assets measured at cost- non-current Financial assets measured at cost- non-current Financial assets measured at cost- non-current	28,800,000 245,000 4,358,226	167,673 $ - 196,416	17.00% 7.40% 6.05%	$ - - -	－ － －

Table 3, Page 1

ScinoPharm Taiwan, Ltd.

Expressed in thousands of NTD

- Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid in capital or more For the year ended December 31, 2016

Table 4

Purchaser/seller	Counterparty	Relationship with the counterparty			Transaction		Differences in transaction terms compared to third partytransactions	Differences in transaction terms compared to third partytransactions	Notes/accounts receivable(payable)	Notes/accounts receivable(payable)	Footnote
			Purchases (sales)	Amount	Percentage of total purchases (sales)	Credit term	Unitprice	Credit term	Balance	Percentage of total notes/accounts receivable(payable)
ScinoPharm Taiwan, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd.	ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm Taiwan, Ltd.	Subsidary (SPT International, Ltd.) The Company	Purchases (Sales)	171,470 $ 171,470) (	19% (55%)	Closes its accounts 90 days from the end of each month after acceptance Closes its accounts 90 days from the end of each month after acceptance	$ - -	－ －	33,100) ($ 33,100	(36%) 39%	－ －

Table 4, Page 1

ScinoPharm Taiwan, Ltd.

Table 5

Expressed in thousands of NTD

- Significant inter company transactions during the reporting periods

For the year ended December 31, 2016

Number (Note 1)	Companyname	Counterparty	Relationship (Note 2)		Transaction	Transaction
				General ledger account	Amount	Transaction terms	Percentage of consolidated total operating revenues or total assets(Note3)
0 0 0 0 0 1	ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd. ScinoPharm (Kunshan) Biochemical Technology Co., Ltd.	ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Shanghai) Biochemical Technology, Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd.	1 1 1 1 1 3	Purchases Management service revenue Accounts payable Endorsements and guarantees Management consultancy fees Other receivables	171,470 $ 15,226) ( 33,100) ( 1,625,270 12,398 87,527	Closes its accounts 90 days from the end of each month after acceptance － － － － －	4% － － 13% － 1%

Note 1: Significant inter-company transactions during the reporting periods are not disclosed since these were corresponding transactions. Only transactions over NT$10 million are material.

Note 2: The numbers filled in for the transaction company in respect of inter-company transactions are as follows:

(1) Parent company is ‘0’.

(2) The subsidiaries are numbered in order starting from ‘1’.

• Note 3: Relationship between transaction company and counterparty is classified into the following three categories:

(1) Parent company to subsidiary.

(2) Subsidiary to parent company.

(3) Subsidiary to subsidiary.

Note 4: Regarding percentage of transaction amount to consolidated total operating revenues or total assets, it is computed based on period-end balance of transaction to consolidated total assets for balance sheet accounts and based on accumulated transaction amount for the period to consolidated total operating revenues for income statement accounts.

Note 5: The numbers in the table that involves foreign currencies are expressed in New Taiwan Dollars according to the exchange rate posted on the date of the consolidated financial statements (CNY:NTD 1:4.644).

Table 5, Page 1

ScinoPharm Taiwan, Ltd.

Information on investees

For the year ended December 31, 2016

Table 6

Expressed in thousands of NTD

Investor	Investee	Location	Main business activities	Initial investment amount	Initial investment amount	Shares held	as at December 31,2016	as at December 31,2016	Net profit (loss) of the investee for the year ended December 31,2016	Investment income (loss) recognized by the Company for the year ended December 31,2016	Footnote
				Balance as at December 31,2016	Balance as at December 31,2015	Number of shares	Ownership (%)	Book value
ScinoPharm Taiwan, Ltd. ScinoPharm Taiwan, Ltd.	SPT International, Ltd. ScinoPharm Singapore Pte Ltd.	Tortola, British Virgin Islands Singapore	Professional investment Professional investment	1,833,304 $ -	1,833,304 $ -	60,524,644 2	100.00 100.00	816,788 $ 66	264,129) ($ 16	256,720) ($ 16	Subsidary Subsidary

Table 6, Page 1

Information on investments in Mainland China

ScinoPharm Taiwan, Ltd.

For the year ended December 31, 2016

Table 7 Investee in Mainland China	Main business activities	Paid-in capital	Investment method	Accumulated amount of remittance from Taiwan to Mainland China as of January 1, 2016	Amount remitted from Taiwan to Mainland China/ Amount remitted back to Taiwan for the year ended December 31,2016	Amount remitted from Taiwan to Mainland China/ Amount remitted back to Taiwan for the year ended December 31,2016	Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2016	Net income of investee for the year ended December 31, 2016	Ownership held by the Company (direct or indirect)	Investment income (loss) recognized by the Company for the year ended December 31, 2016 （Note 2）	Book value of investments in Mainland China as of December 31, 2016	Expressed in thousands of NTD Accumulated amount of investment income remitted back to Taiwan as of December 31, 2016 Footnote	Expressed in thousands of NTD Accumulated amount of investment income remitted back to Taiwan as of December 31, 2016 Footnote
					Remitted to Mainland China	Remitted back to Taiwan
ScinoPharm (Kunshan) Biochemical Technology Co., Ltd. ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Shanghai) Biochemical Technology, Ltd. Companyname	Research, development, and manufacture of API and new drug, etc. Research, development, and manufacture of API and new drug, sale produced products, etc. Import, export and sales of API and intermediates, etc. Accumulated amount of remittance from Taiwan to Mainland China as of December 31,2016	129,000 $ （Note 1） 1,757,625 （Note 1） 38,700 （Note 1） Investment amount approved by the Investment Commission of the Ministry of Economic Affairs(MOEA)		120,113 $ - $ 1,757,625 - 38,700 - Ceiling on investments in Mainland China imposed by the Investment Commission of MOEA (Note 3)		- $ - -	120,113 $ 1,757,625 38,700	10,227) ($ 253,827) ( 84	100 100 100	10,227) ($ 253,827) ( 84	431,461 $ 408,330 20,011	- $ - -	Subsidary Subsidary Subsidary
ScinoPharm Taiwan, Ltd.	$ 1,955,914	1,955,914 $		6,136,676 $

Note 1: Indirect investment in Mainland China through company set up in a third region, SPT International, Ltd.

Note 2: The investment income (loss) recognized by the Company for the year ended December 31, 2016 was based on audited financial statements of investee companies as of and for the year ended December 31, 2016. Note 3: The ceiling amount is 60% of the higher of net worth or consolidated net worth.

Note 4: The numbers in the table that involves foreign currencies are expressed in New Taiwan Dollars according to the exchange rate posted on the date of the consolidated financial statements (USD:NTD 1:32.25).

Table 7, Page 1

Table 8

Expressed in thousands of NTD

ScinoPharm Taiwan, Ltd.

Significant transactions conducted with investees in Mainland China directly or indirectly through other companies in the third areas

For the year ended December 31, 2016

Investee in Mainland China	Sale(purchase)	Sale(purchase)	Propertytransaction	Propertytransaction	Accounts receivable (payable)	Accounts receivable (payable)	Provision of endorsements/guarantees or collaterals	Provision of endorsements/guarantees or collaterals		Financing			Others
	Amount	%	Amount	%	Balance at December 31, 2016	%	Balance at December 31, 2016	Purpose	Maximum balance during the year ended December 31,2016	Balance at December 31,2016	Interest rate	Interest during the year ended December 31,2016
ScinoPharm (Changshu) Pharmaceuticals, Ltd. ScinoPharm (Shanghai) Biochemical Technology, Ltd. ScinoPharm (Kunshan) Biochemical Technology, Ltd.	171,470) ($ - ( 9,861)	(19%) - (1%)	- - -	- - -	33,100) ($ - -	(37%) - -	1,625,270 $ - -	Secured financing amount - -	- - -	- - -	- - -	- - -	Management service revenue $ 15,226 Research and development expenses $2,791 Other receivables $ 6,780 Management consultancy fee $ 12,398 Other payables $ 2,019 -

Table 8, Page 1